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, 1998
                                                        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 0-23063


                        FIRST SECURITYFED FINANCIAL, INC.
             (Exact Name of Registrant as Specified in its Charter)

         Delaware                                      36-4177515
(State or Other Jurisdiction of          (I.R.S. Employer Identification Number)
Incorporation or Organization)


936 North Western Avenue, Chicago, Illinois                      60622
(Address of Principal Executive Offices)                        Zip Code

       Registrant's telephone number, including area code: (773) 772-4500

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

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

                                      None
                                     ------

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

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

     Indicate  by check  mark  whether  the  Registrant  (1) filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the  preceding  twelve  months (or for such shorter  period that the
Registrant was required to file such reports),  and (2) has been subject to such
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 (ss. 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. [ ]

     As of December 31, 1998,  the  Registrant  had  5,854,512  shares of Common
Stock issued and outstanding.

     The aggregate  market value of the voting stock held by  non-affiliates  of
the Registrant,  computed by reference to the average of the bid and asked price
of such stock as of December 31, 1998 was $66.5  million.  (The  exclusion  from
such amount of the market  value of the shares  owned by any person shall not be
deemed an  admission by the  Registrant  that such person is an affiliate of the
Registrant.)

                      DOCUMENTS INCORPORATED BY REFERENCE

     PART II of Form 10-K - Annual  Report to  Stockholders  for the fiscal year
     ended December 31, 1998.
     PART III of  Form  10-K -  Proxy  Statement  for  1998  Annual  Meeting  of
     Stockholders.

                                                         1

<PAGE>


                                     PART I

Item 1.  Business

General

     First SecurityFed  Financial,  Inc. ("First SecurityFed" or the "Company"),
is a  Delaware  corporation  that was formed in 1997 by First  Security  Federal
Savings  Bank  ("First  Security"  or the  "Bank") for the purpose of becoming a
savings  and loan  holding  company.  The  Company  owns all of the  outstanding
capital stock of First  Security.  Unless the context  otherwise  requires,  all
references  herein  to the  Company  include  the  Company  and  the  Bank  on a
consolidated basis.

     As a  community-oriented  financial  institution,  First  Security seeks to
serve the financial  needs of communities in its market area.  First  Security's
business  involves  attracting  deposits from the general  public and using such
deposits,  together with other funds, to originate primarily one- to four-family
residential mortgage loans and, to a lesser extent,  multi-family and commercial
real estate,  consumer and other loans in its market area. The Bank also invests
in mortgage-backed and other securities and other permissible investments.

     The Bank offers a variety of accounts  having a range of interest rates and
terms.  The Bank's  deposits  include  passbook and NOW  accounts,  money market
accounts and certificate  accounts with terms of three months to five years. The
Bank  solicits  deposits  only in its  primary  market  area and does not accept
brokered deposits.

Market Area

     The  Bank's  main  office is located in  Chicago,  Illinois  and its branch
offices are located in Chicago, Illinois, Philadelphia, Pennsylvania and Rolling
Meadows, Illinois.

     The Bank's  Western  Avenue office is located on the near northwest side of
Chicago in the "Ukrainian  Village" community,  a middle-income  community where
the Bank has  focused  its  operations  since 1964.  This  community  is located
approximately  two and one half miles to the  northwest of downtown  Chicago and
approximately three miles west of Lake Michigan. The majority of the community's
many businesses are small and local companies.  Residences  within the community
consist  primarily of two- to four-family flats and single family homes although
there are also  midsize  apartment  buildings.  Real estate  values  within this
community  have risen  sharply over the last ten years as  "gentrification"  has
begun to occur as a result of the community's proximity to downtown Chicago.

     The Bank's Milwaukee Avenue office was opened in 1993 and is located in the
"Norwood Park" neighborhood of Chicago. This community is a stable middle income
area  which also has many  residents  of Eastern  European  descent.  Residences
within the community consist primarily of single family homes as well as two and
three flats and small apartment  buildings.  This area is located  approximately
eight miles northwest of downtown Chicago.

     The Bank's Philadelphia branch was acquired in 1994 through a purchase from
the Resolution  Trust  Corporation.  The branch is located in a moderate  income
neighborhood of  Philadelphia  known as  "Rhawnhurst."  The community is home to
many persons of Eastern European heritage, including new immigrants.  Residences
within the  community  consist  primarily of single  family row houses and, to a
lesser extent, small apartment buildings.

     The  Bank's  suburban  Chicago  branch was opened in 1977 and is located in
Rolling  Meadows,  Illinois,  an upper  middle  class  community  located to the
northwest of Chicago,  near the western border of Palatine,  Illinois.  Over the
last 20 years,  Rolling  Meadows  has  experienced  significant  population  and
commercial growth. However, as a result of competition, the branch's deposit and
loan growth has been modest.

Lending Activities

     General.  The principal lending activity of the Bank is originating for its
portfolio fixed and, to a much lesser extent,  adjustable rate ("ARM")  mortgage
loans secured by one- to four-family  residences located primarily in the Bank's
market area.  First  Security  also  originates  home equity,  multi-family  and
commercial real estate, consumer and other loans in its market area. At December
31, 1998,  the Bank's  loans  receivable,  net totaled  $218.3  million.  See "-
Originations of Loans."

                                        2

<PAGE>


     The following table sets forth the composition of the Bank's loan portfolio
in dollar amounts and in percentages as of the dates indicated.

<TABLE>
<CAPTION>
                                                                          December 31,
                             ---------------------------------------------------------------------------------------------------

                                      1998               1997               1996                1995                1994
                             -------------------  ------------------  -----------------  ------------------  -------------------

                               Amount    Percent   Amount    Percent   Amount   Percent   Amount    Percent   Amount   Percent
                             ----------  -------  ---------  -------  --------  -------  --------   -------  --------  -------
<S>                           <C>         <C>     <C>        <C>      <C>       <C>      <C>       <C>      <C>       <C>


Real Estate Loans:
One- to four-family........    $182,452    82.23%  $154,819    81.66%  $134,971   81.14%   $117,379    79.83  %$110,280   79.53%
Multi-family...............      11,313     5.10     10,999     5.80      9,374    5.63       7,926     5.39      7,731    5.58
Commercial.................      11,535     5.20      9,308     4.91      7,647    4.60       7,865     5.35      6,911    4.98
Mixed use(1)...............       9,898     4.46      7,927     4.18      8,004    4.81       7,262     4.94      7,433    5.36
                                -------    -----    -------   ------    -------   -----   ---------   ------    -------  ------
  Total real estate loans..     215,198    96.99    183,053    96.55    159,996   96.18     140,432    95.51    132,355   95.45

Consumer loans:
Share loans................       1,091      .49      1,421     0.75      1,174    0.71       1,570     1.07      1,328    0.96
Automobile.................          16      .01         47     0.01         74    0.04         110     0.07        141    0.10
Home equity................       5,158     2.32      4,602     2.43      3,431    2.06       3,684     2.51      3,870    2.79
Home improvement...........          11      .01          7     0.01         12    0.01          29     0.02         69    0.05
Other......................         404      .18        387     0.21        395    0.24         445     0.30        452    0.33
                                -------    -----    -------   ------    -------   -----   ---------   ------    -------  ------
  Total consumer loans....       6,680     3.01      6,464     3.41      5,086    3.06       5,838     3.97      5,860    4.23
Loans secured by leases....         ---      ---         81     0.04      1,272    0.76         759     0.52        448    0.32
                                -------   ------    -------   ------    -------   -----   ---------   ------    -------  ------
  Total loans..............     221,878   100.00%   189,598   100.00%   166,354  100.00%    147,029   100.00%   138,663  100.00%
                                          ======              ======             ======               ======
Less:
Deferred fees and discounts       1,498               1,511               1,486               1,578               1,664
Allowance for losses.......       2,069               1,828               1,520                 885                 792
                                -------             -------             -------           ---------             -------
  Total loans receivable, net  $218,311            $186,259            $163,348            $144,566            $136,207
                               ========            ========            ========            ========
</TABLE>

-----------

(1)  Mixed use refers to real  estate on which the  borrower  both  resides  and
     conducts a business.


                                        3

<PAGE>



     The following  table shows the  composition of the Bank's loan portfolio by
fixed- and adjustable-rate at the dates indicated.

 <TABLE>
<CAPTION>
                                                                          December 31,
                             ---------------------------------------------------------------------------------------------------

                                      1998               1997               1996                1995                1994
                             -------------------  ------------------  -----------------  ------------------  -------------------

                               Amount    Percent   Amount    Percent   Amount   Percent   Amount    Percent   Amount   Percent
                             ----------  -------  ---------  -------  --------  -------  --------   -------  --------  -------
<S>                           <C>         <C>     <C>        <C>      <C>       <C>      <C>       <C>      <C>       <C>

                                                                      (Dollars in Thousands)
Fixed-Rate Loans:
Real estate:
  One- to four-family...      $175,246      78.9    $143,882    75.89   $118,308   71.12   $101,015   68.70  $ 93,139    67.17%
  Multi-family..........        11,313       5.10     10,999     5.80      9,169    5.51      7,719    5.25     7,522     5.43
  Commercial............         8,625       3.89      7,649     4.04      6,545    3.94      7,370    5.01     6,628     4.78
  Mixed use(1)..........         9,444       4.26      7,446     3.93      7,424    4.46      6,666    4.53     6,790     4.90
                              ---------    ------   --------   ------   --------  ------   --------   -----   -------   ------
  Total real estate loans      204,628      92.23    169,976    89.66    141,446   85.03    122,770   83.49   114,079    82.28
Consumer................         1,522        .69      1,862     0.98      1,655    1.00      2,154    1.46     1,990     1.44
Loans secured by leases.           ---        ---         81     0.04      1,272    0.76        759    0.52       448     0.32
                              --------     ------    -------   ------    ------- -------   --------   -----  --------   ------
  Total fixed-rate loans       206,150      92.92    171,919    90.68    144,373   86.79    125,683   85.47   116,517    84.04

Adjustable-Rate Loans
Real estate:
  One-to-four-family....         7,206       3.25     10,937     5.77     16,663   10.02     16,364   11.13    17,141    12.36
  Multi-family..........           ---        ---        ---      ---        205    0.12        207    0.14       209     0.15
  Commercial............         2,910       1.31      1,659     0.87      1,102    0.66        495    0.34       283     0.20
  Mixed use.............           454        .20        481     0.25        580    0.35        596    0.41       643     0.46
Consumer................         5,158       2.32      4,602     2.43      3,431    2.06      3,684    2.51     3,870     2.79
                               -------     ------    -------  -------     ------  ------   --------   ------- -------   ------
  Total adjustable-rate loans   15,728       7.08     17,679     9.32     21,981   13.21     21,346   14.53    22,146    15.96
                               -------     ------    -------  -------     ------  ------    -------   -----   -------   ------
 Total loans...........       $221,878     100.00%   189,598   100.00%   166,354   100.00%  138,663   100.00% 138,663   100.00%
                                           ======              ======              ======             ======            ======

Less:
Deferred fees and discounts      1,498                 1,511               1,486              1,578             1,664
Allowance for losses....         2,069                 1,828               1,520                885               792
                               -------              --------           ---------            -------            ------
  Total loans receivable,
    net.................      $218,311              $186,259            $163,348           $144,566          $136,207
                              ========              ========            ========           ========          ========

</TABLE>



                                        4

<PAGE>


    The following  schedule  illustrates  the interest rate  sensitivity of the
Bank's loan portfolio at December 31, 1998.  Mortgages  which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
final  payment is due.  The  schedule  does not  reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>

                                              Real Estate
                        --------------------------------------------------------
                                                         Multi-family and
                                                          Commercial Real
                           One- to four-family                Estate             Consumer and Leases            Total
                        ---------------------------   ------------------------  ------------------------  --------------------
                                          Weighted                 Weighted                   Weighted             Weighted
                                           Average                  Average                   Average               Average
                            Amount          Rate       Amount        Rate        Amount        Rate       Amount      Rate
                        -------------     --------    --------    -----------   -------     -----------   ------- ------------
                                                                   (Dollars in Thousands)
<S>                     <C>               <C>         <C>          <C>          <C>         <C>           <C>     <C>


      Due During
     Years Ending
     December 31,
-------------------
1999...................     $  1,603        7.49%       $4,007       8.98%       $1,168        9.21%     $  6,778      8.67%
2000...................        1,174        7.81         1,885       9.25           652        8.54         3,711      8.67
2001 to 2003...........       19,713        7.74        16,955       8.88         4,786        8.30        41,454      8.27
2004 to 2008...........       17,303        7.59         1,582       9.51            29        4.50        18,914      7.75
2009 to 2023...........       70,185        7.93         7,359       8.77            45        7.41        77,589      8.01
2024 and following.....       72,474        7.66           958       8.11           ---         ---        73,432      7.67
                            --------        ----       -------       ----       -------        ----      --------      ----
   Total...............     $182,452        7.77%      $32,746       8.90%       $6,680        8.46%     $221,878      7.96%
                            ========                   =======                  =======                  ========

</TABLE>



     The  total  amount  of  loans  due  after  December  31,  1998  which  have
predetermined  interest rates is $206.2 million, while the total amount of loans
due after such date which have  floating or adjustable  interest  rates is $15.7
million.



                                        5

<PAGE>



     Under federal law, the aggregate amount of loans that the Bank is permitted
to make to any one borrower is generally  limited to 15% of  unimpaired  capital
and surplus  (25% if the  security  for such loan has a "readily  ascertainable"
value or 30% for certain  residential  development loans). At December 31, 1998,
based on the  above,  the  Bank's  regulatory  loans-to-one  borrower  limit was
approximately  $10.0  million.  On the same date, the Bank had no borrowers with
outstanding  balances in excess of this amount.  As of December  31,  1998,  the
largest  dollar amount  outstanding  or committed to be lent to one borrower or,
group  of  related  borrowers,  related  to one  residential  loan  and  several
multi-family  dwelling  loans  totaling $1.4 million  secured by the  borrower's
residence and several multi-family  dwellings located in Chicago,  Illinois.  At
December 31, 1998,  these loans were  performing in accordance with their terms.
As of the same date, there were five other lending  relationships  with carrying
values  in  excess  of $1.0  million. 

     All of the Bank's lending is subject to its written underwriting  standards
and to loan origination  procedures.  Decisions on loan applications are made on
the basis of detailed applications and property valuations  (consistent with the
Bank's  appraisal  policy).  The loan  applications  are  designed  primarily to
determine the borrower's  ability to repay and the more significant items on the
application are verified  through use of credit reports,  financial  statements,
tax returns or confirmations.  All mortgage loans currently  originated by First
Security are approved by the loan  committee,  currently  comprised of Directors
Babyk,  Dobrowolsky and Gawryk and Vice President Korb, and ratified by the full
Board of Directors. 

     The  Bank  requires  title  insurance  or  other  evidence  of title on its
mortgage  loans,  as well as fire and extended  coverage  casualty  insurance in
amounts  at least  equal to the  principal  amount  of the loan or the  value of
improvements  on the  property,  depending  on the type of loan.  The Bank  also
requires flood insurance to protect the property  securing its interest when the
property is located in a flood plain.

     One- to Four-Family Residential Real Estate Lending. The cornerstone of the
Bank's  lending  program is the  origination  of loans  secured by  mortgages on
owner-occupied one- to four-family  residences.  Historically,  the Bank focused
its  residential  lending  activities  on fixed  rate  loans with terms up to 30
years.  In the 1980s,  in order to reduce the average  term to  repricing of its
assets,  the Bank began to offer 15 year and 10 year fixed rate loans as well as
ARMs (although,  as a result of customer preference,  the Bank's ARM loan volume
has  been  limited).  Substantially  all  of  the  Bank's  one-  to  four-family
residential  mortgage  originations  are  secured by  properties  located in its
market area.  All mortgage loans  currently  originated by the Bank are retained
and serviced by it.

     The Bank currently offers fixed-rate mortgage loans with maturities from 10
to 30 years.  The Bank also offers  fixed rate balloon  products  with a 30 year
amortization  schedule  which are due in five or seven  years and  which,  under
certain  circumstances,  may be extended for an additional term of up to five or
seven years, as applicable.  As of December 31, 1998, the Bank had $25.7 million
of fixed rate loans with original  terms of 10 years or less (most of which were
five or seven  year  balloon  loans),  $56.5  million  of fixed  rate loans with
original  terms of 10-15  years and  $93.0  million  of fixed  rate  loans  with
original terms of more than 15 years. See "- Originations of Loans."

     The Bank also  originates  fixed rate home equity loans with terms of up to
ten years. These loans are written so that the total balance does not exceed the
lesser of $35,000 or 75% of the  appraised  value of the security  property when
combined with the balance of the first  mortgage lien. At December 31, 1998, the
Bank had $1.0 million of home equity loans,  all of which are  classified in the
tabular data as one- to four-family residential loans.

     The Bank also  offers  ARMs which carry  interest  rates which  adjust at a
margin  (generally  250 basis  points)  over the  yield on the One Year  Average
Monthly U.S.  Treasury  Constant  Maturity Index  ("CMT").  Such loans may carry
terms to maturity of up to 30 years. The ARM loans currently offered by the Bank
provide  for a cap on annual  interest  rate  changes of 200 basis  points and a
lifetime  cap  generally  of 600 basis  points  over the initial  rate.  Initial
interest  rates  offered on the Bank's ARMs may be  approximately  100-150 basis
points below the fully  indexed  rate,  although  borrowers are qualified at the
fully indexed rate. As a result, the risk of default on these loans may increase
as interest  rates  increase.  At December 31, 1998,  one- to  four-family  ARMs
totaled  $7.2 million or 3.25% of the Bank's  total loan  portfolio.  ARM volume
increased during 1998 as a result of an increase in first-time home buyers.

     First  Security  will  generally  lend up to 90% of the lesser of the sales
price or appraised  value of the  security  property on owner  occupied  one- to
four-family  loans;  provided,  however,  that  private  mortgage  insurance  is
obtained

                                        6

<PAGE>



in an amount  sufficient  to reduce the Bank's  exposure to not more than 80% of
the sales price or appraised value, as applicable.  The  loan-to-value  ratio on
non-owner occupied,  one- to four-family loans is generally 80% of the lesser of
the sales price or appraised value of the security property.  Non-owner occupied
one- to four-family  loans may pose a greater risk to the Bank than  traditional
owner occupied one- to four-family  loans. In  underwriting  one- to four-family
residential  real estate loans,  the Bank  currently  evaluates  the  borrower's
ability to make principal,  interest and escrow payments,  the borrower's credit
history,  the value of the property that will secure the loan and debt to income
ratios.

     Residential  loans  do not  currently  include  prepayment  penalties,  are
non-assumable and do not produce negative amortization.  The Bank's underwriting
practices do not comply in every way with those  required by most  purchasers in
the  secondary  market.  For  instance,  the  Bank,  on  occasion,  will lend to
borrowers  that have  income/debt  service  ratios  below that  required by many
secondary  market  purchasers.  In that event,  the Bank will  require  that the
borrower  have  other  attributes  which  justify  approving  a loan,  such as a
favorable  repayment  record  with the Bank on previous  lending  relationships,
favorable cash flow, a low loan to value ratio or other assets which can be used
as additional collateral.  The Bank has found that non-compliance with secondary
market  standards  at the time of  origination  does not in and of itself  cause
credit  problems  since the Bank has  engaged in this type of  lending  for many
years  and  its  overall   delinquency   experience  on  these  loans  has  been
satisfactory  to date. In addition,  these loans,  once seasoned,  generally are
saleable on the  secondary  market.  Furthermore,  the Bank has found that these
policies  and  procedures  help the  Bank  maintain  and  improve  its  customer
relations, which is critical in the communities the Bank serves.

     While  the  Bank  seeks  to  originate  most  of its  one-  to  four-family
residential  loans in  amounts  which are less  than or equal to the  applicable
Federal  Home  Loan  Mortgage  Corporation  maximum,  the Bank does make one- to
four-family  residential loans in amounts in excess of such maximum.  The Bank's
delinquency  experience on such loans has been similar to its  experience on its
other residential loans.

     The Bank's  residential  mortgage  loans  customarily  include  due-on-sale
clauses  giving  the Bank the  right to  declare  the loan  immediately  due and
payable in the event that,  among other things,  the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.

     Multi-family  and Commercial Real Estate Lending.  In order to increase the
yield of its loan portfolio and to complement residential lending opportunities,
the Bank  originates  permanent  multi-family  and commercial  real estate loans
secured by properties in its primary market area. At December 31, 1998, the Bank
had multi-family loans totaling $11.3 million,  or 5.1% of the Bank's total loan
portfolio, and $21.4 million in commercial real estate loans,  representing 9.7%
of the total loan portfolio.

     The Bank's  multi-family loan portfolio consists primarily of loans secured
by nine or fewer units.  The Bank's  commercial  real estate loans are primarily
secured by retail stores,  small office  buildings,  store/apartment  complexes,
taverns and store front offices.

     The Bank's multi-family real estate loans generally carry a maximum term of
15 years  and have  fixed  rates,  although  most of these  loans  are five year
balloons with a 25 year or more amortization schedule. These loans are generally
made  in  amounts  of up to 75% of the  lesser  of the  appraised  value  or the
purchase price of the property.  Most of the Bank's commercial real estate loans
are five year balloon  loans with fixed rates of interest.  Also included in the
Bank's  commercial real estate loans are $2.8 million of lines of credit secured
by commercial real estate with floating interest rates tied to the prime rate of
interest.  Commercial  real estate loans are generally made in amounts up to 75%
of the lesser of the appraised value or the purchase price of the property.

     Appraisals on properties  securing  multi-family and commercial real estate
loans in excess of $200,000 are performed by an independent appraiser designated
by the Bank at the time the loan is made.  All  appraisals on  multi-family  and
commercial  real estate  loans are  reviewed by the Bank's  loan  committee.  In
addition,  the  Bank's  underwriting  procedures  require  verification  of  the
borrower's   credit   history,   income  and   financial   statements,   banking
relationships,  references  and income  projections  for the property.  The Bank
obtains personal guarantees on these loans.

     At  December  31,  1998,  the  Bank's  largest  commercial  real  estate or
multi-family  loan  outstanding  totaled $814,000 and was secured by a mixed use
building  containing a veterinary hospital on the ground floor and apartments on
the second  floor  located in  Chicago,  Illinois.  The loan was  performing  in
accordance with its terms as of that date.


                                        7

<PAGE>



     Multi-family and commercial real estate loans may present a higher level of
risk than loans secured by one- to four-family residences.  This greater risk is
due to several  factors,  including the  concentration of principal in a limited
number of loans and  borrowers,  the effects of general  economic  conditions on
income  producing  properties  and the increased  difficulty  of evaluating  and
monitoring these types of loans.

     Consumer Lending.  Management believes that offering consumer loan products
helps to expand  the Bank's  customer  base and to create  stronger  ties to its
existing  customer  base. In addition,  because  consumer  loans  generally have
shorter terms to maturity and carry higher rates of interest than do residential
mortgage loans, they can be valuable asset/liability  management tools. The Bank
originates a variety of different types of consumer loans, including home equity
lines of credit, automobile and deposit account loans for household and personal
purposes.  Due to the tax  advantages  to the  borrower of home equity  lines of
credit,  the Bank has focused its recent  consumer  lending  activities  on home
equity lending. At December 31, 1998 consumer loans totaled $6.7 million or 3.0%
of total loans outstanding.

     Consumer  loan terms vary  according  to the type and value of  collateral,
length of contract and  creditworthiness  of the  borrower.  Other than the home
equity lines of credit,  the Bank's  consumer  loans are made at fixed  interest
rates, with terms of up to five years.

     The  Bank's  home  equity  lines of credit  are  written  so that the total
commitment  amount,  when combined with the balance of the first  mortgage lien,
may not exceed  75% of the  appraised  value of the  property.  These  loans are
written with fixed terms of up to five years and carry interest rates that float
with the prime rate of interest.  At December  31, 1998,  the Bank's home equity
lines of credit  totaled $5.2 million  outstanding,  or 2.3% of the Bank's total
loan portfolio.

     The underwriting  standards employed by the Bank for consumer loans include
a determination of the applicant's payment history on other debts and ability to
meet  existing   obligations  and  payments  on  the  proposed  loan.   Although
creditworthiness of the applicant is of primary consideration,  the underwriting
process also  includes a  comparison  of the value of the  security,  if any, in
relation to the proposed loan amount.  Consumer  loans may entail greater credit
risk than do residential  mortgage  loans,  particularly in the case of consumer
loans which are unsecured or are secured by rapidly  depreciable assets, such as
automobiles.  In such cases, any repossessed collateral for a defaulted consumer
loan may not provide an adequate  source of  repayment of the  outstanding  loan
balance as a result of the greater  likelihood of damage,  loss or depreciation.
In  addition,   consumer  loan  collections  are  dependent  on  the  borrower's
continuing  financial  stability,  and thus are more  likely to be  affected  by
adverse personal circumstances.  Furthermore, the application of various federal
and state laws,  including  bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans.

Originations of Loans

     Real estate loans are originated by First Security's staff through walk-ins
and referrals from existing customers or real estate agents.

     The Bank's ability to originate loans is dependent upon customer demand for
loans in its market  and to a lesser  extent,  customer  service  and  marketing
efforts.  Demand is affected by both the local  economy  and the  interest  rate
environment.  As a result of the strong real estate market in the Bank's primary
market areas and its emphasis on customer  service and community  outreach,  the
Bank has  experienced  significant  loan growth in recent years.  See "-- Market
Area." However,  as a result of consumer demand,  most recent  originations have
carried fixed rather than  adjustable  rates.  Under current  policy,  all loans
originated by First Security are retained in the Bank's portfolio.  See "-- One-
to Four- Family Residential  Lending" and "Management's  Discussion and Analysis
of Financial  Condition and Results of Operations - Asset/Liability  Management"
in the Annual Report attached as Exhibit 13 hereto.

     In  order  to  supplement  loan  originations,  the  Bank  has  acquired  a
substantial  amount  of  mortgage-backed  and other  securities  which are held,
depending   on   the   investment   intent,   in   the   "held-to-maturity"   or
"available-for-sale"  portfolios.  See "Investment  Activities - Mortgage-Backed
and  Related  Securities"  and  Note 2 of the  Notes to  Consolidated  Financial
Statements  in the Annual  Report  attached as Exhibit 13 hereto.  In  addition,
depending  on market  conditions,  the Bank may also  consider  the  purchase of
residential loans from other lenders, although it has not done so since 1994.


                                        8

<PAGE>



     As a reflection of the Bank's  emphasis on customer  service,  the Bank has
not sold loans in the past and does not intend to do so in the future.

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

<TABLE>
<CAPTION>

                                                            Year Ended December 31,
                                               -------------------------------------------------

                                                      1998           1997              1996
                                               ---------------  ---------------  ---------------
                                                                 (In Thousands)
<S>                                             <C>              <C>             <C>
Originations by type:
 Adjustable rate:
   Real estate - one- to four-family........         $ 1,791        $ 1,082         $ 3,067
                                                     -------        -------         -------
         Total adjustable-rate..............           1,791          1,082           3,067
                                                     -------        -------         -------
 Fixed rate:
   Real estate - one- to four-family........          68,797         46,207          34,696
                     - multi-family.........           5,076          6,066           4,329
                     - commercial...........           5,289          1,234             682
   Non-real estate - consumer...............           3,772          3,477           2,039
     Loan secured by leases.................             ---            ---             500
                                                     -------        -------         -------
         Total fixed-rate...................          82,934         56,984          42,246
                                                     -------        -------         -------
         Total loans originated.............          84,725         58,066          45,313
                                                     -------        -------         -------

Principal repayments........................         (52,445)       (34,822)        (25,988)
                                                     -------        -------         -------

Increase (decrease) in other
    items, net..............................            (228)          (333)           (543)
                                                     -------        -------         -------
        Net increase........................         $32,052        $22,911         $18,782
                                                     =======        =======         =======

</TABLE>



Delinquencies and Non-Performing Assets

     Delinquency Procedures. When a borrower fails to make a required payment on
a loan,  the Bank attempts to cure the  delinquency  by contacting the borrower.
Generally,  Bank personnel  work with the delinquent  borrower on a case by case
basis  to  solve  the  delinquency.  Generally,  a late  notice  is  sent on all
delinquent   loans  followed  by  a  phone  call  after  the  thirtieth  day  of
delinquency.  Additional  written  and  verbal  contacts  may be made  with  the
borrower between 30 and 60 days after the due date. If the loan is contractually
delinquent for 90 days, the Bank may institute  appropriate  action to foreclose
on  the  property.   Generally,  after  120  days,  foreclosure  procedures  are
initiated.  If  foreclosed,  the  property  is sold at  public  sale  and may be
purchased by the Bank.

     Real estate  acquired by First  Security as a result of  foreclosure  or by
deed in lieu of foreclosure is classified as real estate owned until it is sold.
When property is acquired by foreclosure or deed in lieu of  foreclosure,  it is
recorded at the lower of cost or fair value less estimated selling costs.  After
acquisition,  all costs incurred in maintaining the property are expensed. Costs
relating to the  development  and  improvement  of the  property,  however,  are
capitalized.


                                        9

<PAGE>



     The following  table sets forth the Bank's loan  delinquencies  by type, by
amount and by percentage of type at December 31, 1998.

<TABLE>
<CAPTION>
                                                           Loans Delinquent For:
                              ----------------------------------------------------------------
                                                                                                   Total Loans Delinquent
                                        60-89 Days                  90 Days and Over                  60-Days-or-More
                              ----------------------------    -----------------------------  ----------------------------------

                                                    Percent                       Percent                               Percent
                                                    of Loan                       of Loan                               of Loan
                                Number   Amount    Category    Number    Amount   Category       Number     Amount     Category
                              ---------- --------  ----------  -------  -------- ----------    ---------  ----------  -----------
                                                                              (Dollars in Thousands)

<S>                           <C>        <C>       <C>         <C>       <C>      <C>          <C>        <C>         <C>

Real Estate:
  One- to four-family........      4       $64         .04%       12        $468       .26%       16        $   532       .29%
  Multi-family...............      1        78         .69         3         224      1.98         4            302      2.67
  Commercial and mixed use...      3       467        4.05         3         313      1.46         6            780      3.64
Consumer.....................      4         5         .07         6           7       .10        10             12       .18
                                  --       ---        ----        --       -----      ----        --          -----      ----
Total........................     12      $614         .28%       24      $1,012       .46%       36         $1,626       .73%
                                  ==      ====        ====        ==      ======      ====        ==         ======      ====     


</TABLE>


                                       10

<PAGE>



     Classification  of Assets.  Federal  regulations  require that each savings
institution  classify  its own  assets  on a  regular  basis.  In  addition,  in
connection  with  examinations of savings  institutions,  OTS and FDIC examiners
have authority to identify  problem assets and, if appropriate,  require them to
be classified.  There are three classifications for problem assets: Substandard,
Doubtful and Loss.  Substandard  assets have one or more defined  weaknesses and
are  characterized  by the distinct  possibility that the Bank will sustain some
loss if the deficiencies are not corrected.  Doubtful assets have the weaknesses
of Substandard assets, with the additional  characteristics  that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable,  and there is a high possibility of loss. An
asset classified Loss is considered  uncollectible and of such little value that
continuance  as an  asset  on  the  balance  sheet  of  the  institution  is not
warranted.  Assets classified as Substandard or Doubtful require the institution
to establish prudent general  allowances for loan losses. If an asset or portion
thereof is classified as a loss, the institution charges off such amount against
the loan loss  allowance.  If an  institution  does not agree with an examiner's
classification  of an asset,  it may appeal this  determination  to the District
Director of the OTS.

     On the basis of  management's  review of its assets,  at December 31, 1998,
the Bank had  classified a total of $1.0 million of its loan and other assets as
follows:
<TABLE>
<CAPTION>
                                                                 At
                                                            December 31,
                                                                1998
                                                        --------------------
                                                           (In Thousands)
<S>                                                      <C>

Substandard...........................................         $1,007
Doubtful assets.......................................              5
Loss assets...........................................            ---
      Total...........................................         $1,012
General loss allowance................................         $2,069
Specific loss allowance...............................         $  ---
Charge-offs, net......................................         $    5

</TABLE>


     First  Security's  classified  assets consist of the  non-performing  loans
referred to below.




                                       11

<PAGE>



     Non-Performing   Assets.  The  table  below  sets  forth  the  amounts  and
categories  of  non-performing  assets in the  Bank's  loan  portfolio.  Accrued
interest  on loans  delinquent  90 days or more is  reversed  out of income  and
credited to an interest  reserve account which offsets the amount of capitalized
interest in loans receivable.  See Note 3 of the Notes to Consolidated Financial
Statements in the Annual Report attached as Exhibit 13 hereto. Foreclosed assets
include assets acquired in settlement of loans.

<TABLE>
<CAPTION>
                                                                              December 31,
                                              -------------------------------------------------------------------------------
                                                   1998           1997            1996           1995            1994
                                              -------------  ----------------  ------------  -------------   ---------------
                                                                         (Dollars in Thousands)

<S>                                           <C>            <C>                <C>           <C>             <C>

Non-accruing loans:
  One- to four-family.......................       $   9       $      9          $    9         $    9          $   41
  Commercial real estate....................         ---            ---             ---            ---             254
                                                  ------        -------          ------         ------          ------
      Total................................            9              9               9              9             295

Accruing loans delinquent 90 days or more:
  One- to four-family.......................         459            614           1,111            971             500
  Multi-family..............................         224            ---             180            367             330
  Commercial real estate....................         313            566             882            749             257
  Consumer..................................           7            194             226            189              43
                                                  ------        -------          ------         ------          ------
      Total................................       1,003          1,374           2,399          2,276           1,130

Foreclosed assets:
  One- to four-family.......................         ---            ---              40            ---             ---
  Commercial real estate....................         ---            ---             ---            499             207
                                                  ------        -------          ------         ------          ------
       Total................................         ---            ---              40            499             207

Non-performing leases(1)....................         ---             81           1,272           ---              ---
                                                  ------        -------          ------         ------          ------
Total non-performing assets.................      $1,012         $1,464          $3,720         $2,784          $1,632
                                                  ======         ======          ======         ======          ======
Total as a percentage of total assets.......       0.30%          0.46%           1.44%          1.11%           0.72%
                                                   ====           ====            ====           ====            ====
</TABLE>


-------------
(1)      See  "Management's  Discussion and Analysis of Financial  Condition and
         Results of Operations -- Comparison of Operating  Results for the years
         ended  December 31, 1997 and  December  31, 1996 -- Provision  for Loan
         Losses"  in the  Annual  Report  attached  as  Exhibit  13 hereto for a
         discussion of the Bank's Bennett Funding leases.


     For the years ended December 31, 1997 and December 31, 1998, gross interest
income (less  additions to the interest  reserve) which would have been recorded
had the non-accruing  loans (and accruing loans delinquent 90 days or more) been
current in  accordance  with  their  original  terms  amounted  to  $45,000  and
$116,000,  respectively. No interest income was recognized on non-accruing loans
for the years ended  December  31, 1998 and  December  31,  1997,  respectively.

     Other Loans of Concern. In addition to the non-performing  assets set forth
in the table  above,  as of December  31,  1998,  there were no other loans with
respect to which known  information  about the possible  credit  problems of the
borrowers or the cash flows of the security properties have caused management to
have  concerns as to the ability of the  borrowers  to comply with  present loan
repayment  terms and which may result in the future  inclusion  of such items in
the non-performing asset categories.

     Management  considers the Bank's  non-performing and "of concern" assets in
establishing its allowance for loan losses.

                                       12

<PAGE>



     The following table sets forth an analysis of the Bank's allowance for loan
losses.

<TABLE>
<CAPTION>

                                                 Year Ended December 31,
                                  --------------------------------------------------------

                                     1998       1997      1996       1995      1994
                                  ----------- -------- ----------- -------- -------------
                                                 (Dollars in Thousands)
<S>                                <C>        <C>       <C>        <C>      <C>


Balance at beginning of period....   $1,828     $1,520    $  885       $792    $608

Charge-offs:
  One- to four-family.............      ---        ---       ---        ---     ---
  Multi-family....................      ---        ---       ---        ---     ---
  Commercial real estate..........      ---        ---        68         28     ---
  Construction or development.....      ---        ---       ---        ---     ---
  Consumer........................        5          2         3         15     ---
  Leases..........................      ---        432       ---        ---     ---
                                      ------    ------    ------       ----    ----
                                          5        434        71         43     ---

Recoveries:
  One- to four-family.............      ---        ---       ---        ---     ---
  Multi-family....................      ---        ---       ---        ---     ---
  Commercial real estate..........      ---        ---       ---        ---     ---
  Construction or development.....      ---        ---       ---        ---     ---
  Consumer........................      ---          4       ---        ---       2
  Leases..........................      ---        ---       ---        ---     ---
                                     ------     ------    ------       ----    ----
                                        ---          4       ---        ---       2

Net (charge-offs) recoveries......       (5)      (430)      (71)       (43)      2
Additions charged to operations...      246        738       706        136     182
                                     ------     ------    ------       ----    ----
Balance at end of period..........   $2,069     $1,828    $1,520       $885    $792
                                     ======     ======    ======       ====    ====

Ratio of net charge-offs
  (recoveries) during the period
   to average loans outstanding
   during the end of period.......      ---%      0.25%     0.05%     (0.03)%   ---%
                                        ===       ====      ====       ====    ====

Ratio of net charge-offs
  (recoveries) during the period
  to average non-performing assets.      38%s    21.12%     2.15%     (1.88)% (0.10)%
                                        ===      =====      ====       ====   =====

</TABLE>



                                                        13

<PAGE>



     The  distribution of the Bank's  allowance for losses on loans at the dates
indicated is summarized as follows:

<TABLE>
<CAPTION>
                                                                            December 31,
                         --------------------------------------------------------------------------------------------------

                                   1998                             1997                             1996
                         -------------------------------- -------------------------------- --------------------------------
                                                 Percent                          Percent                          Percent
                                                of Loans                         of Loans                         of Loans
                            Amount      Loan     in Each     Amount      Loan     in Each    Amount      Loan      in Each
                           of Loan    Amounts   Category    of Loan    Amounts   Category    of Loan    Amounts   Category
                             Loss        by     of Total      Loss        by     of Total     Loss        by      of Total
                          Allowance   Category    Loans    Allowance   Category    Loans    Allowance  Category     Loans
                         ---------- --------------------- -------------------------------- -------------------------------
                                                                        (Dollars in Thousands)
<S>                     <C>          <C>         <C>      <C>         <C>          <C>      <C>        <C>          <C>
One- to four-family .   $    736     $182,452    82.23%   $    572    $154,819     81.66%   $    355   $134,971     81.14%
Multi-family ........         83       11,313     5.10          67      10,999      5.80          56      9,374      5.63
Commercial real
   estate ...........        483       21,433     9.66         448      17,235      9.09         245     15,651      9.41
Construction or
   development ......         --           --       --          --          --        --          --         --        --
Consumer ............        112        6,680     3.01          80       6,464      3.41          68      5,086      3.06
Loans secured by
   leases ...........         --           --       --          40          81      0.04         318      1,272      0.76
Unallocated .........        655           --       --         621          --        --         478         --        --
       Total ........   $  2,069     $221,878   100.00%   $  1,828    $189,598    100.00%   $  1,520   $166,354    100.00%
</TABLE>

<TABLE>
<CAPTION>

                                                      December 31,
                          -----------------------------------------------------------------
                                    1995                            1994
                          -----------------------------------------------------------------
                                                 Percent                          Percent
                                                 of Loans                         of Loans
                            Amount      Loan     in Each     Amount      Loan     in Each
                            of Loan    Amounts   Category   of Loan     Amounts   Category
                             Loss        by      of Total     Loss        by      of Total
                           Allowance  Category    Loans    Allowance   Category    Loans
                          -----------------------------------------------------------------
                                                   (Dollars in Thousands)
<S>                      <C>         <C>          <C>      <C>        <C>          <C>
One- to four-family .    $    310    $117,379     79.83%   $    284   $110,280     79.53%
Multi-family ........          56       7,926      5.39          52      7,731      5.58
Commercial real
   estate ...........         199      15,127     10.29         233     14,344     10.34
Construction or
   development ......          --          --        --          --         --        --
Consumer ............          70       5,838      3.97          71      5,860      4.23
Loans secured by
   leases ...........          76         759      0.52          55        448      0.32
Unallocated .........         174          --        --          97         --        --
       Total ........    $    885    $147,029    100.00%   $    792   $138,663    100.00%

</TABLE>

                                       14

<PAGE>



         The  allowance for loan losses is  established  through a provision for
loan losses  charged to earnings  based on  management's  evaluation of the risk
inherent in its entire loan portfolio. Such evaluation,  which includes a review
of all  loans  of  which  full  collectibility  may not be  reasonably  assured,
considers the market value of the underlying collateral,  growth and composition
of the loan portfolio,  delinquency  trends,  adverse situations that may affect
the borrower's ability to repay,  prevailing and projected  economic  conditions
and  other  factors  that  warrant  recognition  in  providing  for an  adequate
allowance  for loan losses.  In  determining  the general  reserves  under these
policies,  historical charge-offs and recoveries,  changes in the mix and levels
of  the  various  types  of  loans,  net  realizable  values,  the  current  and
prospective loan portfolio and current economic conditions are considered.

         While management  believes that it uses the best information  available
to  determine  the  allowance  for loan losses,  unforeseen  economic and market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly  affected, if circumstances differ substantially
from the assumptions used in making the final determination.

INVESTMENT ACTIVITIES

         GENERAL.  Generally,  the investment policy of the Company is to invest
funds  among  categories  of  investments  based  upon  the its  asset/liability
management  policies,  investment  quality,  loan and deposit volume,  liquidity
needs  and   performance   objectives.   In   accordance   with  the   Company's
asset/liability   management   policy,   the  Company  has  recently  focused  a
significant  part of its  investment  activities  on  instruments  with terms to
repricing or maturity of five years or less.

         The Bank must maintain  minimum levels of investments  and other assets
that qualify as liquid assets under OTS  regulations.  Liquidity may increase or
decrease  depending upon the  availability  of funds and  comparative  yields on
investments  in  relation  to the  return on loans.  Historically,  the Bank has
maintained liquid assets at levels above the minimum requirements imposed by the
OTS regulations and above levels believed  adequate to meet the  requirements of
normal operations,  including potential deposit outflows.  At December 31, 1998,
the Bank's short-term  liquidity ratio for regulatory  purposes was 41.38%.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Asset/Liability Management" and "- Liquidity and Capital Resources"
in the Annual Report attached as Exhibit 13 hereto.

         The Company's securities are classified into three categories: trading,
held-to-maturity  and  available-for-sale.  Securities  that are bought and held
principally  for the purpose of selling them in the near term are  classified as
trading  securities  and are  reported at fair value with  unrealized  gains and
losses  included in trading  account  activities in the statement of operations.
Securities  that the  Company  has the  positive  intent and  ability to hold to
maturity are classified as held-to-maturity  and reported at amortized cost. All
other securities not classified as trading or held-to-maturity are classified as
available-for-sale.  At December 31, 1998,  the Company had no securities  which
were classified as trading and $26.3 million of  mortgage-backed  and investment
securities classified as available-for-sale.  Available-for-sale  securities are
reported  at fair  value  with  unrealized  gains  and  losses  included,  on an
after-tax basis, in a separate component of retained earnings.

         MORTGAGE-BACKED  AND RELATED  SECURITIES.  In order to  supplement  its
lending activities and achieve its asset/liability management goals, the Company
invests in mortgage-backed and related securities.  As of December 31, 1998, all
of the  mortgage-backed  and related securities owned by the Company are issued,
insured or guaranteed  either  directly or indirectly by a federal agency or are
rated "AAA" by a nationally recognized credit rating agency.  However, it should
be noted that, while a (direct or indirect)  federal  guarantee or a high credit
rating may indicate a high degree of  protection  against  default,  they do not
indicate that the  securities  will be protected from declines in value based on
changes in interest rates or prepayment speeds.

         Consistent with its asset/liability  management  strategy,  at December
31, 1998, $12.4 million,  or 51.7% of the Company's  mortgage-backed and related
securities were available-for-sale. In addition, on the same date, $11.8 million
or  49.2%  of the  Company's  mortgage-backed  and  related  securities  carried
adjustable rates. Finally, as discussed further below, at December 31, 1998, the
Company had $2.4 million of  collateralized  mortgage  obligations  ("CMOs") and
real estate mortgage  investment  conduits  ("REMICs") with anticipated  average
lives of five years or less. For additional  information regarding the Company's
mortgage-backed  securities  portfolio,  see Note 2 of the Notes to Consolidated
Financial Statements in the Annual Report attached as Exhibit 13 hereto.


                                       15

<PAGE>



         The Company's  CMOs and REMICs are securities  derived by  reallocating
the cash flows from  mortgage-backed  securities  or pools of mortgage  loans in
order to create multiple classes,  or tranches,  of securities with coupon rates
and average lives that differ from the  underlying  collateral  as a whole.  The
terms to maturity of any  particular  tranche is dependent  upon the  prepayment
speed of the  underlying  collateral as well as the structure of the  particular
CMO or REMIC. Although a significant proportion of the Company's CMOs and REMICs
are interests in tranches  which have been  structured  (through the use of cash
flow priority and "support"  tranches) to give  somewhat more  predictable  cash
flows,  the cash  flow and hence the  value of CMOs and  REMICs  is  subject  to
change.

         The Company  invests in CMOs and REMICs as an  alternative  to mortgage
loans and conventional mortgage-backed securities as part of its asset/liability
management  strategy.  Management believes that, depending on market conditions,
CMOs and REMICs may represent  attractive  investment  alternatives  relative to
other  investments  due to the wide  variety of maturity and  repayment  options
available. In particular, the Company has from time to time concluded that short
and intermediate duration CMOs and REMICs (five year or less average life) often
represent  a  better  combination  of rate and  duration  than  adjustable  rate
mortgage-backed securities.

         To  assess  price  volatility,   the  Federal  Financial   Institutions
Examination  Council ("FFIEC") adopted a policy in 1992 which requires an annual
"stress" test of mortgage  derivative  securities.  This policy,  which has been
adopted by the OTS,  requires the Company to annually test its CMOs,  REMICs and
other  mortgage-related  securities  to determine  whether they are high-risk or
nonhigh-risk  securities.  Mortgage  derivative products with an average life or
price volatility in excess of a benchmark 30-year, mortgage-backed, pass-through
security are considered high-risk mortgage securities. Under the policy, savings
institutions may generally only invest in low-risk mortgage  securities in order
to reduce  interest rate risk. In addition,  all high-risk  mortgage  securities
acquired after February 9, 1992 which are classified as high risk at the time of
purchase  must be  carried  in the  institution's  trading  account or as assets
available-for-sale.  At December 31, 1998, the most recent  quarterly test date,
none of the Company's mortgage-backed securities were classified as "high-risk."


                                       16

<PAGE>



         The  following  table  sets  forth  the  composition  of the  Company's
mortgage-backed securities at the dates indicated.

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                       ----------------------------------------------------------------------------
                                                                1998                        1997                        1996
                                                       ---------------------       ---------------------       --------------------
                                                        Carrying       % of        Carrying        % of        Carrying       % of
                                                          Value        Total         Value         Total         Value        Total
                                                       ---------      ------       --------       ------       --------      ------
                                                                                     (Dollars in Thousands)
<S>                                                    <C>            <C>          <C>             <C>          <C>           <C>
Mortgage-backed securities held-to- maturity:
  GNMA..............................................   $  4,975       20.73%       $ 7,781         22.05%       $ 9,226       21.05%
  FNMA..............................................      1,474        6.14          2,531          7.17          3,294        7.51
  FHLMC.............................................      2,955       12.31          4,558         12.92          6,280       14.33
  CMOs/REMICs.......................................      2,183        9.10          3,681         10.44          5,309       12.11
                                                         11,587       48.28         18,551         52.58         24,109       55.00
Mortgage-backed securities available-for- sale:
  GNMA..............................................      1,983        8.26          2,982          8.45          3,425        7.81
  FNMA..............................................      4,309       17.96          5,605         15.89          6,572       14.99
  FHLMC.............................................      5,907       24.62          7,601         21.54          8,985       20.50
  CMOs/REMICs.......................................        211         .88            545          1.54            745        1.70
                                                         12,410       51.72         16,733         47.42         19,727       45.00

     Total mortgage-backed securities...............    $23,997      100.00%       $35,284        100.00%       $43,836      100.00%
</TABLE>





                                       17

<PAGE>



         The  following  table  sets  forth the  contractual  maturities  of the
Company's mortgage-backed securities at December 31, 1998.

<TABLE>
<CAPTION>
                                                                                                                     December 31,
                                                                                Due in                                   1998
                                              ------------------------------------------------------------------  ------------------

                                              6 Months  6 Months   1 to     3 to 5   5 to 10  10 to 20   Over 20  Amortized Carrying
                                              or Less   to 1 Year 3 Years   Years     Years     Years     Years      Cost     Value
                                              --------  --------- -------   ------   -------  --------   -------  --------- --------

                                                                                                   (In Thousands)

<S>                                          <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Federal Home Loan Mortgage Corporation ...   $    --   $    --   $   221   $   572   $ 1,125   $ 2,374   $ 4,807   $ 9,099   $ 8,751
Federal National Mortgage Association ....        --       146        --       551       282     2,115     2,751     5,845     5,790
Government National Mortgage Association .        --        --        --        --       353     1,507     5,077     6,937     7,108
CMOs and REMICs ..........................       322        --        --        --       692       551       829     2,394     2,382
                                             -------   -------   -------   -------   -------   -------   -------   -------   -------

     Total ...............................   $   322   $   146   $   221   $ 1,123   $ 2,452   $ 6,547   $13,464   $24,275   $24,031
                                             =======   =======   =======   =======   =======   =======   =======   =======   =======
</TABLE>





                                       18

<PAGE>



         As of December 31, 1998,  the Company did not have any  mortgage-backed
securities in excess of 10% of retained earnings except for FNMA, FHLMC and GNMA
issues, amounting to $5.8 million, $8.9 million and $7.0 million, respectively.

         The  market  values  of a  portion  of  the  Company's  mortgage-backed
securities  held-to-maturity  have  been  from  time to time  lower  than  their
carrying values.  However,  for financial reporting  purposes,  such declines in
value are  considered  to be  temporary  in nature  since  they have been due to
changes in interest rates rather than credit  concerns.  See Note 2 of the Notes
to Consolidated Financial Statements in the Annual Report attached as Exhibit 13
hereto.

         The following table shows mortgage-backed securities purchase, sale and
repayment activities of the Company for the periods indicated.


                                                    Year Ended December 31,
                                         ---------------------------------------
                                             1998          1997           1996
                                         ---------------------------------------
                                                     (In Thousands)

Purchases:
    Adjustable-rate ..................     $     --      $     --      $  2,396
    Fixed-rate .......................           --            --         4,583
    CMOs .............................           --            --           510
         Total purchases .............           --            --         7,489
                                           --------      --------      --------
Principal repayments .................      (11,096)       (8,475)       (8,639)
Discount/premium net change ..........         (114)         (184)           16
Fair value net change ................          (77)          107          (194)
                                           --------      --------      --------
         Net increase (decrease) .....     $(11,287)     $ (8,552)     $ (1,328)
                                           ========      ========      ========

         The Company's holdings of mortgage-backed  securities are a significant
portion  of the  Company's  total  assets.  Since  pass-through  mortgage-backed
securities  generally carry a yield  approximately  50 to 100 basis points below
that of the  corresponding  type of residential loan (due to the implied federal
agency  guarantee  fee and the  retention  of a  servicing  spread  by the  loan
servicer), and the Company's CMOs and REMICs also carry lower yields (due to the
implied  federal  agency  guarantee  and because  such  securities  tend to have
shorter actual  durations than 30 year loans),  in the event that the proportion
of the Company's assets  consisting of  mortgage-backed  and related  securities
increases,  the Company's asset yields could be somewhat adversely affected. The
Company will evaluate  mortgage-backed  and related securities  purchases in the
future  based  on  its   asset/liability   objectives,   market  conditions  and
alternative investment opportunities.

     OTHER  SECURITIES.  In order to complement its lending and  mortgage-backed
securities  activities,  and to increase its holdings of short and  intermediate
term  assets,  the Company  invests in liquid  investments  and in  high-quality
investments,  such as U.S. Treasury and agency obligations. At December 31, 1998
and December 31, 1997, the Company's  securities portfolio totaled $60.6 million
and $54.2 million,  respectively.  At December 31, 1998, the Company did not own
any other  securities  of a single  issuer which  exceeded 10% of the  Company's
retained  earnings,  other than federal  agency  obligations.  See Note 2 of the
Notes to  Consolidated  Financial  Statements in the Annual  Report  attached as
Exhibit 13 hereto for  additional  information  regarding  the  Company's  other
securities portfolio.








                                       19

<PAGE>




         The following  table sets forth the  composition of the Company's other
securities and other earning assets at the dates indicated.

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                 -----------------------------------------------------------------------------------
                                                             1998                         1997                         1996
                                                 -----------------------------------------------------------------------------------
                                                   Carrying         % of        Carrying         % of         Carrying        % of
                                                     Value          Total         Value          Total         Value         Total
                                                 -----------------------------------------------------------------------------------
                                                                                 (Dollars in Thousands)
<S>                                                <C>              <C>          <C>             <C>           <C>           <C>
Securities held-to-maturity:
  Federal agency obligations ................      $41,504          68.47%       $33,562         61.92%        $20,320       58.43%
  Municipal bonds ...........................        5,176           8.54          4,909          9.06           5,208       14.98
  Corporate notes ...........................           --             --             --            --             251        0.72
                                                   -------         ------        -------        ------         -------      ------
                                                    46,680          77.01         38,471         70.98          25,779       74.13
Securities available-for sale:
  US government securities ..................        2,577           4.25          8,014         14.79           3,350        9.63
  Mutual funds ..............................        3,164           5.22          3,155          5.82           5,645       16.23
  Municipal bonds ...........................        7,679          12.67          3,966          7.32              --          --
  Corporate notes ...........................          242            .40            250          0.46              --          --
  Other equity ..............................          271            .45            343          0.63               2        0.01
                                                   -------         ------        -------        ------         -------      ------
                                                    13,933          22.99         15,728         29.02           8,997       25.87
                                                   -------         ------        -------        ------         -------      ------
       Total securities .....................      $60,613         100.00%       $54,199        100.00%        $34,776      100.00%
                                                   =======         ======        =======        ======         =======      ======
Other earning assets:
  Interest-earning deposits with banks ......      $ 8,205          41.60%       $ 5,750         22.28%        $ 2,713       44.58%
  FHLB stock ................................        2,131          10.80          1,852          7.18           1,673       27.49
  Federal funds sold ........................        9,189          46.59         18,000         69.76           1,500       24.65
  Time deposit in other financial
   institutions .............................          200           1.01            200          0.78             200        3.28
                                                   -------         ------        -------        ------         -------      ------
        Total ...............................      $19,725         100.00%       $25,802        100.00%        $ 6,086      100.00%
                                                   =======         ======        =======        ======         =======      ======

</TABLE>




                                       20

<PAGE>



         The  composition  and  maturities  of the other  securities  portfolio,
excluding FHLB stock, are indicated in the following table.

<TABLE>
<CAPTION>
                                                                                December 31, 1998
                                                 -----------------------------------------------------------------------------------
                                                  Less Than     1 to 5        5 to 10           Over
                                                    1 Year      Years          Years          10 years          Total Securities
                                                 -----------------------------------------------------------------------------------
                                                  Amortized   Amortized      Amortized       Amortized      Amortized         Fair
                                                     Cost        Cost           Cost            Cost           Cost           Value
                                                 -----------------------------------------------------------------------------------
                                                                             (Dollars in Thousands)

<S>                                              <C>           <C>            <C>            <C>            <C>              <C>
US government securities .................       $    --       $    --        $    --        $   258        $   258          $   382
Federal agency obligations ...............            --        19,579         24,074             --         43,653           43,931
Municipal bonds ..........................           526         1,769          1,380          9,005         12,680           13,131
Corporate notes ..........................            --            --            250             --            250              242
                                                 -------       -------        -------        -------        ---------        -------
Total securities .........................       $   526       $21,348        $25,704        $ 9,263        $56,841(1)       $57,686
                                                 =======       =======        =======        =======        =========        =======
Weighted average yield ...................          5.42%         6.25%          6.07%          5.29%          6.01%
                                                    ====          ====           ====           ====           ====
</TABLE>
-------------------------
(1)      Includes $54.6 million of callable securities.


         See Note 2 of Notes to the  Consolidated  Financial  Statements  in the
Annual  Report  attached as Exhibit 13 hereto for a discussion  of the Company's
securities portfolio.

SOURCES OF FUNDS

         GENERAL.  The Bank's  primary  sources of funds are deposits,  payments
(including  prepayments)  of  loan  principal,  interest  earned  on  loans  and
securities,  repayments  of  securities,  borrowings  and  funds  provided  from
operations.

         DEPOSITS. First Security offers deposit accounts having a wide range of
interest rates and terms.  The Bank's deposits  consist of passbook,  NOW, money
market  and  various  certificate   accounts.   The  Bank  relies  primarily  on
competitive  pricing and customer  service to attract and retain these deposits.
The Bank's  customers may access their  accounts  through any of the Bank's five
offices and five automated  teller machines  ("ATMs").  In addition,  the Bank's
customers may access their accounts through several nationwide ATM networks. The
Bank only  solicits  deposits  in its  market  area and does not  currently  use
brokers to obtain deposits.

         The Bank  manages  the  pricing of its  deposits  in  keeping  with its
asset/liability management,  profitability and growth objectives. The variety of
deposit  accounts  offered  by the  Bank has  allowed  it to be  competitive  in
obtaining funds and to respond with  flexibility to changes in consumer  demand.
However,  as some customers have become more interest rate  conscious,  the Bank
has become more  susceptible to short-term  fluctuations  in its  certificate of
deposit flows.

         Management  believes  that the "core"  portion  of the  Bank's  regular
savings, NOW and money market accounts, which amounted to $96.5 million or 43.7%
of total  deposits  at  December  31,  1998,  can have a lower  cost and be more
resistant  to interest  rate  changes (and  competing  non-depository  financial
products)  than  certificate  accounts.  The  Bank  utilizes  customer  service,
community outreach and marketing  initiatives in an effort to build and maintain
the volume of such  deposits.  However,  there can be no assurance as to whether
the Bank will be able to maintain or increase its core deposits in the future.


                                       21

<PAGE>



         The table  below sets forth the Bank's  deposit  flows for the  periods
indicated.


                                                 Year Ended December 31,
                                       -----------------------------------------
                                         1998           1997            1996
                                       -----------------------------------------
                                                  (Dollars In Thousands)

Opening balance .................     $ 210,100      $ 219,505       $ 209,387
Deposits ........................       373,966        457,063         347,280
Withdrawals .....................      (372,758)      (475,811)       (346,192)
Interest credited ...............         9,187          9,343           9,030
                                      ---------      ---------       ---------
Ending balance ..................     $ 220,495      $ 210,100       $ 219,505
                                      =========      =========       =========

Net increase (decrease) .........     $  10,395      $  (9,405)      $  10,118
                                      =========      =========       =========

Percent increase (decrease) .....          4.95%         (4.28)%          4.83%
                                           ====          =====            ====

         The following table sets forth the dollar amount of savings deposits in
the  various  types of  deposit  programs  offered  by the Bank as of the  dates
indicated.

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                  ----------------------------------------------------------------------------------
                                                            1998                         1997                          1996
                                                  ------------------------      ------------------------      ----------------------
                                                                  Percent                       Percent                     Percent
                                                   Amount         of Total       Amount         of Total        Amount      of Total
                                                  --------        --------      --------        --------      --------      --------
                                                                                (Dollars in Thousands)
<S>               <C>                             <C>              <C>          <C>              <C>          <C>            <C>
Transactions and Savings
Deposits
Passbook Accounts 3.00% ..................        $ 74,963         34.0%        $ 68,572         32.6%        $ 71,167       32.4%
NOW Accounts 2.23% .......................          16,976          7.7           15,705          7.5           14,509        6.6
Money Market Accounts 3.06% ..............           4,524          2.0            4,574          2.2            5,107        2.3
                                                  --------        -----         --------        -----         --------      -----

Total Non-Certificates ...................          96,463         43.7           88,851         42.3           90,783       41.3

Certificates:
0.00 - 3.99% .............................             226          0.1               --           --              119        0.1
4.00 - 5.99% .............................         111,820         50.7          108,902         51.8          116,397       53.0
6.00 - 7.99% .............................          11,892          5.4           12,347          5.9           12,094        5.5
8.00 - 9.00% .............................              94          0.1               --           --              112        0.1
                                                  --------        -----         --------        -----         --------      -----

Total Certificates .......................         124,032         56.3          121,249         57.7          128,722       58.7
                                                  --------        -----         --------        -----         --------      -----

Total Deposits ...........................        $220,495        100.0%        $210,100        100.0%        $219,505      100.0%
                                                  ========        =====         ========        =====         ========      =====

</TABLE>

                                       22

<PAGE>



         The following table shows rate and maturity  information for the Bank's
certificates of deposit as of December 31, 1998.

<TABLE>
<CAPTION>

                                   Less Than       1 to 2          2 to 3        3 to 4         4 to 5         Greater
                                    1 Year          Years           Years         Years          Years       than 5 Years     Total
                                  ----------     ---------       ---------     ---------      ---------      ------------   --------
                                                           (Dollars in Thousands)
<S>                               <C>            <C>            <C>            <C>            <C>            <C>            <C>
3.00 - 3.99% ..............       $    226       $     --       $     --       $     --       $     --       $     --       $    226
4.00 - 4.99% ..............         31,657          1,002             54              2             57             --         32,772
5.00 - 5.99% ..............         67,955          6,549          1,725          1,080          1,739             --         79,048
6.00 - 6.99% ..............            577          5,563          1,653          1,504             80             --          9,377
7.00 - 7.99% ..............             --          1,648              3            864             --             --          2,515
8.00 - 8.99% ..............             45             --             --             --             --             49             94
                                  --------       --------       --------       --------       --------       --------       --------
                                  $100,460       $ 14,762       $  3,435       $  3,450       $  1,876       $     49       $124,032
                                  ========       ========       ========       ========       ========       ========       ========

</TABLE>


         The following table indicates the amount of the Bank's  certificates of
deposit and other deposits by time  remaining  until maturity as of December 31,
1998.

<TABLE>
<CAPTION>
                                                                                  Maturity
                                                            -------------------------------------------------------
                                                                              Over            Over
                                                             3 Months        3 to 6         6 to 12          Over
                                                             or Less         Months          Months       12 Months         Total
                                                            ---------       ---------       --------      ----------       ---------
                                                                                       (In Thousands)
<S>                                                         <C>             <C>             <C>             <C>             <C>
Certificates of deposit less than
 $100,000 ..........................................        $ 32,589        $ 23,795        $ 22,162        $ 15,011        $ 93,557
Certificates of deposit $100,000
 or more ...........................................           8,097           8,279           5,538           8,561          30,475
     Total certificates of deposit .................        $ 40,686        $ 32,074        $ 27,700        $ 23,572        $124,032
</TABLE>


         For  additional  information  regarding the  composition  of the Bank's
deposits,  see Note 7 of the Notes to the Consolidated  Financial  Statements in
the Annual Report attached as Exhibit 13 hereto.

         BORROWINGS.  First Security's other available  sources of funds include
advances from the FHLB of Chicago and other borrowings. The Bank's FHLB advances
to date have  primarily  consisted  of  subsidized  borrowings  to fund  special
housing  programs.  As a member of the FHLB of Chicago,  the Bank is required to
own capital stock in the FHLB of Chicago and is authorized to apply for advances
from the FHLB of Chicago.  Each FHLB credit  program has its own interest  rate,
which may be fixed or variable, and range of maturities. The FHLB of Chicago may
prescribe the acceptable uses for these advances,  as well as limitations on the
size of the  advances  and  repayment  provisions.  See  Note 8 of the  Notes to
Consolidated  Financial  Statements in the Annual Report  attached as Exhibit 13
hereto.



                                       23

<PAGE>



         The  following  table  sets forth the  maximum  month-end  balance  and
average balance of FHLB advances for the periods indicated.

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                    ----------------------------------------------------
                                      1998       1997      1996        1996       1995
                                    ----------------------------------------------------
                                                          (Dollars In Thousands)
<S>                                 <C>        <C>        <C>        <C>        <C>
Maximum Balance:
  FHLB Advances .................   $29,000    $12,000    $ 3,000    $ 4,000    $10,000

Average Balance:
  FHLB Advances .................   $21,667    $ 9,548    $ 3,000    $ 3,333    $ 3,769

Weighted average interest rate of
  FHLB advances .................      5.10%      5.72%      5.17%      5.25%      5.25%

</TABLE>

SUBSIDIARY ACTIVITIES

         As a federally  chartered  savings bank, First Security is permitted by
OTS  regulations  to invest up to 2% of its assets in the stock of, or loans to,
service corporation subsidiaries,  and may invest an additional 1% of its assets
in service  corporations  where such additional funds are used for inner-city or
community   development   purposes.   In  addition  to  investments  in  service
corporations,  federal  institutions are permitted to invest an unlimited amount
in operating  subsidiaries  engaged solely in activities which a federal savings
association may engage in directly.

         At December 31,  1998,  First  Security  had one wholly  owned  service
corporation,   Western   Security   Service   Corporation   ("Western"   or  the
"Subsidiary").  Western, an Illinois corporation, was incorporated November 1977
for the purpose of offering  customers and members of the general public credit,
life, mortgage and disability insurance.  First Security's investment in Western
was $28,802 as of  December  31,  1998.  Western  recognized  net income loss of
$9,500 during the year ended December 31, 1998 and $15,000 during the year ended
December 31, 1997.

COMPETITION

         First Security faces strong competition both in originating real estate
loans  and in  attracting  deposits.  Competition  in  originating  loans  comes
primarily  from credit  unions,  mortgage  bankers,  commercial  banks and other
savings  institutions,  which also make loans secured by real estate  located in
the Bank's market area.  First  Security  competes for loans  principally on the
basis of the  interest  rates  and loan fees it  charges,  the types of loans it
originates,  community  outreach  and the  quality of  services  it  provides to
borrowers.

         Competition  for those  deposits is  principally  from  credit  unions,
commercial banks, mutual funds,  securities firms and other savings institutions
located in the same  communities.  The ability of the Bank to attract and retain
deposits  depends  on its  ability to provide  an  investment  opportunity  that
satisfies the requirements of investors as to rate of return,  liquidity,  risk,
convenient  locations and other factors. The Bank competes for these deposits by
offering competitive rates,  convenient business hours, community outreach and a
customer oriented staff.

REGULATION

GENERAL

         First Security is a federally  chartered  savings bank, the deposits of
which are  federally  insured  and  backed by the full  faith and  credit of the
United  States  Government.  Accordingly,  First  Security  is  subject to broad
federal regulation and oversight extending to all its operations. First Security
is a member of the Federal Home Loan Bank  ("FHLB") of Chicago and is subject to
certain  limited  regulation  by the Board of Governors  of the Federal  Reserve
System  ("Federal  Reserve  Board").  As the savings and loan holding company of
First Security, the Company also is subject to federal regulation and oversight.
The purpose of the  regulation of the Company and other holding  companies is to
protect  subsidiary  savings  associations.  First  Security  is a member of the
Savings Association

                                       24

<PAGE>



Insurance  Fund  ("SAIF") and the deposits of First  Security are insured by the
Federal  Deposit  Insurance  Corporation  ("FDIC").  As a  result,  the FDIC has
certain regulatory and examination authority over First Security.

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

FEDERAL REGULATION OF SAVINGS ASSOCIATIONS

         The Office of Thrift Supervision  ("OTS") has extensive  authority over
the  operations  of  savings  associations.  As part of  this  authority,  First
Security  is required to file  periodic  reports  with the OTS and is subject to
periodic  examinations  by the OTS and the FDIC.  The last  regular OTS and FDIC
examinations  of First Security were as of September 30, 1998 and April 23 1990,
respectively.  Under  agency  scheduling  guidelines,  it is likely that another
examination  will be initiated in the near future.  When these  examinations are
conducted by the OTS and the FDIC,  the examiners may require First  Security to
provide  for  higher  general  or  specific  loan  loss  reserves.  All  savings
associations  are subject to a  semi-annual  assessment,  based upon the savings
association's total assets, to fund the operations of the OTS.

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

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

         First    Security's    general    permissible    lending    limit   for
loans-to-one-borrower  is equal to the greater of $500,000 or 15% of  unimpaired
capital  and  surplus  (except  for  loans  fully  secured  by  certain  readily
marketable  collateral,  in  which  case  this  limit  is  increased  to  25% of
unimpaired capital and surplus).  At December 31, 1998, First Security's lending
limit under this restriction was $10.0 million.  First Security is in compliance
with the loans- to-one-borrower limitation.

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

INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC

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

         The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums  based upon their  level of
capital and supervisory evaluation. Under the system, institutions classified as
well  capitalized  (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at

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<PAGE>



least 6% and a risk-based  capital ratio of at least 10%) and considered healthy
pay the  lowest  premium  while  institutions  that  are  less  than  adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based  capital  ratio  of less  than  8%)  and  considered  of  substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.

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

         Effective  January  1,  1997,  the  premium  schedule  for BIF and SAIF
insured  institutions  ranged from 0 to 27 basis points.  However,  SAIF-insured
institutions are required to pay a Financing  Corporation (FICO) assessment,  in
order to fund the  interest on bonds  issued to resolve  thrift  failures in the
1980s,  equal to  approximately  6.48  basis  points  for each $100 in  domestic
deposits,   while   BIF-insured   institutions   pay  an  assessment   equal  to
approximately  1.52  basis  points  for  each  $100 in  domestic  deposits.  The
assessment  is expected to be reduced to 2.43 basis points no later than January
1, 2000,  when BIF insured  institutions  fully  participate in the  assessment.
These  assessments,  which may be  revised  based upon the level of BIF and SAIF
deposits will continue until the bonds mature in the year 2017.

REGULATORY CAPITAL REQUIREMENTS

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

         The capital  regulations  require  tangible capital of at least 1.5% of
adjusted total assets (as defined by  regulation).  Tangible  capital  generally
includes  common   stockholders'   equity  and  retained  income,   and  certain
noncumulative  perpetual First Security stock and related  income.  In addition,
all  intangible  assets,  other  than a  limited  amount of  purchased  mortgage
servicing  rights,  must be  deducted  from  tangible  capital  for  calculating
compliance  with the  requirement.  At December  31,  1998,  First  Security had
$236,000 of intangible assets recorded as assets on its financial statements, as
a result of its  acquisition of assets and  assumption of  liabilities  from the
Resolution  Trust  Corporation in 1994. See Note 6 of the Notes to  Consolidated
Financial Statements in the Annual Report attached as Exhibit 13 hereto.

         The OTS regulations establish special  capitalization  requirements for
savings associations that own subsidiaries.  In determining  compliance with the
capital requirements,  all subsidiaries engaged solely in activities permissible
for national  banks or engaged in certain other  activities  solely as agent for
its customers are  "includable"  subsidiaries  that are consolidated for capital
purposes in proportion to the association's  level of ownership.  For excludable
subsidiaries the debt and equity  investments in such  subsidiaries are deducted
from assets and capital.

         At December 31,  1998,  First  Security  had tangible  capital of $66.7
million, or 20.4% of adjusted total assets, which is approximately $61.8 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date.

         The capital standards also require core capital equal to at least 3% of
adjusted total assets.  Core capital generally consists of tangible capital plus
certain intangible  assets,  including a limited amount of purchased credit card
relationships.  As a result of the prompt corrective action provisions discussed
below,  however, a savings  association must maintain a core capital ratio of at
least  4%  to  be  considered  adequately  capitalized  unless  its  supervisory
condition is such to allow it to maintain a 3% ratio.

         At December 31, 1998,  First  Security had core capital  equal to $66.7
million,  or 20.4% of adjusted  total  assets,  which is $53.7 million above the
minimum leverage ratio requirement of 4% as in effect on that date.


                                       26

<PAGE>



         The OTS risk-based  requirement  requires savings  associations to have
total capital of at least 8% of risk- weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain  permanent  and  maturing  capital  instruments  that do not
qualify as core capital and general  valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based  requirement  only to the extent of core capital.  The
OTS is  also  authorized  to  require  a  savings  association  to  maintain  an
additional  amount of total capital to account for  concentration of credit risk
and the risk of non-traditional activities. At December 31, 1998, First Security
had $2.1  million of general loss  reserves of which $2.0  million  qualifies as
supplementary capital, which was less than 1.25% of risk-weighted assets.

         Certain  exclusions from capital and assets are required to be made for
the purpose of calculating  total  capital.  Such  exclusions  consist of equity
investments  (as  defined  by  regulation)  and that  portion  of land loans and
nonresidential  construction  loans in excess of an 80% loan-to-value  ratio and
reciprocal  holdings of qualifying  capital  instruments.  First Security had no
such exclusions from capital and assets at December 31, 1998.

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

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

         On December 31, 1998,  First Security had total  risk-based  capital of
approximately $68.7 million (including $66.7 million in core capital and $2.0 in
qualifying supplementary capital) and risk-weighted assets of $159.3 million; or
total capital of 43.1% of  risk-weighted  assets.  This amount was $56.0 million
above the 8% requirement in effect on that date.

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

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

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

                                       27

<PAGE>



exceptions,  within 90 days after it becomes  critically  undercapitalized.  Any
undercapitalized   association  is  also  subject  to  the  general  enforcement
authority of the OTS and the FDIC, including the appointment of a conservator or
a receiver.

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

         The  imposition by the OTS or the FDIC of any of these  measures on the
Association  may  have  substantial   adverse  effects  on  its  operations  and
profitability.

LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS

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

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

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

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

LIQUIDITY

         All savings  associations,  including First  Security,  are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the average daily balance of its liquidity base during the preceding calendar
quarter or a percentage  of the amount of its  liquidity  base at the end of the
preceding  quarter.  For a discussion of what First Security  includes in liquid
assets,  see  "Management's  Discussion and Analysis of Financial  Condition and
Results of  Operations - Liquidity  and Capital  Resources" in the Annual Report
attached as Exhibit 13 hereto. This liquid asset ratio requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At the present time, the minimum liquid asset
ratio is 4%.


                                       28

<PAGE>



         Penalties may be imposed upon  associations  for  violations the liquid
asset ratio requirement.  At December 31, 1998, First Security was in compliance
with the requirement, with an overall liquid asset ratio of 41.38%.

QUALIFIED THRIFT LENDER TEST

         All savings  associations,  including First  Security,  are required to
meet a qualified  thrift lender  ("QTL") test to avoid certain  restrictions  on
their operations.  This test requires a savings association to have at least 65%
of  its  portfolio  assets  (as  defined  by  regulation)  in  qualified  thrift
investments  on a monthly  average  for nine out of every 12 months on a rolling
basis. As an alternative, the savings association may maintain 60% of its assets
in those assets  specified in Section  7701(a)(19) of the Internal Revenue Code.
Under either test, such assets primarily consist of residential  housing related
loans and investments. At December 31, 1998, First Security met the test and has
always met the test since its effectiveness. 

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

COMMUNITY REINVESTMENT ACT

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

         The federal banking agencies,  including the OTS, have recently revised
the CRA  regulations  and  the  methodology  for  determining  an  institution's
compliance with the CRA. Due to the heightened  attention being given to the CRA
in the past few years, First Security may be required to devote additional funds
for investment and lending in its local  community.  First Security was examined
for CRA compliance in April 1996 and received a rating of satisfactory.

TRANSACTIONS WITH AFFILIATES

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

         Certain  transactions with directors,  officers or controlling  persons
are also subject to conflict of interest  regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on

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<PAGE>



loans to such persons and their  related  interests.  Among other  things,  such
loans must be made on terms  substantially the same as for loans to unaffiliated
individuals.

HOLDING COMPANY REGULATION

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

         As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan  holding  company,  and the  activities  of the  Company and any of its
subsidiaries  (other  than  First  Security  or any other  SAIF-insured  savings
association)  would  become  subject  to such  restrictions  unless  such  other
associations  each  qualify  as  a  QTL  and  were  acquired  in  a  supervisory
acquisition.

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

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

FEDERAL SECURITIES LAW

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

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

FEDERAL RESERVE SYSTEM

     The Federal Reserve Board requires all depository  institutions to maintain
non-interest  bearing  reserves at specified  levels  against their  transaction
accounts (primarily checking, NOW and Super NOW checking accounts).  At December
31, 1998, First Security was in compliance with these reserve requirements.  The
balances  maintained  to meet the  reserve  requirements  imposed by the Federal
Reserve Board may be used to satisfy liquidity  requirements that may be imposed
by the OTS. See "-Liquidity."

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

FEDERAL HOME LOAN BANK SYSTEM

         First  Security is a member of the FHLB of Chicago,  which is one of 12
regional FHLBs,  that  administers the home financing credit function of savings
associations.  Each FHLB  serves as a reserve  or central  bank for its  members
within its assigned  region.  It is funded  primarily from proceeds derived from
the sale of consolidated

                                       30

<PAGE>

obligations of the FHLB System.  It makes loans to members  (i.e.,  advances) in
accordance with policies and  procedures,  established by the board of directors
of the FHLB,  which are subject to the oversight of the Federal  Housing Finance
Board. All advances from the FHLB are required to be fully secured by sufficient
collateral as determined  by the FHLB. In addition,  all long-term  advances are
required to provide funds for residential home financing.

         As a member,  First Security is required to purchase and maintain stock
in the FHLB of Chicago. At December 31, 1998, First Security had $2.1 million in
FHLB stock, which was in compliance with this requirement.  In past years, First
Security has  received  substantial  dividends on its FHLB stock.  Over the past
five  calendar  years  such  dividends  have  averaged  6.54%  and were 6.6% for
calendar  year 1998.  As a result of its  holdings,  the Bank could borrow up to
$42 million from the FHLB. 

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

     For the year ended December 31, 1998, dividends paid by the FHLB of Chicago
to First Security totaled $130,000, which constitutes a $7,000 increase from the
amount of dividends received in calendar year 1997.

FEDERAL AND STATE TAXATION

     Savings  associations  such as First  Federal that meet certain  conditions
prescribed by the Internal  Revenue Code of 1986,  as amended (the "Code"),  are
permitted  to  establish  reserves  for bad debts and to make  annual  additions
thereto which may, within specified  formula limits,  be taken as a deduction in
computing taxable income for federal income tax purposes.  The amount of the bad
debt  reserve  deduction  is computed  under the  experience  method.  Under the
experience  method, the bad debt reserve deduction is an amount determined under
a formula based  generally upon the bad debts actually  sustained by the savings
association over a period of years.

     In August 1996,  legislation  was enacted that  repealed the  percentage of
taxable  income  method used by many  thrifts,  including the Bank, to calculate
their bad debt reserve for federal  income tax purposes.  As a result,  the Bank
must  recapture  that  portion of the reserve that exceeds the amount that could
have been  taken  under the  experience  method  for tax years  beginning  after
December  31,  1987.  The  recapture  will  occur over a  six-year  period,  the
commencement  of which will be delayed  until the first  taxable year  beginning
after  December 31, 1997,  provided the  institution  meets certain  residential
lending  requirements.  At December 31, 1998,  the Bank had  approximately  $1.2
million  in bad debt  reserves  subject  to  recapture  for  federal  income tax
purposes.  The  deferred  tax  liability  related  to  the  recapture  has  been
previously established so there will be no effect on future net income.

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

     A portion  of the  Bank's  reserves  for  losses on loans may not,  without
adverse tax consequences, be utilized for the payment of cash dividends or other
distributions   to  a  shareholder   (including   distributions  on  redemption,
dissolution or  liquidation) or for any other purpose (except to absorb bad debt
losses).  As of December  31,  1998,  First  Security's  excess for tax purposes
totaled approximately $2.0 million.

     First Security  files its federal,  state and local income tax returns on a
calendar year basis using the accrual method of accounting.

     First Security has not been audited by the IRS with respect to consolidated
federal  income  tax  returns  in the past five  years.  With  respect  to years
examined by the IRS, either all  deficiencies  have been satisfied or sufficient
reserves have been established to satisfy asserted deficiencies.  In the opinion
of management, any

                                       31

<PAGE>



examination  of  still  open  returns   (including  returns  of  subsidiary  and
predecessors  of, or entities merged into, First Security) would not result in a
deficiency which could have a material adverse effect on the financial condition
of First Security and its consolidated subsidiary.

         ILLINOIS TAXATION.  For Illinois income tax purposes, the Bank is taxed
at an  effective  rate  equal to 7.18% of  Illinois  taxable  income.  For these
purposes,  "Illinois  Taxable  Income"  generally  means federal taxable income,
subject to certain  adjustments  (including  the addition of interest  income on
state and municipal  obligations  and the exclusion of interest income on United
States Treasury obligations).

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

IMPACT OF NEW ACCOUNTING STANDARDS

         In  June  1996,  the  Financial  Accounting  Standards  Board  released
Statement  of  Financial   Accounting   Standards  No.  125  ("SFAS  No.  125"),
"Accounting  for Transfers and  Extinguishments  of  Liabilities."  SFAS No. 125
provides  accounting  and  reporting  standards  for  transfers and servicing of
financial  assets and  extinguishments  of liabilities.  SFAS No. 125 requires a
consistent  application  of a  financial-components  approach  that  focuses  on
control.  Under that approach,  after a transfer of financial  assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, and derecognizes liabilities when extinguished.  SFAS No. 125 also
supersedes  SFAS No. 122 and requires that servicing  assets and  liabilities be
subsequently  measured by  amortization  in proportion to and over the period of
estimated  net  servicing  income  or loss and  requires  assessment  for  asset
impairment  or increases  obligations  based on their fair values.  SFAS No. 125
applies to transfers and  extinguishments  occurring after December 31, 1996 and
early or  retroactive  application  is not  permitted.  Because  the  volume and
variety of certain  transactions  will make it  difficult  for some  entities to
comply,  some provisions have been delayed by SFAS No. 122. The adoption of SFAS
No. 125 did not have a material impact on the financial  condition or operations
of the Company.

         In February  1997,  the FASB issued SFAS No. 128  "Earnings per Share."
This  Statement  modifies the  standards  for  computing  earnings per share and
replaces  the   presentation  of  primary   earnings  per  share  (EPS)  with  a
presentation  of basic EPS. The Statement is effective for financial  statements
issued after December 15, 1997. The Company has adopted SFAS 128 in its December
31, 1998  consolidated  financial  statements  and its  adoption  did not have a
material  impact on the results of  operations  or  financial  condition  of the
Company.

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

         Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise  and Related  Information",  was issued in 1997 by the
Financial Accounting Standards Board. This Statement  establishes  standards for
the way that public  business  enterprises  report  information  about operating
segments in annual financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major  customers.  Statement  131 is effective for periods  beginning  after
December  31, 1997.  Management  does not believe  that the  provisions  of this
Statement  are  applicable  to  the  Company,  since  substantially  all  of the
Company's operations are banking services.

EMPLOYEES

         At December 31, 1998, the Company,  including its  subsidiaries,  had a
total of 93 employees,  including 25 part-time  employees.  The Bank's employees
are not represented by any collective bargaining group. Management considers its
employee relations to be good.


                                       32

<PAGE>



EXECUTIVE OFFICERS OF THE CORPORATION WHO ARE NOT DIRECTORS

     The  business  experience  of  each  executive  officer  who is not  also a
director is set forth below.

     Harry Kucewicz. Mr. Kucewicz, age 42, is currently serving as the Treasurer
and Chief  Operating and Financial  Officer of both the Corporation and Bank. He
began working at the Bank in 1978 as the  Controller.  He was elected  Treasurer
and Chief Financial Officer in 1990 and Chief Operating Officer in August 1994.

     Mary H.  Korb.  Ms.  Korb,  age 51,  is  currently  Vice  President  of the
Corporation  and Vice President - Lending of the Bank.  Ms. Korb  supervises all
aspects of the Bank's lending operations, including lending compliance. Ms. Korb
has been with the Bank since 1970, and has served in her present  capacity since
March 1991.

     Irene S. Subota.  Ms. Subota, age 52, currently serves as Vice President of
the  Corporation  and as Vice  President - Savings of the Bank. Ms. Subota is in
charge of all aspects of the Bank's savings function,  including compliance. Ms.
Subota has been  employed by the Bank since 1973,  and has served in her current
position since 1992.

     Adrian Hawryliw.  Mr. Hawryliw,  age 62, has served as Philadelphia  Branch
Manager of the Bank since 1994 when the  Philadelphia,  Pennsylvania  branch was
acquired  from  the  Resolution  Trust  Corporation,  and  is  currently  a Vice
President of the Bank and of the  Corporation.  Mr.  Hawryliw is responsible for
supervising  operations  of the  Philadelphia,  Pennsylvania  branch,  including
business  development,  retail  deposits,  real estate  lending,  accounting and
marketing.  He has over 34 years of banking experience in the Philadelphia area,
holding  various   positions   including   chief  Financial   Officer  and  Vice
President/Investments for other area institutions.

ITEM 2.  PROPERTIES

     The following table sets forth  information  concerning the main office and
each branch office of the Bank at December 31, 1998.  At December 31, 1998,  the
Bank's premises had an aggregate net book value of approximately $2.9 million.


<TABLE>
<CAPTION>
                                              Year
                                             Acquired/        Owned or      Net Book Value at
      Location                              Established        Leased       December 31, 1998      Deposits
----------------------------------          -----------       --------      -----------------      ---------
                                                                                       (In Thousands)
<S>                                            <C>            <C>                 <C>               <C>
MAIN OFFICE:

936 North Western Avenue                       1964           Owned               $  963            $138,799
Chicago, Illinois 60622-4695

BRANCH OFFICES:

2166 Plum Grove Road                           1977           Leased(1)                1              11,024
Rolling Meadows, Illinois 60008

820 N. Western Avenue                          1983           Owned                  235               2,012
Chicago, Illinois 60622

5670 N. Milwaukee Avenue                       1993           Owned                1,124              13,487
Chicago, Illinois  60646

7918 Bustleton Avenue                          1994           Owned                  539              55,173
Philadelphia, Pennsylvania 19152

</TABLE>

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

(1) The lease expires in July 2000.


                                       33

<PAGE>



     The Bank  believes  that its current  facilities  are  adequate to meet the
present and foreseeable  future needs of the Bank and the Company.  However,  in
the future,  the Bank may  consider  the  addition  of one or more new  branches
within the Chicago or Philadelphia areas.

     The Bank's  depositor  and borrower  customer  files are  maintained  by an
independent data processing  company.  The net book value of the data processing
and  computer   equipment  utilized  by  the  Bank  at  December  31,  1998  was
approximately $555,000.

ITEM 3.  LEGAL PROCEEDINGS

     From time to time,  First Security is involved as plaintiff or defendant in
various legal  proceedings  arising in the normal course of its business.  While
the ultimate outcome of these various legal proceedings cannot be predicted with
certainty,  it is the opinion of management  that the  resolution of these legal
actions  should  not have a  material  effect on the  Company's  and the  Bank's
financial position or results of operations.

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

     No  matter  was  submitted  to a vote  of  security  holders,  through  the
solicitation  of proxies or  otherwise,  during the quarter  ended  December 31,
1998. 

                                     PART II

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

         Page 49 of the  attached 1998  Annual Report to  Stockholders is herein
incorporated by reference.

ITEM 6.  SELECTED FINANCIAL DATA

         Pages 3  and 4 of  the attached 1998 Annual Report to  Stockholders  is
herein incorporated by reference.

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

         Pages 5 through 19 of the attached  1998 Annual Report to  Stockholders
is herein incorporated by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Pages 20 through 48 of the attached  1998 Annual Report to Stockholders
is herein incorporated by reference.

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

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

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

         Information  concerning  Directors of the  Corporation is  incorporated
herein by reference from the definitive  Proxy  Statement for the Annual Meeting
of  Stockholders to be held in May 1999, a copy of which will be filed not later
than 120 days after the close of the fiscal year.


                                       34

<PAGE>


EXECUTIVE OFFICERS

         Information regarding the business experience of the executive officers
of the Corporation  and the Bank who are not also directors  contained in Part I
of this Form 10-K is incorporated herein by reference.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's directors and executive officers, and persons who own more than 10% of
the Company's  Common Stock (or any other equity  securities,  of which there is
none),  to file with the SEC initial reports of ownership and reports of changes
in ownership of the Company's Common Stock. Officers, directors and greater than
10%  shareholders  are required by SEC  regulations  to furnish the Company with
copies of all Section 16(a) forms they file.

         To the Company's  knowledge,  based solely on a review of the copies of
such reports furnished to the Company and written  representations that no other
reports  were  required  during the fiscal year ended  December  31,  1998,  all
Section 16(a) filing  requirements  applicable  to its  officers,  directors and
greater  than 10%  beneficial  owners  were  complied  with  except  that  Myron
Dobrowolsky inadvertently failed to file a Form 4 to report one transaction. Mr.
Dobrowolsky reported the transaction on a Form 5 dated February 12, 1999.

ITEM 11.  EXECUTIVE COMPENSATION

         Information concerning executive compensation is incorporated herein by
reference  from  the  definitive  Proxy  Statement  for the  Annual  Meeting  of
Stockholders  to be held in May  1999,  a copy of which  will be filed not later
than 120 days after the close of the fiscal year.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information  concerning security ownership of certain beneficial owners
and management is  incorporated  herein by reference  from the definitive  Proxy
Statement for the Annual Meeting of  Stockholders to be held in May 1999, a copy
of which  will be filed not later  than 120 days  after the close of the  fiscal
year.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information  concerning certain  relationships and related transactions
is incorporated  herein by reference from the definitive Proxy Statement for the
Annual Meeting of  Stockholders  to be held in May 1999, a copy of which will be
filed not later than 120 days after the close of the fiscal year.


                                     PART IV

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

         (a)(1)  FINANCIAL STATEMENTS:

         The following financial statements are included in this Form 10-K:

         1.     Five-Year Summary of Selected Consolidated Financial Data.
         2.     Independent Auditors' Report.
         3.     Consolidated  Statements of Financial  Condition at December 31,
                1998 and 1997.
         4.     Consolidated  Statements  of Income for the fiscal  years  ended
                December 31, 1998, 1997 and 1996.
         5.     Consolidated  Statements of Shareholders'  Equity for the fiscal
                years ended December 31, 1998, 1997 and 1996.
         6.     Consolidated Statements of Cash Flows for the fiscal years ended
                December 31, 1998, 1997 and 1996.
         7.     Notes to Consolidated Financial Statements.


         (a)(2) FINANCIAL STATEMENT SCHEDULES:

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


         (a)(3) EXHIBITS:

         See Exhibit Index.


         (b)  REPORTS ON FORM 8-K:

         There  were no  current  reports  on Form 8-K filed by the  Corporation
during the quarter ended December 31, 1998.

                                       35

<PAGE>



                                   SIGNATURES


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





/s/ Julian E. Kulas                         /s/ Steve Babyk
-------------------------------------       -----------------------------------
Julian E. Kulas                             Steve Babyk
President, Chief Executive Officer          Director
     and Director
(Principal Executive Officer)

Date:   March 31, 1999                      Date:  March 31, 1999
     --------------------------------            ------------------------------

/s/ Lila Maria Bodnar                       /s/ Myron Dobrowoolsky
-------------------------------------       -----------------------------------
Lila Maria Bodnar                           Myron Dobrowolsky
Recording Secretary and Director            Director

Date:  March 31, 1999                       Date:  March 31, 1999
     --------------------------------            ------------------------------

/s/ Terry Gawryk                            /s/ George Kawka
-------------------------------------       -----------------------------------
Terry Gawryk                                George Kawka
Secretary and Director                      Director

Date:  March 31, 1999                       Date:  March 31, 1999
     --------------------------------            ------------------------------

/s/ Paul Nadzikewycz                        /s/ Jaroslav H. Sydorenko
-------------------------------------       -----------------------------------
Paul Nadzikewycz                            Jaroslav H. Sydorenko
Chairman of the Board                       Director


Date:  March 31, 1999                       Date:  March 31, 1999
     --------------------------------            ------------------------------

/s/ Chrysta Wereszczak                      /s/ Harry Kucewicz
-------------------------------------       -----------------------------------
Chrysta Wereszczak                          Harry Kucewicz
Director                                    Principal Financial and Accounting
                                             Officer

Date:  March 31, 1999                       Date:  March 31, 1999
     --------------------------------            ------------------------------




                                       36

<PAGE>





                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
                                                                                        Reference to
                                                                                        Prior Filing
Regulation                                                                               or Exhibit
    S-K                                                                                    Number
  Exhibit                                                                                 Attached
  Number                                     Document                                      Hereto
----------------------------------------------------------------------------------------------------------
<S>           <C>                                                                         <C>
 2            Plan of acquisition, reorganization, arrangement, liquidation or            None
              succession
 3(a)         Certificate of Incorporation                                                  *
 3(b)         By-Laws                                                                       *
 4            Instruments defining the right of security                                    *
               holders, including debentures
 9            Voting Trust Agreement                                                      None
10            Executive Compensation Plans and Arrangements
              (a)   Employment Agreement between Julian E. Kulas and the                    *
                      Bank.
              (b)   Change-In-Control Severance Agreement between Harry I.                  *
                      Kucewicz and the Bank
              (c)   Change-In-Control Severance Agreement between Mary H.                   *
                      Korb and the Bank
              (d)   Change-In-Control Severance Agreement between Irene S.                  *
                      Subota and the Bank
              (e)   Change-In-Control Severance Agreement between Adrian                    *
                      Hawryliw and the Bank
              (f)   1998 Stock Option and Incentive Plan                                   **
              (g)   1998 Recognition and Retention Plan                                    **
11            Statement re:  computation of per share earnings                            None
12            Statement re:  computation of ratios                                    Not required
13            Annual Report to Security Holders                                            13
16            Letter re:  change in certifying accountants                                None
18            Letter re:  change in accounting principles                                 None
21            Subsidiaries of Registrant                                                   21
22            Published report regarding matters submitted to vote of security            None
              holders
23            Consent of Independent Auditor                                          Not Required
24            Power of Attorney                                                       Not Required
27            Financial Data Schedule                                                      27
99            Additional Exhibits                                                         None
</TABLE>

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

*        Filed as an Exhibit to the Company's  Form S-1  Registration  Statement
         filed on July21,  1997 (File No. 333-  31739)  pursuant to Section 5 of
         the Securities Act of 1933. All of such previously  filed documents are
         hereby  incorporated herein by reference in accordance with Item 601 of
         Regulation S-K.

**       Filed as an Exhibit to the  Company's  Definitive  Proxy  Statement  on
         Schedule  14A on  March  24,  1998  (File  No.  0-23063).  All of  such
         previously filed documents are hereby  incorporated herein by reference
         in accordance with Item 601 of Regulation S-K.