UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[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, 1997

                                     OR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

       For the transition period from                                  to

                         Commission File Number 0-21165

                        FIRST ALLEN PARISH BANCORP, INC.
                 (Name of small business issuer in its charter)

          Delaware                                         72-1331593
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                        Identification No.)

     222 South 10th Street, Oakdale, Louisiana                 71463
     (Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code:        (318) 335-2031


           Securities Registered Pursuant to Section 12(b) of the Act:
                                      None
           Securities Registered Pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
                                (Title of class)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. YES [X]  NO  [ ]

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

         The  Registrant's  revenues for the fiscal year ended December 31, 1997
were $2,302,404.

         As of March 23, 1998, there were issued and outstanding  264,506 shares
of the Registrant's Common Stock. The Registrant's voting stock is not regularly
and actively traded,  and there are no regularly quoted bid and asked prices for
the  Registrant's  voting  stock.  Accordingly,  the  Registrant  is  unable  to
determine the aggregate market value of the voting stock held by non-affiliates.
<PAGE>
                       DOCUMENTS INCORPORATED BY REFERENCE

         Parts  II and III of  Form  10-KSB  -  Portions  of  Annual  Report  to
Stockholders for the fiscal year ended December 31, 1997.

         Part III of Form 10-KSB - Portions of Proxy  Statement  for 1998 Annual
Meeting of Stockholders.
<PAGE>

                                     PART I

Item 1.  Description of Business

General

         First Allen Parish  Bancorp,  Inc.  ("First Allen Parish  Bancorp" and,
with its  subsidiaries,  the "Company") was formed in June 1996 at the direction
of First Federal Savings and Loan  Association of Allen Parish ("First  Federal"
or the  "Association") for the purpose of owning all of the outstanding stock of
the Association issued upon the conversion of the Association from the mutual to
stock form (the "Conversion"). On September 27, 1996, First Allen Parish Bancorp
acquired all of the shares of the  Association in connection with the completion
of the Conversion. All references to the Company, unless otherwise indicated, at
or before  September 27, 1996 refer to the  Association.  The  Company's  common
stock is quoted on the National  Security  Quotation  System "Pink Sheets" under
the symbol "FALN".

         First  Federal  is  a   federally-chartered   stock  savings  and  loan
association  headquartered in Oakdale,  Louisiana.  First Federal was originally
chartered in 1962. Its deposits are insured up to the maximum  allowable  amount
by the Savings  Association  Insurance  Fund  ("SAIF")  of the  Federal  Deposit
Insurance Corporation (the "FDIC"). Through its office in Oakdale, First Federal
serves  communities  located in Allen Parish and in the surrounding  parishes in
the State of  Louisiana.  At December 31, 1997,  the Company had total assets of
$33.5  million,  deposits  of $28.7  million  and  stockholders'  equity of $4.5
million.

         The   Association   has  been,   and  intends  to  continue  to  be,  a
community-oriented financial institution offering selected financial services to
meet the needs of the communities it serves.  The Association  attracts deposits
from the general public and historically  has used such deposits,  together with
other  funds,  to originate  loans  secured by real  estate,  including  one- to
four-family  residential  mortgage  loans,  commercial  real estate loans,  land
loans, construction loans and loans secured by other properties. At December 31,
1997, 81.3% of the Association's gross loan portfolio consisted of loans secured
by real  estate.  The  Association  also  originates  consumer  and other  loans
consisting primarily of loans secured by automobiles,  manufactured homes, loans
secured by deposits  ("share loans") and lines of credit.  At December 31, 1997,
consumer  and other  loans  constituted  26.2% of the  Association's  gross loan
portfolio.  In order to supplement its loan  originations,  the  Association has
invested a  significant  portion of its  assets in  mortgage-backed  securities,
which  are  insured  or  guaranteed  by  federal  agencies,  as  well  as  other
investments. At December 31, 1997, the Association's  mortgage-backed securities
portfolio  totaled $17.1  million,  or 51.2% of total assets.  See "- Investment
Activities."

         The executive  office of the Company and the  Association is located at
222 South 10th Street,  Oakdale,  Louisiana  71463 and its  telephone  number is
(318) 335-2031.
<PAGE>
Market Area and Competition

         First  Federal  serves  Allen  Parish,  Louisiana  and the  surrounding
parishes, from its office in Oakdale,  Louisiana. Allen Parish consists of small
farms  and  residential   communities  of  predominantly   one-  to  four-family
residences.  The  Association's  market for  deposits is  concentrated  in Allen
Parish.   The  Association  is  the  only  independent   financial   institution
headquartered in Allen Parish.

         The economy of the  Association's  market area  consists  primarily  of
small  farming  communities,  the timber and wood  industry  and state and local
government.  The  largest  employers  in the  Association's  market area are the
Federal Bureau of Prisons, which operates a corrections facility,  Boise Cascade
Corporation, a wood manufacturer,  Arizona Chemical, a division of International
Paper Co.,  Grand  Casino,  which is operated by the  Coushatta  Indians and the
Allen Parish School Board. In recent years the oil and gas industry has become a
growing segment of the Association's economy.

         The  Association's  business and  operating  results are  significantly
affected by the general economic  conditions in the  Association's  market area.
Management  believes that the population in the  Association's  market area will
remain stable in the foreseeable future.

         The Association  faces significant  competition in attracting  deposits
from  commercial  banks,  other  savings  institutions  and credit  unions.  The
Association  faces  additional  competition for deposits from  short-term  money
market funds,  from other  corporate and  government  securities  funds and from
brokerage funds and insurance companies.  The Association also faces significant
competition  in the  origination  of loans from savings  institutions,  mortgage
banking companies, credit unions and commercial banks.

Lending Activities

         General.  The Association's  loan portfolio consists primarily of loans
secured by real  estate  which  consist  primarily  of loans  secured by one- to
four-family  residences,  commercial real estate loans,  construction  loans and
loans secured by other properties.  The Association also originates consumer and
other loans consisting  primarily of loans secured by automobiles,  manufactured
homes,  share loans,  lines of credit and other consumer  loans. At December 31,
1997, the Association's gross loans totaled $14.7 million, of which $8.4 million
or 57.1% were one-to  four-family  residential  mortgage  loans.  Of the one- to
four-family  mortgage  loans  outstanding  at that date,  28.2% were  fixed-rate
loans, and 71.8% were adjustable-rate  loans. At December 31, 1997, $1.5 million
or 10.0% of gross  loans  were  secured by  commercial  real  estate  properties
consisting of retail shops and churches,  $353,000, or 2.4%, of gross loans were
construction  loans for the construction of owner-occupied  homes, and $612,000,
or 4.2% of gross loans consisted of land loans. At that date, consumer and other
loans totaled $3.6 million or 24.4% of the  Association's  gross loan portfolio,
of  which  $735,000,  or 5.0%,  consisted  of share  loans,  $526,000,  or 3.6%,
consisted of automobile loans, $1,321,000, or 9.0%, consisted of lines of credit
to small farms and businesses, $24,000 or .2% consisted of loans on manufactured
homes and  $970,000 or 6.6%  consisted  of other loans  (consisting  of personal
loans,  disaster relief loans, and loans to governmental entities and non-profit
organizations).
<PAGE>
         The Association also invests in mortgage-backed securities. At December
31, 1997,  mortgage-backed and related securities totaled $17.1 million.  See "-
Investment Activities."

         The Association's  loans-to-one borrower limit is generally the greater
of 15% of unimpaired capital and surplus or $500,000.  At December 31, 1997, the
maximum amount which the Association could have lent under this limit to any one
borrower and the borrower's  related  entities was  approximately  $708,000.  At
December 31, 1997,  the  Association  had no loans or groups of loans to related
borrowers with outstanding  balances in excess of this amount. The Association's
largest  lending  relationship at December 31, 1997 was $469,000 in loans to one
borrower  which was  comprised of five loans,  two of which were secured by real
estate and three of which were unsecured  commercial  loans.  The  Association's
second largest  lending  relationship at December 31, 1997 was $365,000 in loans
to one borrower which was comprised of seven loans, six of which were secured by
real  estate  and one of which was  secured by a  certificate  of  deposit.  The
Association's  third  largest  lending  relationship  totaled  $261,000,   which
consisted of three  commercial  real estate loans.  At December 31, 1997, all of
these loans were performing in accordance with their terms.
<PAGE>
         Loan  Portfolio  Composition.  Set forth below is data  relating to the
composition of the Association's  loan portfolio by type of loan as of the dates
indicated.
<TABLE>
<CAPTION>
                                                             At December 31,
                                          1997                  1996                1995
                                   ------------------   -------------------   -------------------
                                    Amount     Percent   Amount     Percent    Amount     Percent
                                    ------     -------   ------     -------    ------     -------
                                                     (Dollars in Thousands)
<S>                                 <C>       <C>        <C>       <C>        <C>       <C>

Real estate loans:
  One- to four-family residential   $8,376     61.38%    $ 7,279    60.97%    $7,918     70.50%
  Commercial real estate loans..     1,467     10.75       1,519    12.73      1,208     10.76
  Construction..................       353      2.59         487     4.08        260      2.32
  Land loans....................       612      4.49         451     3.78        203      1.81
  Other real estate loans.......       280      2.05         237     1.99        131      1.17
                                    ------    ------     -------   ------     ------    ------
 Total first mortgage loans.....    11,088     81.25       9,973    83.55      9,720     86.55
                                    ------    ------     -------   ------     ------    ------

Consumer and other loans:
  Automobile....................       526      3.85         475     3.97        496      4.42
  Manufactured homes............        24      0.18          22     0.19         12      0.11
  Share loans...................       735      5.39         795     6.66        800      7.12
  Lines of credit...............     1,321      9.68       1,003     8.41        440      3.92
  Other loans...................       970      7.11         721     6.04        415      3.70
                                    ------    ------     -------   ------     ------    ------
     Total consumer and other loans  3,576     26.21       3,016    25.27      2,163     19.26
                                    ------    ------     -------   ------     ------    ------

     Total loans receivable.....    14,664    107.46      12,989   108.82     11,883    105.82

Less:
  Undisbursed loan proceeds.....      (710)    (5.20)       (755)   (6.34)      (335)    (2.98)
  Unearned discounts............        (8)    (0.06)         --       --         --        --
  Allowance for loan losses.....      (300)    (2.20)       (296)   (2.48)      (317)    (2.82)
                                    -------   -------    --------  -------    ------    ------
    Total loans receivable,
      net  .....................    $13,646   100.00%    $11,938   100.00%    $11,231   100.00%
                                    =======   ======     =======   ======     =======   ======
</TABLE>
         One- to Four-Family  Mortgage Loans. The Association's  primary lending
activity is the origination of one-to four-family,  owner-occupied,  residential
mortgage  loans secured by property  located in the  Association's  market area.
Loans are generated through the Association's  marketing  efforts,  its existing
customers and referrals, real estate brokers, builders and local businesses. The
Association  generally  has limited its real  estate  loan  originations  to the
financing of properties  located within its market area and will not make out of
state loans. At December 31, 1997, the Association had $8.4 million, or 57.1% of
its  gross  loan  portfolio,  invested  in  mortgage  loans  secured  by one- to
four-family residences.
<PAGE>
         The  Association  originates for retention in its portfolio  fixed-rate
residential  one-  to  four-family  loans  with  terms  of up to 15  years.  The
Association's  fixed-rate  mortgage  loans  amortize  monthly with principal and
interest due each month.  Residential real estate loans often remain outstanding
for significantly shorter periods than their contractual terms because borrowers
may refinance or prepay loans at their option.

         The Association  currently offers ARM loans with  amortization  periods
ranging up to 30 years.  The Association  generally offers ARM loans that either
adjust  every  year or every  three  years  from the date of  origination,  with
interest rate adjustment  limitations up to two percentage points per adjustment
and with a cap of up to six  percentage  points on total interest rate increases
over the life of the loan.  Currently,  ARM loans are originated  with a minimum
interest  rate of five  percent  and a  maximum  rate of 15%  regardless  of the
initial rate. In a rising interest rate  environment,  such rate limitations may
prevent ARM loans from repricing to market interest  rates,  which would have an
adverse  effect on net  interest  income.  The  Association  has used  different
interest  indices for ARM loans in the past,  and  currently  uses the  National
Average  Contract  Interest Rate for Major Lenders on the Purchase of Previously
Occupied  Loans  as  its  index.  ARM  loans  secured  by  residential  one-  to
four-family  real estate  totaled $6.0  million,  or 71.8% of the  Association's
total one- to four-family  residential  real estate loans receivable at December
31, 1997.  The  origination  of  fixed-rate  mortgage  loans versus ARM loans is
monitored  on an ongoing  basis and is  affected  significantly  by the level of
market interest rates, customer preference,  the Association's interest rate gap
position  and  loan   products   offered  by  the   Association's   competitors.
Particularly in a relatively low interest rate environment, borrowers may prefer
fixed-rate  loans to ARM loans.  During the year ended  December 31,  1997,  the
Association  originated  $191,000 in fixed-rate  residential  mortgage loans and
$2.0 million of ARM loans.

         The primary purpose of offering ARM loans is to make the  Association's
loan portfolio more interest rate  sensitive.  However,  as the interest  income
earned on ARM loans varies with  prevailing  interest  rates,  such loans do not
offer the  Association  predictable  cash flows as would  long-term,  fixed-rate
loans. ARM loans carry increased credit risk associated with potentially  higher
monthly  payments by borrowers as general market interest rates increase.  It is
possible,  therefore,  during periods of rising interest rates, that the risk of
delinquencies  and  defaults  on ARM  loans  may  increase  due  to  the  upward
adjustment  of interest  costs to the  borrower,  resulting  in  increased  loan
losses.

         The Association's  residential first mortgage loans customarily include
due-on-sale  clauses,  which are provisions  giving the Association the right to
declare a loan  immediately  due and payable in the event,  among other  things,
that the borrower sells or otherwise  disposes of the  underlying  real property
serving as security  for the loan.  Due-on-sale  clauses are a means of imposing
assumption fees and increasing the interest rate on the  Association's  mortgage
portfolio during periods of rising interest rates.

         Pursuant  to  federal  regulations,   all  financial  institutions  are
required  to adopt  and  maintain  comprehensive  written  real  estate  lending
policies  that are  consistent  with safe and  sound  banking  practices.  These
lending policies must reflect  consideration  of the Interagency  Guidelines for
Real Estate Lending Policies adopted by the Federal banking agencies,  including
the OTS, in December 1992 ("Guidelines").  The Guidelines set forth, pursuant to
<PAGE>
the mandates of the FDICIA,  uniform regulations  prescribing standards for real
estate lending. Real estate lending is defined as extension of credit secured by
liens on  interests  in real  estate or made for the  purpose of  financing  the
construction of a building or other  improvements to real estate,  regardless of
whether a lien has been taken on the property.

         The policies must address certain lending  considerations  set forth in
the Guidelines,  including  loan-to-value  ("LTV") limits,  loan  administration
procedures,  underwriting standards,  portfolio  diversification  standards, and
documentation,  approval and reporting requirements. These policies must also be
appropriate  based upon the size of the  institution and the nature and scope of
its operations,  and must be reviewed and approved by the institution's board of
directors at least annually.  The LTV ratio  framework,  with an LTV ratio being
the total amount of credit to be extended  divided by the appraised value of the
property  at the time the credit is  originated,  must be  established  for each
category of real estate loans.  If not a first lien, the lender must combine all
senior liens when calculating  this ratio.  The Guidelines,  among other things,
establish the following supervisory LTV limits: raw land (65%); land development
(75%);  construction   (commercial,   multi-family  and  nonresidential)  (80%);
improved property (85%); and owner occupied one- to four-family  residential (no
maximum  ratio,  however,  any LTV ratio in excess of 90%  requires  appropriate
insurance or readily marketable collateral).

         Certain  institutions  are  permitted to make real estate loans that do
not  conform  with  the   established  LTV  ratio  limits  up  to  100%  of  the
institution's  total capital.  Within this aggregate limit,  total loans for all
commercial,  agricultural,   multi-family  and  other  non-one-  to  four-family
residential  properties  should not exceed 30% of total capital.  An institution
will come  under  increased  supervisory  scrutiny  as the  total of such  loans
approaches  these  levels.  Certain  loans are exempt from the LTV ratios (e.g.,
those  guaranteed by a government  agency,  loans to facilitate the sale of real
estate  owned,  loans  renewed,  refinanced  or  restructured  by  the  original
lender(s) to the same  borrower(s)  where there is no  advancement of new funds,
etc.).

         Regulations  limit  the  amount  that a  savings  association  may lend
relative  to the  appraised  value of the real  estate  securing  the  loan,  as
determined  by an appraisal at the time of loan  origination.  Such  regulations
permit a maximum LTV ratio of 95% for  residential  property (and 100% for loans
guaranteed  by the  Veterans  Administration)  and 90% for all other real estate
loans. The Association's lending policies,  however, generally limit the maximum
LTV  ratio on  fixed-rate  and ARM loans to 95% of the  lesser of the  appraised
value or the  purchase  price of the  property  securing the loan in the case of
loans secured by one- to four-family  owner-occupied properties. The maximum LTV
ratio on other types of real estate loans is generally  the lesser of 80% of the
appraisal value or the purchase price of the property.

         When  underwriting  residential  real  estate  loans,  the  Association
reviews  and  verifies  each loan  applicant's  employment,  income  and  credit
history.  Management  believes that  stability of income and past credit history
are integral parts in the underwriting process. Generally, the applicant's total
monthly mortgage payment, including all escrow amounts, is limited to 28% of the
applicant's total monthly income. In addition,  total monthly obligations of the
applicant, including mortgage payments, should not generally exceed 42% of total
<PAGE>
monthly  income.  Written  appraisals  are  generally  required  on real  estate
property  offered to secure an applicant's  loan. For real estate loans with LTV
ratios  of  between  80% and 95%,  the  Association  requires  private  mortgage
insurance.  The  Association  requires fire,  casualty and where necessary flood
insurance on all properties securing real estate loans. The Association requires
title insurance, and an attorney's title opinion.

         Commercial  Real Estate Loans.  The Association  originates  commercial
real estate loans typically  secured by retail  facilities,  churches and office
buildings.  At December 31, 1997,  $1.5 million,  or 10.0% of the  Association's
gross loan portfolio  consisted of commercial real estate loans. At December 31,
1997,  all of the  Association's  commercial  real estate  loans were secured by
properties  within the State of  Louisiana.  The maximum loan to value ratio for
commercial  real estate loans  originated by the Association is 80%. At December
31, 1997,  the largest  commercial  real estate loan had a principal  balance of
$227,000,  and was secured by commercial real estate. The loan was performing in
accordance with its terms at December 31, 1997.

         The underwriting  standards  employed by the Association for commercial
real estate loans include a determination of the applicant's  credit history and
an  assessment  of the  applicant's  ability to meet  existing  obligations  and
payments on the proposed loan. Written appraisals are obtained on all commercial
real  estate  loans.  The  Association  assesses  the  creditworthiness  of  the
applicant by reviewing a credit report,  financial statements and tax returns on
the applicant.

         Loans secured by  commercial  real estate  generally  involve a greater
degree of credit risk than one- to  four-family  mortgage  loans.  The increased
risk is the result of several factors, including the effects of general economic
conditions  in income  producing  properties  and the  successful  operation  or
management of the properties securing the loans.  Furthermore,  the repayment of
loans  secured  by  commercial  real  estate  is  typically  dependent  upon the
successful  operation of the related business and real estate  property.  If the
cash flow from the project is reduced,  the borrower's ability to repay the loan
may be impaired.

         Land Loans.  The  Association  offers land  loans,  primarily  loans to
purchase and develop  single family  homesites,  which may consist of individual
lots or large acreage  tracts.  At December 31, 1997,  $612,000,  or 4.2% of the
Association's  gross loan  portfolio  consisted of land loans.  The maximum loan
amount generally does not exceed 75% of the appraised value of the property. The
terms of land loans are negotiated on a case by case basis; however,  fixed rate
loans are typically  originated  for terms of 5 years or less;  adjustable  rate
land loans are  originated  for terms up to 15 years and will either adjust at a
premium over the prime rate or will be based upon the National  Average Contract
Interest Rate for Major Lenders on the Purchase of  Previously  Occupied  Loans.
The  Association  will make a  limited  number  of land  loans  for  speculation
purposes.  Land loans are typically made to companies or  individuals  with whom
the Association has had a prior business relationship.

         Construction  Lending.  At  December  31,  1997,  the  Association  had
$353,000 or 2.4% of its gross loan portfolio,  invested in  construction  loans.
First Federal offers loans to both builders and individuals for the construction
of one- to four-family residences. Currently, such loans are offered with fixed-
or  adjustable-rates  of interest,  with loan terms of six months.  The interest
rates of construction loans are typically at a margin over the prime rate or the
<PAGE>
National  Average  Contract  Interest  Rate for Major Lenders on the Purchase of
Previously  Owned  Homes.  The  maximum  loan  amount will not exceed 80% of the
appraised value of the project.  The Association  requires the builder to submit
plans, specifications and cost projections. In addition, the Association reviews
the borrower's existing financial  condition,  including total outstanding debt.
Funds are  dispersed  as the  construction  project  progresses.  Following  the
construction period, these loans may convert to permanent loans,  generally with
terms for up to 15 years if the interest rate is fixed and up to 30 years if the
interest rate is  adjustable.  At December 31, 1997,  none of the  Association's
construction loans were non-performing.

         Construction lending and land loans are generally considered to involve
a higher level of credit risk than one-to four-family  residential lending since
the risk of loss on construction loans is dependent largely upon the accuracy of
the initial  estimate of the individual  property's value upon completion of the
project and the estimated cost (including  interest) of the project. If the cost
estimate  proves to be inaccurate,  the  Association  may be required to advance
funds  beyond  the  amount  originally  committed  to permit  completion  of the
project.

         Consumer and Other Lending.  First Federal offers a variety of consumer
loans, including loans secured by deposits, lines of credit, automobile and home
improvement loans. The Association currently originates substantially all of its
consumer loans in its primary  market area generally to its existing  customers.
At December  31,  1997,  the  Association's  consumer  and other loan  portfolio
totaled $3.6 million, or 24.4% of its gross loan portfolio.

         The Association offers loans secured by the borrower's savings deposits
("share loans"). At December 31, 1997, share loans totaled $735,000,  or 5.0% of
the Association's gross loan portfolio.

         First Federal  originates home improvement  loans. Home equity and home
improvement  loans secured by second  mortgages,  together with loans secured by
all prior liens, are generally  limited to 80% or less of the appraised value of
the home.  Generally,  such loans have a maximum  term of up to 15 years.  As of
December 31, 1997, home improvement loans amounted to $66,000, which represented
 .45% of the Association's gross loan portfolio.

         The Association also originates  lines of credit for businesses.  These
loans are made on both a secured  and  unsecured  basis.  Lines of credit may be
secured by real estate,  equipment and inventory.  They are generally originated
with interest  rates that adjust at a premium above the prime rate. All lines of
credit are reviewed annually by the Association.  Lines of credit loans amounted
to approximately  $1.3 million at December 31, 1997,  which  represented 9.0% of
the Association's gross loan portfolio.

         Another component of the Association's consumer loan portfolio consists
of automobile  loans.  The Association  originates  automobile loans on a direct
basis,  where the  Association  extends credit  directly to the borrower.  These
loans  generally have terms that do not exceed five years and carry a fixed-rate
of interest.  Generally,  loans on new vehicles are made in amounts up to 80% of
dealer  cost and loans on used  vehicles  are made in  amounts  up to 80% of the
vehicle's  published  NADA  value.  At  December  31,  1997,  the  Association's
automobile  loans  totaled  $526,000  or 3.6% of the  Association's  gross  loan
portfolio.
<PAGE>
         Consumer loan terms vary according to the type and value of collateral,
length of  contract  and  creditworthiness  of the  borrower.  The  underwriting
standards employed by the Association for consumer loans include an application,
a  determination  of the  applicant's  payment  history  on other  debts  and an
assessment of ability to meet existing  obligations and payments on the proposed
loan. Although creditworthiness of the applicant is a primary consideration, the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.

         Consumer loans entail greater credit risk than do residential  mortgage
loans,  particularly  in the case of consumer  loans which are  unsecured or are
secured  by  rapidly  depreciable  assets,  such as  automobiles.  Further,  any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the  outstanding  loan balance as a result of the greater
likelihood  of  damage,  loss  or  depreciation.   In  addition,  consumer  loan
collections are dependent on the borrower's continuing financial stability,  and
thus  are  more  likely  to  be  affected  by  adverse  personal  circumstances.
Furthermore,  the  application  of various  federal  and state  laws,  including
bankruptcy and  insolvency  laws, may limit the amount which can be recovered on
such loans.  Management  believes that its level of  delinquencies is relatively
low in comparison with other financial  institutions,  and that its low level of
consumer loan  delinquencies  is  attributable  to the  Association's  policy of
aggressively contacting borrowers who become delinquent in repaying their loans.
At December  31,  1997,  $1,375 in consumer  loans were  non-performing.  See "-
Delinquencies and Classified Assets." There can be no assurances,  however, that
delinquencies will not increase in the future.

Loan Maturity Schedule

         The  following  table sets forth  certain  information  at December 31,
1997,  regarding  the  dollar  amount  of loans  maturing  in the  Association's
portfolio  based on their  contractual  terms to maturity.  Demand loans,  loans
having no stated schedule of repayments and no stated  maturity,  and overdrafts
are reported as due in one year or less.
<TABLE>
<CAPTION>
                                                One          Three        Five          Ten        Twenty
                                    Within     Through      Through      Through      Through       Years
                                   One Year  Three Years   Five Years   Ten Years   Twenty Years  Or More     Total
                                 ----------  ----------     ---------  ----------   ----------  ----------  ----------
<S>                              <C>         <C>            <C>        <C>          <C>         <C>         <C>
First mortgage loans:
  One- to four-family residential$  274,235  $  451,480     $ 428,679  $2,293,801   $2,982,128  $1,945,801  $8,376,124
  Other properties.............     341,084     288,147       342,635     638,934      420,073     328,118   2,358,991
  Construction.................           0           0             0           0      227,800     125,000     352,800
Consumer and other loans.......   2,388,442     818,695       188,118     181,257            0           0   3,576,512
                                 ----------  ----------     ---------  ----------   ----------  ----------  ----------
     Total.....................  $3,003,761  $1,558,322     $ 959,432  $3,113,992   $3,630,001  $2,398,919  $14,664,427
                                 ==========  ==========     =========  ==========   ==========  ==========  ===========

</TABLE>
<PAGE>
         The  following  table  sets  forth  the  dollar  amount of all loans at
December 31, 1997 that have  predetermined  interest  rates and have floating or
adjustable interest rates and which are due after December 31, 1998.
<TABLE>
<CAPTION>
                                                                                   Floating or
                                                               Fixed-Rates      Adjustable Rates        Total
                                                               ----------          ----------        ----------
<S>                                                            <C>                 <C>               <C>
First mortgage loans:
  One- to four-family residential...........................   $2,076,986          $6,024,903        $8,101,889
  Other properties..........................................    1,312,464             705,443         2,017,907
  Construction..............................................      352,800                   0           352,800
Consumer and other loans....................................    1,188,070                   0         1,188,070
                                                               ----------          ----------        ----------
     Total..................................................   $4,930,300          $6,730,346        $11,660,666
                                                               ==========          ==========        ===========
</TABLE>

Origination of Loans

         Loan   originations   are  developed  from  continuing   business  with
depositors and borrowers,  soliciting realtors,  builders, walk-in customers and
third-party sources. All real estate loans must be approved by the Association's
board of  directors.  Consumer  and other loans up to $15,000 may be approved by
the Association's President. All other consumer and other loans must be approved
by the Board of Directors.

         While the Association  originates both  adjustable-rate  and fixed-rate
loans,  its ability to originate loans to a certain extent is dependent upon the
relative  customer  demand for loans in its  market,  which is  affected  by the
interest rate environment,  among other factors. For the year ended December 31,
1997,  the  Association  originated  $3.6 million in  fixed-rate  loans and $3.0
million in adjustable rate loans.

         In recent years the Association has neither purchased,  nor sold loans.
All loans  originated  by the  Association  are  retained  in the  Association's
portfolio.
<PAGE>
         Set forth below is a table showing the Association's  loan originations
and repayments for the periods indicated.
<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                  ---------------------------------------------------
                                                      1997                 1996                 1995
                                                  --------             -------               --------
                                                                     (In Thousands)
<S>                                               <C>                  <C>                   <C>

Total loans receivable at beginning of period     $ 12,989             $11,883               $ 11,926
                                                  --------             -------               --------
Originations:
 First mortgage loans -
  One- to four-family residential...........         2,199                 590                    482
  Construction..............................           306                 664                    243
  Other properties..........................           618               1,025                    257
 Consumer and other loans:
  Automobile................................           389                 308                    359
  Manufactured home.........................             6                   5                     38
  Other.....................................         2,200               2,564                    773
 Refinancing................................         1,388                 755                    764
                                                  --------             -------               --------
    Total originations......................         7,106               5,911                  2,916
  Transfer of mortgage loans
    to foreclosed real estate...............           (28)                (74)                    --
  Repayments................................        (5,403)             (4,731)                (2,959)
                                                  ---------            --------              --------
Net loan activity...........................         1,675               1,106                    (42)
                                                  --------             -------               --------
     Total loans receivable
        at end of period....................      $ 14,664             $12,989               $ 11,883
                                                  ========             =======               ========
</TABLE>
Delinquencies and Classified Assets

         The Association's  collection procedures provide that when a loan is 15
days past due, a  computer-generated  late charge notice is sent to the borrower
requesting  payment  plus a  late  charge.  If the  loan  remains  delinquent  a
telephone  call is made or a  letter  is  sent  to the  borrower  stressing  the
importance of  reinstating  the loan and obtaining  reasons for the  delinquency
before  the loan  becomes  delinquent  after 30  days.  After 45 days a  written
commitment  to bring the loan  current is required.  When a loan  continues in a
delinquent  status for 90 days or more,  and a repayment  schedule  has not been
made or adhered to by the  borrower,  a notice of intent to  foreclose  upon the
underlying  property  is sent to the  borrower  by the  Association's  attorney,
giving the borrower 10 days to cure the delinquency.  If not cured,  foreclosure
proceedings are initiated.

         In recent years the Association has increased its collection efforts by
more closely  monitoring  delinquent  loans and  employing  diligent  collection
efforts.  Management  believes that these efforts have  contributed  to the loan
portfolio's  low  delinquency  levels.  At December 31, 1997,  1996 and 1995 the
percentage  of total loans  delinquent  90 days or more to net loans  receivable
were $0%, 0%, and .06%, respectively.
<PAGE>
         Delinquent  Loans  and  Nonperforming  Assets.  Generally,  when a loan
becomes more than 90 days  delinquent,  the  Association  will place the loan on
non-accrual status and previously accrued interest income on the loan is charged
against current income.  The loan will remain on a non-accrual status as long as
the loan is more than 90 days delinquent.

         Real  estate  acquired  through   foreclosure  or  by  deed-in-lieu  of
foreclosure  is  classified  as real estate owned until such time as it is sold.
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, less estimated
selling expenses. Any further write-down of real estate owned is charged against
earnings.  At December 31,  1997,  the  Association  owned  approximately  $0 of
property classified as real estate owned.

         Delinquent  consumer  loans are handled in a similar manner as to those
described  above;  however,  shorter  time frames for each step apply due to the
type  of  collateral   generally  associated  with  such  types  of  loans.  The
Association's  procedures for repossession  and sale of consumer  collateral are
subject to various  requirements under Louisiana and federal consumer protection
laws.

         The  following  table  sets  forth  information  with  respect  to  the
Association's delinquent loans and other problem assets at December 31, 1997.
<TABLE>
<CAPTION>

                                                              At December 31, 1997
                                                              --------------------
                                                               Balance    Number
                                                               -------    ------
<S>                                                            <C>        <C>
                                                                  (In Thousands)
One- to four-family residential real estate:
    Loans 60 to 89 days delinquent .........................      $--       --
    Loans 90 days or more delinquent .......................       --       --
Other properties:
    Loans 60 to 89 days delinquent .........................       --       --
    Loans 90 days or more delinquent .......................       --       --
Construction:
    Loans 60 to 89 days delinquent .........................        54         2
    Loans 90 days or more delinquent .......................       --       --
Consumer and other loans:
    Loans 60 to 89 days delinquent .........................        23         2
    Loans 90 days or more delinquent .......................       --       --
Foreclosed real estate and repossessions ...................         0      --
Other nonperforming assets .................................       --       --
Restructured loans within the meaning of Statement of
    Financial Accounting Standards No. 15 (not included
    in other nonperforming categories above) ...............       199         9
Loans to facilitate sale of real estate owned ..............      $563        20

</TABLE>
<PAGE>
         The following table sets forth information  regarding  delinquent loans
and real estate owned by the Association at the dates indicated. At December 31,
1997, the Association  had $199,000 in restructured  loans within the meaning of
SFAS 15.
<TABLE>
<CAPTION>
                                                           At December 31,
                                                       ------------------------
                                                       1997      1996      1995
                                                       ----      ----      ----
                                                        (Dollars In Thousands)
<S>                                                    <C>       <C>       <C>
Non-accruing loans:
  First mortgage loans:
    One- to four-family residential ..............     $ 76      $ 44      $144
    Other properties .............................      --        --        --
    Commercial ...................................       49       --        --
    Construction .................................      --        --        --
  Consumer and other loans .......................        1       --         11
                                                       ----      ----      ----
    Total non-accruing loans .....................      126        44       155
                                                       ----      ----      ----

Accruing loans past due 90 days or more:
  First mortgage loans:
    One- to four-family residential ..............      --       $--        --
    Other properties .............................      --        --        --
    Construction .................................      --        --        --
  Consumer and other loans .......................      --        --          6
                                                       ----      ----      ----
     Total accruing loans delinquent
        90 days or more ..........................      --        --          6
                                                       ----      ----      ----
          Total non-performing loans .............      126        44       161
                                                       ----      ----      ----

  Total real estate owned ........................      --         75        39
                                                       ----      ----      ----
       Total non-performing assets ...............      --       $119      $200
                                                       ====      ====      ====

 Performing troubled debt restructurings .........     $199      $154      $191
                                                       ====      ====      ====
    Total non-performing assets and troubled
    debt restructurings ..........................     $325      $273      $391
                                                       ====      ====      ====

Total loans delinquent 90 days or more to
  net loans receivable ...........................     0.00%     0.00%     0.06%
                                                       ----      ----      ----
Total loans delinquent 90 days or more to
  total assets ...................................     0.00%     0.00%     0.02%
                                                       ----      ----      ----
Total non-performing loans and REO
  to total assets ................................     0.37%     0.38%     0.69%
                                                       ----      ----      ----
Total non-performing assets and troubled
  debt restructurings to total assets ............     0.97%     0.87%     1.35%
                                                       ----      ----      ----
</TABLE>
<PAGE>
Delinquent Loans

         The following table sets forth  information  with respect to loans past
due 60-89 days in the Association's portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                          At December 31,
                                                    ----------------------------
                                                    1997        1996        1995
                                                    ----        ----        ----
                                                          (In Thousands)
<S>                                                 <C>         <C>         <C>
Loans past due 60-89 days:
  First mortgage loans:
    One- to four-family residential ........        $--         $105        $ 15
    Other properties .......................         --            5         --
    Construction ...........................          54         --          --
  Consumer and other loans .................          23           5          10
</TABLE>
         For the year ended December 31, 1997 gross interest  income which would
have been recorded had the  non-accruing  loans been current in accordance  with
their  original  terms  amounted  to $12,000.  The amount  that was  included in
interest income on such loans was $5,000 for the year ended December 31, 1997.

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

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

         In connection with the filing of its periodic  reports with the OTS and
in  accordance  with  its  classification  of  assets  policy,  the  Association
regularly  reviews  loans in its  portfolio  to  determine  whether  such assets
require classification in accordance with applicable  regulations.  On the basis
<PAGE>
of management's  review of its assets, at December 31, 1997, the Association had
classified a total of $251,000 of its assets as substandard, $0 as doubtful, and
$21,000 as loss.  At  December  31,  1997,  total  classified  assets  comprised
$272,000,  or 6.0% of the  Association's  capital,  or .81% of the Association's
total assets.

         Other Loans of Concern.  Other than the non-performing  loans set forth
in the tables above, as of December 31, 1997,  there were no loans classified by
the  Association  with  respect to which known  information  about the  possible
credit  problems of the  borrowers or the cash flows of the security  properties
have caused management to have some doubts as to the ability of the borrowers to
comply  with  present  loan  repayment  terms and which may result in the future
inclusion of such items in the non-performing asset categories.

         Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan  portfolio and changes in the nature and volume of its loan
activity,  including  those  loans  which are being  specifically  monitored  by
management.  Such  evaluation,  which  includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters, the
loan classifications discussed above, the estimated fair value of the underlying
collateral, economic conditions,  historical loan loss experience, the amount of
loans outstanding and other factors that warrant recognition in providing for an
adequate loan loss allowance.

         Real estate properties acquired through foreclosure are recorded at the
lower of cost or fair value minus  estimated  cost to sell. If fair value at the
date of  foreclosure  is  lower  than  the  balance  of the  related  loan,  the
difference  will be  charged-off to the allowance for loan losses at the time of
transfer.  Valuations  are  periodically  updated by management and if the value
declines,  a specific  provision for losses on such property is established by a
charge to operations.  At December 31, 1997, the Association had properties with
a net book value of $0 which were acquired through foreclosure.

         Although   management  believes  that  it  uses  the  best  information
available to determine the allowance,  unforeseen market conditions could result
in adjustments and net earnings could be significantly affected if circumstances
differ   substantially   from  the   assumptions   used  in  making   the  final
determination.  Future additions to the Association's  allowance for loan losses
will be the result of periodic loan,  property and  collateral  reviews and thus
cannot be predicted in advance. In addition,  federal regulatory agencies, as an
integral part of the examination process,  periodically review the Association's
allowance for loan losses. Such agencies may require the Association to increase
the allowance based upon their judgment of the information  available to them at
the time of their examination. At December 31, 1997, the Association had a total
allowance   for  loan  losses  of   $300,000,   representing   238.9%  of  total
non-performing loans and 2.2% of the Association's loans, net. See Note 4 of the
Notes to Consolidated Financial Statements.
<PAGE>
         The  following  table  sets  forth the  allocation  for loan  losses by
category for the periods indicated.
<TABLE>
<CAPTION>
                                                                               At December 31,
                                                   -----------------------------------------------------------------------
                                                           1997                     1996                     1995
                                                   -------------------      -------------------      ---------------------
                                                             % of Loans               % of Loans               % of Loans
                                                               In Each                  In Each                  In Each
                                                             Category to              Category to              Category to
                                                   Amount    Total Loans    Amount    Total Loans    Amount   Total Loans
                                                   ------    -----------    ------    -----------    ------   -----------
                                                                           (Dollars in thousands)
<S>                                                <C>        <C>           <C>        <C>            <C>        <C>
First mortgage loans
  One- to four-family residential................  $   225       57.12%     $  217        56.04%      $ 230        66.63%
  Other properties...............................       37       16.08          37        16.99          37        12.98
  Construction...................................       --        2.41          --         3.75          --         2.19
Consumer and other loans.........................       38       24.39          42        23.22          50        18.20
                                                   -------    --------      ------     --------       -----      -------
    Balance, end of period.......................  $   300      100.00%     $  296       100.00%      $ 317       100.00%
                                                   =======    ========      ======     ========       =====      =======

</TABLE>
<PAGE>
         The  following  table  sets  forth  information  with  respect  to  the
Association's allowance for loan losses at the dates indicated.
<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                 -----------------------------
                                                 1997         1996        1995
                                                 ----         ----        ----
                                                     (Dollars in thousands)
<S>                                              <C>         <C>         <C>
Balance at beginning of period .............     $ 296       $ 317       $ 328
Charge-offs:
  First mortgage loans .....................      --           (10)       --
  Consumer and other loans .................       (33)         (8)         (7)
Recoveries:
  First mortgage loans .....................         7        --          --
  Consumer and other loans .................        27           5          17
                                                 -----       -----       -----
    Net charge-offs ........................         1         (13)         10
      Provision for loan losses (recoveries)         3          (8)        (21)
Balance, at end of period ..................     $ 300       $ 296       $ 317
                                                 =====       =====       =====


Allowance for loan losses as a per-
  cent of net loans receivable at
  end of period ............................      2.20%       2.48%       2.83%
Ratio of net loans charged off during
  the period to average loans outstanding
  during the period ........................      0.00%      (0.11)%      0.09%
Ratio of allowance for loan losses
  to total non-performing loans
  at end of period .........................     238.70%     670.81%     196.90%
Ratio of allowance for loan losses
  to total non-performing loans
  and REO at end of period .................     238.70%     249.02%     158.50%
</TABLE>

Investment Activities

         General. First Federal must maintain minimum levels of investments that
qualify as liquid  assets  under OTS  regulations.  Liquidity  may  increase  or
decrease  depending upon the  availability  of funds and  comparative  yields on
investments in relation to the return on loans.  Historically,  the  Association
has generally  maintained liquid assets at levels above the minimum requirements
imposed  by the OTS  regulations  and at levels  believed  adequate  to meet the
requirements  of normal  operations,  including  repayments of maturing debt and
potential  deposit  outflows.  Cash flow projections are regularly  reviewed and
updated to assure that adequate  liquidity is maintained.  At December 31, 1997,
the  Association's  liquidity  ratio  (liquid  assets  as a  percentage  of  net
withdrawable savings deposits and current borrowings) was 8.2%. See"Regulation -
Liquidity."

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

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

         Mortgage-backed  and  Related  Securities.  The  Association  purchases
mortgage-backed and related securities to supplement residential loan production
and as part of its asset/liability strategy. The type of securities purchased is
based upon the  Association's  asset/liability  management  strategy and balance
sheet objectives.  For instance,  substantially all of the  mortgage-backed  and
related  investments  purchased by the  Association  over the last several years
have had adjustable rates of interest.  Management  believes that the adjustable
rate feature of the mortgages  underlying  adjustable rate  mortgage-backed  and
related  securities  generally  will help to reduce  changes in the value of the
mortgage-backed  and  related  security  in  response  to normal  interest  rate
fluctuations.  As the interest rates on the mortgages  underlying the adjustable
rate  mortgage-backed and related securities are reset periodically,  the yields
of such  securities  will gradually  align  themselves to reflect changes in the
market rates so that the market value of such securities will remain  relatively
constant as compared to fixed rate  instruments.  The  Association  has invested
primarily in federal agency  securities,  principally  Freddie Mac (formerly the
Federal  Home  Loan  Mortgage   Corporation),   Government   National   Mortgage
Association  ("GNMA"),  Federal National Mortgage Association ("FNMA") and Small
Business   Association   ("SBA")   obligations.   At  December  31,  1997,   the
Association's investment in mortgage-backed and related securities totaled $17.1
million or 51.2% of its total assets. At December 31, 1997, $11.7 million of the
Association's   mortgage-backed   and  related  securities  were  classified  as
held-to-maturity  and $5.5 million were  classified as available  for sale.  See
Note 3 of the Notes to Consolidated Financial Statements.

         The FNMA,  Freddie Mac and GNMA certificates are modified  pass-through
mortgage-backed  and related  securities that represent  undivided  interests in
underlying   pools  of   fixed-rate,   or  certain  types  of   adjustable-rate,
single-family   residential  mortgages  issued  by  these   government-sponsored
entities.  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. FNMA and Freddie Mac provide the
certificate  holder a guarantee  of timely  payments of  interest  and  ultimate
collection  of  principal,  whether  or not they  have  been  collected.  GNMA's
guarantee to the holder timely payments of principal and interest and are backed
by the full faith and credit of the U.S. government. The FNMA, Freddie Mac, GNMA
and SBA  certificates  are  modified  pass-through  mortgage-backed  and related
securities that represent undivided interests in underlying pools of fixed-rate,
or certain types of adjustable-rate,  single-family residential mortgages, or in
the case of the SBA  certificates,  the portion of commercial and/or real estate
loans guaranteed by the SBA. As a result,  the interest rate  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.  FNMA and Freddie
Mac provide the  certificate  holder a guarantee of timely  payments of interest
and ultimate collection of principal, whether or not they have been collected.
<PAGE>
         Mortgage-backed  and related  securities  generally yield less than the
loans that underlie such securities,  because of the cost of payment  guarantees
or credit enhancements that reduce credit risk. In addition, mortgage-backed and
related  securities  are more liquid than  individual  mortgage loans and may be
used   to   collateralize   obligations   of  the   Association.   In   general,
mortgage-backed  securities  issued or  guaranteed  by FNMA and  Freddie Mac are
weighted   at  no  more  than  20%  for   risk-based   capital   purposes,   and
mortgage-backed  securities  issued or guaranteed by GNMA are weighted at 0% for
risk-based  capital  purposes,  compared to an assigned risk weighting of 50% to
100% for whole residential  mortgage loans. These types of securities thus allow
the  Association  to  optimize  regulatory  capital  to a  greater  extent  than
non-securitized  whole loans. The Association has sought to improve the yield on
its  mortgage-backed   securities  portfolio  by  investing  in  mortgage-backed
securities with maturities in excess of 10 years.

         While  mortgage-backed  securities  carry  a  reduced  credit  risk  as
compared  to whole  loans,  such  securities  remain  subject to the risk that a
fluctuating  interest  rate  environment,  along with other  factors such as the
geographic  distribution  of  the  underlying  mortgage  loans,  may  alter  the
prepayment rate of such mortgage loans and so affect both the prepayment  speed,
and value, of such securities.

         Set forth below is a table  showing  the  Association's  purchases  and
repayments  of  mortgage-backed   securities  for  the  periods  indicated.  The
Association  sold  $382,000 of  available  for sale  mortgage-backed  securities
during 1997.
<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                  -----------------------------------------------
                                                    1997             1996                 1995
                                                    ----             ----                 ----
                                                                 (In Thousands)
<S>                                               <C>             <C>                    <C>
Mortgage-backed securities at beginning
 of period.................................       $ 17,186        $  15,391              $ 13,257
  Purchases.................................         2,870            3,915                 4,275
  Sales.....................................          (382)              --                    --
  Repayments................................        (2,470)          (2,078)               (2,069)
Discount (premium) amortization.............           (57)             (42)                  (72)
                                                  ---------       ----------             --------
Mortgage-backed securities
  at end of period..........................      $ 17,147        $  17,186              $ 15,391
                                                  ========        =========              ========
</TABLE>
         At December 31, 1997, the Association's investment securities consisted
solely of FHLB stock totaling $259,300. The Association invests excess liquidity
in FHLB overnight deposits.

         OTS  regulations  restrict  investments  in  corporate  debt and equity
securities by the Association.  These restrictions  include prohibitions against
investments  in the debt  securities  of any one  issuer in excess of 15% of the
Association's  unimpaired  capital and unimpaired  surplus as defined by federal
regulations,  plus an  additional  10% if the  investments  are fully secured by
readily  marketable  collateral.  At December 31, 1997, the  Association  was in
compliance with this regulation. See "Regulation - Federal Regulation of Savings
Associations"  for a discussion of additional  restrictions on the Association's
investment activities.
<PAGE>
         The following table sets forth the carrying value of the  Association's
FHLB stock and  mortgage-backed  securities at the dates indicated.  At December
31, 1997, the market value of the Association's  mortgage-backed  portfolios and
investment   securities   was   approximately   $17.1   million  and   $259,300,
respectively.
<TABLE>
<CAPTION>
                                                                       At December 31,
                                                       ------------------------------------------
                                                           1997           1996             1995
                                                       ----------      ---------        ---------
                                                                       (In Thousands)
<S>                                                    <C>             <C>              <C>

Mortgage-backed securities.........................    $   17,147      $  17,186        $  15,391
Federal Home Loan Bank stock.......................           259            259              260
                                                       ----------      ---------        ---------
    Total investments..............................    $   17,406      $  17,448        $  15,651
                                                       ==========      =========        =========
</TABLE>
         Mortgage-Backed  and  Investment  Portfolio  Maturities.  The following
table sets forth the scheduled  maturities,  carrying values,  market values and
average yields for the Association's investment securities at December 31, 1997.
<TABLE>
<CAPTION>
                                                                  December 31, 1997
                                  ---------------------------------------------------------------------------------
                                    One Year or Less                   One to Five Years         Five to Ten Years
                                  ---------------------    ---------------------------------     ------------------
                                  Carrying      Average    Carrying       Average   Carrying     Average   Carrying
                                    Value        Yield       Value        Yield       Value      Yield      Value
                                    -----        -----       -----        -----       -----      -----      -----
<S>                                  <C>         <C>       <C>            <C>       <C>           <C>        <C>
 investment securities held
 to maturity:
  GNMA certificates...........        --          --       $     3        6.46%   $    6          8.00%     $    293
  Freddie Mac certificates....        --          --           --          --         10          7.25%        3,911
  FNMA certificates...........        --          --           --          --         --            --         7,204
  Collateralized mortgage
    obligations...............        --          --           --          --         --            --            55
  FHLB Stock..................        --          --           --          --         --            --           259
  Municipal bonds.............        --          --           --          --         --            --           187
    Total.....................        --          --            3        6.46%        16          7.54%       11,909

Mortgage-backed and investment
securities available for sale:
  GNMA certificates...........        --          --           --          --         --            --           466
  Freddie Mac certificates....        --          --           --          --          8          7.38%        1,797
  FNMA certificates...........        --          --           28        7.61%        --            --         2,359
 SBA certificates.............        --          --           --          --         --            --           820
    Total.....................        --           --      $   28        7.61%   $     8          7.38%     $  5,442
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                     December 31, 1997
                                     -------------------------------------------------
                                      More than Ten Years   Total Investment Portfolio
                                      Average    Carrying       Market      Average
                                      Yield        Value        Value        Yield
                                      -----        -----        -----       -----
<S>                                   <C>      <C>            <C>            <C>
Mortgage-backed and
 investment securities held
 to maturity:
  GNMA certificates...........       6.71%    $    302       $     308      6.74%
  Freddie Mac certificates....       6.08%       3,921           3,909      6.10%
  FNMA certificates...........       6.27%       7,204           7,146      6.27%
  Collateralized mortgage
    obligations...............       7.25%          55              52      7.25%
  FHLB Stock..................       5.87%         259             259      5.87%
  Municipal bonds.............       8.25%         187             195      8.25%
    Total.....................       6.25%      11,928          11,869      6.12%

Mortgage-backed and investment
securities available for sale:
  GNMA certificates...........       6.99%         466             466      6.99%
  Freddie Mac certificates....       6.40%       1,805           1,805      6.40%
  FNMA certificates...........       6.46%       2,387           2,387      6.47%
 SBA certificates.............       6.13%         820             820      6.13%
    Total.....................       6.43%    $  5,478       $   5,478      6.44%

</TABLE>
         The Association's investment securities portfolio at December 31, 1997,
contained $186,994 of tax exempt securities and no securities of any issuer with
an aggregate book value in excess of 10% of the Association's retained earnings,
excluding those issued by the U.S. government, or its agencies.

Sources of Funds

         General.  The  Association's  primary  sources  of funds are  deposits,
receipt of  principal  and  interest on loans and  securities,  interest-earning
deposits  with  other  banks,  FHLB  advances,  and other  funds  provided  from
operations.

         FHLB advances are used to support  lending  activities and to assist in
the Association's  asset/liability  management strategy.  See "- Asset/Liability
Management." Typically,  the Association does not use other forms of borrowings.
At December 31, 1997, the Association had $0 in FHLB advances.

         Deposits.  First Federal offers a variety of deposit  accounts having a
wide range of interest rates and terms.  The  Association's  deposits consist of
passbook, commercial demand, NOW, money market deposit and certificate accounts.
The certificate accounts currently range in terms from 30 days to five years.

         The Association  relies primarily on advertising,  competitive  pricing
policies and customer  service to attract and retain these deposits.  Currently,
First  Federal  solicits  deposits  from its market area only,  and does not use
brokers to obtain deposits. The flow of deposits is influenced  significantly by
general  economic  conditions,  changes in money market and prevailing  interest
rates and competition.
<PAGE>
         The Association has become more susceptible to short-term  fluctuations
in deposit  flows as customers  have become more interest  rate  conscious.  The
Association  endeavors to manage the pricing of its deposits in keeping with its
profitability objectives giving consideration to its asset/liability management.
Notwithstanding  the foregoing,  a significant  percentage of the  Association's
deposits  are for terms of less than one  year.  At  December  31,  1997,  $17.8
million or 62.0% of the Association's  deposits were in certificates of deposits
with terms of 11 months or less.  The  Association  believes  that upon maturity
most of these  deposits  will  remain at the  Association.  The  ability  of the
Association  to attract  and  maintain  savings  accounts  and  certificates  of
deposit, and the rates paid on these deposits,  has been and will continue to be
significantly affected by market conditions.
<PAGE>
Savings Portfolio

         Deposits in the Association as of December 31, 1997,  were  represented
by the various types of deposit programs described below.
<TABLE>
<CAPTION>


     Weighted
      Average                                                                                    Percentage
     Interest          Minimum               Checking and             Minimum                     of Total
       Rate             Term                  Savings                 Amount        Balances      Savings
       ----             ----                  -------                 ------        --------      -------
                                           (In thousands)
<S>               <C>                 <C>                             <C>           <C>           <C>
       0.00%      None                Non interest-bearing demand     $  5,000      $    912          3.18%
       2.08       None                Passbook accounts                     50         2,584          9.02
       2.38       None                Money market                       2,500           722          2.52
       2.06       None                NOW accounts                         100         3,774         13.17

                                      Certificates of Deposit

       5.14%      1-5  months         Fixed term, fixed rate             2,500        10,519         36.71%
       5.60       6-11 months         Fixed term, fixed rate             2,500         7,323         25.55
       5.74       12-17 months        Fixed term, fixed rate             1,000         1,775          6.19
       5.82       18-23 months        Fixed term, fixed rate             1,000           338          1.18
       6.40       24-29 months        Fixed term, fixed rate             1,000           427          1.49
       5.89       30-35 months        Fixed term, fixed rate             1,000           128          0.45
       5.92       36-47 months        Fixed term, fixed rate             1,000            82          0.29
       0.00       48-53 months        Fixed term, fixed rate             1,000             0          0.00
       6.00       54-59 months        Fixed term, fixed rate             1,000            72          0.25
                  60 months
       6.00       or greater          Fixed term, fixed rate             1,000            --            --
                                                                                    --------     ---------
                                                                                      28,656        100.00%
                                                                                    ========     =========
</TABLE>
<PAGE>
Deposit Activity

     The following  table sets forth the deposit  activities of the  Association
for the periods indicated:
<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                         ------------------------------------------
                                                            1997             1996            1995
                                                         -----------    -----------      ----------
                                                                       (In Thousands)
<S>                                                      <C>            <C>              <C>

Deposits, beginning of period.........................   $   25,750     $   26,583       $   24,523
Deposits..............................................       64,833         55,778           57,787
Withdrawals...........................................      (63,138)       (57,752)         (56,808)
                                                         -----------    -----------      ----------
  Net increase (decrease) before
    interest credited.................................        1,695         (1,974)             979
Interest credited.....................................        1,211          1,141            1,081
                                                         ----------     ----------       ----------
   Net increase (decrease) in deposits................        2,906           (833)           2,060
                                                         ----------     -----------      ----------
Deposits, end of period...............................   $   28,656     $   25,750       $   26,583
                                                         ==========     ==========       ==========
</TABLE>

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  Association
between the dates indicated.
<TABLE>
<CAPTION>
                                                                        At December 31,
                           -------------------------------------------------------------------------------------------
                                          1997                               1996                            1995
                           --------------------------------     -------------------------------    -------------------
                            Balance  Percent       Change        Balance  Percent       Change      Balance    Percent
                                                        (Dollars  in  Thousands)
<S>                         <C>       <C>         <C>           <C>        <C>         <C>         <C>        <C>

Non interest-bearing demand $  912      3.18%     $    456      $   456      1.77%     $    125    $   331      1.25%
NOW Accounts.............    3,774     13.17           552        3,222     12.51           249      2,973     11.18
Passbook savings.........    2,584      9.02          (174)       2,758     10.71          (156)     2,914     10.96
Money market deposit
  accounts...............      722      2.52          (111)         833      3.24          (174)     1,007      3.79
Time deposits:
  which mature
  within 12 months.......   17,842     62.26         2,894       14,948     58.05        (1,122)    16,070     60.45
  within 12-24 months....    2,113      7.37        (1,130)       3,249     12.62           659      2,590      9.74
  beyond 24 months.......      709      2.48           425          284      1.10          (414)       698      2.64
                            ------     -----      --------      -------     -----      ---------   -------    ------
         Total...........   $28,656    100.00%    $  2,906      $25.750     100.00%    $   (833)   $26,583    100.00%
                            =======    ======     ========      =======     ======     =========   =======    ======
</TABLE>
<PAGE>
         The  following  table   indicates  the  amount  of  the   Association's
certificates  of deposit of $100,000 or more by time remaining until maturity at
December 31, 1997.
<TABLE>
<CAPTION>
                                                              Certificates
                                                              of Deposits
                                                              -----------
                                                             (In thousands)
<S>                                                           <C>
     Three months or less..................................   $     982
     Over three through six months.........................         614
     Over six through twelve months........................         647
     Over twelve months....................................         422
                                                              ---------
         Total.............................................   $   2,665
                                                              =========
</TABLE>
     Time Deposits by Rates

         The  following  table sets forth the time  deposits in the  Association
classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
                                                  December 31,
                                  -------------------------------------------
                                     1997            1996              1995
                                  ---------        --------          --------
                                                (In Thousands)
<S>                               <C>              <C>               <C>
     3.99% or Less............... $      --        $      5          $    172
     4.00 - 5.99%................    16,919          18,409            17,180
     6.00 - 7.99%................     3,627              --             1,961
     8.00 - 9.99%................       118              67                45
                                  ---------        --------          --------
                                  $  20,664        $ 18,481          $ 19,358
                                  =========        ========          ========
</TABLE>
Time Deposit Maturity Schedule

     The following  table sets forth the amount and  maturities of time deposits
at December 31, 1997.
<TABLE>
<CAPTION>
                                                               Amount Due
                          ------------------------------------------------------------------------------------
                          Less Than        1-2         2-3         3-4         4-5         After
                             1 Year       Years       Years       Years       Years       5 Years        Total
                           ---------      -----       -----      -------     -------      -------     --------
                                                             (In Thousands)
<S>                        <C>          <C>          <C>         <C>         <C>          <C>          <C>
     Rate
     4.00 - 5.99%........  $ 15,424     $ 1,163      $  177      $   82      $    72          --       $ 16,919
     6.00 - 7.99%........     2,418         917         293          --           --          --          3,628
     8.00 - 9.99%........        --          33          85          --           --          --            118
                           --------     -------      ------      ------      -------      ------       --------
                           $ 17,842     $ 2,113      $  555      $   82      $    72          --       $ 20,664
                           ========     =======      ======      ======      =======      ======       ========
</TABLE>
<PAGE>
         Borrowings.  First Federal's borrowings  historically have consisted of
advances  from  the  FHLB of  Dallas.  Such  advances  may be made  pursuant  to
different credit programs,  each of which has its own interest rate and range of
maturities.  Federal law limits an institution's  borrowings from the FHLB to 20
times the amount  paid for  capital  stock in the FHLB,  subject  to  regulatory
collateral requirements. At December 31, 1997, the Association had $0 million in
advances from the FHLB. The Association  has the ability to purchase  additional
capital stock from the FHLB.  For additional  information  regarding the term to
maturity  and average  rate paid on FHLB  advances,  see Note 10 of the Notes to
Financial Statements.

         The  following  table  sets forth the  maximum  month-end  balance  and
average balance of FHLB advances.
<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                   ---------------------------------------
                                      1997          1996              1995
                                      ----          ----              ----
                                              (In Thousands)
<S>                               <C>            <C>               <C>
FHLB advances
    Maximum balance.............  $  2,000       $  1,500          $  --
    Average balance.............  $    282       $    175          $   62

</TABLE>

Regulation

General

         As a  federally  chartered  savings  institution,  the  Association  is
subject to extensive regulation by the OTS. Both the OTS and FDIC, as insurer of
deposit  accounts,  periodically  examine the  Association  for compliance  with
various regulatory requirements.  The Association must file reports with the OTS
describing  its  activities  and financial  condition.  The  Association is also
subject to certain reserve requirements promulgated by the Board of Governors of
the Federal  Reserve System  ("Federal  Reserve  Board").  This  supervision and
regulation  is  intended  primarily  for  the  protection  of  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 for regulatory  purposes.  Any
change in such  regulation,  whether by the OTS, the FDIC or the Congress  could
have a  material  adverse  impact  on the  Company,  the  Association  and their
operations.  As a savings association holding company, the Company is subject to
OTS regulation, examination, supervision and reporting requirements.

Federal Regulation of Savings Associations

         The  OTS  has  extensive  authority  over  the  operations  of  savings
associations.  As part of this  authority,  the  Association is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS and FDIC examinations of the Association were
as of March 1997. When these examinations are conducted by the OTS and the FDIC,
the  examiners  may require  the  Association  to provide for higher  general or
specific loan loss reserves.
<PAGE>
         All savings associations are subject to a semi-annual assessment, based
upon the savings  association's  total assets.  The Association's OTS assessment
for the fiscal year ended December 31, 1997, was approximately $10,800.

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

         In addition,  the  investment,  lending and branching  authority of the
Association is prescribed by federal laws, and regulations, and it is prohibited
from engaging in any activities not permitted by such laws and regulations.  For
instance,  no savings  institution may invest in non-investment  grade corporate
debt  securities.  In addition,  the permissible  level of investment by federal
associations  in loans secured by  non-residential  real property may not exceed
400% of  total  capital,  except  with  approval  of the  OTS.  Federal  savings
associations are also generally authorized to branch nationwide. The Association
is in compliance with the noted restrictions.

         The    Association's    general    permissible    lending   limit   for
loans-to-one-borrower  is equal to the greater of $500,000 or 15% of  unimpaired
capital  and  surplus  (except  for  loans  fully  secured  by  certain  readily
marketable  collateral,  in  which  case  this  limit  is  increased  to  25% of
unimpaired capital and surplus). The Association is in compliance with the loans
to one borrower limitation.

         The OTS, as well as the other  federal  banking  agencies,  has adopted
guidelines  establishing  safety and soundness standards on such matters as loan
underwriting and  documentation,  internal controls and audit systems,  interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply  with these  standards  must  submit a capital  compliance
plan. A failure to submit a plan or to comply with an approved plan will subject
the  institution to further  enforcement  action.  The OTS and the other federal
banking agencies have also proposed  additional  guidelines on asset quality and
earnings standards.  No assurance can be given as to whether or in what form the
proposed  regulations  will be  adopted.  The  guidelines  are not  expected  to
materially effect the Association.

Insurance of Accounts and Regulation by the FDIC

         First  Federal is a member of the SAIF,  which is  administered  by the
FDIC.  Deposits  are  insured  up to  applicable  limits  by the  FDIC  and such
insurance  is  backed  by  the  full  faith  and  credit  of the  United  States
Government.  As insurer,  the FDIC  imposes  deposit  insurance  premiums and is
authorized to conduct  examinations of and to require  reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC  determines  by regulation or order to pose a serious risk
to the FDIC.  The FDIC also has the  authority to initiate  enforcement  actions
against savings  associations,  after giving the OTS an opportunity to take such
action,  and may  terminate  the deposit  insurance  if it  determines  that the
institution has engaged or is engaging in unsafe or unsound practices,  or is in
an unsafe or unsound condition.
<PAGE>
         The FDIC's deposit insurance premiums for SAIF-insured institutions are
assessed  through  a  risk-based  system  under  which  all  insured  depository
institutions  are placed  into one of nine  categories  and  assessed  insurance
premiums,  based upon their level of capital and supervisory  evaluation.  Under
the system,  institutions  classified as well capitalized  (i.e., a core capital
ratio of at least  5%, a ratio of core  capital  to  risk-weighted  assets of at
least 6% and a risk-based  capital ratio of at least 10%) and considered healthy
would pay the lowest premium while  institutions  that are less than  adequately
capitalized  (i.e., a core capital or core capital to risk-based  capital ratios
of less than 4% or a risk-based capital ratio of less than 8%) and considered of
substantial   supervisory   concern   would  pay  the  highest   premium.   Risk
classification  of all  insured  institutions  will be made by the FDIC for each
semi-annual assessment period.

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

         In September 1996,  Congress  enacted  legislation to recapitalize  the
SAIF by a one-time assessment on all SAIF-insured  deposits held as of March 31,
1995.  The  assessment  was 65.7 basis points per $100 in  deposits,  payable on
November 30, 1996. For the Association,  the assessment amounted to $170,000 (or
$112,000 when adjusted for taxes), based on the Association's  deposits on March
31, 1995. In addition,  beginning January 1, 1997,  pursuant to the legislation,
interest  payments  on FICO  bonds  issued in the late  1980's by the  Financing
Corporation to  recapitalize  the now defunct Federal Savings and Loan Insurance
Corporation  will be paid jointly by BIF-insured  institutions  and SAIF-insured
institutions.  The FICO  assessment  will be 1.29  basis  points per $100 in BIF
deposits and 6.44 basis points per $100 in SAIF deposits.  Beginning  January 1,
2000,  the FICO  interest  payments  will be paid pro rata by banks and  thrifts
based on deposits (approximately 2.4 basis points per $100 in deposits).

         The  legislation  further  provides that the BIF and SAIF will merge on
January  1,  1999 if there are no more  savings  associations  as of that  date.
Several bills have been  introduced in Congress that would eliminate the federal
thrift  charter  and OTS.  The bills  would  require  that all  federal  savings
associations  convert to  national  banks or state  depository  institutions  by
specified  dates and would treat all state savings  associations  as state banks
for purposes of federal banking laws.  Subject to a narrow  grandfathering,  all
savings and loan holding  companies  would become subject to the same regulation
as bank holding companies under the pending  legislative  proposals.  Under such
proposals, any lawful activity in which a savings association participates would
be permitted for up to two years  following the effective date of its conversion
to the new charter, with two additional one-year extensions which may be granted
as the discretion of the regulator. The legislative proposals would also abolish
the OTS and transfer its functions to the federal bank  regulators  with respect
to the  institutions  and to the  Federal  Reserve  Board  with  respect  to the
regulation of holding  companies.  The  Association is unable to predict whether
the legislation will be enacted or, given such uncertainty, determine the extent
to which the legislation, if enacted, would affect its business. The Association
is also  unable to predict  whether  the SAIF and BIF funds will  eventually  be
merged.
<PAGE>
Regulatory Capital Requirements

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

         The capital  regulations  require  tangible capital of at least 1.5% of
adjusted total assets (as defined by  regulation).  Tangible  capital  generally
includes  common   stockholders'   equity  and  retained  income,   and  certain
noncumulative  perpetual  preferred stock and related income.  In addition,  all
intangible  assets,  other than a limited amount of purchased mortgage servicing
rights,  must be deducted from tangible capital for calculating  compliance with
the requirement.  Further,  the valuation allowance applicable to the write-down
of investments and mortgage-backed securities in accordance with SFAS No. 115 is
excluded from the  regulatory  capital  calculation.  At December 31, 1997,  the
Association  had no  intangible  assets  and an  unrealized  loss on  investment
securities available for sale net of tax of $2,284.

         At December  31, 1997,  the  Association  had tangible  capital of $3.6
million, or 11.2% of adjusted total assets,  which is approximately $3.2 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date.

         The  capital  standards  also  require  core  capital of at least 3% of
adjusted total assets.  Core capital generally consists of tangible capital plus
certain intangible  assets,  including a limited amount of purchased credit card
relationships.  As a result of the prompt corrective action provisions discussed
below,  however, a savings  association must maintain a core capital ratio of at
least  4%  to  be  considered  adequately  capitalized  unless  its  supervisory
condition is such to allow it to maintain a 3% ratio.  At December 31, 1997, the
Association had no intangible assets which were subject to these tests.

         At December 31, 1997,  the  Association  had core capital equal to $3.6
million,  or 11.2% of adjusted  total  assets,  which is $2.7 million  above the
minimum leverage ratio requirement of 3% as in effect on that date.

          The OTS risk-based  requirement  requires savings associations to have
total capital of at least 8% of risk-weighted  assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain  permanent  and  maturing  capital  instruments  that do not
qualify as core capital and general  valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based  requirement  only to the extent of core capital.  The
OTS is  also  authorized  to  require  a  savings  association  to  maintain  an
additional  amount of total capital to account for  concentration of credit risk
and  the  risk  of  non-traditional   activities.  At  December  31,  1997,  the
Association had no capital instruments that qualify as supplementary capital and
$178,000 of general loss  reserves,  which was less than 1.25% of  risk-weighted
assets.
<PAGE>
         Certain  exclusions from capital and assets are required to be made for
the purpose of calculating  total  capital.  Such  exclusions  consist of equity
investments  (as  defined  by  regulation)  and that  portion  of land loans and
nonresidential  construction  loans in excess of an 80% loan-to-value  ratio and
reciprocal  holdings of qualifying  capital  instruments.  The  Association  had
exclusions from capital and assets at December 31, 1997 of $18,500.

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

         The  OTS  has  adopted  a  final  rule  that  requires   every  savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement,  an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets.  This exposure is a measure of the potential decline in the
net  portfolio  value of a savings  association,  greater than 2% of the present
value of its  assets,  based upon a  hypothetical  200 basis  point  increase or
decrease  in  interest  rates  (whichever  results  in a greater  decline).  Net
portfolio  value is the  present  value of  expected  cash  flows  from  assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between  calculating  interest rate risk and  recognizing any deduction from
capital.  Any savings  association  with less than $300  million in assets and a
total risk-based  capital ratio in excess of 12% is exempt from this requirement
unless the OTS determines otherwise.

         On December 31, 1997, the Association had total capital of $3.6 million
(including $3.6 million in core capital and $178,000 in qualifying supplementary
capital) and  risk-weighted  assets of $14.1 million  (including $0 in converted
off-balance  sheet assets);  or total capital of 26.9% of risk-weighted  assets.
This amount was 18.9% above the 8% requirement in effect on that date.

         OTS  regulations  also  authorize  the  OTS  to  require  a  depository
institution to maintain additional total capital to account for concentration of
credit risk or risks arising from non-traditional activities.

         The OTS and the FDIC are authorized  and,  under certain  circumstances
required, to take certain actions against savings associations that fail to meet
their capital  requirements.  Effective  December 19, 1992, the federal  banking
agencies,  including the OTS, were given additional  enforcement  authority over
undercapitalized depository institutions.  The OTS is generally required to take
action  to  restrict  the  activities  of  an   "undercapitalized   association"
(generally defined to be one with less than either a 4% core capital ratio, a 4%
Tier 1 risked-based  capital ratio or an 8% risk-based  capital ratio). Any such
association  must  submit a  capital  restoration  plan and  until  such plan is
approved by the OTS may not increase its assets,  acquire  another  institution,
establish a branch or engage in any new  activities,  and generally may not make
capital   distributions.   The  OTS  is  authorized  to  impose  the  additional
restrictions that are applicable to significantly undercapitalized associations.

          As a condition to the approval of the capital  restoration  plan,  any
company  controlling  an  undercapitalized  association  must agree that it will
enter  into  a  limited  capital  maintenance  guarantee  with  respect  to  the
institution's achievement of its capital requirements.
<PAGE>
         Any savings  association  that fails to comply with its capital plan or
is  "significantly  undercapitalized"  (i.e.,  Tier 1 risk-based or core capital
ratios of less than 3% or a  risk-based  capital  ratio of less than 6%) must be
made  subject  to one or more of  additional  specified  actions  and  operating
restrictions, which may cover all aspects of its operations and include a forced
merger  or  acquisition  of  the   association.   An  association  that  becomes
"critically  undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly  undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator  with the concurrence of the FDIC) for a
savings  association,  with certain limited exceptions,  within 90 days after it
becomes critically  undercapitalized.  Any undercapitalized  association is also
subject to the general enforcement  activity of the OTS and the FDIC,  including
the appointment of a receiver or conservator.

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

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

Limitations on Dividends and Other Capital Distributions

         OTS  regulations   impose  various   restrictions  or  requirements  on
associations  with  respect  to their  ability  to pay  dividends  or make other
distributions of capital. OTS regulations prohibit an association from declaring
or paying any dividends or from  repurchasing  any of its stock if, as a result,
the  regulatory  capital of the  association  would be reduced  below the amount
required to be maintained for the liquidation  account established in connection
with its mutual to stock conversion.

         The OTS utilizes a three-tiered approach to permit associations,  based
on their capital level and supervisory condition,  to make capital distributions
which include dividends, stock redemptions or repurchases,  cash-out mergers and
other  transactions  charged to the capital account.  See "- Regulatory  Capital
Requirements."

         Generally, Tier 1 associations,  which are associations that before and
after the proposed distribution meet their fully phased-in capital requirements,
may make capital  distributions during any calendar year equal to the greater of
100% of net  income  for the  year-to-date  plus 50% of the  amount by which the
lesser of the  association's  tangible,  core or risk-based  capital exceeds its
fully phased-in capital  requirement for such capital component,  as measured at
the  beginning  of the  calendar  year,  or the amount  authorized  for a Tier 2
association.  However,  a Tier 1  association  deemed to be in need of more than
normal  supervision  by  the  OTS  may  be  downgraded  to a  Tier  2 or  Tier 3
association  as a result  of such a  determination.  The  Association  meets the
requirements  for a Tier 1  association  and has not been notified of a need for
more than normal supervision.  Tier 2 associations,  which are associations that
before and after the proposed  distribution  meet their current  minimum capital
requirements, may make capital distributions of up to 75% of net income over the
most recent four quarter period.
<PAGE>
         Tier 3 associations  (which are  associations  that do not meet current
minimum capital  requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of the
noted  safe  harbor  level  must  obtain  OTS  approval  prior  to  making  such
distribution.  Tier 2  associations  proposing  to make a  capital  distribution
within the safe harbor provisions and Tier 1 associations  proposing to make any
capital distribution need only submit written notice to the OTS 30 days prior to
such distribution.  As a subsidiary of the Holding Company, the Association will
also be required to give the OTS 30 days' notice prior to declaring any dividend
on its stock. The OTS may object to the  distribution  during that 30-day period
based on safety and soundness concerns. See "Regulatory Capital Requirements."

         The OTS has proposed  regulations that would revise the current capital
distribution restrictions.  The proposal eliminates the current tiered structure
and the  safe-harbor  percentage  limitations.  Under  the  proposal  a  savings
association may make a capital distribution without notice to the OTS (unless it
is a  subsidiary  of a  holding  company)  provided  that  it has a CAMEL 1 or 2
rating, is not in troubled condition and would remain adequately capitalized (as
defined by regulation) following the proposed distribution. Savings associations
that would remain adequately capitalized following the proposed distribution but
do not meet the other  noted  requirements  must notify the OTS 30 days prior to
declaring a capital  distribution.  The OTS stated it will  generally  regard as
permissible that amount of capital  distributions  that do not exceed 50% of the
institution's  excess  regulatory  capital  plus net  income to date  during the
calendar year. A savings association may not make a capital distribution without
prior approval of the OTS and the FDIC if it is undercapitalized before, or as a
result of, such a  distribution.  A savings  association  will be  considered in
troubled  condition  if it  has a  CAMEL  rating  of 4 or 5,  is  subject  to an
enforcement  action relating to its safety and soundness or financial  viability
or has been informed in writing by the OTS that it is in troubled condition.  As
under the current rule, the OTS may object to a capital distribution if it would
constitute  an unsafe  or  unsound  practice.  No  assurance  may be given as to
whether or in what form the regulations may be adopted.

Liquidity

         All savings  associations,  including the Association,  are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what the Association
includes in liquid assets,  see "Business - Investment  Activities." This liquid
asset  ratio  requirement  may  vary  from  time to time  (between  4% and  10%)
depending   upon   economic   conditions   and  savings  flows  of  all  savings
associations. At the present time, the minimum liquid asset ratio is 5%.

         In  addition,  short-term  liquid  assets  (e.g.,  cash,  certain  time
deposits,  certain  bankers  acceptances  and short-term  United States Treasury
obligations)  currently must constitute at least 1% of the association's average
daily  balance of net  withdrawable  deposit  accounts  and current  borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement.  At December 31, 1997, the Association was in compliance with
both  requirements,  with an overall liquid asset ratio of 8.2% and a short-term
liquid assets ratio of 8.0%.
<PAGE>
Accounting

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

         The OTS has adopted an amendment to its accounting  regulations,  which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying  economic substance and
inherent risk and that financial  reports must  incorporate any other accounting
regulations  or orders  prescribed by the OTS. The  Association is in compliance
with these amended rules.

Qualified Thrift Lender Test

         All savings  associations,  including the Association,  are required to
meet a qualified  thrift lender  ("QTL") test to avoid certain  restrictions  on
their operations.  This test requires a savings association to have at least 65%
of  its  portfolio  assets  (as  defined  by  regulation)  in  qualified  thrift
investments  on a monthly  average  for nine out of every 12 months on a rolling
basis.  Such assets primarily  consist of residential  housing related loans and
investments.  At  December  31,  1997,  the  Association  complied  with the QTL
requirement.

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

Community Reinvestment Act

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

         The federal banking agencies,  including the OTS, have recently revised
the CRA  regulations  and  the  methodology  for  determining  an  institution's
compliance with the CRA. Due to the heightened  attention being given to the CRA
in the past few years,  the  Association  may be required  to devote  additional
funds for investment and lending in its local  community.  The  Association  was
examined for CRA compliance in 1996 and received a rating of "Satisfactory",  as
indicated in the OTS Community  Reinvestment Act Performance  Evaluation  public
disclosure dated April 1, 1996.

Transactions with Affiliates

         Generally,   transactions   between  a  savings   association   or  its
subsidiaries  and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates.  In addition,  certain of these
transactions,  such as loans to an affiliate,  are restricted to a percentage of
the  association's  capital.  Affiliates of the Association  include the Holding
Company and any company which is under common control with the  Association.  In
addition,  a  savings  association  may not  lend to any  affiliate  engaged  in
activities not  permissible for a bank holding company or acquire the securities
of most affiliates.

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

Holding Company Regulation

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

         As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan  holding  company,  and the  activities  of the  Company and any of its
subsidiaries  (other  than the  Association  or any other  SAIF-insured  savings
association)  would  become  subject  to such  restrictions  unless  such  other
associations  each  qualify  as  a  QTL  and  were  acquired  in  a  supervisory
acquisition.
<PAGE>
         If the  Association  fails the QTL test,  the  Company  must obtain the
approval of the OTS prior to continuing after such failure,  directly or through
its other  subsidiaries,  any business  activity  other than those  approved for
multiple savings and loan holding companies or their subsidiaries.  In addition,
within one year of such failure the Holding  Company must  register as, and will
become subject to, the restrictions  applicable to bank holding  companies.  The
activities  authorized for a bank holding  company are more limited than are the
activities  authorized  for a  unitary  or  multiple  savings  and loan  holding
company. See "- Qualified Thrift Lender Test."

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

Federal Securities Law

         The  stock  of the  Company  is  registered  with  the  SEC  under  the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the SEC under the Exchange Act.

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

Federal Reserve System

         The Federal  Reserve  Board  requires all  depository  institutions  to
maintain  non-interest  bearing  reserves  at  specified  levels  against  their
transaction accounts (primarily checking,  NOW and Super NOW checking accounts).
At December 31, 1997,  the  Association  was in  compliance  with these  reserve
requirements.  The balances maintained to meet the reserve  requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity  requirements that
may be imposed by the OTS. See "- Liquidity."

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

Federal Home Loan Bank System

         The  Association is a member of the FHLB of Dallas,  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. These policies and procedures are subject
to the  regulation  and  oversight of the Federal  Housing  Finance  Board.  All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition,  all long-term  advances are required to
provide funds for residential home financing.
<PAGE>
         As a member, the Association is required to purchase and maintain stock
in the FHLB of Dallas.  At December 31, 1997,  the  Association  had $259,300 of
FHLB stock,  which was in compliance with this  requirement.  In past years, the
Association has received substantial  dividends on its FHLB stock. Over the past
five fiscal years such  dividends have averaged 5.0% and were 5.96% for the year
ended  December 31, 1997.  No assurance  can be given that such  dividends  will
continue in the future at such levels.

         Under  federal  law,  the FHLBs are  required to provide  funds for the
resolution  of  troubled  savings  associations  and to  contribute  to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income  housing
projects.  These  contributions  have  affected  adversely  the  level  of  FHLB
dividends  paid and could continue to do so in the future.  These  contributions
could also have an adverse  effect on the value of FHLB stock in the  future.  A
reduction in value of the Association's FHLB stock may result in a corresponding
reduction in the Association's capital.

Federal and State Taxation

         Federal  Taxation.  Savings  associations  such as the Association that
meet certain  definitional tests relating to the composition of assets and other
conditions  prescribed  by the Internal  Revenue  Code of 1986,  as amended (the
"Code"),  are  permitted to establish  reserves for bad debts and to make annual
additions  thereto which may, within  specified  formula  limits,  be taken as a
deduction in  computing  taxable  income for federal  income tax  purposes.  The
amount of the bad debt reserve deduction for "non-qualifying  loans" is computed
under the experience  method.  For tax years beginning before December 31, 1995,
the amount of the bad debt  reserve  deduction  for  "qualifying  real  property
loans" (generally,  loans secured by improved real estate) may be computed under
either the  experience  method or the percentage of taxable income method (based
on an annual election).  If a savings  association elected the latter method, it
could claim,  each year, a deduction  based on a percentage  of taxable  income,
without regard to actual bad debt experience.

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

         Under recently  enacted  legislation,  the percentage of taxable income
method has been  repealed for years  beginning  after  December  31,  1995,  and
"large"  associations,  i.e., the quarterly average of the  association's  total
assets  or of the  consolidated  group  of which it is a  member,  exceeds  $500
million for the year, may no longer be entitled to use the experience  method of
computing  additions to their bad debt reserve.  A "large"  association must use
the direct write-off method for deducting bad debts, under which charge-offs are
deducted  and  recoveries  are taken into  taxable  income as  incurred.  If the
Association is not a "large"  association,  the Association  will continue to be
permitted to use the  experience  method.  The  Association  will be required to
recapture (i.e.,  take into income) over a six-year period its applicable excess
reserves,  i.e, the balance of its reserves for losses on  qualifying  loans and
nonqualifying  loans,  as of the  close of the last  tax year  beginning  before
January 1, 1996,  over the  greater of (a) the  balance of such  reserves  as of
<PAGE>
December 31, 1987 (pre-1988  reserves) or (b) in the case of a bank which is not
a "large"  association,  an amount  that  would  have been the  balance  of such
reserves as of the close of the last tax year beginning  before January 1, 1996,
had the bank always  computed the additions to its reserves using the experience
method.  Postponement  of the recapture is possible for a two-year  period if an
association  meets a minimum level of mortgage  lending for 1996 and 1997. As of
December 31, 1997, the  Association's bad debt reserve subject to recapture over
a six-year period totaled approximately $123,000.

         If an  association  ceases to qualify  as a "bank" (as  defined in Code
Section  581) or converts  to a credit  union,  the  pre-1988  reserves  and the
supplemental  reserve are  restored to income  ratably  over a six-year  period,
beginning in the tax year the  association  no longer  qualifies as a bank.  The
balance of the  pre-1988  reserves  are also subject to recapture in the case of
certain excess  distributions  to (including  distributions  on liquidation  and
dissolution), or redemptions of, shareholders.

         In addition to the regular federal income tax, corporations,  including
savings associations such as the Association, generally are subject to a minimum
tax.  An  alternative  minimum  tax is imposed  at a minimum  tax rate of 20% on
alternative minimum taxable income, which is the sum of a corporation's  regular
taxable income (with certain  adjustments)  and tax preference  items,  less any
available  exemption.  The  alternative  minimum tax is imposed to the extent it
exceeds the corporation's regular income tax and net operating losses can offset
no more than 90% of  alternative  minimum  taxable  income.  For  taxable  years
beginning  after  1986  and  before  1996,   corporations,   including   savings
associations  such as the Association,  are also subject to an environmental tax
equal to 0.12% of the  excess of  alternative  minimum  taxable  income  for the
taxable  year  (determined  without  regard  to net  operating  losses  and  the
deduction for the environmental tax) over $2 million.

         To the extent earnings appropriated to a savings association's bad debt
reserves for  "qualifying  real property  loans" and deducted for federal income
tax purposes  exceed the allowable  amount of such reserves  computed  under the
experience method and to the extent of the Association's  supplemental  reserves
for  losses on loans  ("Excess"),  such  Excess  may not,  without  adverse  tax
consequences,   be  utilized  for  the  payment  of  cash   dividends  or  other
distributions   to  a  shareholder   (including   distributions  on  redemption,
dissolution or  liquidation) or for any other purpose (except to absorb bad debt
losses).  As of December 31,  1997,  the  Association's  excess for tax purposes
totaled approximately $368,000.

         The  Association  files  federal  income tax returns on a calendar year
basis  using the cash  method of  accounting.  The  Company has filed a separate
federal income tax return from the Association.  Savings  associations,  such as
the Association,  that file federal income tax returns as part of a consolidated
group are required by applicable  Treasury  regulations  to reduce their taxable
income for purposes of computing the  percentage  bad debt  deduction for losses
attributable  to  activities  of  the  non-savings  association  members  of the
consolidated  group  that are  functionally  related  to the  activities  of the
savings association member.

         The  Association was audited by the IRS in 1997 with respect to federal
income tax returns.  The audit did not result in material  changes that affected
the financial condition of the Association.
<PAGE>
         State Taxation.  The Louisiana  Corporation Income Tax Act provides for
an exemption from the Louisiana  Corporation Income Tax for mutual savings banks
and for banking  corporations,  which  includes  stock  association  (e.g.,  the
Association).  However,  this exemption does not extend to non-banking  entities
such as the Company. The non-banking subsidiaries of the Association (as well as
the Company) are subject to the  Louisiana  Corporate  Income Tax based on their
Louisiana taxable income, as well as franchise taxes. The Louisiana  Corporation
Income  Tax  applies  at  graduated  rates  from 4% upon the  first  $25,000  of
Louisiana  taxable  income to 8% on all  Louisiana  taxable  income in excess of
$200,000. For these purposes,  "Louisiana taxable income" means net income which
is earned within or derived from sources  within the State of  Louisiana,  after
adjustments  permitted  under  Louisiana  law  including  a federal  income  tax
deduction and an allowance for net operating  losses,  if any. In addition,  the
Association  is  subject  to the  Louisiana  Shares  Tax which is imposed on the
assessed value of the Association's stock. The formula for deriving the assessed
value is to calculate 15% of the sum of (i) 20% of a  corporation's  capitalized
earnings,  plus (ii) 80% of a corporation's taxable stockholders' equity, and to
subtract  from that amount 50% of a  corporation's  real and  personal  property
assessment.  Other  various  items  may  also be  subtracted  in  calculating  a
corporation's capitalized earnings.

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

Employees

         At December 31, 1997, the Association had a total of 15 full-time and 3
part-time  employees.  The  Association's  employees are not  represented by any
collective  bargaining group.  Management considers its employee relations to be
excellent.

Executive Officers of the Association and the Company Who Are Not Directors

         Betty Jean Parker.  Mrs.  Parker,  age 53, is the  Treasurer  and Chief
Financial  Officer of the  Association.  Until June 1996,  Mrs.  Parker was also
Corporate  Secretary of the  Association.  Mrs.  Parker is  responsible  for the
supervision  of the  accounting  department  and  reporting  to  the  regulatory
authorities.
<PAGE>
Item 2.  Description of Property

         The Company  conducts  its  business  through two  offices,  located in
Oakdale,  Louisiana and Oberlin,  Louisiana in Allen Parish. The following table
sets forth information  relating to the Association's  office as of December 31,
1997.  The  total  net  book  value  of the  Company's  premises  and  equipment
(including land,  buildings and leasehold  improvements and furniture,  fixtures
and equipment) at December 31, 1997 was approximately $262,000.
<TABLE>
<CAPTION>
                                                       Total
                                                    Approximate
                                       Year            Square          Net Book Value at
      Location                        Opened           Footage         December 31, 1997
      --------                        ------           -------         -----------------

<S>                                    <C>              <C>                <C>
Main Office:                           1975             4,100              $262,000
222 South 10th Street
Oakdale, Louisiana

Loan Production Office:                1997             1,000                    --
215 Sixth Avenue
Oberlin, Louisiana  70655
</TABLE>


Item 3.  Legal Proceedings

         The Company is involved,  from time to time,  as plaintiff or defendant
in various legal actions arising in the normal course of their businesses. While
the ultimate outcome of these proceedings cannot be predicted with certainty, it
is the opinion of management,  after consultation with counsel  representing the
Company in the proceedings,  that the resolution of these proceedings should not
have a  material  effect on the  Company's  financial  position  or  results  of
operations on a consolidated basis.

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 fiscal year ended December 31, 1997.
<PAGE>

                                     PART II

Item 5.  Market for the Registrant's Common Stock and Related Security
         Holder Matters

         Pages 48 to 49 of the attached  1997 Annual Report to  Shareholders  is
herein incorporated by reference.

Item 6.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

         Pages 6 to 16 of the attached  1997 Annual Report to  Shareholders  are
herein incorporated by reference.

Item 7.  Financial Statements

         Pages 17 to 47 of the attached 1997 Annual Report to  Shareholders  are
herein incorporated by reference.

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

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

                                    PART III

Item 9.  Directors and Executive Officers of the Registrant

         Information  concerning  Directors of the  Registrant  is  incorporated
herein by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on April 30, 1998.

Item 10.  Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference from the Company's  definitive  Proxy Statement for the Annual Meeting
of Shareholders scheduled to be held on April 30, 1998.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

         Information  concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's definitive
Proxy Statement for the Annual Meeting of  Shareholders  scheduled to be held on
April 30, 1998.

Item 12.  Certain Relationships and Related Transactions

         Information   concerning  certain  relationships  and  transactions  is
incorporated  herein by reference from the Company's  definitive Proxy Statement
for the Annual Meeting of Shareholders scheduled to be held on April 30, 1998.
<PAGE>
Item 13.  Exhibits List and Reports on Form 8-K

         (a) (1)  Financial Statements:

         The following  information  appearing in the Registrant's Annual Report
to  Shareholders  for the year ended  December  31,  1997,  is  incorporated  by
reference in this Form 10-KSB Annual Report as Exhibit 13.
<TABLE>
<CAPTION>
                                                                                         Page in
                                                                                          Annual
               Annual Report Section                                                     Report
               ---------------------                                                     ------
<S>                                                                                       <C>
Report of Independent Auditors........................................................     17

Consolidated Statements of Financial Condition at December 31, 1997 and 1996..........     18

Consolidated Statements of Income for the Years ended December 31, 1997 and 1996......     19

Consolidated Statements of Stockholders' Equity for the Years ended
   December 31, 1997 and 1996.........................................................     20

Consolidated Statements of Cash Flows for the Years ended December 31, 1997 and 1996..    21-22

Notes to Consolidated Financial Statements............................................    23-47
</TABLE>

         (a)(2)  Financial   Statement   Schedules  -  All  financial  statement
schedules  have been omitted as the  information is either  inapplicable  or not
required under the related instructions.

         (a)(3)  Exhibits - The following  exhibits are either filed or attached
as part of this report or are incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
                                                                                    Reference to
Regulation                                                                        Prior Filing or
S-B Exhibit                                                                        Exhibit Number
  Number                                 Document                                 Attached Hereto
  ------                                 --------                                 ---------------
<S>                    <C>                                                              <C>
2                      Plan of acquisition, reorganization,                             None
                       arrangement, liquidation or succession

3                      Certificate of Incorporation and Bylaws                           *

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

9                      Voting trust agreement                                           None

10.1                   Employment Agreement with Charles L. Galligan                     *


                       Employment Agreement with Betty Jean Parker                       *
10.2

10.3                   Employee Stock Ownership Plan                                     *

10.4                   Proposed 1998 Stock Option and Incentive Plan                    10.4

10.5                   Proposed Recognition and Retention Plan                          10.5

11                     Statement re: computation of per                                 None
                         share earnings

12                     Statement re: computation or ratios                          Not required
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                    Reference to
Regulation                                                                        Prior Filing or
S-B Exhibit                                                                        Exhibit Number
  Number                                 Document                                 Attached Hereto
  ------                                 --------                                 ---------------
<S>                    <C>                                                              <C>
13                     Annual Report to Security Holders                                 13

16                     Letter re: change in certifying                                  None
                         accountant

18                     Letter re: change in accounting                                  None
                         principles

21                     Subsidiaries of Registrant                                        21

22                     Published report regarding matters                               None
                        submitted to vote of security holders

23                     Consent of experts and counsel                                   None

24                     Power of Attorney                                            Not Required

27                     Financial Data Schedule                                           27

28                     Information from reports furnished to                            None
                        State insurance regulatory authorities

99                     Additional exhibits                                              None
</TABLE>
-------------------

         *Filed on June 25,  1996,  as  exhibits to the  Registrant's  Form SB-2
registration statement  (Registration No. 333-6803),  pursuant to the Securities
Act of 1933.  All of such  previously  filed  documents are hereby  incorporated
herein by reference in accordance with Item 601 of Regulation S-B.

         (b) Reports on Form 8-K - No Form 8-K was filed during the last quarter
             of the year covered by this Form 10-KSB.
<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 ALLEN PARISH BANCORP, INC.


Date: March 27, 1998                     By:  /s/ Charles L. Galligan
                                              -----------------------
                                              Charles L. Galligan, President and
                                                Chief Executive Officer

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


By:   /s/ Charles L. Galligan                 By:   /s/ Betty Jean Parker
      -----------------------                       ---------------------
      Charles L. Galligan, President and            Betty Jean Parker, Treasurer
        Chief Executive Officer                     (Principal Financial and
      (Principal Executive Officer)                 Accounting Officer)

Date: March 27, 1998                          Date: March 27, 1998


By:   /s/ Dr. James D. Sandefur               By:   /s/ Jesse Boyd, Jr.
      -------------------------                     -------------------
      Dr. James D. Sandefur, Chairman               Jesse Boyd, Jr., Director


Date: March 27, 1998                          Date: March 27, 1998


By:   /s/ James E. Riley                      By:   /s/ J. C. Smith
      ------------------                            ----------------
      James E. Riley, Director                      J. C. Smith,  Director

Date: March 27, 1998                          Date: March 27, 1998


By:   /s/ Leslie A. Smith
      -------------------
      Leslie A. Smith, Director

Date: March 27, 1998
<PAGE>



                                Index to Exhibits


Exhibit 10.4                Proposed 1998 Stock Option and Incentive Plan
Exhibit 10.5                Proposed Recognition and Retention Plan
Exhibit 13                  1997 Annual Report to Stockholders
Exhibit 21                  Subsidiaries of the Registrant
Exhibit 27                  Financial Data Schedule