SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

|X|  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

                   For the fiscal year ended December 31, 1996

                                       OR

|_|  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

           For the transition period from ____________ to ____________

                         Commission file number 33-76930

                         TELEBANC FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)

            DELAWARE                                            13-3759196
 (State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                             Identification No.)

   1111 NORTH HIGHLAND STREET, ARLINGTON, VIRGINIA              22201
      (Address of principal executive offices)               (Zip Code)

       Registrant's telephone number, including area code: (703) 247-3700.

           Securities registered pursuant to Section 12(b) of the Act:

                                (Not applicable)

           Securities registered pursuant to Section 12(g) of the Act:

                                (Not applicable)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that 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
                                             ---     ---

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of  Regulation  S-K (Section  229.405 of this chapter) is not contained
herein,  and will not be contained,  to the best of registrant's  knowledge,  in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ X ]

         Based upon the closing  price of the  registrant's  common  stock as of
March  20,  1997,  the  aggregate  market  value  of the  voting  stock  held by
non-affiliates of the registrant is $10.4 million.*

         The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date is:

                 Class: Common Stock, par value $.01 per share.
                Outstanding at March 20, 1997: 2,211,961 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE:

PART I AND II:
         Annual report to  shareholders  for the  fiscal year ended December 31,
1996.
PART III:
         Portions of the definitive  proxy statement for the 1996 Annual Meeting
of Shareholders.

*    Solely  for  purposes  of this  calculation,  all  executive  officers  and
     directors  of  the  registrant,  Employee  Stock  Ownership  Plan  and  all
     shareholders  reporting  beneficial  ownership  of  more  than  5%  of  the
     registrant's  common stock are considered to be affiliates.  This reference
     to affiliate status is not necessarily a conclusive determination for other
     purposes.
<PAGE>

                                     PART I


ITEM 1.       BUSINESS


GENERAL


         TeleBanc  Financial  Corporation  (the "Company" or  "TeleBanc"),  with
headquarters in Arlington,  Virginia,  had total assets of $647.9 million at the
end of 1996.  The primary  business of TeleBanc is that of TeleBank (the "Bank")
formerly known as Metropolitan Bank for Savings,  F.S.B., whose deposit accounts
are insured by the Savings  Association  Insurance  Fund ("SAIF") of the Federal
Deposit Insurance  Corporation  ("FDIC").  The Company was organized by its then
majority stockholder,  MET Holdings Corporation ("MET Holdings"),  to become, in
March 1994,  the parent  savings  and loan  holding  company  for the Bank.  All
references to the Company include the business of the Bank.  Financial and other
data as of and for all periods prior to March 1994  represent  the  consolidated
data of the Bank only.


         The Company's revenues are derived  principally from interest income on
loans,  mortgage-backed  and related  securities,  and interest and dividends on
investment  securities and  interest-bearing  deposits.  The Company's principal
expenses are interest expense on deposits and borrowings and operating expenses,
such as compensation and employee  benefits.  The Company's revenues also may be
offset by losses on hedging  transactions  and other trading  account  losses as
part of the Company's  asset/liability  management  strategies.  Funds for these
activities  are  provided  by  deposits,  borrowings,  principal  repayments  on
outstanding  loans and  mortgage-backed  and  related  securities,  and sales of
investment  securities  held for trading.  At December  31, 1996,  81.44% of the
Company's total assets were comprised of one- to four-family  mortgage loans and
mortgage-backed and related securities.


         During the second  quarter of 1996,  the Bank  through its wholly owned
subsidiary  TeleBanc  Servicing  Corporation  ("TSC")  funded 50% of the capital
commitment for a new entity,  AGT Mortgage Services,  LLC ("AGT").  AGT services
performing  loans and workouts  for  troubled or defaulted  loans for a fee. The
Bank also provided in the second quarter of 1996, 50% of the capital  commitment
for an additional new entity,  AGT PRA, LLC ("AGT PRA"). The primary business of
AGT PRA is its investment in Portfolio  Recovery  Associates,  LLC ("PRA").  PRA
acquires  and  collects   delinquent  consumer  debt  obligations  for  its  own
portfolio.


         On February 28, 1997, the Company consummated the sale of $29.9 million
of units in the form of convertible  preferred stock,  senior subordinated notes
and  warrants  and  the  purchase  of the  assets  of  Arbor  Capital  Partners,
Inc.("Arbor"), a registered investment advisor, funds manager and broker-dealer.
MET Holdings, TeleBanc's majority shareholder, owns a majority of Arbor.


         The $29.9 million in units were sold to investment partnerships managed
by Conning & Company,  General American Life Insurance  Company,  CIBC WG Argosy
Merchant Fund 2, LLC, The Progressive  Corporation,  and The Northwestern Mutual
Life Insurance Company.  Representatives  from the Conning  partnerships and the
CIBC Merchant  Fund will serve on the Board.  The units consist of $13.7 million
in 9.5%  senior  subordinated  notes with  198,088  detachable  warrants,  $16.2
million in 4.0% convertible  preferred  stock, and rights to 205,563  contingent
warrants.


         Also as part of the sale of units,  the  Arbor  asset  acquisition  was
structured as a tax free issuance of 162,461 shares of TeleBanc common stock and
a $500,000 cash payment for the Arbor assets.  An independent  appraisal  valued
the assets to be acquired from Arbor at $3.1 million. Consistent with TeleBanc's
charter, the number of shares issued to Arbor as consideration was limited to 5%
of total market value of outstanding TeleBanc stock at the time of acquisition.



                                       1
<PAGE>



MARKET AREA AND COMPETITION


         From its office in Arlington, Virginia, the Company has a customer base
in all 50 states and the  District  of  Columbia.  As a result of the  Company's
direct marketing strategy for deposits and reliance upon the secondary market to
purchase mortgage loans and mortgage-backed and related securities,  the Company
competes on a  nationwide  basis for  deposits and  investments  in  residential
mortgage  products.  Generally,  the Company faces  substantial  competition for
deposits from thrifts,  commercial banks,  credit unions, and other institutions
providing retail investment opportunities. The ability of the Company to attract
and retain deposits depends on its ability to provide an investment  opportunity
meeting the requirements of investors as to rate of return,  liquidity, risk and
other factors,  as well as on the perception of depositors as to the convenience
and quality of its services. Competition in residential mortgage investing comes
primarily from commercial banks, thrift institutions, and purchasers of mortgage
products in the secondary market. The Company competes for residential  mortgage
investments  principally on the basis of bid price and for loans on the basis of
interest rate, fees it charges, and loan types offered.


LENDING ACTIVITIES


         GENERAL.  The Company's  lending  activities  consist  primarily of the
purchases of whole loans and  mortgage-backed and related securities rather than
the  production  and  origination  of  loans,  which  entails  greater  overhead
expenses, commonly found in a traditional thrift or community bank.


         LOAN PORTFOLIO COMPOSITION.  The Company's net loans receivable totaled
$351.8  million at December 31, 1996,  or 54.3% of total assets at that date. At
December  31,  1996,  $359.6  million,  or 97.6% of the  total  loan  portfolio,
consisted of one- to four-family  residential mortgage loans. Prior to 1990, the
Company originated a limited number of loans for the purchase or construction of
multifamily  and  commercial  real  estate.  However,  in the three  years ended
December 31, 1996, as part of the Company's general operating  strategy,  and to
risks  associated  with  multifamily  and  commercial  real  estate  lending and
prevailing  economic  conditions,  the  Company  has  substantially  reduced its
originations and purchases of such loans. At December 31, 1996,  multifamily and
commercial and mixed use real estate loans amounted to $6.7 million, or 1.8%, of
the Company's total loan  portfolio.  The Company's loan portfolio also includes
lease  financing  at December  31, 1993 and 1992.  These loans  represent  lease
financing  assumed by the Company in 1991 upon the default of a commercial  loan
to an automobile  leasing company which was 33% owned by the Bank's  subsidiary,
ARLO Service Corporation  ("ARLO").  Currently,  the Company originates consumer
loans to a very limited extent, and only as an accommodation to deposit and loan
customers.  Such loans,  which consist  primarily of home equity lines of credit
and loans secured by savings deposits,  amounted to $1.5 million, or 0.4% of the
Company's total loan portfolio at December 31, 1996.



                                       2
<PAGE>


         The following  table sets forth  information  concerning  the Company's
loan portfolio in dollar amounts and in percentages, by type of loan.

<TABLE>
<CAPTION>

                                                                                   AT DECEMBER 31,
                                                                1996       %        1995       %        1994       %
                                                              --------- -------   --------  ------   --------- -------
                                                                                (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>      <C>        <C>     <C>         <C>
Real estate loans:
   One- to four-family fixed-rate............................ $ 142,211  38.59%   $105,750   39.91%  $  67,449   42.54%
   One- to four-family adjustable-rate.......................   217,352  58.97     148,928   56.20      79,701   50.27
   Multifamily...............................................     1,516   0.41       1,286    0.49       1,114    0.70
   Commercial real estate....................................     4,017   1.09       4,553    1.72       4,385    2.77
   Mixed use real estate.....................................     1,180   0.32       1,792    0.68       1,953    1.23
   Land......................................................       781   0.21         384    0.14         387    0.24
   Construction..............................................        --     --          --      --          --      --
                                                              --------- -------   --------  ------   --------- -------
   Total real estate loans...................................   367,057  99.59     262,693   99.14     154,989   97.75
                                                              --------- -------   --------  ------   --------- -------
Consumer and other loans:
   Lease financing...........................................       --      --          --      --          --      --
   Home equity lines of credit and second mortgage loans.....     1,208   0.33       2,202    0.83       3,395    2.14
   Other (1).................................................       305   0.08          79    0.03         168    0.11
                                                              --------- -------   --------  ------   --------- -------

   Total consumer and other loans............................     1,513   0.41       2,281    0.86       3,563    2.25
                                                              --------- -------   --------  ------   --------- -------
   Total loans............................................... $ 368,570 100.00%   $264,974  100.00%  $ 158,552  100.00%
                                                              ========= =======   ========  ======   ========= =======
Deduct:
   Non accrual/cost recovery ................................      (182)                --                  --
   --
   Deferred loan fees........................................       (42)               (42)                (50)
   Deferred discounts on loans...............................   (13,750)           (14,129)             (2,835)
   Allowance for loan losses.................................    (2,957)            (2,311)               (925)
                                                              -------------       ---------           --------
Total........................................................   (16,749)           (16,482)             (3,810)
                                                              -------------       ---------           --------
Loans receivable, net........................................ $ 351,821           $248,492            $154,742
                                                              =============       =========           ========
</TABLE>
<TABLE>
<CAPTION>
                                                                          AT DECEMBER 31,
                                                                 1993      %        1992       %
                                                              --------- ------    --------- ------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>      <C>        <C>
Real estate loans:
   One- to four-family fixed-rate............................ $  44,450  43.06%   $  40,659  41.88%
   One- to four-family adjustable-rate.......................    50,708  49.14       47,529  48.97
   Multifamily...............................................       932   0.90          945   0.97
   Commercial real estate....................................     5,912   5.73        5,937   6.12
   Mixed use real estate.....................................        --     --           --     --
   Land......................................................        16   0.02           46   0.05
   Construction..............................................        --     --          190   0.20
                                                              --------- ------    --------- ------
   Total real estate loans...................................   102,018  98.85       95,306  98.19
                                                              --------- ------    --------- ------
Consumer and other loans:
   Lease financing...........................................        17   0.02          121   0.12
   Home equity lines of credit and second mortgage loans.....     1,007   0.98        1,396   1.44
   Other (1).................................................       151   0.15          242   0.25
                                                              --------- ------    --------- ------

   Total consumer and other loans............................     1,175   1.15        1,759   1.81
                                                              --------- ------    --------- ------
   Total loans............................................... $ 103,193 100.00%   $  97,065 100.00%
                                                              ========= ======    ========= ======
Deduct:
   Non accrual/cost recovery ................................        --                  --
   --
   Deferred loan fees........................................       (68)                (96)
   Deferred discounts on loans...............................    (1,431)             (2,705)
   Allowance for loan losses.................................      (835)               (659)
                                                              ---------            --------
Total........................................................    (2,334)             (3,460)
                                                              ---------            --------
Loans receivable, net........................................ $ 100,859            $93,605
                                                              =========            =======
</TABLE>

(1)  Includes  primarily loans secured by deposit accounts in the Bank, and to a
     lesser extent, unsecured consumer credit.


<PAGE>


         MATURITY OF LOAN  PORTFOLIO.  The  following  table sets forth  certain
information  at December 31, 1996  regarding the dollar amount of loans maturing
in the Company's portfolio,  including scheduled repayments of principal,  based
on contractual terms to maturity.  Demand loans, loans having no stated schedule
of repayments and no stated maturity,  and overdrafts are reported as due within
one year.  The table below does not include any estimate of  prepayments,  which
may significantly shorten the average life of a loan and may cause the Company's
actual repayment experience to differ from that shown below.
<TABLE>
<CAPTION>


                                                DUE IN ONE        DUE IN ONE        DUE AFTER
                                               YEAR OR LESS      TO FIVE YEARS     FIVE YEARS           TOTAL
                                               ------------      -------------     ----------           -----
                                                                         (IN THOUSANDS)
<S>                                              <C>              <C>              <C>              <C>
Real estate loans:
   One- to four-family fixed-rate...........     $   1,746        $   2,285        $  138,180       $   142,211
   One- to four-family adjustable-rate......           615            1,769           214,968           217,352
   Multifamily..............................            --            1,152               364             1,516
   Mixed use................................            --              349               831             1,180
   Commercial real estate...................           359            1,022             2,636             4,017
   Land.....................................            --              400               381               781
Consumer and other loans:
   Home equity lines of credit and
     second mortgage loans..................            --              251               957             1,208
   Other ...................................            --              305                --               305


     Total..................................     $   2,720        $   7,533        $  358,317       $   368,570
                                                 =========        =========        ==========       ===========
</TABLE>



         The  following  table sets  forth as of  December  31,  1996 the dollar
amount of the loans maturing  subsequent to December 31, 1997 allocated  between
those with fixed interest rates and those with adjustable interest rates.

<TABLE>
<CAPTION>
                                                               FIXED RATES     ADJUSTABLE RATES        TOTAL
                                                               -----------     ----------------        -----
                                                                               (IN THOUSANDS)
<S>                                                               <C>              <C>              <C>
Real estate loans:
   One- to four-family........................................    $140,465         $  216,737       $   357,202
   Multifamily................................................       1,180                336             1,516
   Mixed use..................................................       1,180                 --             1,180
   Commercial real estate.....................................         280              3,378             3,658
   Land.......................................................         400                381               781
Consumer and other loans:
   Home equity lines of credit and second
     mortgage loans...........................................         592                616             1,208
   Other......................................................         305                 --               305
                                                                ----------         ----------       -----------
     Total.................................................... $   144,402        $   221,448       $   365,850
                                                               ===========        ===========       ===========
</TABLE>

         Scheduled contractual principal repayments of loans may not reflect the
actual life of such assets.  The average life of loans may be substantially less
than their  contractual terms because of prepayments.  In addition,  due-on-sale
clauses on loans  generally give the Company the right to declare a conventional
loan  immediately  due and payable in the event,  among other  things,  that the
borrower  sells the  property.  The  average  life of  mortgage  loans  tends to
increase,  however,  when current  mortgage loan market rates are  substantially
higher than rates on existing  mortgage  loans and,  conversely,  decreases when
rates on existing mortgage loans are substantially  higher than current mortgage
loan market rates.

        ORIGINATION,  PURCHASE AND SALE OF LOANS.  Consistent with the Company's
strategy of minimizing  operating expenses,  the Company emphasizes the purchase
of loans rather than direct


<PAGE>



 originations.  The Company  purchased  $183.1 million,  $145.9  million,  $85.4
million,  $33.4  million,  and $21.1  million of loans  during  the years  ended
December 31, 1996,  1995,  1994,  1993,  and 1992,  respectively.  The Company's
mortgage loan originations totaled $462,000,  $2.7 million,  $4.3 million,  $1.8
million and $4.3 million in the years ended December 31, 1996, 1995, 1994, 1993,
and 1992 respectively.


         Approximately  55.3%  of the  loans  in  the  Company's  portfolio  are
serviced  by other  lenders  other  than AGT for  which the  Company  pays a fee
ranging from a minimum of 25 basis points of the  principal  balance of the loan
per annum to a maximum  of $12 per month per loan.  The  institutions  servicing
loans for the  Company,  among other  things,  collect and remit loan  payments,
maintain escrow accounts,  inspect  properties and administer  foreclosures when
necessary.


         The  Company  sells  whole  loans  to   institutional   investors  and,
accordingly, is a Federal National Mortgage Association ("FNMA") seller/servicer
and a Federal Home Loan Mortgage  Corporation  ("FHLMC")  servicer.  The bulk of
loans sold has consisted of long-term,  fixed-rate  mortgage loans sold to FNMA.
The Company generally sells such loans with servicing retained.


         The  following  table  shows  loan  origination,   purchase,  sale  and
repayment activity of the Company during the periods indicated.

<TABLE>
<CAPTION>

                                                                                     YEAR ENDED DECEMBER 31,
                                                                                 1996          1995         1994
                                                                             -----------  -----------   -----------
                                                                                          (IN THOUSANDS)
<S>                                                                          <C>          <C>           <C>
Total loans receivable at beginning of period..............................  $   248,492  $   154,742   $   100,859
Loans purchased:
 Real estate loans:
   One- to four-family variable rate.......................................      128,171       98,065        41,684
   One- to four-family fixed rate..........................................       53,915       47,845        40,155
   Multi-Family ...........................................................        1,000           --            --
   Mixed-used..............................................................           --           --         1,953
   Commercial real estate..................................................           --           --           109
   Consumer and other loans................................................           --           --         1,797
                                                                             -----------  -----------   -----------
     Total loans purchased.................................................      183,086      145,910        85,698
Loans originated:
 Real estate loans:
   One- to four-family variable rate.......................................           --           --         1,764
   One- to four-family fixed rate..........................................           25           80         1,267
   Commercial real estate..................................................           --           --         1,148
   Land ...................................................................          400           --            --
Home equity lines of credit and second mortgage loans......................           37        2,644            75
                                                                             -----------  -----------   -----------
     Total loans originated................................................          462        2,724         4,254
                                                                             -----------  -----------   -----------
     Total loans purchased and originated..................................      183,548      148,634        89,952

Loans sold.................................................................       18,829        6,192            --
Loans securitized..........................................................        8,275        2,794            --
Loan repayments............................................................       50,221       32,755        34,343
                                                                             -----------  -----------   -----------
   Total loans sold, securitized, and repaid...............................       77,325       41,741        34,343

Net change - TBFC ESOP Note Receivable ....................................           65           --            --
Net change in deferred discounts and loan fees.............................          379       11,286         1,386
Net transfers to REO ......................................................        1,513          471           250
Net provision for loan losses..............................................          646        1,386            90
Cost Recovery/Contra Assets ...............................................           41           --            --
Other loan debits/HELOC advances ..........................................          250           --            --
                                                                             -----------  -----------   -----------
Increase (decrease) in total loans receivable..............................      103,329       93,750      53,883
                                                                             -----------  -----------   -----------
Net loans receivable at end of period......................................  $   351,821  $   248,492   $   154,742
                                                                             ===========  ===========   ===========
</TABLE>


         The Company's loan purchases  during 1996 increased  $37.2 million from
fiscal  year 1995 as the  Company  continued  to expand the  Bank's  operations.
During fiscal 1996 and 1995 the Company's loan purchases  involved  purchases of
whole loans in the secondary market, principally




<PAGE>



from private  investors.  The Company's loan  purchases  during fiscal year 1996
included purchases of 35 pools with  approximately  1,253 loans and minimal loan
originations  consistent with the Company's  operating  strategy.  The Company's
loan  purchases  during  fiscal year 1995  included  purchases  of 26 pools with
approximately  1,200 loans and minimal  loan  originations  consistent  with the
Company's operating strategy. The Company's loan purchases during 1994 increased
$52.0  million from fiscal year 1993 as the Company  invested the proceeds  from
the initial public offering and expanded the Bank's operations.


         ONE-TO-FOUR  FAMILY  RESIDENTIAL  LENDING.  The Company originates both
fixed- and adjustable-rate one- to four-family mortgage loans in accordance with
FNMA and FHLMC  underwriting  guidelines for terms up to 30 years.  In 1996, the
Company originated  $25,000 of loans secured by one- to four-family  residential
properties, excluding home equity lines of credit. The Company will make one- to
four-family  mortgage  loans  with up to a 95%  loan-to-value  ratio if  private
mortgage  insurance is obtained on the portion of the principal amount in excess
of 80% of the appraised value.


         MULTIFAMILY AND COMMERCIAL REAL ESTATE LENDING. Since 1990, the Company
has not actively pursued multifamily and commercial real estate lending or loans
secured by undeveloped land, and has substantially  reduced originations of such
loans. As of December 31, 1996,  multifamily,  mixed use, commercial real estate
and land loans  amounted to $7.5 million,  or 2.03% of the Company's  total loan
portfolio.


         CONSUMER AND OTHER LENDING.  The Company does not emphasize consumer or
other loans, but from time to time, originates such loans as an accommodation to
its  customers or  purchases  such loans as part of larger loan  packages.  Such
lending  primarily  includes  home equity  lines of credit and loans  secured by
savings deposits.  During 1996, the Company originated $37,000 in consumer loans
and  $305,000 in other loans.  At December  31,  1996,  consumer and other loans
totaled  $305,000,  or 0.08% of the Company's total loan portfolio.  At December
31, 1996,  total  outstanding  home equity  lines of credit and second  mortgage
loans amounted to $1.2 million, or 0.33% of the Company's total loan portfolio.


         CRA LENDING  ACTIVITIES.  The Bank  participates  in various  community
development programs in an effort to meet its responsibilities under the CRA. In
connection  with the  organization of TeleBanc in 1994, the Bank agreed with the
Office of Thrift Supervision ("OTS") to make a minimum investment of $250,000 in
a local community  development  corporation for the purpose of financing low and
moderate income housing. In 1995, the OTS lifted the aforementioned  requirement
and the Bank has now  committed  to invest up to $500,000 in an  investment  tax
credit fund that qualifies for CRA purposes.


         In 1995, the federal financial  regulatory agencies promulgated a final
rule revising the  regulations  that implement the CRA. The revised  regulations
outline special evaluations for wholesale  institutions.  The Bank believes that
it meets the definition of a wholesale institution and that it serves the credit
needs of the  entire  nation.  The Bank will  submit a request  to the OTS to be
designated as a wholesale institution in 1997.




<PAGE>



MORTGAGE-BACKED AND RELATED SECURITIES, AND SECONDARY MARKET ACTIVITIES


         The  Company  maintains  a  significant   portion  of   mortgage-backed
securities,  primarily in the form of privately  insured  mortgage  pass-through
securities,  as well as Government National Mortgage Association ("GNMA"), FNMA,
and FHLMC participation  certificates,  and securities issued by other nonagency
organizations.  GNMA certificates are guaranteed as to principal and interest by
the  full  faith  and  credit  of  the  United  States,  while  FNMA  and  FHLMC
certificates are each guaranteed by their respective  agencies.  Mortgage-backed
securities  generally  entitle the Company to receive a pro rata  portion of the
cash flows from an identified  pool of mortgages.  The Company has also invested
in collateralized  mortgage  obligations ("CMOs") which are securities issued by
special purpose entities  generally  collateralized by pools of  mortgage-backed
securities.  The cash flows from such pools are segmented and paid in accordance
with a  predetermined  priority to various  classes of securities  issued by the
entity. The Company's CMOs are senior tranches  collateralized by federal agency
securities or whole loans. The primary issuers of the Company's CMOs at December
31, 1996 include  Residential  Mortgage  Acceptance  Corp.  and Federal  Deposit
Insurance   Corporation.......In   the  fourth  quarter  of  1995,  the  Company
reclassified the entire held-to-maturity  mortgage-backed  security portfolio to
available-for-sale. The following table sets forth the activity in the Company's
mortgage-backed   securities   held-to-maturity  portfolio  during  the  periods
indicated.




<PAGE>

<TABLE>
<CAPTION>

                                                                                YEAR ENDED DECEMBER 31,
                                                                                1995             1994
                                                                                ----             ----
                                                                                (DOLLARS IN THOUSANDS)
<S>                                                                        <C>                 <C>
Mortgage-backed and related securities at beginning
   of period (not including available for sale)...............             $  221,005          $    77,387
   Purchases:
       Pass-through securities.............................                    55,110              129,462
     CMOs.....................................................                  5,235                   --
     FNMA.....................................................                     --                5,767
     GNMA.....................................................                     --               19,243
     FHLMC....................................................                     --               18,823
   Acquired in exchange for loans.............................                (10,465)                  --
   Sales (1)..................................................                (18,813)                (896)
   Repayments.................................................                (39,155)             (28,781)
   Transfer to held for sale..................................               (212,917)                  --
                                                                             ---------         ----------
Mortgage-backed and related securities at
 end of period (not including available for sale).............             $       --          $   221,005
                                                                           ==========          ===========
</TABLE>


       The   following   table  sets  forth  the   activity  in  the   Company's
mortgage-back   securities  available  for  sale  portfolio  during  the  period
indicated.
<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                                              1996                1995
                                                                          ------------         -----------
                                                                                (DOLLARS IN THOUSANDS)
<S>                                                                        <C>                 <C>
Mortgage-backed and related securities at beginning
   of period .................................................             $  234,835          $    15,459
   Purchases:
     Pass-through securities...............................                   109,600               13,183
     CMOs.....................................................                 30,053                   --
     FNMA.....................................................                 12,102                2,634
     GNMA.....................................................                 30,687                   --
     FHLMC....................................................                 14,194               12,810
   Transfer from held to maturity.............................                     --              212,917
   Sales (1)..................................................               (185,703)             (15,755)
   Repayments.................................................                (61,805)              (6,024)
   Transfer to trading........................................                     --               (1,650)
Provision for losses on securities............................                    (22)                  --
Mark to market ...............................................                    826                  811
FASB 122 servicing ...........................................                    (24)                  --
                                                                          ------------         -----------
Mortgage-backed and related securities at
 end of period ...............................................             $  184,743          $   234,835
                                                                          ============         ===========
</TABLE>

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

(1)  Includes  mortgage-backed  securities  on  which  call  options  have  been
exercised.



<PAGE>



         The  following  table sets  forth the  scheduled  maturities,  carrying
values,  and  current  yields for the  Company's  portfolio  of  mortgage-backed
securities at December 31, 1996:

<TABLE>
<CAPTION>

                                              AFTER ONE BUT        AFTER FIVE BUT
                                            WITHIN FIVE YEARS     WITHIN TEN YEARS      AFTER TEN YEARS           TOTALS
                                           BALANCE   WEIGHTED    BALANCE   WEIGHTED    BALANCE   WEIGHTED    BALANCE   WEIGHTED
                                             DUE       YIELD       DUE       YIELD       DUE       YIELD       DUE       YIELD
                                          ---------    ------   --------     -----    ---------    ------   --------     ------
                                                               (DOLLARS IN THOUSANDS)
<S>                                       <C>           <C>     <C>           <C>     <C>           <C>     <C>           <C>
Private issuer                            $   4,116     7.01%   $  8,337      9.10%   $134,157      8.81%   $146,610      8.78%
Collateralized mortgage obligations              --       --         368      6.26      25,358      7.55      25,726      7.56
Agencies                                         --       --          --        --      12,407      8.11      12,407      8.11
                                          ---------    ------   --------     -----    ---------    ------   --------     ------
                                          $   4,116     7.01%   $  8,705      8.98%   $171,922      8.57%   $184,743      8.56%
                                          =========    =====    ========     =====    ========     ======   ========     =====
</TABLE>

<PAGE>

         In May 1996,  the  Company  formed  AGT, a 50% owned  subsidiary  which
services loans for both the Bank and third parties.  The Company  entered into a
loan servicing agreement with AGT on May 1, 1996 whereby AGT is paid a fee of $8
to $100 per loan per month  depending  upon the type of loan and  whether  it is
performing or non-performing.  AGT also receives a fee in its capacity as Master
Servicer for the  Company's  subserviced  portfolio  and is  reimbursed  for any
direct collection  expenses  including  attorney fees, repair costs, etc. During
the eight  months  ended  December  31,  1996,  the Company  paid AGT a total of
$297,029 in servicing  fees and reimbursed the subsidiary for $215,326 in direct
collection expenses.



         Most of the loans sold by the Company are sold on a servicing  retained
basis. Servicing includes collecting and remitting loan payments, holding escrow
funds for the payment of real estate taxes, contacting delinquent mortgagors, in
some cases  advancing to the investor  interest when the mortgage is delinquent,
supervising  foreclosures  in the event of  unremedied  defaults  and  generally
administering the loans.  Under loan servicing  contracts,  the Company receives
servicing  fees that are withheld  from the monthly  payments made to investors.
The Company's aggregate loan servicing fees amounted to $790,000,  $126,000, and
$61,000 in 1996, 1995, and 1994, respectively.


         The following table sets forth information regarding the Company's loan
servicing portfolio at the dates shown.

<TABLE>
<CAPTION>
                                                                      AT DECEMBER 31,
                                       -----------------------------------------------------------------------------
                                                 1996                      1995                       1994
                                       ------------------------- ------------------------- -------------------------
                                                       PERCENT                   PERCENT                   PERCENT
                                                         OF                        OF                        OF
                                         AMOUNT         TOTAL       AMOUNT        TOTAL       AMOUNT        TOTAL
                                       -----------   ----------  -----------   ----------   -----------   ----------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                    <C>              <C>      <C>              <C>       <C>             <C>
Loans owned and serviced by
   the Company.......................  $   164,745      44.7%    $   161,625      61.0%     $    57,491     36.3%
Loans owned by the Company
   and serviced by others............      203,853      55.3         103,349      39.0          101,061     63.7
                                       -----------   --------    -----------    ------          -------   ------
   Total loans owned by the
     Company.........................  $   368,598     100.0%    $   264,974     100.0%     $   158,552    100.0%
                                       ===========   =======     ===========    ======      ===========   ======
Loans serviced for others............  $    45,856               $    18,196                $     9,513
</TABLE>



NON-PERFORMING, DELINQUENT AND OTHER PROBLEM ASSETS


         GENERAL.  It is  management's  policy to monitor  continually  its loan
portfolio  to  anticipate  and  address  potential  and  actual   delinquencies.
Valuations are periodically  performed by management and an allowance for losses
on REO is  established  by a  charge  to  operations  if the  fair  value of the
property has changed.


         NONPERFORMING/UNDERPERFORMING ASSETS. Nonperforming and underperforming
assets consist of loans on which interest is no longer accrued, loans which have
been restructured in order to allow the borrower the ability to maintain control
of the collateral,  real estate acquired by foreclosure,  real estate upon which
deeds in lieu of foreclosure  have been accepted and real estate owned which has
been classified as in-substance foreclosure.  Restructured loans and real estate
owned have been written down to estimated  fair value,  based upon  estimates of
cash flow expected from the underlying collateral and appropriately discounted.




<PAGE>



         The following table sets forth  information  with respect the Company's
non-accrual loans, REO and In Substance  Foreclosures ("ISF"), and troubled debt
restructuring  ("TDRs") at the dates  indicated.  As of December 31,  1993,  the
Company no longer  classifies  ISF loans as REO, which resulted in a decrease in
REO of $2.2 million at that date as compared to prior periods.

<TABLE>
<CAPTION>

                                                                       AT DECEMBER 31,
                                              1996           1995           1994            1993           1992
                                          -----------     -----------    -----------    -----------     -----------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                       <C>             <C>            <C>            <C>             <C>
Loans accounted for on a non-accrual basis:
   Real estate loans:
     One- to four-family................  $     8,979     $     4,526    $     1,296    $     1,570     $     3,074
     Commercial real estate.............        1,217             261            702            902             866
     Land...............................           --              --             --             --              --
     Construction.......................           --              --             --             --              --
   Home equity lines of credit and
     second mortgage loans..............           54             136             41             47              --
   Other................................           --              --             27             35             120
                                          -----------     -----------    -----------    -----------     -----------
Total...................................  $    10,250     $     4,923    $     2,066    $     2,554     $     4,060
                                          ===========     ===========    ===========    ===========     ===========
Accruing loans which are contractu-
 ally past due 90 days or more:
   Real estate loans:
     One- to four-family................  $        --     $       230    $        --    $        --     $        --
                                          -----------     -----------    -----------    -----------     -----------
Total...................................  $        --     $       230    $        --    $        --     $        --
                                          ===========     ===========    ===========    ===========     ===========
Total of non-accrual and 90 days
 past due loans.........................  $    10,250     $     5,153    $     2,066    $     2,554     $     4,060
                                          ===========     ===========    ===========    ===========     ===========
REO:
   One- to four-family..................  $     1,300     $       421    $        98    $       194     $       417
   Commercial real estate...............           --              --            206            665             529
   Land.................................           --             582            581            582             582
                                          -----------     -----------    -----------    -----------     -----------
                                                1,300           1,003            885          1,441           1,528
   Loss allowance for REO...............          (65)           (213)           (92)          (221)           (162)
                                          ------------    ------------   -----------    -----------     -----------
     Total REO, net.....................        1,235             790            793          1,220           1,366
                                          -----------     -----------    -----------    -----------     -----------
Total non-performing assets, net........  $    11,485     $     5,943    $     2,859          3,774     $     5,426
                                          ===========     ===========    ===========    ===========     ===========
Total non-performing assets, net,
   as a percentage of total assets......         1.83%           1.07%           0.7%           1.7%            2.4%
                                          ============    ===========    ============   ===========     ===========
Total loss allowance as a percentage
   of total non-performing assets,
   gross................................         26.3%          39.53%         34.45%         26.43%          14.69%
                                          ============    ===========    ===========    ===========     ===========
TDRs ..................................   $       435     $       365    $       688    $       413     $       454
                                          ============    ===========    ===========    ===========     ===========
</TABLE>


         During 1996,  non-performing assets increased by $5.5 million or 93.3%.
This increase is attributed to the  acquisition  of $8.2 million of  one-to-four
family  mortgage loans that were either  non-performing  or in bankruptcy at the
time of  purchase.  The  Company  acquired  these  loans at a discount  of $1.53
million or 18.6% in order to offset the potential risk. As of December 31, 1996,
assets that were either  non-performing or in bankruptcy at the time of purchase
accounted for $2.8 million or 24.7% of total non-performing loans. The remainder
of the growth in  non-performing  assets is attributed to the overall  growth in
the Company's loan portfolio  during the year. The Company also uses a stringent
policy for  non-accrual  loans whereby these loans remain in non-accrual  status
until all arrears have been paid and the borrower has  demonstrated  the ability
to make timely payments. In addition,  non-performing loans that were originated
prior to the Bank's acquisition by MET Holdings totaled $1.5 million or 12.9% of
total non-performing assets as of December 31, 1996.


         During  the years  ended  December  31,  1996,  1995,  1994,  and 1993,
interest income of  approximately  $789,000,  $365,000,  $113,000,  and $46,000,
respectively,  would  have been  recorded  on  non-accruing  loans had they been
performing in accordance with their terms. No interest on non-accruing loans was
included in income during the years ended December 31, 1996, 1995, 1994,




<PAGE>

and 1993. TDRs are loans to which the Company has granted certain concessions in
light of the borrower's  financial  difficulty.  The objective of the Company in
granting these concessions,  through a modification of terms, is to maximize the
recovery of its investment.  This modification of terms may include reduction in
stated rate, extension of maturity at a more favorable rate, and/or reduction of
accrued  interest.  TDRs  with  concessions  totaled  approximately  $  435,000,
$365,000,  $688,000  and $413,000 at December  31,  1996,  1995,  1994 and 1993,
respectively.  TDRs continue to be closely monitored by the Company due to their
inherent risk  characteristics.  Interest income recorded on TDRs in 1996, 1995,
1994  and  1993  was  approximately  $28,000,   $45,000,   $9,000  and  $50,000,
respectively.


         Loans which are not classified as non-accrual, past due 90 days or more
or TDRs, but where known information about possible credit problems of borrowers
caused  management to have serious  doubts as to the ability of the borrowers to
comply  with  present  loan  repayment  terms and may  result in  disclosure  as
non-accrual,  past due 90 days or more or TDRs are considered  potential problem
loans. At December 31, 1996,  loans still accruing  interest,  but identified by
management as potential  problem loans aggregated $2.4 million.  The majority of
these loans, identified as "special mention" loans, includes a $2.1 million pool
of single  family,  non-performing,  performing in accordance  with a bankruptcy
plan.


         ALLOWANCE FOR LOAN LOSSES.  In originating  and purchasing  loans,  the
Company  recognizes  that credit losses will be experienced and that the risk of
loss will vary with, among other things, the type of loan, the  creditworthiness
of the borrower over the term of the loan, general economic  conditions,  and in
the case of a secured  loan,  the quality of the  security  for the loan.  It is
management's  policy to maintain an adequate allowance for loan losses based on,
among other  things,  the  Company's  and the  industry's  historical  loan loss
experience,   evaluation  of  economic   conditions,   and  regular  reviews  of
delinquencies  and loan portfolio  quality.  The Company increases its allowance
for loan losses by charging  provisions  for  possible  loan losses  against the
Company's income.


         The  Company's  methodology  for  establishing  the  allowance for loan
losses takes into  consideration  probable  losses that have been  identified in
connection with specific loans as well as losses in the loan portfolio that have
not been  identified  but can be  expected  to  occur.  General  allowances  are
established  by  management  and  approved  by the  Board  of  Directors.  These
allowances are reviewed  monthly based on an assessment of risk in the Company's
loan portfolio as a whole taking into  consideration the composition and quality
of the portfolio,  delinquency  trends,  current charge-off and loss experience,
the state of the real estate market and general economic conditions.  Additional
provisions  for losses on loans may be made in order to bring the allowance to a
level deemed adequate.  Additionally,  the Company's  internal audit consultants
have  established an independent  internal loan review program which is followed
by bank personnel.


         In general,  the Company  adds  provisions  to its  allowance  for loan
losses in amounts equal to 0.20% of on-to-four family mortgages,  0.50% for home
equity lines of credit and second trusts, 1.0% of multifamily and mixed use real
estate loans and 2.0% of  commercial  and land loans.  During 1996,  the Company
recorded a $624,000 net increase in the allowance for loan losses in relation to
the $103.4  million  increase  in the loan  portfolio.  Of this  increase in the
allowance for loan losses,  84.4% of the amount related to the general valuation
allowance ("GVA").


         During 1996, the Company purchased $53.2 million of one-to-four  family
mortgage loans which had additional credit  enhancement  available to offset any
potential losses. Two pools of loans totaling $33.5 million had a credit reserve
equal to 2.3% of the unpaid principal balance at the time of purchase  available
to offset any losses.  One pool totaling  $11.7  million has an  indemnification
whereby the seller must repurchase any loan that becomes more than four payments
past due at any  time  during  the life of the  loan.  The  final  pool of loans
totaling  $8.0 million had a credit  reserve equal to  approximately  10% of the
unpaid principal balance at the time of acquisition.  Since the available credit
enhancement  associated with these loans exceeds the expected  potential losses,
no additional reserves were recorded for them during the year.




<PAGE>






         Information regarding movements in the provision for loan losses during
the five  year  period  ending  December  31,  1996 is  incorporated  herein  by
reference  to the  section  titled  "Management's  Discussion  and  Analysis  of
Financial  Condition  and  Results of  Operations  --  Earnings  Performance  --
Provision for Loan and Security Losses" included in this Form 10-K.


        The  following  table  sets forth at  December  31,  1996 the  aggregate
carrying  value of the Company's  assets  classified as  substandard,  doubtful,
loss, and special mention according to type.

<TABLE>
<CAPTION>

                                                                                            TOTAL         SPECIAL
                                           SUBSTANDARD     DOUBTFUL         LOSS         CLASSIFIED       MENTION
                                                                       (IN THOUSANDS)
<S>                                       <C>              <C>            <C>           <C>              <C>
Loans:
   One- to four-family..................  $     8,979      $    --        $      439    $     9,418      $    2,138
   Commercial real estate...............        1,217           --               135          1,352             251
   Land.................................          --            --               --             --             --
   Home equity lines of credit and
     second mortgage....................           54           --                 5             59             --
                                          -----------      --------       ----------    -----------      ---------

Total loans.............................  $    10,250      $    --        $      579    $    10,829      $    2,389
                                          ===========      ========       ==========    ===========      ==========
REO:
   One- to four-family..................  $     1,235      $    --        $       65    $     1,300      $      --
                                          -----------      --------       ----------    -----------      ---------

Total REO...............................        1,235           --                65          1,300             --
                                          -----------      --------       ----------    -----------      ---------
Total...................................  $    11,485      $    --        $      644    $    12,129      $    2,389
                                          ===========      ========       ==========    ===========      ==========
</TABLE>



         As a result of the declines in regional  real estate  market values and
the significant  losses  experienced by many financial  institutions,  there has
been a  greater  level  of  scrutiny  by  regulatory  authorities  of  the  loan
portfolios of financial  institutions  undertaken as part of the  examination of
the  institution  by the FDIC,  OTS,  and other  state and  federal  regulators.
Although the Company  believes it has  established  its existing  allowances for
losses in accordance with generally accepted accounting principles, there can be
no assurance that  regulators,  in reviewing the Company's loan portfolio,  will
not request the Company to increase its allowance for losses, thereby negatively
affecting the Company's financial condition and earnings.




<PAGE>


         The  following  table  allocates  the allowance for loan losses by loan
category  at the  dates  indicated.  The  allocation  of the  allowance  to each
category is not  necessarily  indicative  of future losses and does not restrict
the use of the allowance to absorb losses in any other category.

<TABLE>
<CAPTION>

                                                                                   AT DECEMBER 31,
                           ---------------------------------------------------------------------------------------------------------
                                    1996                      1995                      1994                       1993
                           ------------------------  ------------------------- -------------------------- -------------------------
                                       PERCENT OF                 PERCENT OF                PERCENT OF                PERCENT OF
                                      LOANS IN EACH              LOANS IN EACH             LOANS IN EACH             LOANS IN EACH
                                       CATEGORY TO                CATEGORY TO               CATEGORY TO               CATEGORY TO
                            AMOUNT     TOTAL LOANS     AMOUNT     TOTAL LOANS    AMOUNT     TOTAL LOANS    AMOUNT     TOTAL LOANS
                           ---------  -------------  ---------  -------------- ---------   -------------  ---------- --------------
                                                                               (DOLLARS IN THOUSANDS)
<S>                        <C>            <C>       <C>             <C>        <C>            <C>        <C>            <C>
Real estate loans:
  One- to four-family..... $   2,529       97.55%    $   1,939       96.11%     $    603       92.81%     $     468      92.20%
  Multifamily.............        15        0.41            13        0.49            11        0.70              9       0.90
  Commercial real estate..       373        1.09           281        1.72           273        2.77            329       5.73
  Mixed use...............        12        0.32            18        0.68            --        1.23             --         --
  Land....................         8        0.21             8        0.14             8        0.24              1       0.02
  Construction............        --          --            --          --            --          --             --         --
Lease financing...........        --          --            --          --            --          --              3       0.02
Home equity lines of
  credit and second
  mortgage loans..........        20        0.42            28        0.83            16        2.14              5       0.98
Other consumer............        --          --            24        0.03            14        0.11             20       0.15
                           ---------     -------     ---------    --------      --------     -------      ---------    -------
Total allowance for
  loan losses............. $   2,957      100.00%    $   2,311      100.00%     $    925      100.00%     $     835     100.00%
                           =========     ========    =========    ========      ========     =======      =========    =======
</TABLE>
<TABLE>
<CAPTION>

                                  AT DECEMBER 31,
                           -----------------------------
                                      1992
                           ----------------------------
                                          PERCENT OF
                                         LOANS IN EACH
                                          CATEGORY TO
                               AMOUNT     TOTAL LOANS
                            ---------  ----------------

<S>                         <C>             <C>
Real estate loans:
  One- to four-family.....   $     404       90.85%
  Multifamily.............           8        0.97
  Commercial real estate..         214        6.12
  Mixed use...............          --          --
  Land....................           2        0.05
  Construction............          --        0.20
Lease financing...........          18        0.12
Home equity lines of
  credit and second
  mortgage loans..........          12        1.44
Other consumer............           1        0.25
                             ---------    --------
Total allowance for
  loan losses.............   $     659      100.00%
                             =========    ========
</TABLE>

<PAGE>


        Included in the above amounts are specific reserves  totaling  $579,000,
$392,000,  $201,000,  $240,000,  and $260,000, at December 31, 1996, 1995, 1994,
1993, and 1992, respectively, related to loans classified as loss.


         REO.  REO is initially  recorded at  estimated  fair value less selling
costs. Fair value is defined as the estimated amount in cash or  cash-equivalent
value of other  consideration that a real estate parcel would yield in a current
sale between a willing buyer and a willing  seller.  Subsequent to  foreclosure,
REO is  periodically  evaluated  by  management  and an  allowance  for  loss is
established if the estimated fair value of the property, less estimated costs to
sell, declines.


         As of  December  31,  1996,  all  of the  Company's  REO  consisted  of
one-to-four family real estate.


INVESTMENT SECURITIES





         The  following  table  sets  forth the cost basis and fair value of the
Company's investment portfolio at the dates indicated.


<TABLE>
<CAPTION>

                                                                      AT DECEMBER 31,
                                                 1996                     1995                        1994
                                       -------------------------  -----------------------  -------------------------
                                          COST           FAIR        COST         FAIR         COST         FAIR
                                          BASIS          VALUE       BASIS        VALUE        BASIS        VALUE
                                          -------      -------      -------      -------      -------     ---------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                     <C>          <C>          <C>           <C>          <C>          <C>
Investment Securities:
   Held to maturity:
     Corporate debt.................    $      --    $      --    $      --     $     --     $  1,896     $   1,901
     Margin Account .................          18           18           --           --           --            --
     Other investments..............            1            1           --           --           --            --
   Available for sale:
     Municipal bonds................        7,325        7,507       12,360       12,712       10,460         9,722
     Corporate debt.................       22,525       23,569       22,850       23,987          823           826
     Obligations of U.S.
       government agencies..........       31,139       31,272        3,359        3,359           --            --
     Certificate of Deposits .......          499          499           --           --           --            --
                                          -------      -------      -------      -------      -------     ---------
Subtotal............................       61,505       62,866       38,569       40,058       13,179        12,449
   Securities purchased under
     agreements to resell...........        1,730        1,730           --           --        1,181         1,181
   Equity securities:
     Stock in FHLB Atlanta..........        7,300        7,300        5,275        5,275        4,900         4,900
     Stock in FHLMC ................        5,000        4,988           --           --           --            --
     Stock in FNMA .................        8,000        8,232           --           --           --            --
     Other Corporate Stock .........        1,011        1,011           --           --           --            --
                                        ---------    ---------    ---------     --------     --------     ---------
     Total..........................    $  84,546    $  86,127    $  43,844     $ 45,333     $ 19,260     $  18,530
                                        =========    =========    =========     ========     ========     =========
</TABLE>


<PAGE>



         The  following  table sets  forth the  scheduled  maturities,  carrying
values,  and  current  yields for the  Company's  investment  portfolio  of debt
securities at December 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>

                                                                        AFTER ONE BUT        AFTER FIVE BUT
                                                    WITHIN ONE YEAR   WITHIN FIVE YEARS     WITHIN TEN YEARS     AFTER TEN YEARS
                                                 ------------------- -------------------  --------------------- -----------------
                                                  BALANCE WEIGHTED    BALANCE   WEIGHTED    BALANCE   WEIGHTED    BALANCE   WEIGHTED
                                                    DUE     YIELD       DUE       YIELD       DUE       YIELD       DUE       YIELD
                                                 ------------------   -------- ---------   ---------  -------    --------  --------
                                                                                          (DOLLARS IN THOUSANDS)
<S>                                              <C>            <C>    <C>         <C>     <C>           <C>      <C>          <C>
Municipal bonds (a)                              $      --       --    $   568     7.42%   $  3,587      7.60%    $ 3,351     11.30%
Corporate debt                                          --       --      1,990     7.17       7,497      6.95      14,083      7.34
Certificates of Deposit                                 --       --        499     6.92          --        --          --        --
Obligations of U.S. Government Agencies                 --       --        989     7.17          --        --      30,283      6.09
Securities purchased under agreements to resell      1,748     6.19         --       --          --        --          --        --
Equities                                                --       --         --       --          --        --      14,231      7.31
                                                 ---------  ---------   ------ ---------   ---------  -------    --------  --------
                                                 $   1,748      6.19%  $ 4,046     7.17%   $ 11,084      7.16%    $61,948      6.94%
                                                 =========  ========   ======= =========   =========  =======     =======  ========
</TABLE>
                                                        TOTALS
                                                ----------------------
                                                  BALANCE   WEIGHTED
                                                    DUE       YIELD
                                                 --------  --------
                                                (DOLLARS IN THOUSANDS)
Municipal bonds (a)                              $  7,506      6.01%
Corporate debt                                     23,570      7.20
Certificates of Deposit                               499      6.92
Obligations of U.S. Government Agencies            31,272      6.12
Securities purchased under agreements to resell     1,748      6.25
Equities                                           14,231      7.55
                                                 --------  --------
                                                 $ 78,826      6.70%
                                                 ========  ========


(a)  Yields on tax exempt obligations are computed on a tax equivalent basis.




<PAGE>



Deposits and Other Sources of Funds


In 1996, the Bank introduced an Automatic Teller Machine Card ("ATM") associated
with its money market accounts.


         Deposits in the Bank as of December  31, 1996 were  represented  by the
various programs described below:

<TABLE>
<CAPTION>

                                                                                                PERCENT
                                                                                               OF TOTAL
             TERM                       CATEGORY                          BALANCE              DEPOSITS
             ----                       --------                          -------              --------
                                                                      (In thousands)
<S>                           <C>                                     <C>                      <C>
         None                  Checking Accounts                        $       309              0.08%
         None                  Money Market Accounts                        109,835             28.13%
         None                  Passbook Accounts                              1,758              0.45%

                               Certificates of Deposit
         3-month               Fixed-Term, Fixed-Rate                         1,210              0.31%
         6-month               Fixed-Term, Fixed-Rate                         6,408              1.64%
         12-month              Fixed-Term, Fixed-Rate                        39,402             10.09%
         18-month              Fixed-Term, Fixed-Rate                         7,181              1.84%
         2-year                Fixed-Term, Fixed-Rate                        41,443             10.61%
         30-month              Fixed-Term, Fixed-Rate                        46,294             11.86%
         3-year                Fixed-Term, Fixed-Rate                        20,985              5.37%
         4-year                Fixed-Term, Fixed-Rate                           717              0.18%
         5-year                Fixed-Term, Fixed-Rate                       107,289             27.48%
         7-year                Fixed-Term, Fixed-Rate                         4,658              1.19%
         10-year               Fixed-Term, Fixed-Rate                         2,997              0.77%
                                                                        -----------              -----
         Total                                                          $   390,486            100.00%
                                                                        ===========            =======
</TABLE>





<PAGE>


         The following  table sets forth the change in dollar amount of deposits
in the  various  types of  accounts  offered by the  Company  between  the dates
indicated:

<TABLE>
<CAPTION>

                                        BALANCE                                       BALANCE
                                           AT          PERCENTAGE                        AT          PERCENTAGE
                                       DECEMBER 31,        OF          INCREASE     DECEMBER 31,         OF          INCREASE
              ACCOUNTS                     1996         DEPOSIT       (DECREASE)       1995           DEPOSITS      (DECREASE)
              --------                     ----         -------       ----------       ----           --------      ----------
                                                                                       (Dollars in thousands)
<S>                                    <C>                  <C>        <C>            <C>                <C>         <C>
Passbook.............................. $    1,758           .45%       $    (262)     $   2,020          0.66%       $    (680)
Money market..........................    109,835         28.13           34,103         75,732         24.71           65,342
Checking..............................        309           .08           (1,439)         1,748          0.57            1,449
Certificates of deposit...............    278,584         71.34           51,584        227,000         74.06           27,978
                                          -------         -----           ------      ---------      --------        ---------
     Total............................ $  390,486        100.00%       $  83,986      $306,500         100.00%       $  94,089
                                          =======        ======           ======      ========         ======        =========
</TABLE>



                                           BALANCE
                                              AT         PERCENTAGE
                                         DECEMBER 31,        OF
              ACCOUNTS                       1994         DEPOSITS
              --------                       ----         --------
                                            (Dollars in thousands)
Passbook..............................    $   2,700          1.27%
Money market..........................       10,390          4.89
Checking..............................          299          0.14
Certificates of deposit...............      199,022         93.70
                                          ---------       -------
     Total............................    $ 212,411        100.00%
                                          =========        ======



<PAGE>




         The following table sets forth certificates of deposit and money market
accounts in the Company classified by rates at the dates indicated.



                                               AT DECEMBER 31,
                                   1996             1995              1994
                               -----------       -----------      -----------
                                               (IN THOUSANDS)
0 - 1.99%..................... $     5,235       $      --        $        --
2 - 3.99%.....................         148              --              1,844
4 - 5.99%.....................     210,481           141,750           65,533
6 - 7.99%.....................     170,056           158,375          106,915
8 - 9.99%.....................       1,709             1,817           22,549
10 - 11.99%...................         790               790            2,181
                               -----------       -----------      -----------
                                   388,419       $   302,732      $   199,022
                               ===========       ===========      ===========



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


                                                              CERTIFICATES
                                                               OF DEPOSIT
                                                             (IN THOUSANDS)
 Three months or less........................................   $    2,144
 Three through six months....................................        6,901
 Six through twelve months...................................        4,791
 Over twelve months..........................................       12,366
                                                                ----------
 Total.......................................................   $   26,202
                                                                ==========



BORROWINGS


        Although deposits are the Company's primary source of funds, the Company
also  utilizes  borrowings  from the FHLB of Atlanta and  securities  sold under
agreements to repurchase as alternative  funding sources As a member of the FHLB
System,  which,  among other things,  functions in a reserve credit capacity for
savings  institutions,  the Company is required to own capital stock in the FHLB
of Atlanta and is authorized to apply for advances on the security of such stock
and certain of its home mortgages and other assets (principally securities which
are  obligations  of, or guaranteed  by, the United States of America)  provided
certain creditworthiness standards have been met. See "Regulation."


        As of December 31, 1996 the Company had  outstanding  advances of $144.8
million from the FHLB of Atlanta at interest  rates  ranging from 5.33% to 6.95%
and at a weighted average rate of 5.94%.




<PAGE>






         The Company also  borrows  funds by entering  into sales of  securities
under  agreements to repurchase the same securities  with nationally  recognized
investment  banking firms.  The securities are held in custody by the investment
banking  firms with which the  Company  enters  into the  repurchase  agreement.
Reverse  repurchase  agreements are treated as borrowings by the Company and are
secured by designated fixed and variable rate securities.  The proceeds of these
transactions are used to meet cash flow or asset/liability matching needs of the
Company.  The following table sets forth certain  information  regarding reverse
repurchase agreements for the dates indicated:

<TABLE>
<CAPTION>

                                                                     1996             1995              1994
                                                                     ----             ----              ----
                                                                             (DOLLARS IN THOUSANDS)
<S>                                                             <C>               <C>              <C>
Weighted average balance during the year......................  $    68,920       $    97,692      $    45,759
Weighted average interest rate during the year................        5.77%             6.29%             4.92%
Maximum month-end balance during the year.....................  $    97,416       $   119,507      $    79,613
Mortgage-backed securities underlying
   the agreements as of the end of the year:
   Carrying value, including accrued interest.................       22,856           103,590           93,608
Estimated market value........................................       22,804           103,891           89,224

Agencies
   Carrying value, including accrued interest.................       38,562            10,499           30,794
   Estimated market value.....................................       38,621            10,594           29,441
</TABLE>





<PAGE>




         The  following  table sets forth  information  regarding  the  weighted
average  interest  rates and the highest and average  month end  balances of the
Company's borrowings.


<TABLE>
<CAPTION>

                                          AT OR                                                       AT OR
                                   FOR THE YEAR ENDED                                           FOR THE YEAR ENDED
                                    DECEMBER 31, 1996                                            DECEMBER 31, 1995
                       ----------------------------------------------------- -------------------------------------------------------
                                WEIGHTED   MAXIMUM    WEIGHTED    AVERAGE               WEIGHTED   MAXIMUM    WEIGHTED    AVERAGE
                        ENDING  AVERAGE   AMOUNT AT   AVERAGE     WEIGHTED     ENDING   AVERAGE   AMOUNT AT   AVERAGE     WEIGHTED
CATEGORY               BALANCE    RATE    MONTH-END   BALANCE   AVERAGE RATE   BALANCE   RATE     MONTH-END   BALANCE  AVERAGE RATE
--------              --------  --------  ---------  ---------  ------------  --------  --------  ---------   -------  ------------
                                                                              (Dollars in thousands)
<S>                   <C>         <C>     <C>         <C>          <C>       <C>          <C>     <C>         <C>          <C>
Advances from the FHLB
 of Atlanta...........$144,800    5.94%   $154,500    $120,633     5.91%     $ 105,500    5.87%   $ 106,800   $104,110     6.06%
Securities sold under
 agreement to
repurchase            $ 57,581    5.69%   $ 97,416      68,920     5.77%     $  93,905    6.06%   $ 119,507   $ 97,692     6.29%
</TABLE>


                                                        AT OR
                                                 FOR THE YEAR ENDED
                                                  DECEMBER 31, 1994
                        -------------------------------------------------------
                                  WEIGHTED     MAXIMUM     WEIGHTED   AVERAGE
                         ENDING   AVERAGE     AMOUNT AT    AVERAGE    WEIGHTED
CATEGORY                 BALANCE   RATE       MONTH-END    BALANCE  AVERAGE RATE
--------                 -------  --------   ----------   --------- ------------

Advances from the FHLB
 of Atlanta...........  $96,000    5.36%     $ 112,000     $82,358      4.64%
Securities sold under
 agreement to
repurchase              $79,613    5.81%     $  79,613     $45,759      4.92%




<PAGE>




PROPERTIES



         During 1996, the Bank operated from the Company's  headquarters located
at 1111 North Highland Street, Arlington, Virginia 22201 and from an office that
it subleases  from Arbor  Capital  Partners,  Inc., a subsidiary of MET Holdings
("Arbor Capital"), in New York for approximately $58,000 per year.





SUBSIDIARIES


         During the second  quarter of 1996,  the Bank  through its wholly owned
subsidiary  TeleBanc  Servicing  Corporation  ("TSC")  funded 50% of the capital
commitment for a new entity,  AGT Mortgage Services,  LLC ("AGT").  AGT services
performing  loans and workouts  for  troubled or defaulted  loans for a fee. The
Bank also provided in the second quarter of 1996, 50% of the capital  commitment
for an additional new entity,  AGT PRA, LLC ("AGT PRA"). The primary business of
AGT PRA is its investment in Portfolio  Recovery  Associates,  LLC ("PRA").  PRA
acquires  and  collects   delinquent  consumer  debt  obligations  for  its  own
portfolio.


EMPLOYEES


         At  December  31,  1996,  the Company had  approximately  40  full-time
employees.   Management  considers  its  relations  with  its  employees  to  be
excellent. The Bank's employees are not represented by any collective bargaining
group.




                                   REGULATION


GENERAL


         The Company, as a savings and loan holding company,  and the Bank, as a
federally   chartered  savings  bank,  are  subject  to  extensive   regulation,
supervision and examination by the OTS as their primary federal  regulator.  The
Bank also is subject to regulation,  supervision  and examination by the Federal
Deposit  Insurance  Corporation  (the  "FDIC") and as to certain  matters by the
Board of Governors of the Federal Reserve System (the "Federal  Reserve Board").
See "Management's  Discussion and Analysis" and "Notes to Consolidated Financial
Statements"  as to the  impact of certain  laws,  rules and  regulations  on the
operations  of the Company and the Bank.  Set forth  below is a  description  of
certain recent regulatory developments.


         In September 1996,  legislation (the "1996 legislation") was enacted to
address the undercapitalization of the SAIF, of which the Bank is a member. As a
result of the 1996 legislation,  the FDIC imposed a one-time special  assessment
of  0.657%  on  deposits  insured  by the SAIF as of March  31,  1995.  The Bank
incurred a one-time charge of $1.7 million (before taxes) to pay for the special
assessment based upon its level of SAIF deposits as of March 31, 1995. After the
SAIF was deemed to be recapitalized,  the Bank's deposit  insurance  premiums to
the SAIF were reduced as of September 30, 1996. The Bank expects that its future
deposit  insurance  premiums will continue to be lower than the premiums it paid
prior to the recapitalization.


         The 1996 legislation also  contemplates the merger of the SAIF with the
Bank Insurance Fund (the "BIF"),  which generally  insures  deposits in national
and  state-chartered  banks. The combined deposit  insurance fund, which will be
formed no earlier than January 1, 1999, will insure deposits at all FDIC insured
depository institutions. As a condition to the combined insurance fund, however,
no insured depository institution can be chartered as a savings association. The
Secretary  of the  Treasury is required to report to the  Congress no later than
March 31,  1997 with  respect to the  development  of a common  charter  for all
insured depository institutions.  If legislation with respect to the development
of a common charter is enacted, the Bank may be required to convert its federal




<PAGE>



charter  to  either a new  federal  type of bank  charter  or  state  depository
institution charter.  Future legislation also may result in the Company becoming
g regulated as a bank holding company by the Federal Reserve Board rather than a
savings and loan holding company regulated by the OTS. Regulation by the Federal
Reserve  Board could  subject the Company to capital  requirements  that are not
currently  applicable to the Company as a holding  company under OTS  regulation
and may result in statutory  limitations  on the type of business  activities in
which the  Company  may engage at the  holding  company  level,  which  business
activities currently are not restricted.  The Company and the Bank are unable to
predict whether such legislation will be enacted.


         The 1996 legislation also contained several provision that could impact
operations  of the Bank,  including  augmenting  the Bank's  commercial  lending
authority  by 10% of assets,  provided  that any loans in excess of 10% are used
for small business loans. Furthermore, the qualified thrift lender test that the
Bank must comply with was  liberalized  to provide that small  business,  credit
card and student loans can be included  without any limit, and that the Bank can
qualify as a qualified thrift lender by meeting either the test set forth in the
Home Owners' Loan Act or under the  definition  of a domestic  building and loan
association as defined under the Internal  Revenue Code of 1086, as amended (the
"IRC").


         Separate  legislation  was enacted in 1996,  and is  effective  for tax
years  beginning  after  December  31,  1995,  repealing  the  thrift  bad  debt
provisions of Section 593 of the IRC under which qualified savings  institutions
calculated  their bad debt  deduction  for  federal  income tax  purposes.  As a
result,  the  Bank  will no  longer  be able to use  the  "reserve  method"  for
computing  its bad debt  deduction  and will be allowed to deduct only those bad
debts actually incurred during the taxable year. The bad debt provisions of this
legislation  also require  thrifts to recapture and pay tax on bad debt reserves
accumulated  since 1987 over a six year period,  beginning with a thrift's first
taxable year beginning  after December 31, 1995. This recapture is suspended for
up to two years,  however,  if the thrift meets a residential  loan  origination
test. The  legislation  exempted from recapture  $(264,000) in pre-1988 bad debt
deductions  taken by the Bank and will defer up to two years the recapture of an
additional $549,000, subject to the Bank's compliance with the new home mortgage
residential loan origination test.


         During  1996,  the  OTS  continued  its  comprehensive  review  of  its
regulations  to  eliminate   duplicative,   unduly  burdensome  and  unnecessary
regulations   concerning   lending  and   investments,   corporate   governance,
subsidiaries  and equity  investments,  conflicts of interest and  usurpation of
corporate  opportunity.  The OTS's revised  lending and  investments  regulation
generally imposes general safety and soundness standards, and also provides that
commercial loans made by a service  corporation of a savings association will be
exempted  from an  institution's  overall 10% limit on  commercial  loans.  Such
regulations  now  allow an  institution  to use its own  cost-of-funds  index in
structuring  adjustable  rate  mortgages,  and  eliminate  percentage  of assets
limitations on credit card lending.


         The  OTS's  revised  subsidiaries  and  equity  investment   regulation
consolidated  all OTS regulations that apply to various types of subsidiaries of
federal  associations and updates the list of pre-approved  service  corporation
activities with  additional  activities that the OTS has deemed to be reasonable
related to the activities of federal savings institutions. The revised corporate
governance  regulation is intended to prove greater  flexibility with respect to
corporate governance of federal savings institutions, such as the Bank.


         The OTS also converted its policy statement on conflicts of interest to
a regulation that is intended to be based upon common law principles of "duty of
loyalty"  and  "duty  of  care."  The new  conflicts  regulation  provides  that
directors,   officers,  employees,  person  having  the  power  to  control  the
management  or  policies  of savings  associations,  and other  persons  who owe
fiduciary  duties to savings  associations,  and other persons who owe fiduciary
duties  to  savings  institutions  will be  prohibited  from  advance  their own
personal  or  business  interests,  or those of  others,  at the  expense of the
institutions they serve, The "appearance of a conflict of interest" standard was
removed from the scope of the revised rule. The OTS also clarified that "persons
having the power to control




<PAGE>



management or policies of savings associations"  includes holding companies such
as the Company. The OTS corporate opportunity  regulations and policy statements
also were  eliminated  and  replaced  with a  standard  similar  to  common  law
standards governing usurpation of corporate opportunity. Significantly under the
revised  regulation,  transfers of a line of business  within a holding  company
structure  will not be deemed to be a usurpation of corporate  opportunity if an
institution   receives  fair  market   consideration  for  a  line  of  business
transferred to its holding company or its affiliates. In such transactions,  the
OTS will  generally  defer to decisions  made by a holding  company,  subject to
compliance  with  Sections  23A or 23B of the  Federal  Reserve  Act and general
safety and soundness principles.


ITEM 2.       PROPERTIES


         Reference  is made to the  information  set  forth  under  the  caption
"Properties" under Item 1. Business of this Annual Report on Form 10-K.


ITEM 3.     LEGAL PROCEEDINGS


         There are no material  pending legal  proceedings,  other than ordinary
routine  litigation  incidental to its business,  to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.


ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


         No matters were submitted to a vote of TeleBanc stockholders during the
fourth quarter of the fiscal year ended December 31, 1996.




                                     PART II


ITEM 5.     MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS


         Information  as to the principal  market on which the Company's  common
stock  is  traded,  the  Company's  dividend  policy  and the  high  and low bid
quotations or sales prices,  as applicable,  for each calendar quarter since the
Company's  initial public  offering is  incorporated  herein by reference to the
section titled "Company  Information" in the 1996 Annual Report to Stockholders.
The  approximate  number of holders of record of the  Company's  common stock at
December 31, 1996 was less than 200.


ITEM 6.     SELECTED FINANCIAL DATA


         Selected consolidated  financial data for the five years ended December
31, 1996 included in the section titled  "Selected  Financial  Data" in the 1996
Annual Report to Stockholders is incorporated herein by reference.


ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS


        Management's  Discussion and Analysis of Financial Condition and Results
of  Operations  included in the  section so titled in the 1996 Annual  Report to
Stockholders is incorporated herein by reference.


ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


         Certain of the  information  required by this Item is  incorporated  by
reference  to  the  sections  titled   "Consolidated   Statements  of  Financial
Condition," "Consolidated Statements of Operations," "Consolidated Statements of
Stockholders' Equity," "Consolidated Statements of Cash Flows" and




<PAGE>



"Notes  to  Consolidated  Financial  Statements"  in the 1996  Annual  Report to
Stockholders.  The  independent  auditors'  report of Arthur  Andersen  LLP with
respect to the  Company's  consolidated  statements  of  financial  condition at
December  31,  1996 and  1995 and the  consolidated  statements  of  operations,
changes in stockholders'  equity and cash flows for the years ended December 31,
1996 and 1995 is filed as Exhibit 99 and is  incorporated  herein by  reference.
The  independent  auditors'  report of KPMG Peat Marwick LLP with respect to the
Company's consolidated statements of operations, changes in stockholders' equity
and cash flows for the year ended  December  31, 1994 is filed as Exhibit 99 and
is incorporated herein by reference.


ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE


         Item 9 is not applicable.




                                    PART III


ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


         Pursuant to General  Instruction G of the Form 10-K,  such  information
shall be filed as an amendment no later than 120 days from December 31, 1996.


ITEM 11.      EXECUTIVE COMPENSATION


                  Pursuant  to  General  Instruction  G of the Form  10-K,  such
information  shall be filed as an amendment no later than 120 days from December
31, 1996.


ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


                  Pursuant  to  General  Instruction  G of the Form  10-K,  such
information  shall be filed as an amendment no later than 120 days from December
31, 1996.


ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


                  Pursuant  to  General  Instruction  G of the Form  10-K,  such
information  shall be filed as an amendment no later than 120 days from December
31, 1996.




                                     PART IV


ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


     (a)(1) The following  consolidated  financial  statements of registrant and
its subsidiary and report of independent auditors are included in Item 8 hereof.


         Report of Independent Auditors.


         Consolidated  Statements of Financial Condition - December 31, 1996 and
1995.


         Consolidated  Statements of Operations - Years Ended December 31, 1996,
1995 and 1994.


         Consolidated  Statements  of  Changes in  Stockholders'  Equity - Years
Ended December 31, 1996, 1995 and 1994.


         Consolidated  Statements of Cash Flows - Years Ended December 31, 1996,
1995 and 1994.




<PAGE>






         Notes to Consolidated Financial Statements.


         (a)(2) All  schedules  for which  provision  is made in the  applicable
accounting  regulations  of the  Securities  and  Exchange  Commission  are  not
required under the related  instructions or are  inapplicable and therefore have
been omitted.


         (a)(3) The following  exhibits are either filed with this Report or are
incorporated herein by reference:


     3.1(a) Amended and Restated Certificate of Incorporation of the Company.*

     3.1(b) Certificate of Designation***

     3.2  Bylaws of the Company.

     4.1  Specimen certificate of shares of Common Stock.**

     10.1 1994 Stock Option Plan.**

     10.2 Tax Allocation  Agreement,  dated April 7, 1994,  between the Bank and
          the Company.*

     10.3 Unit  Purchase  Agreement,  dated as of February 19,  1997,  among the
          Company and the Purchasers identified therein. ***

     10.4 Amended and Restated Acquisition  Agreement,  dated as of February 19,
          1997, among the Company,  Arbor Capital Partners,  Inc., MET Holdings,
          Inc., and William M. Daugherty. ***

     11   Statement regarding computation of per share earnings.

     13   1996  Annual  Report  to  Stockholders,  portions  of which  have been
          incorporated by reference into this Form 10-K.

     21   Subsidiaries of the Registrant.

     23.1 Consent of Arthur Andersen LLP and KPMG Peat Marwick LLP.

         (b) The Registrant did not file any Current  Reports on Form 8-K during
the fourth quarter of its fiscal year ended December 31, 1996.


         (c)      Exhibits to this Form 10-K are attached.


         (d)      Not applicable.


     99.1  Independent Auditor's report of Arthur Andersen LLP.

     99.2  Independent Auditor's report of KPMG Peat Marwick.


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

     *    Incorporated  by reference  to  pre-effective  Amendment  No. 1 to the
          Company's registration statement on Form S-1 (File No. 33-76930) filed
          with the SEC on May 3, 1994.


     **   Incorporated by reference to the Company's  registration  statement on
          Form S-1 (File No. 33-76930) filed with the SEC on March 25, 1994.


     ***  Incorporated  by reference  from the Company's  Current Report on Form
          8-K, as filed with the SEC on March 17, 1997.






<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 as of the 30th day of
March, 1996.


                                               TELEBANC FINANCIAL CORPORATION
                                                         Registrant


                                               By:    /s/ Mitchell H. Caplan
                                                   --------------------------
                                                          Mitchell H. Caplan
                                                              President


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities indicated as of March 30, 1996.

<TABLE>
<CAPTION>

         Signature                                                                    Title


<S>                                                              <C>
/s/ David A. Smilow                                                       Chairman of the Board & CEO
-----------------------------                                            (principal executive officer)
David A. Smilow

/s/ Mitchell H. Caplan                                                     President, Vice Chairman
-----------------------------                                                     and Director
Mitchell H. Caplan

/s/ Aileen Lopez Pugh                                                     Executive Vice President and
-----------------------------                                           Chief Financial Officer/Treasurer
Aileen Lopez Pugh                                                 (principal financial and accounting officer)

/s/ David DeCamp                                                                    Director
-----------------------------
David DeCamp

/s/ Arlen W. Gelbard                                                                Director
-----------------------------
Arlen W. Gelbard


/s/ Dean C. Kehler                                                                  Director
-----------------------------
Dean C. Kehler


/s/ Steven F. Piaker                                                                Director
-----------------------------
Steven F. Piaker


/s/ Mark Rollinson                                                                  Director
-----------------------------
Mark Rollinson
</TABLE>



<PAGE>



                               INDEX TO FINANCIALS


         Report of Independent Auditors.


         Consolidated  Statements of Financial Condition - December 31, 1996 and
1995.


         Consolidated  Statements of Operations - Years Ended December 31, 1996,
1995 and 1994.


         Consolidated  Statements  of  Changes in  Stockholders'  Equity - Years
Ended December 31, 1996, 1995 and 1994.


         Consolidated  Statements of Cash Flows - Years Ended December 31, 1996,
1995 and 1994.


         Notes to Consolidated Financial Statements.










<PAGE>




                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                                   SEQUENTIALLY
                                                                                                     NUMBERED
  EXHIBIT NO.                                       EXHIBIT                                            PAGE
  -----------                                       -------                                        -------------
<S>               <C>
     3.1(a) Amended and Restated Certificate of Incorporation of the Company.*

     3.1(b) Certificate of Designation***

     3.2  Bylaws of the Company.

     4.1  Specimen certificate of shares of Common Stock.**

     10.1 1994 Stock Option Plan.**

     10.2 Tax Allocation  Agreement,  dated April 7, 1994,  between the Bank and
          the Company.*

     10.3 Unit  Purchase  Agreement,  dated as of February 19,  1997,  among the
          Company and the Purchasers identified therein. ***

     10.4 Amended and Restated Acquisition  Agreement,  dated as of February 19,
          1997, among the Company,  Arbor Capital Partners,  Inc., MET Holdings,
          Inc., and William M. Daugherty. ***

     11   Statement regarding computation of per share earnings.

     13   1996  Annual  Report  to  Stockholders,  portions  of which  have been
          incorporated by reference into this Form 10-K.

     21   Subsidiaries of the Registrant.

     23.1 Consent of Arthur Andersen LLP and KPMG Peat Marwick LLP.

         (b) The Registrant did not file any Current  Reports on Form 8-K during
the fourth quarter of its fiscal year ended December 31, 1996.


         (c)      Exhibits to this Form 10-K are attached.

         (d)      Not applicable.

     99.1  Independent Auditor's report of Arthur Andersen LLP.

     99.2  Independent Auditor's report of KPMG Peat Marwick.
------------------

     *    Incorporated  by reference  to  pre-effective  Amendment  No. 1 to the
          Company's registration statement on Form S-1 (File No. 33-76930) filed
          with the SEC on May 3, 1994.


     **   Incorporated by reference to the Company's  registration  statement on
          Form S-1 (File No. 33-76930) filed with the SEC on March 25, 1994.


     ***  Incorporated  by reference  from the Company's  Current Report on Form
          8-K, as filed with the SEC on March 17, 1997.



</TABLE>