UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

        For Annual and Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

[X]  Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 For the fiscal year ended September 30, 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 0-18991

                                 PEOPLES BANCORP
             (Exact name of registrant as specified in its charter)
      INDIANA                                                   35-1811284
(State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                         Identification Number)

212 West 7th Street, Auburn, Indiana                                    46706
------------------------------------                                    -----
(Address of principal executive offices)                              (Zip Code)

       Registrant's telephone number, including area code: (219) 925-2500
        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 $1.00 per share
                                (Title of Class)

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

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

     Aggregate  market  value of  voting  stock  held by  non-affiliates  of the
registrant, as of December 28, 1999: $43,769,891.

        Indicate the number of shares  outstanding  of each of the  registrant's
classes of common stock, as of December 28, 1999:

           3,105,962 shares of Common Stock, par value $1.00 per share

                      Documents Incorporated by Reference:

        Portions of the definitive Proxy Statement/Prospectus (Part III) and the
Annual Report to  Stockholders  for the year ended  September 30, 1999 (Parts II
and IV).
<PAGE>
                                     PART I

Item 1.  Business

General

      Peoples  Bancorp (the  "Company") is an Indiana  corporation  organized in
October 1990 to become the thrift holding  company for Peoples  Federal  Savings
Bank of DeKalb County (the "Bank" or "Peoples Federal"). The Company is the sole
shareholder of Peoples Federal.  The Bank conducts business from its main office
in Auburn and its seven full-service  offices located in Avilla,  Columbia City,
Garrett, Kendallville, LaGrange, and Waterloo, Indiana. Peoples Federal offers a
full range of retail  deposit  services  and lending  services  to  northeastern
Indiana. The Company has no other business activity other than being the holding
company for Peoples Federal.

      The Bank was founded in 1925 and  chartered  by the Federal Home Loan Bank
Board ("FHLBB"),  now the Office of Thrift Supervision  ("OTS"),  in 1937. Since
that  time,  the Bank has been a member of the  Federal  Home  Loan Bank  System
("FHLB  System")  and the  Federal  Home  Loan  Bank of  Indianapolis  ("FHLB of
Indianapolis"),  and its savings accounts are insured up to applicable limits by
the Savings Association  Insurance Fund ("SAIF"), as administered by the Federal
Deposit Insurance Corporation (the "FDIC").

      The  Company is a unitary  savings  and loan  holding  company  subject to
regulation  by the  OTS.  The  Company's  securities  are  registered  with  the
Securities and Exchange  Commission ("SEC") pursuant to the Securities  Exchange
Act of 1934, as amended (the "Exchange Act"). As such, the Company is subject to
the information, proxy solicitation, insider trading, and other restrictions and
requirements of the Exchange Act.

         In May 1997, the Board authorized a stock repurchase program. Purchases
of up to 240,000  shares may be made in open market or in  privately  negotiated
transactions.  As of September  30, 1999,  the Company had  repurchased  233,925
shares.

         On a yearly basis,  Peoples  Federal  updates its  long-term  strategic
plan. This plan includes,  among other things,  Peoples Federal's  commitment to
maintaining a strong capital base and  continuing to improve the  organization's
return on assets  through  asset  growth  and  controlling  operating  expenses.
Continued  careful  monitoring of Peoples  Federal's  interest rate risk is also
cited as an important  goal. As a result,  continued  origination  of short-term
consumer  and  installment  loans,  prime plus  equity  loans,  adjustable  rate
mortgage loans, and fixed-rate real estate loans with original terms of 15 years
or less will be emphasized.

      The  Bank  offers  a wide  range  of  consumer  and  commercial  financial
services.  These  services  include:   consumer  demand  deposit  accounts;  NOW
accounts;   regular  and  term  savings   accounts  and  savings   certificates;
residential and commercial real estate loans; and secured and unsecured consumer
loans.  During 1999, the Bank added agricultural and commercial lending officers
to its staff.  Since these loans typically yield higher returns than traditional
mortgage lending and are for shorter terms, it is expected that these loans will
assist the Bank in  managing  its  interest  rate  risk,  and  increase  overall
profitability.  The Bank  provides  these  services  through  a  branch  network
comprised of eight  full-service  banking offices.  It also provides credit card
services,  as well as enhancements to its loan and deposit products  designed to
provide   customers  with  added   conveniences.   The  Bank  has   historically
concentrated its business activities in northeastern Indiana. The Bank's current
strategy is to maintain its branch office network as well as remain alert to new
opportunities.

      Over the years,  the Bank has  broadened its product line and enhanced its
operations  in  order  to  accommodate  its  growth  and to  meet  the  vigorous
competition  from various  financial  institutions  and other companies or firms
that engage in similar activities.
<PAGE>

The Thrift Industry

      Thrift institutions are financial  intermediaries  which historically have
accepted  savings  deposits  from the general  public  and, to a lesser  extent,
borrowed  funds from  outside  sources and  invested  those  deposits  and funds

primarily in loans  secured by first  mortgage  liens on  residential  and other
types of real estate.  Such  institutions may also invest their funds in various
types of short- and long-term  securities.  The deposits of thrift  institutions
are insured by the SAIF as administered by the FDIC, and these  institutions are
subject to extensive regulations.  These regulations govern, among other things,
the lending and other investment  powers of thrift  institutions,  including the
terms of mortgage  instruments these institutions are permitted to utilize,  the
types of deposits they are permitted to accept, and reserve requirements.

      The operations of thrift  institutions,  including  those of the Bank, are
significantly  affected by general  economic  conditions and by related monetary
and fiscal  policies of the federal  government and  regulations and policies of
financial institution regulatory  authorities,  including the Board of Governors
of the Federal Reserve System and the OTS. Lending  activities are influenced by
a number  of  factors  including  the  demand  for  housing,  conditions  in the
construction  industry,  and availability of funds. Sources of funds for lending
activities  include savings  deposits,  loan principal  payments,  proceeds from
sales of loans,  and  borrowings  from the  Federal  Home  Loan  Banks and other
sources.  Savings  flows at thrift  institutions  are  influenced by a number of
factors including interest rates on competing investments and levels of personal
income.

Earnings

      The Bank's earnings depend primarily on the difference between income from
interest-earning  assets such as loans and  investments,  and  interest  paid on
interest-bearing liabilities such as deposits and borrowings. The Bank typically
engages in long-term mortgage lending at fixed rates of interest,  generally for
periods of up to 30 years,  while accepting  deposits for  considerably  shorter
periods.

      Generally,   rapidly   rising   interest   rates   cause   the   cost   of
interest-bearing   liabilities   to  increase   more   rapidly  than  yields  on
interest-earning assets, thereby adversely affecting the earnings of many thrift
institutions.  While the industry has received  expanded  lending and  borrowing
powers in recent years  permitting  different  types of investments and mortgage
loans,  including those with floating or adjustable rates and those with shorter
terms, earnings and operations are still highly influenced by levels of interest
rates  and  financial  market  conditions  and  by  substantial  investments  in
long-term mortgage loans.

Competition

      The Bank experiences  strong  competition both in making real estate loans
and in attracting savings deposits. The Bank competes for real estate loans with
commercial banks,  mortgage banking companies,  insurance  companies,  and other
institutional  lenders. The most direct competition for savings comes from other
thrift institutions,  mutual savings banks,  commercial banks and credit unions.
During  periods  of  generally  high  interest  rates,   additional  significant
competition for savings accounts comes from corporate and government  securities
as well as money market mutual funds.  The principal  methods  generally used by
the Bank to  attract  deposit  accounts  include:  competitive  interest  rates,
advertising,  providing  a variety  of  financial  services,  convenient  office
locations,  flexible hours for the public,  and promotions for opening or adding
to deposit accounts.

Net Interest Income

      Net interest  income  increases  during periods when the spread is widened
between the Bank's  weighted  average rate at which new loans are originated and
the weighted average cost of interest-bearing liabilities. The Bank's ability to
originate   loans  is  affected  by  market  factors  such  as  interest  rates,
competition, consumer preferences, the supply of and demand for housing, and the
availability of funds.

      The Bank  has  supplemented  its  interest  income  through  purchases  of
investments when  appropriate.  This activity  generates  positive interest rate
spreads on large principal balances with minimal administrative expense.
<PAGE>


Interest Rate and Volume of Interest-Related Assets and Liabilities

      Both  changes  in  rate  and  changes  in the  composition  of the  Bank's
interest-earning assets and interest-bearing  liabilities can have a significant
effect on net interest income.

      For information  regarding the total dollar amount of interest income from
interest-earning assets, the average yields, the amount of interest expense from
interest-bearing liabilities and the average rate, net interest income, interest
rate spread, and the net yield on interest-earning  assets,  refer to page 12 of
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  in  the  Company's  1999  Annual  Report,   incorporated  herein  by
reference.

      For information regarding the combined weighted average effective interest
rate earned by the Bank on its loan  portfolio  and  investments,  the  combined
weighted  average  effective  cost of the Bank's  deposits and  borrowings,  the
interest rate spread of the Bank, and the net yield on combined monthly weighted
average   interest-earning  assets  of  the  Bank  on  its  loan  portfolio  and
investments for the fiscal years ending September 30, 1999, 1998, and 1997 refer
to page 9 of  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations in the Company's 1999 Annual Report incorporated herein by
reference.

      For  information  concerning the extent to which changes in interest rates
and changes in volume of  interest-related  assets and liabilities have affected
the Bank's interest income and expense during the fiscal years ending  September
30,  1999,  1998,  and 1997  refer  to page 13 of  Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations in the Company's 1999
Annual Report incorporated herein by reference.

Market Area

    The Bank's market area in northeastern Indiana spans the counties of DeKalb,
Whitley, Noble, and LaGrange. This market area has a population of approximately
145,000 and consists of a diversified  industrial economic base with an emphasis
on the production  sector that includes  major  manufacturers  of  international
scope. Moreover, the distribution sector,  primarily in the wholesale and retail
trades,  constitutes a substantial portion of the area's economy,  both in terms
of product  mix,  sales  receipts,  and  employment.  The most rapid  growth has
occurred in the manufacturing sector, especially in the production of automotive
and electronics  products,  and in the service sector with respect to packaging,
warehousing, and distribution services.

Lending Activities

    General

    The  Bank  has  attempted  to  emphasize   investments  in   adjustable-rate
residential  mortgages and consumer loans in its market area. In order to lessen
its risk from interest rate fluctuations, the Bank emphasizes the origination of
interest rate sensitive loan products, such as one-year adjustable-rate mortgage
loans, and prime plus equity loans. However, during the recent low interest rate
market,  customers preferred fixed rate products. The Bank reacted to this trend
by  offering a new  mortgage  product  of a  seven-year  fixed rate loan,  which
converts to a one-year  adjustable  product at the end of the seventh  year.  In
this way, the Bank offered a fixed rate product to satisfy the customer  demand,
but is not locked into low interest rates for a long period of time. These loans
show on the various charts in this 10-K as fixed rate product,  since  according
to  regulatory  treatment,  they are  considered  fixed rate until the repricing
period is below five  years.  Since this was a new  product  last year,  none of
these loans is currently  considered  adjustable  rate for regulatory  reporting
purposes.

Residential Mortgage Loans

    A  substantial   portion  of  the  Bank's  lending  activity   involves  the
origination  of  loans  secured  by  residential  real  estate,   consisting  of
single-family  dwelling  units.  The Bank also lends on the security of mid-size
multifamily  dwelling  units.  The  residential  mortgage  loans included in the
Bank's portfolio are primarily conventional  fixed-rate loans with a maturity of
up to 30 years.
<PAGE>

    The Bank also offers adjustable-rate mortgage loans. Currently,  these loans
generally  have interest  rates that adjust (up or down) every year.  Generally,
these loans  provide for a maximum  adjustment  of 6% over the life of the loans
with a maximum  adjustment  of 2% during any given year.  Adjustments  are based
upon an index  established at the time the commitment is issued by the Bank. The
index  used for most  loans is tied to the  applicable  United  States  Treasury
security  index.  While  adjustable-rate  mortgage  loans  assist  the  Bank  in
maintaining a positive  spread during periods of high interest  rates, it is not
expected that  adjustments in interest rates on  adjustable-rate  mortgages will
match  precisely  changes  in the  Bank's  cost of funds.  The  majority  of the
adjustable rate mortgages  originated by the Bank have limitations on the amount
(generally 6%) and frequency of interest rate changes.

    During the  fiscal  year  ended  September  30,  1999,  the Bank  originated
$127,435,000  of  residential  loans of which  $79,917,000  was five- to 30-year
fixed-rate  mortgages  and  $47,518,000  was  adjustable-rate  loans.  The rates
offered on the Bank's  adjustable-rate  residential mortgage loans are generally
competitive  with the rates offered by other thrift  institutions  in the Bank's
market  area and are based upon the Bank's  cost of funds and the rate of return
the Bank can receive on comparable investments.  Fixed-rate loans are originated
only under terms and conditions and using documentation which would permit their
sale in the secondary  market and at rates which are generally  competitive with
rates offered by other financial institutions in the Bank's market area.

    Set  forth  below  is  the  amounts  and   percentages   of  fixed-rate  and
adjustable-rate  loans (which include consumer loans) in the Bank's portfolio at
September 30, 1999, 1998, and 1997 (Dollars in thousands).


                           September 30,
   ------------------------------------------------------------
         1999                 1998                1997
   -------------------- ------------------- -------------------
    Fixed   Adjustable    Fixed  Adjustable   Fixed  Adjustable
   -------- ----------- -------- ---------- -------- ----------
   $259,133  $42,443    $225,270   $46,740  $180,631  $59,025
     85.9%    14.1%       82.8%     17.2%     75.4%    24.6%

    The terms of the residential  loans originated by the Bank range from one to
30 years. Experience during recent years reveals that as a result of prepayments
in  connection  with  refinancings  and  sales  of  the  underlying  properties,
residential loans generally remain outstanding for periods substantially shorter
than  maturity  of the loan  contracts.  At  September  30,  1999,  the  average
contractual  maturity of the Bank's  portfolio of fixed-rate  loans was 10 years
and 3  months,  and 15 years  and 3 months  with  respect  to its  portfolio  of
adjustable-rate loans.

    Substantially all of the Bank's residential mortgages include so-called "due
on sale" clauses,  which are  provisions  giving the Bank the right to declare a
loan  immediately  due and payable in the event that,  among other  things,  the
borrower  sells or  otherwise  disposes  of the  real  property  subject  to the
mortgage, and the loan is not repaid.

    Generally,  the Bank will not lend more than 80% of the appraised value of a
residential property which is owner occupied unless the borrower obtains private
mortgage  insurance  reducing  the  uninsured  portion of the loan to 72% of the
appraised value. If private mortgage insurance is obtained, the Bank's policy is
to lend up to 90% of the appraised value of the property  securing the loan. The
Bank applies the same standards to residential  loans purchased in the secondary
market.

Commercial Real Estate Loans

    The Bank also originates  commercial  real estate loans.  From September 30,
1998,  to  September  30, 1999,  commercial  real estate  loans  increased  from
$10,411,049 to $13,167,996,  with the percentage of commercial real estate loans
to total  loans  increasing  from  3.80% to  4.30%.  These  loans  consisted  of
construction  and permanent  loans  secured by mortgages on mid-size  commercial
real estate.  The terms of  commercial  real estate loans vary from loan to loan
but are usually  five-year  adjustable-rate  loans with terms of 20 to 25 years.
The  loan-to-value  ratio of  commercial  real estate loans is generally  75% or
less.
<PAGE>

    Generally,  commercial  real estate loans  involve  greater risk to the Bank
than do residential  loans but usually provide for a higher rate of interest and
increased fee income than do  residential  loans.  Commercial  real estate loans
typically  involve large loan balances to single  borrowers or groups of related
borrowers.  In  addition,  the  payment  experience  on loans  secured by income
producing  properties is typically dependent on the successful  operation of the
related project and thus may be subject to a great extent to adverse  conditions
in the real estate market or in the economy generally.

Construction Loans

    The Bank offers residential  construction loans both to owner-occupants  and
to persons building residential property. Construction loans are usually offered
with fixed rates of interest during construction.  Generally, construction loans
have terms  ranging  from six to 12 months at fixed rates over the  construction
period.  Practically  all  residential  construction  loans are written so as to
become permanent loans at the end of the construction period.

    Construction  loans involve  greater  underwriting  and default risks to the
Bank than do loans secured by mortgages on existing  properties.  Loan funds are
advanced  upon the  security of the project  under  construction,  which is more
difficult to value prior to the completion of construction. Moreover, because of
the uncertainties  inherent in estimating  construction  costs, it is relatively
difficult  to evaluate  accurately  the total loan funds  required to complete a
project  and the  related  loan-to-value  ratios.  Should a default  occur which
results in foreclosure,  the Bank could be negatively  impacted in that it would
have to take control of the project and attempt either to arrange for completion
of construction or dispose of the unfinished project.

    The Bank's  underwriting  criteria are designed to evaluate and minimize the
risks of each construction loan. The Bank carefully  considers a wide variety of
factors before  originating a construction  loan,  including the availability of
permanent  financing  or a takeout  commitment  to the  borrower  (which  may be
provided by the Bank at market  rates);  the  reputation of the borrower and the
contractor;    independent   valuations   and   reviews   of   cost   estimates;
pre-construction  sale  information;  and cash flow projections of the borrower.
Inspections  of  construction  sites  are made by the Bank on a timely  basis to
verify  progress  made to date as a further  reinforcement  of its  conservative
lending policy. To reduce the risks inherent in construction  lending,  the Bank
limits the number of properties  that can be constructed on a  "speculative"  or
unsold basis by a developer at any one time and generally  requires the borrower
or its principals to personally guarantee repayment of the loan.

Consumer and Other Loans

    Federal  laws  and   regulations   permit  a   federally-chartered   savings
institution to make secured and unsecured  consumer loans  including home equity
loans  (loans  secured  by the  equity  in the  borrower's  residence,  but  not
necessarily  for the purpose of  improvement),  home  improvement  loans  (loans
secured by a residential  second  mortgage),  loans secured by deposit accounts,
educational loans (insured by the State Student Loan Commission of Indiana), and
credit card loans  (unsecured).  The Bank offers all of these types of loans and
is currently  emphasizing  home equity loans to take advantage of the adjustable
interest rate feature of this loan versus the mortgage product. These loans also
carry a higher rate of interest than conventional mortgages,  thereby increasing
the profit potential while reducing the interest rate risk.

Loan Portfolio Cash Flows

     The following  table sets forth the  estimated  maturity of the Bank's loan
portfolio by type of loan at September 30, 1999. The estimated maturity reflects
contractual  terms at September 30, 1999.  Contractual  principal  repayments of
loans do not  necessarily  reflect the actual term of the Bank's loan portfolio.
The average life of mortgage loans is substantially  less than their contractual
terms because of loan  prepayments  and because of  enforcement of "due on sale"
clauses.  The average life of mortgage  loans tends to increase,  however,  when
current  mortgage  loan rates  substantially  exceed rates on existing  mortgage
loans.
<PAGE>

                            Due in     One Year   Due After
                            One Year   Through      Five
                             or Less  Five Years    Years     Total
                            --------- ---------- ---------- ----------
                                             (In thousands)
Type of Loan:
Construction loans --
   residential real estate   $ 6,998    $     -   $      -    $ 6,998
Real estate loans:
   Mortgage-residential       34,294     56,385    169,917    260,596
   Commercial                    866      9,256      3,046     13,168
Installment loans --
   consumer                   11,343      5,376        744     17,463
   commercial                  1,424      1,825        102      3,351
                            --------- ---------- ---------- ----------
         Total               $54,925    $72,842   $173,809   $301,576
                            ========= ========== ========== ==========

    The following  table sets forth the total amount of loans due after one year
from September 30, 1999, which have a fixed rate or an adjustable rate. (Dollars
in thousands)

            Loans Due
   October 1, 2000 and thereafter
--------------------------------------
     Fixed         Adjustable                   Total at September 30, 1999
-------------  ----------------------- -----------------------------------------
   $162,474         $84,177                             $246,651

Loan Portfolio Composition

    The following  table sets forth the composition of the Bank's loan portfolio
by type of loan at the dates indicated.  The table includes a reconciliation  of
total net loans receivable, after consideration of undisbursed Portion of loans,
deferred loan fees and discounts, and allowance for losses on loans.
<PAGE>

<TABLE>
                                                                     At September 30
                                 1999                  1998                 1997                 1996           1995
                         --------------------------------------------------------------------------------------------------------
TYPE OF LOAN               AMOUNT        %       AMOUNT       %       AMOUNT      %       AMOUNT       %       AMOUNT       %
<S>                      <C>           <C>      <C>         <C>      <C>        <C>      <C>         <C>      <C>         <C>
                         -----------  -------- -----------  -------  ---------- -------  ----------  -------  ----------  -------
Residential:                                                     (Dollars in thousands)
     Single family units  $ 265,992     88.2%   $ 243,858    89.7%   $ 217,528   90.8%   $ 207,028    91.0%    $203,211    91.2%
     2-4 family units         1,603      0.5%       1,610     0.6%       1,541    0.6%       1,234     0.5%       1,008     0.4%
     Over 4 family units      2,525      0.8%       2,687     1.0%       2,813    1.2%       2,769     1.2%       1,738     0.8%
Commercial real estate        9,392      3.1%       6,425     2.4%       4,269    1.8%       4,006     1.8%       3,696     1.7%
Land acquisition and
     development              1,251      0.4%       1,299     0.5%         769    0.3%         702     0.3%         838     0.4%
Consumer and other loans     19,861      6.6%      15,157     5.6%      11,915    5.0%      10,959     4.8%      11,337     5.1%
Loans on deposits               952      0.3%         973     0.4%         821    0.3%         877     0.4%         901     0.4%
                         -----------  -------- -----------  -------  ---------- -------  ----------  -------  ----------  -------
                            301,576    100.0%     272,009   100.0%     239,656  100.0%     227,575   100.0%     222,729   100.0%
                         -----------  -------- -----------  -------  ---------- -------  ----------  -------  ----------  -------
Less:
Undisbursed portion
     of loans                 2,307                 3,081                2,444               2,717                2,237
Deferred loan fees and
     discounts                1,394                 1,323                1,070                 959                  916
                         -----------           -----------           ----------          ----------           ----------
                              3,701                 4,404                3,514               3,676                3,153
                         -----------           -----------           ----------          ----------           ----------
Total loans receivable      297,875               267,605              236,142             223,899              219,576
Allowance for losses
     on loans                 1,005                   947                  887                 888                  912
                         -----------           -----------           ----------          ----------           ----------
Net loans                 $ 296,870             $ 266,658            $ 235,255           $ 223,011             $218,664
                         ===========           ===========           ==========          ==========           ==========
</TABLE>

Origination, Purchase and Sale of Loans and Loan Concentrations

    The  Bank   originates   residential   loans  in  conformity  with  standard
underwriting  criteria to assure maximum  eligibility for possible resale in the
secondary market. Although the Bank has authority to lend anywhere in the United
States, it has confined its loan origination  activities primarily in the Bank's
service area.

    Loan  originations  are developed  from a number of sources,  primarily from
referrals  from  real  estate  brokers,   builders,  and  existing  and  walk-in
customers.  The Bank also utilizes the services of a loan broker located in Fort
Wayne,  Indiana,  who is paid on a commission  basis  (generally  1% of the loan
amount) to originate loans for the Bank.

    The  Bank's  mortgage  loan  approval  process  is  intended  to assess  the
borrower's  ability  to repay  the loan,  the  viability  of the  loan,  and the
adequacy  of the value of the  property  that  will  secure  the loan.  The loan
committee of the Bank can approve residential and commercial loans ranging up to
$200,000.  The Bank's Board of Directors must approve loans exceeding  $200,000.
The Bank  utilizes  independent  qualified  appraisers  approved by the Board of
Directors to appraise  the  properties  securing  its loans and  requires  title
insurance  or title  opinions  so as to insure that the Bank has a valid lien on
the  mortgaged  real estate.  The Bank  requires  borrowers to maintain fire and
casualty insurance on its secured properties.

    The  procedure  for  approval  of  construction  loans  is the  same  as for
residential  mortgage  loans,  except that the appraiser  evaluates the building
plans,  construction  specifications,  and estimates of construction  costs. The
Bank also evaluates the feasibility of the proposed construction project and the
experience  and track record of the  developer.  In addition,  all  construction
<PAGE>

loans generally require a commitment from a third-party  lender or from the Bank
for a permanent  long-term loan to replace the construction loan upon completion
of construction.

    Consumer  loans  are  underwritten  on the  basis of the  borrower's  credit
history and an analysis of the borrower's income and expenses,  ability to repay
the loan, and the value of the collateral,  if any. A consumer loan officer must
approve consumer loans.
Consumer loan  originations  currently  are being  generated  primarily  through
advertising.

    Currently,  it is  the  Bank's  policy  to  originate  both  fixed-rate  and
adjustable-rate  loans,  providing  all such loans are  eligible for sale in the
secondary  market.  It is the  Bank's  intention  to  hold  all  originated  and
purchased  loans in its portfolio and not for sale.  Generally,  the Bank is not
active in the secondary market.

     The following  table shows mortgage and other loan  origination,  purchase,
and repayment activity for the Bank during the periods indicated:

                                             Years Ended September 30
                                          -----------------------------
                                            1999     1998       1997
                                          --------- --------- ---------
                                             (Dollars in thousands)
Mortgage loans originated
   for the purpose of:
     Construction-commercial              $      -  $  1,425         -
     Construction-residential               10,080     8,386     9,120
     Purchase/refinance-commercial           2,325     2,324       618
     Purchase/refinance-residential         92,772    82,553    53,374
Consumer and other loans originated         22,258    14,463     9,462
                                          --------- --------- ---------
   Total loans originated                  127,435   109,151    72,574
                                          --------- --------- ---------
Loans  purchased                                 -         -         -
                                          --------- --------- ---------
                                           127,435   109,151    72,574
                                          --------- --------- ---------
Loan credits:
   Principal repayments                     97,440    77,980    60,368
                                          --------- --------- ---------
Other:
   Provision for losses on loans                89        75        50
   Amortization of loan fees                  (426)     (380)     (271)
   Loan foreclosures, net                      121        73       183
                                          --------- --------- ---------
                                              (216      (232)      (38)
                                          --------- --------- ---------

     Total credits, net                     97,224    77,748    60,330
                                          --------- --------- ---------
Net increases in mortgage and other
   loans receivable, net                  $ 30,211  $ 31,403  $ 12,244
                                          ========= ========= =========

Interest Rates, Points and Fees

    The  Bank  realizes  interest,  point,  and  fee  income  from  its  lending
activities.  The Bank also  realizes  income  from  commitment  fees for  making
commitments to originate  loans,  from  prepayment and late charges,  loan fees,
application fees, and fees for other miscellaneous services.

    The Bank accounts for loan origination fees in accordance with the Statement
of Financial Accounting Standards on Accounting for Nonrefundable Fees and Costs
Associated  with  Originating  or Acquiring  Loans ("SFAS No. 91") issued by the
Financial  Accounting  Standards  Board (the "FASB").  SFAS No. 91 prohibits the
immediate  recognition  of loan  origination  fees as revenues and requires that
such income  (net of certain  direct  loan  origination  costs) for each loan be
<PAGE>

amortized, generally by the interest method, over the estimated life of the loan
as an adjustment of yield.

Nonperforming Assets

    Loans are reviewed on a regular basis and are generally placed on nonaccrual
status when the loans become past due 90 days or more,  or when, in the judgment
of management,  the  probability of collection is deemed to be  insufficient  to
warrant  further  accrual.  When  a  loan  is  placed  on a  nonaccrual  status,
previously  accrued but unpaid interest is deducted from interest  income.  When
the Bank is unable to resolve a delinquency  satisfactorily within 45 days after
the loan is past due, it will  undertake  foreclosure or other  proceedings,  as
necessary, to minimize any potential loss.

    Real estate  acquired by the Bank 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 so  acquired,  it is  recorded at the lower of loan  balance or fair
market  value at the date of  acquisition.  Periodically,  real estate  owned is
reviewed to ensure that net  realizable  value is not less than carrying  value,
and any allowance  resulting  there from is charged to operations as a provision
for loss on real estate owned.  All costs incurred in  maintaining  the property
from the date of acquisition are expensed.

    The following table reflects the amount of loans in delinquent  status as of
the dates indicated:

                                    Loans Delinquent For
           ---------------------------------------------------------------------
                 30-59 Days              60-89 Days        90 Days and Over
           ------------------------ ---------------------- ---------------------
                           Percent                Percent                Percent
                           of Loan                of Loan                of Loan
            Number Amount Category Number Amount Category Number Amount Category
           ------- ------ -------- ------ ------ -------- ------ ------ --------
Real estate:                            (Dollars in thousands)
 One to four 15     $587    0.22%     2    $ 75    0.03%    23    $454    0.17%
  family
Consumer      6       21    0.10%     5      28    0.13%     5      27    0.13%
           ------- ------          ------ ------          ----- -------
  Total      21     $608    0.20%     7    $103    0.03%    28    $481    0.16%
           ======= ======         ====== ======          ===== =======


             The following table sets forth the Bank's  nonperforming  assets at
the dates indicated:
<PAGE>

                                       At September 30,
                             -----------------------------------
                              1999   1998   1997   1996    1995
                             ------ ------ ------ ------- ------
                                   (Dollars in thousands)
Nonaccrual loans              $474   $729   $658   $  814   $765
Loans past due 90 days and
    still accruing              64     23     64       88     99
                             ------ ------ ------ -------- ------
                               538    752    722      902    864
Real estate owned, net
   of allowance                  -      -      -      110     47
                             ------ ------ ------ -------- ------
Total nonperforming
   assets                     $538   $752   $722   $1,012   $911
                             ====== ====== ====== ======== ======

    Consumer  loans are placed on n  generally when the loan exceeds 90
days  delinquent  or if,  in the  opinion  of  management,  the  possibility  of
collecting  the  loan  becomes  questionable.   Mortgage  loans  are  placed  on

nonaccrual  generally when the loan exceeds 90 days delinquent;  however, if the
loan is below a 25%  loan-to-value,  management  may at their  option  decide to
accrue interest on the loan, since collection of the loan appears highly likely.

    Interest income that would have been recognized for the year ended September
30, 1999, if nonaccrual loans had been current in accordance with their original
terms,  approximated  $39,000.  Interest income recognized on such loans for the
year ended September 30, 1999,  approximated $23,000. At September 30, 1999, the
Bank had no loans that were deemed  impaired in  accordance  with  Statement  of
Financial Accounting Standards No. 114.

     Federal regulations require savings  associations to review their assets on
a regular basis and to classify them as: special mention; substandard;  doubtful
and loss. Loans classified as special mention,  are loans which currently do not
expose the Bank to an unusual  risk of loss but based on  information  available
require the attention of management.  This classification usually includes loans
secured  by unusual  collateral,  loans  with  documentary  items that are being
addressed by counsel,  and  relatively  large loans where the borrower has had a
history of  delinquent  payments and the  collateral  has a cashflow  shortfall,
however, the borrower has continued to service the debt.

    Loans  classified as substandard or doubtful  generally  represent  balances
where the borrower  has made  several  late  payments and is unable to bring the
loan  current.  Substandard  loans  generally  represent  situations  where  the
borrower  is  attempting  to resolve  the  delinquency  in the normal  course of
business (i.e., sale of the property or infusion of additional  capital).  Loans
classified  as  doubtful  represent  situations  where  the  borrower  has  been
unsuccessful  in  attempts to resolve the  delinquency  in the normal  course of
business.  Doubtful  loans  involve a greater  degree of  uncertainty  regarding
estimate of loss.

    Loans  classified as loss  represent  situations  where the loan is severely
delinquent.  These loans typically involve extensive  bankruptcy  proceedings or
other unusual circumstances where the debtor contests foreclosure.

    Loans  classified  as  special  mention;  substandard  or  doubtful  do  not
necessarily   require  specific  reserves.   Individual  loan  balances  may  be
classified in one or more categories based on management's analysis and estimate
of the risk underlying each individual situation.

    In accordance with the federal regulations,  Management  continually reviews
the mix and delinquency status of its loan portfolio and classifies those loans,
which it deems appropriate.

    As of September  30, 1999,  loan  balances  were  classified  by the Bank as
follows:
<PAGE>

             Loss                            $ 26,140
             Doubtful                             -0-
             Substandard                      939,705
             Special Mention                  590,433

Allowance for Losses on Loans and Real Estate Owned

    The  allowances  for loan and real estate  owned  losses  represent  amounts
available to absorb inherent  losses in the loan portfolio.  Such allowances are
based  on  management's   continuing   review  of  the  portfolios,   historical
charge-offs,  current  economic  conditions,  and such other  factors,  which in
management's  judgment deserve  recognition in estimating  possible  losses.  In
addition,  various regulatory agencies, as an integral part of their examination
process,  periodically  review the allowance for loan losses.  Such agencies may
require   additions  to  the  allowances  based  on  their  judgment  about  the
information  available to them at the time of their examination.  Provisions for
losses are  charged to  earnings to bring the  allowances  to levels  considered
necessary by management.  Losses are charged to the allowances  when  considered
probable.  As of September 30, 1999, the allowances for losses on loans and real
estate owned were $1,005,119 and $-0- respectively. Management believes that the
allowances are adequate to absorb known and inherent losses in the portfolio. No
assurance can be given,  however,  that economic  conditions which may adversely
affect the Bank's markets or other circumstances will not result in additions to
the allowance for loan losses.

     The following table presents an allocation of the Bank's allowance for loan
losses at the dates  indicated  and the  percentage of loans in each category to
total loans.

<TABLE>
                                                         September 30,
                                  1999          1998         1997          1996          1995
                             ------------- ------------- ------------- ------------- -------------
                             Amount    %   Amount   %    Amount    %   Amount    %   Amount   %
                             ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
                                                    (Dollars in thousands)
<S>                          <C>    <C>     <C>   <C>     <C>   <C>     <C>   <C>    <C>    <C>
Balance at end of
period applicable to:
Residential Mortgage Loans   $  869  88.7%  $742   91.5%  $726   91.7%  $594   91.8%  $649   92.2%
Commercial Real Estate Loans     76   4.4%   121    2.6%    16    3.0%    15    3.0%    13    2.0%
Consumer Loans                   60   6.9%    84    5.9%    37    5.3%    47    5.2%    64    5.8%
Unallocated                       -            -           107           231           186
                             ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total                        $1,005 100.0%  $947  100.0%  $886  100.0%  $887  100.0%  $912  100.0%
                             ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

     The  following  table is a summary of activity in the Bank's  allowance for
loan losses for the periods indicated.

<PAGE>
Summary of Loan Loss Experience      Years ended September 30,
                              -------------------------------------
(Dollars in Thousands)          1999   1998   1997   1996   1995
                              ------- ------ ------ ------ --------
Balance of loan loss allowance at
     beginning of year        $  947   $886   $887   $912   $1,034
 Charge-offs
    Residential                    -      -      -      -      153
    Commercial real estate         -      -      -      -        -
    Commercial                     -      -      -      -        -
    Consumer                      53     47     84     55       47
                              ------- ------ ------ ------  -------
         Total Charge-offs        53     47     84     55      200
                              ------- ------ ------ ------  -------
  Recoveries
    Residential                    -      -      -      -        -
    Consumer                      22     33     33     21       28
                              ------- ------ ------ ------  -------
         Total Recoveries         22     33     33     21       28
                              ------- ------ ------ ------  -------
  Net Charge-offs (Recoveries)    31     14     51     34      172
Provision for loan losses         89     75     50      9       50
                              ------- ------ ------ ------  -------
Balance of loan loss allowance
   at end of year             $1,005   $947   $886   $887   $  912
                              ======= ====== ====== ======  =======
Ratio of net charge-offs to average
     loans outstanding          0.01%  0.01%  0.02%  0.02%    0.08%

Investment Activities

    Federal  thrift  institutions  have  authority to invest in various types of
liquid assets,  including  United States Treasury  obligations and securities of
various federal  agencies,  certificates  of deposit at insured banks,  bankers'
acceptances  and federal  funds.  As a member of the FHLB System,  the Bank must
maintain  minimum levels of liquid assets  specified by the OTS, which vary from
time to  time.  Subject  to  various  regulatory  restrictions,  federal  thrift
institutions  may also  invest a portion of their  assets in certain  commercial
paper,  corporate  debt  securities and mutual funds whose assets conform to the
investments that a federal thrift institution is authorized to make directly. At
September 30, 1999,  the Bank's ratio of liquid assets to total assets was 6.0%,
which exceeds the regulatory requirement.

    The  carrying  values of the Bank's  investment  securities,  including  its
liquid assets, as of the dates indicated are presented in the following table.
<PAGE>

                                           At September 30,
                                  ----------------------------------
                                    1999       1998        1997
                                  ---------  ----------  -----------
Interest-bearing deposits and          (Dollars in thousands)
     certificates of deposit (1)   $   834     $   718     $ 8,715
U.S. government and federal
     agency securities
     Held to maturity                    -       4,000       8,000
     Available for sale              7,139      11,287      19,822
Mortgage backed securities
     Held to Maturity                  258         372         499
Stock in FHLB of Indianapolis        2,474       2,218       2,062
Other
     Held to maturity                  610         696         758
     Available for sale(2)           9,793      10,591       8,646
                                  ---------   ---------   ---------
          Total investments        $21,108     $29,882     $48,502
                                  =========   =========   =========
------------------------------------------------
(1)  In FHLB of Indianapolis  at September 30, 1999; In insured  certificates of
     deposit at September 30, 1998; In FHLB of Indianpolis  ($7,739) and insured
     certificates of deposit ($976) at September 30, 1997;
(2)  Van Kampen Prime Income Fund $3,677, Van Kampen Senior Income Trust $1,617,
     State and Municipal  obligations  $4,500 at September 30, 1999;  Van Kampen
     Prime Income Fund $3,784, Van Kampen Senior Income Trust $1,677,  State and
     Municipal obligations $5,130 at September 30, 1998; Van Kampen Prime Income
     Fund $2,564, State and Municipal obligations $6,082 at September 30, 1997.

    The  following   table  sets  forth   information   regarding  the  maturity
distribution  of investment  securities at September 30, 1999,  and the weighted
average yield on those securities.

<TABLE>
                                                               At September 30, 1999
                                          -----------------------------------------------------------------------------------------
                                                 Available for Sale            Held to Maturity
                                          ---------------------------------------------- ------------------------------------------
(Dollars in thousands)                              Weighted Approximate           Weighted Approximate
                                          Amortized Average     Fair     Amortized Average     Fair
Maturity Distribution at September 30:      Cost    Yield       Value      Cost     Yield      Value
<S>                                        <C>       <C>       <C>         <C>       <C>       <C>
                                          --------- -------- ----------- --------- -------- -----------
Due in one year or less                    $ 1,047   5.28%     $ 1,049     $ 65      5.50%     $ 65
Due after one through five years             7,161   5.48%       7,043      455      5.79%      463
Due after five through ten years             3,508   6.54%       3,471       90      6.46%       90
Due after ten years                             75   5.70%          77        -                   -
                                          ---------          ----------- ---------          ----------
                                            11,791              11,640      610                 618
Mortgage-backed securities                       -       -           -      258      9.06%      303
Marketable equity securities                 5,496               5,294        -                   -
                                          ---------          ----------- ---------          ----------
                  Total                    $17,287             $16,934     $868                $921
                                          =========          =========== =========          ==========

</TABLE>
<PAGE>

Sources of Funds

General

    Deposits have traditionally been the primary source of funds of the Bank for
use in lending and  investment  activities.  In addition to  deposits,  the Bank
derives funds from loan  prepayments and income on earning assets.  While income
on earning assets is a relatively  stable source of funds,  deposit  inflows and
outflows can vary widely and are influenced by prevailing  interest rates, money
market conditions, and levels of competition.

Deposits

    Deposits are attracted  principally  from within the Bank's  primary  market
area  through  the  offering  of a variety  of  deposit  instruments,  including
passbook and statement  accounts and  certificates  of deposit  ranging in terms
from three months to five years. Deposit account terms vary,  principally on the
basis of the minimum balance required, the time periods the funds must remain on
deposit  and the  interest  rate.  The Bank also  offers  individual  retirement
accounts ("IRA's").

    The Bank's  policies are designed  primarily to attract  deposits from local
residents rather than to solicit deposits from areas outside its primary market.
The Bank does not accept  deposits from brokers due to the  volatility  and rate
sensitivity of such deposits.  Interest rates paid, maturity terms, service fees
and  withdrawal  penalties  are  established  by the Bank on a  periodic  basis.
Determination  of rates and terms are  predicated  upon  funds  acquisition  and
liquidity  requirements,  rates paid by  competitors,  growth  goals and federal
regulations.

    A major  determinant of the Bank's average cost of funds is the distribution
of the Bank's  accounts by interest  rate paid.  An  important  indicator of the
Bank's stability of lendable funds is the distribution of the Bank's accounts by
maturity.

    For  information  on the various  interest rate  categories,  the amounts of
certificate  accounts at September 30, 1999, maturing during the next five years
and  thereafter  see the  Notes  to  Consolidated  Financial  Statements  in the
Company's 1999 Annual Report.

    The following  table lists  maturities of certificates of deposits where the
balance of the certificate  exceeds $100,000 for the periods indicated.  None of
these certificates were brokered deposits.

                        At September 30,
                        ----------------
                            1999
                        ------------
3 months or less          $ 4,321
3-6 months                  5,871
6-12 months                 4,849
over 12 months              5,779
                        ----------
Total                     $20,820
                        ==========

Borrowings

    As a member of the FHLB  System  and the FHLB of  Indianapolis,  the Bank is
eligible to arrange  borrowings or advances for various  purposes and on various
terms.  As of September 30, 1999 and 1998 the Bank had  outstanding  advances to
the  FHLB  of  Indianapolis  of  $7,200,000  and  $5,000,000.  The  Bank  had no
outstanding advances as of September 30, 1997. Of the $7,200,000  outstanding at
September 30, 1999,  $5,000,000  was long-term  debt.  See page 25 of the annual
report  to   stockholders   for  the  maturity   breakdown  of  these  long-term
instruments.
<PAGE>

    Reverse repurchase agreements, another source of borrowing for the Bank, are
retail  obligations  of the Bank  with a  maturity  of 90 days or less,  and are
generally secured with specific investment securities owned by the Bank.

    The  following  tables  set  forth  certain  information  as to  the  Bank's
short-term  borrowings  consisting of FHLB of Indianapolis  advances and reverse
repurchase  agreements  for the  periods  and at the  dates  indicated.  Average
balances and average interest rates are based on month-end balances.

                                                   Years Ended September 30
                                                   -------------------------
                                                    1999    1998    1997
                                                   ------- ------- ---------
                                                    (Dollars in thousands)
Average balance of short-term borrowings           $3,533  $4,166  $2,412
Highest month-end balance of total borrowings       4,417   5,088   3,293
Weighted average interest rate of total borrowings   5.28%   5.21%   4.85%

                                                       At September 30
                                                   -------------------------
                                                    1999    1998    1997
Federal Home Loan Bank advances                    $2,200  $ -     $    -
Reverse Repurchase agreements                       3,040   4,203   3,162
                                                   ------- ------- --------
Total short-term borrowings                        $5,240  $4,203  $3,162
                                                   ======= ======= =========

Weighted average interest rate                       6.33%   5.22%   5.31%


Trust Department and Discount Brokerage Services

    In October 1984, the FHLB of  Indianapolis  granted full trust powers to the
Bank,  one of the first  savings  institutions  in Indiana  to be  granted  such
powers.  As of September 30, 1999,  the Bank's trust  department  assets totaled
approximately $44,372,000 including self-directed Individual Retirement Accounts
("IRA's"),  and it was  offering a variety of trust  services  including  estate
planning. As of that date, the trust department was administering  approximately
690 trust accounts, including estates, guardianships,  revocable and irrevocable
trusts,   testamentary  trusts,  and  self-directed  IRA  accounts.   The  trust
department  also  offers  and  administers  self-directed  IRA's and  Simplified
Employee Pension IRA's for small businesses.

Non-Bank Subsidiary

    Peoples  Financial  Services,  Inc. ("PFSI") was organized in 1977 under the
laws of the State of  Indiana.  It is wholly  owned by the Bank and  conducts  a
general insurance business within the State of Indiana under the name of Peoples
Insurance  Agency.  During fiscal years ended  September 30, 1999 and 1998, PFSI
recorded total income of $90,515 and $97,493, respectively,  with net income for
such periods amounting to $24,327 and $50,227, respectively.

    Since 1985,  the Bank also has offered  discount  brokerage  services to its
customers.  In 1996,  this service was moved to the service  corporation and was
offered through U.S. Clearing Corp. Prior to 1996, another vendor was used. This
service  also reduces the expenses of  securities  transactions  for the various
trust accounts  administered by the trust department and provides customers with
a convenient and inexpensive means of conducting brokerage transactions.
<PAGE>

Employees

    As of September 30, 1999, the Bank employed 89 persons on a full-time  basis
and 11 persons on a part-time basis. The Bank's employees are not represented by
any collective bargaining group, and management considers its relations with its
employees to be excellent.


                                   REGULATION

General

         The Company, as a savings and loan holding company,  and the Bank, as a
federally chartered savings association,  are subject to extensive regulation by
the OTS and the FDIC. The lending  activities and other  investments of the Bank
must  comply  with  various  federal  regulatory   requirements,   and  the  OTS
periodically   examines  the  Bank  for  compliance   with  various   regulatory
requirements and for safe and sound operations.  The FDIC also has the authority
to conduct examinations.  The Bank must file reports with the OTS describing its
activities  and  financial  condition  and is also  subject to  certain  reserve
requirements  promulgated  by the  Board of  Governors  of the  Federal  Reserve
System. This supervision and regulation is intended primarily for the protection
of  depositors  and the deposit  insurance  funds and not for the  protection of
stockholders  of the  Company.  Certain  of these  regulatory  requirements  are
referred to below or appear elsewhere herein.

Recent Legislation

         Financial  Services  Modernization  Legislation.  On November 12, 1999,
President  Clinton  signed  into  law the  Gramm-Leach-Bliley  Act of 1999  (the
"Financial Services  Modernization  Act"). The Financial Services  Modernization
Act repeals the two affiliation  provisions of the  Glass-Steagall  Act: Section
20, which  restricted the affiliation of Federal Reserve Member Banks with firms
"engaged principally" in specified securities activities;  and Section 32, which
restricts officer,  director,  or employee  interlocks between a member bank and
any company or person "primarily engaged" in specified securities activities. In
addition, the Financial Services Modernization Act also contains provisions that
expressly  preempt any state law  restricting  the  establishment  of  financial
affiliations,  primarily related to insurance.  The general effect of the law is
to establish a comprehensive  framework to permit  affiliations among commercial
banks,  insurance  companies,  securities  firms,  and other  financial  service
providers by revising and  expanding  the Bank Holding  Company Act framework to
permit  a  holding  company  system  to  engage  in a full  range  of  financial
activities  through  a  new  entity  known  as a  "Financial  Holding  Company."
"Financial   activities"  is  broadly  defined  to  include  not  only  banking,
insurance,  and securities activities,  but also merchant banking and additional
activities that the Federal Reserve Board, in consultation with the Secretary of
the Treasury, determines to be financial in nature, incidental to such financial
activities,  or complementary  activities that do not pose a substantial risk to
the safety and soundness of  depository  institutions  or the  financial  system
generally.

         The Financial  Services  Modernization Act provides that no company may
acquire control of an insured savings association after May 4, 1999, unless that
company  engages,  and  continues to engage,  only in the  financial  activities
permissible for a Financial Holding Company,  unless  grandfathered as a unitary
savings and loan holding company.  The Financial  Institution  Modernization Act
grandfathers  any company that was a unitary savings and loan holding company on
May 4, 1999 (or becomes a unitary savings and loan holding  company  pursuant to
an  application  pending on that date).  Such a company may  continue to operate
under present law as long as the company continues to meet the two tests: it can
control only one savings institution,  excluding supervisory  acquisitions,  and
each such  institution  must  meet the QTL  test.  It  further  requires  that a
grandfathered  unitary savings and loan holding company must continue to control
at least one savings association, or a successor institution, that is controlled
on May 4, 1999.
<PAGE>

         The Financial Services Modernization Act also permits national banks to
engage in expanded activities through the formation of financial subsidiaries. A
national  bank may have a  subsidiary  engaged in any  activity  authorized  for
national  banks  directly  or  any  financial  activity,  except  for  insurance
underwriting,  insurance investments,  real estate investment or development, or
merchant  banking,  which  may  only be  conducted  through  a  subsidiary  of a
Financial Holding Company. Financial activities include all activities permitted
under new sections of the Bank Holding Company Act of 1956 ("BHCA") or permitted
by regulation.

         The  Company and the Bank do not believe  that the  Financial  Services
Modernization  Act will have a material  adverse effect on the operations of the
Company  and the Bank in the  near-term.  However,  to the  extent  that the act
permits  banks,  securities  firms,  and insurance  companies to affiliate,  the
financial services industry may experience further consolidation.  The Financial
Services  Modernization  Act is intended  to grant to  community  banks  certain
powers as a matter of right that larger  institutions  have accumulated on an ad
hoc basis and which unitary savings and loan holding  companies already possess.
Nevertheless,  this  act may  have  the  result  of  increasing  the  amount  of
competition  that the  Company and the Bank face from  larger  institutions  and
other types of companies  offering  financial  products,  many of which may have
substantially  more  financial  resources  that the  Company  and the  Bank.  In
addition,  because the Company may only be acquired by other unitary savings and
loan holding companies or Financial Holding Companies,  the legislation may have
an  anti-takeover  effect by limiting  the number of  potential  acquirors or by
increasing  the costs of an acquisition  transaction  by a bank holding  company
that has not made the election to be a Financial  Holding  Company under the new
legislation.

Regulation of the Company

         General.  The Company is a unitary  savings and loan holding company as
defined by the HOLA.  As such,  the  Company is  registered  with the OTS and is
subject to OTS regulation, examination,  supervision and reporting requirements.
As a subsidiary  of a savings and loan holding  company,  the Bank is subject to
certain  restrictions  in its dealings with the Company and affiliates  thereof.
The Company also is required to file certain reports with, and otherwise  comply
with, the rules and regulations of the SEC under the federal securities laws.

         Activities  Restrictions.  There are generally no  restrictions  on the
activities of a unitary savings and loan holding company.  The broad latitude to
engage in activities  under current law can be restricted if the OTS  determines
that there is reasonable cause to believe that the continuation by a savings and
loan holding company of an activity  constitutes a serious risk to the financial
safety,  soundness or stability of its subsidiary savings  institution,  the OTS
may impose such  restrictions as deemed necessary to address such risk including
limiting: (i) payment of dividends by the savings institution; (ii) transactions
between the savings institution and its affiliates;  and (iii) any activities of
the savings institution that might create a serious risk that the liabilities of
the  holding   company  and  its  affiliates  may  be  imposed  on  the  savings
institution.   Notwithstanding  the  above  rules  as  to  permissible  business
activities  of  unitary  savings  and loan  holding  companies,  if the  savings
institution  subsidiary  of such a holding  company  fails to meet the QTL test,
then such unitary  holding  company shall also become  subject to the activities
restrictions  applicable to multiple  holding  companies and, unless the savings
institution  requalifies as a QTL within one year  thereafter,  register as, and
become subject to, the restrictions  applicable to a bank holding  company.  See
"Regulation of the Bank--Qualified Thrift Lender."

         Restrictions on  Acquisitions.  Savings and loan holding  companies are
prohibited from acquiring, without prior approval of the OTS, (i) control of any
other savings  institution or savings and loan holding company or  substantially
all the assets  thereof  or (ii) more than 5% of the voting  shares of a savings
institution or holding company thereof which is not a subsidiary.  Under certain
circumstances,  a registered  savings and loan  holding  company is permitted to
acquire,  with the  approval  of the OTS,  up to 15% of the voting  shares of an
undercapitalized  savings  institution  pursuant to a "qualified stock issuance"
without that savings institution being deemed controlled by the holding company.
In order for the shares acquired to constitute a "qualified stock issuance," the
shares must consist of previously  unissued stock or treasury shares, the shares
must be  acquired  for  cash,  the  saving  and  loan  holding  company's  other
subsidiaries  must have  tangible  capital of at least  6-1/2% of total  assets,
there must not be more than one common  director or officer  between the savings
and loan holding company and the issuing savings  institution,  and transactions
<PAGE>

between the savings institution and the savings and loan holding company and any
of its  affiliates  must conform to Sections 23A and 23B of the Federal  Reserve
Act.  Except  with the prior  approval  of the OTS,  no director or officer of a
savings and loan holding  company or person  owning by proxy or  otherwise  more
than 25% of such  company's  stock,  may also  acquire  control  of any  savings
institution,  other  than a  subsidiary  savings  institution,  or of any  other
savings and loan holding company.


Regulation of the Bank

         Federal Home Loan Bank System. The Bank is a member of the FHLB System,
which consists of 12 district Federal Home Loan Banks subject to supervision and
regulation by the Federal Housing Finance Board ("FHFB").  The Federal Home Loan
Banks provide a central credit facility primarily for member institutions.  As a
member of the FHLB of  Indianapolis,  the Bank is  required  to acquire and hold
shares of capital stock in the FHLB of  Indianapolis in an amount at least equal
to 1% of the  aggregate  unpaid  principal  of its  home  mortgage  loans,  home
purchase  contracts,  and similar  obligations at the beginning of each year, or
1/20 of its advances (i.e., borrowings) from the FHLB of Indianapolis, whichever
is greater.  The Bank was in compliance with this requirement with an investment
in FHLB of Indianapolis stock at September 30, 1999, of $2,473,500.

     The FHLB of Indianapolis serves as a reserve or central bank for its member
institutions within its assigned district.  It is funded primarily from proceeds
derived from the sale of consolidated  obligations of the FHLB System.  It makes
advances to members secured by certain prescribed  collateral in accordance with
policies and  procedures  established  by the FHFB and the Board of Directors of
the FHLB of Indianapolis. Long-term advances may only be made for the purpose of
providing funds for residential housing finance.  Members must meet standards of
community investment or service established by the FHLB of Indianapolis in order
to maintain  continued access to long-term  advances.  As of September 30, 1999,
the Bank had advances  totaling  $7,200,000  outstanding.  See  "Business of the
Company--Deposit Activity and Other Sources of Funds" and "--Borrowings."

         Liquidity Requirements. Under OTS regulations, a savings association is
required to maintain an average daily balance of liquid assets  (including cash,
certain  time  deposits  and savings  accounts,  bankers'  acceptances,  certain
government obligations,  and certain other investments) in each calendar quarter
of not less than 4% of either (1) its liquidity base  (consisting of certain net
withdrawable accounts plus short-term borrowings) as of the end of the preceding
calendar quarter,  or (2) the average daily balance of its liquidity base during
the preceding quarter.  The OTS may change this liquidity  requirement from time
to time to any  amount  from  4.0% to 10.0%,  depending  upon  certain  factors,
including economic conditions and savings flows of all savings associations. The
Bank  maintains  liquid assets in compliance  with these  regulations.  Monetary
penalties  may be  imposed  upon an  institution  for  violations  of  liquidity
requirements.

         Qualified  Thrift  Lender  Test.  Savings   institutions  must  meet  a
qualified  thrift  lender  ("QTL")  test,  which  test  may  be  met  either  by
maintaining  a specified  level of assets in  qualified  thrift  investments  as
specified in HOLA or by meeting the definition of a "domestic  building and loan
association"  in section 7701 of the Internal  Revenue Code of 1986,  as amended
(the "Code").  If the Bank maintains an appropriate  level of certain  specified
investments (primarily residential mortgages and related investments,  including
certain  mortgage-related  securities)  and  otherwise  qualifies  as a QTL or a
domestic building and loan association, it will continue to enjoy full borrowing
privileges from the FHLB. The required  percentage of investments  under HOLA is
65% of  assets  while  the  Code  requires  investments  of 60%  of  assets.  An
association  must be in  compliance  with the QTL test or definition of domestic
building and loan association on a monthly basis in nine out of every 12 months.
Associations  that fail to meet the QTL test will  generally be prohibited  from
engaging in any activity not  permitted  for both a national  bank and a savings
association.  As of September 30, 1999, the Bank was in compliance  with its QTL
requirement and met the definition of a domestic building and loan association.

         Regulatory Capital Requirements. Under OTS capital regulations, savings
institutions  must maintain  "tangible"  capital equal to 1.5% of adjusted total
assets,  "core" capital equal to 3% of adjusted total assets and "total" capital
<PAGE>

(a combination of core and "supplementary" capital) equal to 8% of risk-weighted
assets.  In addition,  OTS  regulations  which impose  certain  restrictions  on
savings  associations  that have a total  risk-based  capital ratio that is less
than 8.0%, a ratio of Tier 1 capital to  risk-weighted  assets of less than 4.0%
or a ratio of Tier 1 capital to adjusted total assets of less than 4.0% (or 3.0%
if the  institution  is  rated  Composite  1 under  the OTS  examination  rating
system).

          The  OTS  has  adopted  an   amendment  to  its   risk-based   capital
requirements that requires savings  institutions with more than a "normal" level
of interest rate risk to maintain  additional total capital (the OTS is delaying
implementation of this requirement).  A savings institution's interest rate risk
will be measured in terms of the  sensitivity  of its "net  portfolio  value" to
changes in interest  rates.  Net portfolio value is defined,  generally,  as the
present  value of expected  cash inflows from  existing  assets and  off-balance
sheet  contracts  less the present value of expected cash outflows from existing
liabilities.  A savings  institution will be considered to have a "normal" level
of interest rate risk  exposure if the decline in its net portfolio  value after
an  immediate  200 basis point  increase or  decrease in market  interest  rates
(whichever  results  in the  greater  decline)  is less  than 2% of the  current
estimated  economic value of its assets.  A savings  institution  with a greater
than normal  interest  rate risk will be required to deduct from total  capital,
for purposes of calculating its risk-based capital  requirement,  an amount (the
"interest rate risk  component")  equal to one-half the  difference  between the
institution's  measured interest rate risk and the normal level of interest rate
risk, multiplied by the economic value of its total assets.

         The OTS will calculate the sensitivity of a savings  institution's  net
portfolio  value based on data submitted by the institution in a schedule to its
quarterly  Thrift  Financial Report and using the interest rate risk measurement
model  adopted by the OTS. The amount of the interest  rate risk  component,  if
any, to be deducted from a savings  institution's total capital will be based on
the  institution's  Thrift  Financial  Report  filed two  quarters  earlier.  In
general,  savings  institutions  with  less than $300  million  in assets  and a
risk-based  capital  ratio  above 12% are exempt  from this  interest  rate risk
component unless the OTS terminates such exemption.  Although the Bank qualifies
for the exemption, management believes that based on current financial data, the
Bank would not be deemed to have more than a normal level of interest rate risk.

         In addition  to  generally  applicable  capital  standards  for savings
institutions,  the Director of the OTS is  authorized  to establish  the minimum
level of capital  for a savings  institution  at such amount or at such ratio of
capital-to-assets  as the Director determines to be necessary or appropriate for
such  institution in light of the particular  circumstances  of the institution.
The  Director  of the OTS may treat the failure of any  savings  institution  to
maintain capital at or above such level as an unsafe or unsound practice and may
issue a  directive  requiring  any savings  institution  which fails to maintain
capital at or above the minimum  level  required  by the  Director to submit and
adhere to a plan for increasing capital. Such a directive may be enforced in the
same manner as an order issued by the OTS.

         At September 30, 1999, the Bank exceeded all regulatory minimum capital
requirements as indicated in the table below. (Dollars in thousands)

                                                     1999
                                    --------------------------------------------
                                               Required for Adequate  To Be Well
                                      Actual         Capital         Capitalized
                                   --------------------------------------------
September 30                        Amount  Ratio   Amount Ratio  Amount  Ratio
--------------------------------------------------------------------------------
Total risk-based capital (1)(to    $36,705  20.5%  $14,335  8.0%  $17,918  10.0%
   risk-weighted assets)
Tier 1 risk-based capital (1) (to  $35,726  19.9%  $14,335  8.0%  $17,918  10.0%
   risk-weighted assets)
Core Capital (1) (to adjusted      $35,726  11.1%  $12,904  4.0%  $19,355   6.0%
   tangible assets)
Core Capital (1) (to adjusted      $35,726  11.1%  $12,904  4.0%  $16,129   5.0%
   total assets)
   (1) As defined by regulatory agencies

<PAGE>

         Insurance of Deposit Accounts.  The Bank's deposit accounts are insured
by the SAIF to the maximum amount permitted by law. Insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or  unsound  practices,  is  in an  unsafe  or  unsound  condition  to  continue
operations or has violated any  applicable  law,  regulation,  rule,  order,  or
condition imposed by the FDIC or the institution's primary regulator.

         The FDIC  charges an annual  assessment  for the  insurance of deposits
based on the risk a particular  institution poses to its deposit insurance fund.
Under this system as of September 30, 1999,  SAIF members paid within a range of
0  cents  to 23  cents  per  $100  of  domestic  deposits,  depending  upon  the
institution's  risk  classification.  This  risk  classification  is based on an
institution's capital group and supervisory subgroup assignment. Pursuant to the
Economic Growth and Paperwork  Reduction Act of 1996 (the "Act"), the Bank pays,
in addition to its normal deposit  insurance  premium as a member of the SAIF an
amount equal to  approximately  6.4 basis points  toward the  retirement  of the
Financing  Corporation bonds ("Fico Bonds") issued in the 1980s to assist in the
recovery of the savings and loan  industry.  Members of the Bank  Insurance Fund
("BIF"),  by  contrast,  pay,  in  addition to their  normal  deposit  insurance
premium,  approximately  1.3 basis  points.  Under the Act, the FDIC also is not
permitted to establish SAIF assessment  rates that are lower than comparable BIF
assessment  rates.  Effective  January 1, 2000, the rate paid to retire the Fico
Bonds will be equal for members of the BIF and the SAIF.  The Act also  provided
for the merging of the BIF and the SAIF by January 1, 1999,  provided there were
no financial  institutions still chartered as savings associations at that time.
Although  legislation  to  eliminate  the savings  association  charter had been
proposed at January 1, 1999, financial  institutions such as the Bank were still
chartered as Savings associations.

         Federal Reserve System.  Pursuant to regulations of the Federal Reserve
Board, a savings institution must maintain average daily reserves equal to 3% on
the first $54.0 million of transaction accounts, plus 10% on the remainder. This
percentage  is subject to  adjustment  by the  Federal  Reserve  Board.  Because
required  reserves  must  be  maintained  in the  form  of  vault  cash  or in a
non-interest  bearing  account  at a Federal  Reserve  Bank,  the  effect of the
reserve   requirement   is  to   reduce   the   amount   of  the   institution's
interest-earning  assets.  As of September  30,  1999,  the Bank met its reserve
requirements.

         Dividend Restrictions. Under OTS regulations, the Bank is not permitted
to pay dividends on its capital stock if its regulatory capital would thereby be
reduced below the remaining balance of the liquidation  account  established for
the benefit of certain  depositors in connection with the conversion of the Bank
from the mutual to stock form of organization. In addition, the Bank is required
by OTS  regulations  to give  the OTS 30  days'  prior  notice  of any  proposed
declaration of dividends to the Company.

          OTS  regulations  impose  additional  limitations  on the  payment  of
dividends and other capital distributions  (including stock repurchases and cash
mergers)  by the Bank.  Under these  regulations,  a savings  institution  that,
immediately  prior to,  and on a pro  forma  basis  after  giving  effect  to, a
proposed capital distribution,  has total capital (as defined by OTS regulation)
that is equal to or  greater  than the  amount  of its fully  phased-in  capital
requirements (a "Tier 1 Association") is generally  permitted,  after notice, to
make  capital  distributions  during a calendar  year in the amount equal to the
greater of: (a) 75% of its net income for the previous four quarters;  or (b) up
to 100% of its net income to date during the  calendar  year plus an amount that
would reduce by 50% its surplus  capital  ratio at the beginning of the calendar
year.  A savings  institution  with total  capital in excess of current  minimum
capital ratio requirements but not in excess of the fully phased-in requirements
(a  "Tier  2  Association")  is  permitted,   after  notice,   to  make  capital
distributions  without  OTS  approval  of up to 75% of its  net  income  for the
previous four quarters,  less dividends  already paid for such period. A savings
institution  that fails to meet current minimum capital  requirements (a "Tier 3
Association")  is prohibited from making any capital  distributions  without the
prior  approval of the OTS. A Tier 1  Association  that has been notified by the
OTS that it is in need of more than normal supervision will be treated as either
a Tier 2 or Tier 3 Association.  Except under limited circumstances and with OTS
approval,  no capital  distributions  would be permitted if they would cause the
<PAGE>

institution to become  undercapitalized.  As of September 30, 1999, the Bank was
considered a Tier 1 Association under OTS regulations.

         Despite  the  above  authority,   the  OTS  may  prohibit  any  savings
institution from making a capital distribution that would otherwise be permitted
by  the  regulation,  if  the  OTS  were  to  determine  that  the  distribution
constituted  an unsafe or unsound  practice.  Furthermore,  under the OTS prompt
corrective  action  regulations,  the Bank would be  prohibited  from making any
capital  distributions if, after making the  distribution,  it would have: (i) a
total  risk-based  capital  ratio of less than  8.0%;  (ii) a Tier 1  risk-based
capital  ratio of less than 4.0%;  or (iii) a leverage  ratio of less than 4.0%.
See "--Prompt Corrective Regulatory Action."

         Affiliate Restrictions.  Transactions between a savings association and
its "affiliates" are subject to quantitative and qualitative  restrictions under
Sections  23A  and 23B of the  Federal  Reserve  Act.  Affiliates  of a  savings
association include,  among other entities,  the savings  association's  holding
company  and  companies   that  are  under  common   control  with  the  savings
association.

         In  general,  Sections  23A  and  23B and  OTS  regulations  issued  in
connection  therewith  limit the  extent to which a savings  association  or its
subsidiaries may engage in certain "covered  transactions" with affiliates to an
amount equal to 10% of the  association's  capital and  surplus,  in the case of
covered  transactions  with any one affiliate,  and to an amount equal to 20% of
such  capital  and  surplus,  in the  case  of  covered  transactions  with  all
affiliates.  In addition,  a savings association and its subsidiaries may engage
in covered  transactions and certain other  transactions only on terms and under
circumstances  that are  substantially the same, or at least as favorable to the
savings  association  or its  subsidiary,  as those  prevailing  at the time for
comparable transactions with nonaffiliated companies. A "covered transaction" is
defined to include a loan or extension of credit to an affiliate;  a purchase of
investment  securities  issued by an  affiliate;  a purchase  of assets  from an
affiliate,  with certain  exceptions;  the acceptance of securities issued by an
affiliate as collateral  for a loan or extension of credit to any party;  or the
issuance  of a  guarantee,  acceptance,  or  letter  of  credit  on behalf of an
affiliate.

           In addition, under the OTS regulations, a savings association may not
make a loan or  extension  of credit to an  affiliate  unless the  affiliate  is
engaged only in activities  permissible  for bank holding  companies;  a savings
association  may not purchase or invest in securities of an affiliate other than
shares of a  subsidiary;  a savings  association  and its  subsidiaries  may not
purchase a low-quality  asset from an affiliate;  and covered  transactions  and
certain other transactions between a savings association or its subsidiaries and
an affiliate must be on terms and conditions  that are consistent  with safe and
sound  banking  practices.  With certain  exceptions,  each loan or extension of
credit by a savings  association  to an affiliate  must be secured by collateral
with a  market  value  ranging  from  100% to  130%  (depending  on the  type of
collateral) of the amount of the loan or extension of credit.

         The OTS  regulation  generally  excludes all  non-bank and  non-savings
association  subsidiaries of savings  associations from treatment as affiliates,
except to the  extent  that the OTS or the  Board of  Governors  of the  Federal
Reserve System (the "Federal Reserve Board") decides to treat such  subsidiaries
as affiliates.  The regulation  also requires  savings  associations to make and
retain records that reflect  affiliate  transactions in reasonable  detail,  and
provides that certain  classes of savings  associations  may be required to give
the OTS prior notice of affiliate transactions.

         Prompt  Corrective  Action.  The prompt corrective action regulation of
the  OTS  requires  certain  mandatory  actions  and  authorizes  certain  other
discretionary  actions to be taken by the OTS against a savings  bank that falls
within certain undercapitalized capital categories specified in the regulation.

         The regulation  establishes five categories of capital  classification:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically  undercapitalized." Under the regulation, the
risk-based  capital,  leverage capital,  and tangible capital ratios are used to
determine an institution's  capital  classification.  At September 30, 1999, the
Bank met the capital  requirements  of a "well  capitalized"  institution  under
applicable OTS regulations.
<PAGE>

         In  general,  the prompt  corrective  action  regulation  prohibits  an
insured  depository  institution from declaring any dividends,  making any other
capital  distribution,  or paying a management  fee to a controlling  person if,
following the  distribution or payment,  the institution  would be within any of
the three  undercapitalized  categories.  In  addition,  adequately  capitalized
institutions  may accept Brokered  Deposits only with a waiver from the FDIC and
are  subject  to  restrictions  on the  interest  rates that can be paid on such
deposits.  Undercapitalized  institutions  may not accept,  renew,  or roll-over
Brokered Deposits.

         If the OTS  determines  that an  institution is in an unsafe or unsound
condition,  or if the  institution  is deemed to be  engaging  in an unsafe  and
unsound  practice,  the  OTS  may,  if  the  institution  is  well  capitalized,
reclassify  it as  adequately  capitalized;  if the  institution  is  adequately
capitalized  but not well  capitalized,  require it to comply with  restrictions
applicable  to  undercapitalized  institutions;   and,  if  the  institution  is
undercapitalized,  require it to comply with certain restrictions  applicable to
significantly undercapitalized institutions.

         Community  Reinvestment Act and Fair Lending Developments.  The Bank is
subject to certain fair lending requirements and reporting obligations involving
home  mortgage  lending  operations  and  Community   Reinvestment  Act  ("CRA")
activities.  The CRA generally requires the federal banking agencies to evaluate
the record of a financial  institution  in meeting the credit needs of its local
communities,   including  low-  and  moderate-income  neighborhoods.  A  savings
association may be subject to substantial  penalties and corrective measures for
a violation of certain fair lending laws. The federal banking  agencies may take
compliance with such laws and CRA  obligations  into account when regulating and
supervising other activities.

         A savings association's compliance with its CRA obligations is based on
a performance-based evaluation system that bases CRA ratings on an institution's
lending service and investment  performance.  When a holding company applies for
approval to acquire  another  financial  institution  or  financial  institution
holding company,  the OTS will review the assessment of each subsidiary  savings
association of the applicant;  and such records may be the basis for denying the
application.  In  February  1997,  the OTS  rated  the  Bank  "satisfactory"  in
complying with its CRA obligations.

         Year 2000 Compliance.  In May 1997, the Federal Financial  Institutions
Examination  Council  issued an  interagency  statement  to the chief  executive
officers of all federally supervised financial  institutions regarding year 2000
project management awareness.  It is expected that unless financial institutions
address the  technology  issues  relating to the coming of the year 2000,  there
will be major  disruptions  in the  operations  of financial  institutions.  The
statement  provides  guidance  to  financial  institutions,  providers  of  data
services,  and all examining personnel of the federal banking agencies regarding
the year 2000 problem.  The federal banking agencies intend to conduct year 2000
compliance examinations, and the failure to implement a year 2000 program may be
seen by the federal banking agencies as an unsafe and unsound banking  practice.
The OTS has recently established an examination procedure,  which contains three
categories    of   ratings:    "Satisfactory,"    "Needs    Improvement,"    and
"Unsatisfactory." Institutions that receive a year 2000 rating of Unsatisfactory
may be subject to formal enforcement action,  supervisory agreements,  and cease
and desist orders,  civil money penalties,  or the appointment of a conservator.
In  addition,  federal  banking  agencies  will be taking into account year 2000
compliance  programs when  analyzing  applications  and may deny an  application
based on year 2000 related issues. The Company is currently  addressing the year
2000  issue,  as  more  fully  discussed  in  the  Company's  Annual  Report  to
Stockholders   for  the  Year  Ended   September  30,  1998  under  the  heading
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations-Year 2000."

Item 2.  Properties

The Bank owns eight  full-service  banking  offices  located in Avilla,  Auburn,
Columbia City, Garrett, Kendallville, LaGrange and Waterloo, Indiana.
<PAGE>

     The following table provides certain information with respect to the Bank's
full-service offices at September 30, 1999.

    Full Service                                       Net Book
    Offices                     Date Opened            Value(1)
    ------------                -----------            --------
    Main Office, Auburn            1973                $149,283
    Avilla                         1980                 120,858
    Garrett                        1972                  54,096
    Columbia City-Downtown         1971                 136,284
    Columbia City-North            1998                 554,965
    Kendallville                   1941                 472,883
    LaGrange                       1972                 171,010
    Waterloo                       1999                     -- (2)
---------------------
   (1) Of real estate at September 30, 1999.
   (2) Waterloo is a temporary leased office and so has no real estate cost.

    The Bank owns data processing equipment including  computers,  terminals and
communications  equipment for record keeping  purposes.  The estimated  costs to
make this equipment year 2000 compliant are not expected to be material.

The total net book value of the Bank's  premises and  equipment at September 30,
1999, was $2,285,889.

Item 3.  Legal Proceedings

    There are no material  pending legal  proceedings to which the Company,  the
Bank or any subsidiary is a party or to which any of their property is subject.


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

    Not Applicable.

                                     PART II

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

    Reference is made to page 1 of the Company's  Annual Report to Stockholders,
for the year ended September 30, 1999 for the information required by this Item,
which is hereby incorporated by reference.

Item 6.  Selected Financial Data

    Reference is made to page 16 of the Company's  Annual Report to Stockholders
for the year ended  September  30, 1999,  for the  information  required by this
Item, which is hereby incorporated by reference.

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

    Reference  is  made to  pages  9 to 15 of the  Company's  Annual  Report  to
Stockholders for the year ended September 30, 1999, for the information required
by this Item, which is hereby incorporated by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

    Reference  is made to  pages 10 and 11 of the  Company's  Annual  Report  to
Stockholders for the year ended September 30, 1999, for the information required
by this item, which is hereby incorporated by reference.
<PAGE>

Item 8.  Financial Statements and Supplementary Data

    Reference  is made to  pages  17 to 32 of the  Company's  Annual  Report  to
Stockholders for the year ended September 30, 1999 for the information  required
by this Item, which is hereby incorporated by reference.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosures

    None.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

    Reference  is made to the section  captioned  "The  Peoples  Bancorp  Annual
Meeting-Election    of   Directors"   in   the   Company's    definitive   Proxy
Statement/Prospectus  for the information required by this Item, which is hereby
incorporated by reference.

Item 11.  Executive Compensation

    Reference  is made to the section  captioned  "The  Peoples  Bancorp  Annual
Meeting-Executive  Officer  Compensation"  in  the  Company's  definitive  Proxy
Statement/Prospectus  for the information required by this Item, which is hereby
incorporated by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

    Reference  is made to the section  captioned  "The  Peoples  Bancorp  Annual
Meeting-Securities  Ownership  of  Certain  Beneficial  Owners in the  Company's
definitive Proxy  Statement/Prospectus for the information required by this Item
which is hereby incorporated by reference.

Item 13.  Certain Relationships and Related Transactions

    Reference  is made to the section  captioned  "The  Peoples  Bancorp  Annual
Meeting-Transactions  with Certain Related Persons" in the Company's  definitive
Proxy  Statement/Prospectus  for the information required by this Item, which is
hereby incorporated by reference.


                                     PART IV

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

    (a) The following  consolidated  financial statements of Peoples Bancorp and
Its  Wholly-owned  Subsidiary,  included in the Annual Report to Stockholders of
the registrant  for the year ended  September 30, 1999 are filed as part of this
report:

                  1.  Financial Statements

     o  REPORT OF OLIVE LLP, INDEPENDENT AUDITORS.
     o  CONSOLIDATED STATEMENT OF FINANCIAL CONDITION - AS OF SEPTEMBER 30, 1999
        AND 1998.
     o  CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED SEPTEMBER 30, 1999,
        1998, AND 1997.
     o  CONSOLIDATED STATEMENT OF CHANGE IN STOCKHOLDERS' EQUITY FOR THE YEARS
        ENDED SEPTEMBER 30, 1999, 1998, AND 1997.
<PAGE>

     o  CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30,
        1999, 1998, AND 1997
     o  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

             2.       Financial Statement Schedules

             All schedules are omitted because they are not  applicable,  or the
required  information  is shown in the  consolidated  financial  statements  and
notes.

             3.       Exhibits

Exhibit No.    Description of Exhibit

3.1        Articles of Incorporation of Peoples Bancorp (1)

3.2        Bylaws of Peoples Bancorp (1)

10.4       Amended and Restated Stock Option and Stock Grant Plan (2)

10.5       Employee Stock Ownership Plan (1)

10.5(a)    First Amendment to Employee Stock Ownership Plan (3)

10.5(b)    Second Amendment to Employee Stock Ownership Plan (3)

10.5(c)    Third Amendment to Employee Stock Ownership Plan (3)

10.6       Expense and Tax Sharing Agreement between Peoples Bancorp, Peoples
           Federal Savings Bank of DeKalb County and Peoples Financial Services,
           Inc., dated May 28, 1992 (3)

10.7       New option plan

13         Annual Report to Stockholders

22         Subsidiaries of the Registrant

23         Consent of Auditors

---------------------------------
    (1)  Incorporated  by  reference  to Exhibit  bearing the same number in the
Company's   Registration  Statement  of  Form  S-4  (33-37343)  filed  with  the
Securities and Exchange Commission on October 17, 1990.

    (2)  Incorporated  by  reference  to Exhibit  bearing the same number in the
Company's Annual Report on form 10-K for the year ended September 30, 1991.

    (3)  Incorporated  by  reference  to Exhibit  bearing the same number in the
Company's Annual Report on form 10-K for the year ended September 30, 1992.

<PAGE>

(b)       Reports on Form 8-K-On  September 23, 1999, the Company filed a report
          on form 8-K reporting pursuant to Item 5, that the Company had entered
          into a  definitive  agreement  to merge  with Three  Rivers  Financial
          Corporation.


The  Securities  and  Exchange  Commission  maintains  a Web sit  that  contains
reports,  proxy  and  information  statements  and other  information  regarding
registrants that file electronically with the Commission  including the Company.
That address is http://www.sec.gov.


<PAGE>
                                   SIGNATURES


    Pursuant  to the  requirements  of  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                         PEOPLES BANCORP


December 29, 1999                                        Roger J. Wertenberger
                                                         Chairman of the Board,
                                                            and Director

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


December 29, 1999                                        Roger J. Wertenberger,
                                                         Chairman of the Board,
                                                            and Director


December 29, 1999                                        Maurice F. Winkler III,
                                              President, Chief Executive Officer
                                                            and Director


December 29, 1999                                        Deborah K. Stanger
                                          Vice President-Chief Financial Officer


December 29, 1999                                       Robert D. Ball, Director



December 29, 1999                                    Bruce S. Holwerda, Director



December 29, 1999                                      John C. Harvey, Director



December 29, 1999                                    Douglas D. Marsh, Director



December 29, 1999                                  Lawrence R. Bowmar, Director



December 29, 1999                                   John C. Thrapp, Director

<PAGE>

                                   EXHIBIT 22


                         SUBSIDIARIES OF THE REGISTRANT

Name of Subsidiary                      State of Incorporation
-------------------------------       --------------------------
Peoples Federal Savings
Bank of DeKalb County                  United States of America

and its subsidiary

Peoples Financial Services Inc.               Indiana