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, 2004
                                  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: (260) 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]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

Aggregate market value of voting stock held by non-affiliates of the registrant,
as of March 31, 2004: $71,434,197.

        Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of December 14, 2004:

           3,366,019 shares of Common Stock, par value $1.00 per share

                      Documents Incorporated by Reference:

     Portions of the definitive Proxy Statement (Part III) and the Annual Report
to Stockholders for the year ended September 30, 2004 (Parts II and IV).

<PAGE>

                                     PART I


     Peoples  Bancorp (the "Company") may from time to time make written or oral
"forward-looking  statements",  including  statements contained in the Company's
filings with the  Securities  and  Exchange  Commission  (including  this annual
report on Form 10-K and the exhibits  thereto),  in its reports to  stockholders
and in other communications by the Company,  which are made in good faith by the
Company  pursuant to the "safe  harbor"  provisions  of the  Private  Securities
Litigation Reform Act of 1995.

     These forward-looking  statements involve risks and uncertainties,  such as
statements  of the  Company's  plans,  objectives,  expectations,  estimates and
intentions that are subject to change based on various  important  factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the  Company's  financial  performance  and other actual  results to
differ  materially  from the  plans,  objectives,  expectations,  estimates  and
intentions  expressed in such  forward-looking  statements:  the strength of the
United  States  economy in general and the  strength of the local  economies  in
which the Company  conducts  operations;  the effects of, and changes in, trade,
monetary and fiscal policies and laws,  including  interest rate policies of the
board of governors of the federal  reserve  system,  inflation,  interest rates,
market and  monetary  fluctuations;  changes in real estate  values and the real
estate market; loss of deposits and loan demand to other financial institutions;
the timely  development  of and  acceptance  of new products and services of the
Company and the perceived overall value of these products and services by users,
including the features,  pricing and quality  compared to competitors'  products
and services;  the willingness of users to substitute  competitors' products and
services for the Company's products and services;  the success of the Company in
gaining  regulatory  approval of its products and services,  when required;  the
impact of changes in financial  services laws and  regulations  (including  laws
concerning taxes,  banking,  securities and insurance);  technological  changes;
acquisitions;  changes in consumer  spending  and saving  habits;  increases  in
compensation  and  employee  expenses;  unanticipated  results in pending  legal
proceedings;  other factors described in "Investment  Considerations" in Item 1;
and the  success  of the  Company in  managing  the risks  resulting  from these
factors.

     The Company cautions that the listed factors are not exclusive. The Company
does not undertake to update any forward-looking  statement,  whether written or
oral, that may be made from time to time or on behalf of the Company.

Item 1.  Business

INVESTMENT CONSIDERATIONS

     In analyzing  whether to make or to continue an  investment in the Company,
investors should consider, among other factors, the following:

     Economic  Conditions  and  Related  Uncertainties.  Commercial  banking  is
affected,  directly  and  indirectly,  by  local,  domestic,  and  international
economic  and  political  conditions,  and by  governmental  monetary and fiscal
policies.  Conditions  such  as  inflation,  recession,  unemployment,  volatile
interest rates, tight money supply, real estate values,  international conflicts
and other  factors  beyond  the  Company's  control  may  adversely  affect  the
potential  profitability  of the Company.  Any future  rises in interest  rates,
while  increasing  the  income  yield  on the  Company's  earnings  assets,  may
adversely  affect  loan  demand  and the cost of funds  and,  consequently,  the
profitability  of the  Company.  Any  future  decreases  in  interest  rates may
adversely affect the Company's  profitability  because such decreases may reduce
the amounts that the Company may earn on its assets.  Economic  downturns  could
result in the delinquency of outstanding  loans.  Management does not expect any
one particular  factor to materially affect the Company's results of operations.
However,  downtrends in several areas,  including real estate,  construction and
consumer spending, could have a material adverse impact on the Company's ability
to remain profitable.

     Effect of Interest  Rates on the Banks and the Company.  The  operations of
financial  institutions  such as the Company are  dependent to a large degree on
net interest income,  which is the difference between interest income from loans


                                       2
<PAGE>

and   investments  and  interest   expense  on  deposits  and   borrowings.   An
institution's  net interest income is significantly  affected by market rates of
interest that in turn are affected by  prevailing  economic  conditions,  by the
fiscal and monetary  policies of the federal  government  and by the policies of
various  regulatory  agencies.  Like all financial  institutions,  the Company's
balance  sheet is affected by  fluctuations  in interest  rates.  Volatility  in
interest rates can also result in disintermediation,  which is the flow of funds
away from financial institutions into direct investments,  such as US Government
and corporate securities and other investment vehicles,  including mutual funds,
which,  because  of the  absence  of  federal  insurance  premiums  and  reserve
requirements,  generally pay higher rates of return than financial institutions.
See "Item 7:  Management's  Discussion  of  Financial  Condition  and Results of
Operations" and "Item 7A:  Quantitative and Qualitative  Disclosure about Market
Risk".

     Federal and State Government Regulations. The operations of the Company and
the Banks are  heavily  regulated  and will be  affected  by present  and future
legislation and by the policies established from time to time by various federal
and state regulatory  authorities.  In particular,  the monetary policies of the
Federal Reserve Board have had a significant  effect on the operating results of
banks in the past,  and are  expected to continue to do so in the future.  Among
the  instruments  of  monetary  policy  used by the  Federal  Reserve  Board  to
implement  its  objectives  are  changes in the  discount  rate  charged on bank
borrowings and changes in the reserve  requirements on bank deposits.  It is not
possible to predict what changes,  if any, will be made to the monetary  polices
of the Federal Reserve Board or to existing federal and state legislation or the
effect that such changes may have on the future business and earnings  prospects
of the Company.

     During the past several years,  significant  legislative attention has been
focused on the regulation and deregulation of the financial  services  industry.
Non-bank financial  institutions,  such as securities brokerage firms, insurance
companies  and money market funds,  have been  permitted to engage in activities
that compete directly with traditional bank business.

     Competition. The Company faces strong competition from other banks, savings
institutions  and other  financial  institutions  that have  branch  offices  or
otherwise  operate in the Company's market area, as well as many other companies
now  offering a range of  financial  services.  Many of these  competitors  have
substantially  greater  financial  resources and larger branch  systems than the
Company.  In addition,  many of the Banks' competitors have higher legal lending
limits than do the Banks. Particularly intense competition exists for sources of
funds  including  savings and retail time  deposits and for loans,  deposits and
other services that the Banks offer. See "Item 1: Business - Competition."

     As a result of the repeal of the Glass  Steagall Act,  which  separated the
commercial and investment banking industries,  all banking organizations face an
increase in  competition.  See "Item 1: Business - Supervision  and Regulation -
Financial Services Modernization Act".

     Allowance  for Loan Losses.  The Company has  established  an allowance for
loan losses which  management  believes to be adequate to offset probable losses
on the  Company's  existing  loans.  However,  there  is no  precise  method  of
estimating  loan losses.  There can be no assurance that any future  declines in
real  estate  market  conditions,  general  economic  conditions  or  changes in
regulatory  policies  will not require the Company to increase its allowance for
loan losses.

     An Economic  Slowdown In  Northeastern  Indiana And  Southwestern  Michigan
Could Hurt Our  Business.  We focus our  business  in  northeastern  Indiana and
southwestern  Michigan  in DeKalb,  Whitley,  Noble,  LaGrange,  and the eastern
portion of Elkhart  counties,  Indiana and St.  Joseph,  Cass, and the southwest
portion of Kalamazoo counties,  Michigan. [verify correct counties]. An economic
slowdown in this area could have the following consequences,  any of which could
hurt our business:

     Loan delinquencies may increase;
     Problem assets and foreclosures may increase;
     Demand for the products and  services of Peoples  Federal or First  Savings
     may decline; and
     Collateral for loans made by the Banks, especially real estate, may decline
     in value, in turn reducing  customers'  borrowing  power,  and reducing the
     value of assets and collateral associated with existing loans of the Banks.

                                       3
<PAGE>

     Dividends.  While the Board of Directors  expects to continue its policy of
regular  quarterly  dividend  payments,  this  dividend  policy will be reviewed
periodically  in light of future  earnings,  regulatory  restrictions  and other
considerations.  No assurance can be given,  therefore,  that cash  dividends on
common  stock will be paid in the  future.  See page 2 of the  Company's  Annual
Report to Stockholders  for the year ended September 30, 2004 and Note 14 of the
Notes to Consolidated  Financial Company's Annual Report to Stockholders for the
year ended September 30, 2004.

     Market for Common Stock.  Although the Company's  Common Stock is listed on
the Nasdaq  National  Market System,  there has been only limited trading in the
Common Stock. There can be no assurance that a regular and active market for the
Common Stock will develop in the foreseeable future. See "Item 5: Market for the
Registrant's  Common Stock and Related  Stockholder  Matters."  Investors in the
shares of Common Stock must, therefore,  be prepared to assume the risk of their
investment for an indefinite period of time.

     "Anti-Takeover"    and    "Anti-Greenmail"    Provisions   and   Management
Implications.  The Articles of the Company presently contain certain  provisions
which may be deemed to be "anti-takeover" and "anti-greenmail" in nature in that
such  provisions may deter,  discourage or make more difficult the assumption of
control of the Company by another  corporation or person through a tender offer,
merger,  proxy contest or similar  transaction  or series of  transactions.  The
overall effects of the "anti-takeover" and "anti-greenmail" provisions may be to
discourage,  make more costly or more  difficult,  or prevent a future  takeover
offer,  prevent  shareholders from receiving a premium for their securities in a
takeover offer,  and enhance the possibility that a future bidder for control of
the Company  will be required to act through  arms-length  negotiation  with the
Company's Board of Directors.  Copies of the Articles of the Company are on file
with the Securities and Exchange Commission and the Indiana Secretary of State.

     Stock Not an Insured  Deposit.  Investments  in the shares of the Company's
Common  Stock are not  deposits  insured  against  loss by the FDIC or any other
entity.

General

     The Company is an Indiana  corporation  organized in October 1990 to become
the thrift  holding  company for Peoples  Federal  Savings Bank of DeKalb County
("Peoples  Federal").  The Company is the sole  shareholder of Peoples  Federal.
Peoples Federal  conducts  business from its main office in Auburn and its eight
full-service  offices located in Avilla,  Columbia City, Garrett,  Kendallville,
LaGrange,  Topeka and Waterloo,  Indiana. Peoples Federal offers a full range of
retail deposit services and lending services to northeastern Indiana.


     Peoples  Federal 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,  it has been a member of the  Federal  Home Loan Bank  System
("FHLB  System")  and the  Federal  Home  Loan  Bank of  Indianapolis  ("FHLB of
Indianapolis").  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").

     On February 29, 2000 a merger was  completed  with Three  Rivers  Financial
Corp. and its subsidiary  First Savings Bank ("First  Savings") of Three Rivers,
Michigan.  The  Company  became the sole  shareholder  of First  Savings.  First
Savings conducts  business from its main office in Three Rivers,  Michigan,  and
its five full service offices in Union and Schoolcraft,  Michigan,  and Howe and
Middlebury, Indiana.

     The Company  has no other  business  activity  other than being the holding
company for Peoples Federal and First Savings  (collectively the "Banks") and is
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.

                                       4
<PAGE>

     In  February,  2003,  the  Board  authorized  a two year  stock  repurchase
program.  Purchases of up to 300,000 shares of the Company's common stock may be
made in open market or in privately negotiated transactions. As of September 30,
2004, the Company had repurchased 101,205 shares.

     On a yearly basis,  the Company updates its long-term  strategic plan. This
plan  includes,  among other things,  the Company'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 the  Banks'  interest  rate  risk  is also  cited  as an
important  goal.  As a  result,  the  Company  expects  to  emphasize  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.

     The Banks offer 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,
Peoples Federal added agricultural and commercial lending officers to its staff.
Since these types of loans pose a higher credit risk than  traditional  mortgage
lending,  they typically  offer higher yields and are for shorter  terms.  It is
expected that these loans will assist  Peoples  Federal in managing its interest
rate risk,  and  increase its overall  profitability.  The Banks  provide  these
services  through a branch  network  comprised of fifteen  full-service  banking
offices.  They also provide credit card services, as well as enhancements to its
loan and deposit products designed to provide customers with added conveniences.
The  Company  has   historically   concentrated   its  business   activities  in
northeastern  Indiana.  The purchase of First  Savings has extended this area to
southern  Michigan.  The  Company's  current  strategy is to maintain its branch
office network as well as remain alert to new opportunities.

     Over the years, the Company 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.

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 Banks,  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 such as the Banks are influenced
by a number of factors  including  interest rates on competing  investments  and
levels of personal income.

Earnings

     The Banks' 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  Banks
typically  engage 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.

                                       5
<PAGE>

     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 Banks  experience  strong  competition both in making real estate loans
and in attracting savings deposits. The Banks compete 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 Banks 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 Banks'  weighted  average rate at which new loans are originated and
the weighted average cost of interest-bearing liabilities. The Banks' 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 Banks have  supplemented  their interest  income  through  purchases of
investments when appropriate.  This activity usually generates positive interest
rate spreads on large principal balances with minimal administrative expense.

Interest Rate and Volume of Interest-Related Assets and Liabilities

     Both changes in interest rates and changes in the composition of the Banks'
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 eight
of  Management's  Discussion and Analysis of Financial  Condition and Results of
Operations in the  Company's  2004 Annual  Report to  Stockholders  incorporated
herein by reference.

     For information  regarding the combined weighted average effective interest
rate earned by the Banks on their loan portfolios and investments,  the combined
weighted  average  effective  cost of the Banks'  deposits and  borrowings,  the
interest  rate  spread  of the  Banks,  and the net  yield on  combined  monthly
weighted average  interest-earning  assets of the Banks on their loan portfolios
and investments for the fiscal years ending  September 30, 2004,  2003, and 2002
refer  to  page  four of  Management's  Discussion  and  Analysis  of  Financial
Condition  and  Results  of  Operations  in the  Company's  2004  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 Banks' interest income and expense during the fiscal years ending  September
30,  2004,  2003,  and 2002 refer to page nine of  Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations in the Company's 2004
Annual Report incorporated herein by reference.

                                       6
<PAGE>

Market Area

     Peoples Federal's market area in northeastern Indiana spans the counties of
DeKalb,  Whitley,  Noble,  and  LaGrange.  This market area has a population  of
approximately  154,000 and has 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.

     With the addition of First Savings Bank to the Company, the market area has
expanded into southern  Michigan and additional  towns of Howe and Middlebury in
northeastern Indiana. First Savings serves St. Joseph,  southern Kalamazoo,  and
Cass counties in Michigan and LaGrange and eastern Elkhart  counties in Indiana.
This expanded  market area is contiguous to the Peoples  Federal market area and
is a natural expansion.  This aggregate market area has a population estimate of
566,700 and consists of a diversified economic base that includes manufacturing,
wholesale and retail trades, small farming, and service industries.  The general
area serviced by First Savings would be classified as rural.

Lending Activities

    General

     The Banks  have  attempted  to  emphasize  investments  in  adjustable-rate
residential  mortgages  and consumer  loans in their market  areas.  In order to
lessen their risk from  interest  rate  fluctuations,  the Banks  emphasize  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
Banks  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 Banks offered a fixed rate product to satisfy
the  customer  demand,  but are not locked  into low  interest  rates for a long
period of time.  For  regulatory  reporting  purposes,  these loans are shown as
fixed rate product  until the period  remaining  to the next  repricing is under
five  years.   Seven   year/one  year  loans   originated   during  the  initial
implementation  of this  product  are now shown in this Form 10-K as  adjustable
rate  product.  More  recent  originations  of these types of loans are shown as
fixed rate  mortgages.  First Savings  sells any loans it originates  for longer
than seven year fixed rate terms on the secondary market.

Residential Mortgage Loans

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

     The Banks also offer 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  commitments are issued by the Banks.
The index used for most loans is tied to the applicable  United States  Treasury
security  index.  While  adjustable-rate  mortgage  loans  assist  the  Banks 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  Banks'  cost of funds.  The  majority  of the
adjustable rate mortgages originated by the Banks have limitations on the amount
(generally 6%) and frequency of interest rate changes.

     During the fiscal  year ended  September  30,  2004,  the Banks  originated
$75,178,991  of  residential  loans of which  $27,525,151  were five- to 30-year
fixed-rate  mortgages and  $47,653,840  were  adjustable-rate  loans.  The rates
offered on the Banks'  adjustable-rate  residential mortgage loans are generally
competitive  with the rates offered by other thrift  institutions  in the Banks'
market  areas and are based upon the Banks' cost of funds and the rate of return

                                       7
<PAGE>


the Banks 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 Banks' market areas.

     Set  forth  below  is  the  amounts  and   percentages  of  fixed-rate  and
adjustable-rate loans (which include consumer loans) in the Banks' portfolios at
September 30, 2004, 2003, and 2002 (Dollars in thousands).

                           September 30,
------------------------------------------------------------------
        2004                   2003                   2002
--------------------  ---------------------  ---------------------
Adjustable    Fixed   Adjustable     Fixed   Adjustable    Fixed
----------  --------  ----------   --------  ----------   --------
 $238,586   $127,408   $231,122    $133,032   $239,265    $153,346
   65.2%     34.8%       63.5%       36.5%      60.9%       39.1%

     The terms of the residential  loans  originated by the Banks 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.  However,  with the
recent  refinancing  rush, many consumers now have low rate loans. With interest
rates  rising,  these  consumers  may not be as willing to prepay these low rate
loans,  and the  loans may  remain  outstanding  for a much  longer  period.  At
September 30, 2004, the average contractual maturity of the Banks' portfolios of
fixed-rate  loans  was 8 years  and 1  months,  and 18 years  and 3 months  with
respect to its portfolio of adjustable-rate loans.

     Substantially  all of the Banks'  residential  mortgages  include so-called
"due on sale"  clauses,  which  are  provisions  giving  the  Banks 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 Banks 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 Banks'
policy is to lend up to 90% of the appraised value of the property  securing the
loan. The Banks apply the same standards to residential  loans  purchased in the
secondary market.

Commercial Real Estate Loans

     The Banks also originate  commercial real estate loans.  From September 30,
2003,  to  September  30, 2004,  commercial  real estate  loans  increased  from
$14,750,000 to $22,447,000,  with the percentage of commercial real estate loans
to total  loans  increasing  from  4.10% to  6.10%.  These  loans  consisted  of
construction  and permanent  loans  secured by mortgages on mid-size  commercial
real estate and farms. Of these loans, approximately $9.1 million are secured by
agricultural  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.

     Generally,  commercial  real estate loans involve greater risk to the Banks
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 Banks offer 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.

                                       8
<PAGE>

     Construction  loans involve greater  underwriting  and default risks to the
Banks 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 Banks  could be  negatively  impacted in that they
would have to take  control of the  project  and  attempt  either to arrange for
completion of construction or dispose of the unfinished project.

     The Banks' underwriting  criteria are designed to evaluate and minimize the
risks of each construction  loan. The Banks carefully consider 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 Banks 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 Banks 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 Banks
limit the number of properties  that can be  constructed on a  "speculative"  or
unsold basis by a developer at any one time and  generally  require 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,
and credit card loans  (unsecured).  The Banks offer all of these types of loans
and are  currently  emphasizing  home  equity  loans  to take  advantage  of the
adjustable  interest  rate  feature  of this type of 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 Banks' loan
portfolios  by type of  loan at  September  30,  2004.  The  estimated  maturity
reflects  contractual  terms  at  September  30,  2004.   Contractual  principal
repayments  of loans do not  necessarily  reflect  the actual term of the Banks'
loan portfolios.  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.

                            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   $ 5,861     $      -        $      -        $ 5,861
   Commercial                                                               -
Real estate loans:
   Mortgage-residential       51,223       96,774         167,477        315,474
   Commercial                  4,071       11,336           3,868         19,275
Installment loans --
   Consumer                    7,822        4,614              90         12,526
   Commercial                 10,296        2,437             124         12,857
                             -------     --------    ------------       --------
         Total               $79,273     $115,161        $171,559       $365,993
                             =======     ========    ============       ========

     The following table sets forth the total amount of loans due after one year
from September 30, 2004, which have a fixed rate or an adjustable rate. (Dollars
in thousands)

                                       9
<PAGE>

             Loans Due
  October 1, 2005 and thereafter
------------------------------------
     Fixed               Adjustable          Total at September 30, 2004
---------------     ----------------         ---------------------------
    $98,112               $188,608                     $286,720


Loan Portfolio Composition

     The  following  table  sets  forth  the  composition  of  the  Banks'  loan
portfolios  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.

<TABLE>

                              2004                2003              2002               2001              2000
                       ----------------------------------------------------------------------------------------------
TYPE OF LOAN            AMOUNT       %      AMOUNT      %      AMOUNT      %     AMOUNT      %      AMOUNT      %
                       ---------- -------- ---------- ------- ---------  ------ ---------- ------- ---------- -------
Residential:                                             (Dollars in thousands)
<S>                    <C>          <C>    <C>         <C>    <C>        <C>    <C>         <C>    <C>         <C>
     Single family unit$ 288,452    78.8%  $ 301,265   82.7%  $ 312,509  79.5%  $ 336,586   81.6%  $ 332,847   83.4%
     2-4 family units      1,550     0.4%      1,797    0.5%     2,954    0.8%      3,243    0.8%      3,263    0.8%
     Over 4 family units   2,401     0.7%      2,593    0.7%     3,485    0.9%      1,452    0.4%      3,018    0.8%
Commercial real estate    22,447     6.1%     14,750    4.1%    20,870    5.3%     21,906    5.3%     16,665    4.2%
Land acquisition and
     development           1,683     0.5%      1,480    0.4%     1,516    0.4%      1,938    0.5%      1,926    0.5%
Consumer and other loans  48,785    13.3%     41,748   11.5%    50,233   12.8%     46,177   11.2%     39,657   10.0%
Loans on deposits            675     0.2%        521    0.1%     1,044    0.3%        979    0.2%      1,052    0.3%
                       ---------- -------- ---------- ------- ---------  ------ ---------- ------- ---------- -------
                         365,993   100.0%    364,154  100.0%   392,611   100.0%   412,281  100.0%    398,428  100.0%
                       ---------- -------- ---------- ------- ---------  ------ ---------- ------- ---------- -------
Less:
Undisbursed portion
     of loans              2,440               3,467             3,821              5,262              4,341
Deferred loan fees and
     discounts             1,434               1,623             1,653              1,829              2,002
                       ----------          ----------         ---------         ----------         ----------
                           3,874               5,090             5,474              7,091              6,343
                       ----------          ----------         ---------         ----------         ----------
Total loans receivable   362,119             359,064           387,137            405,190            392,085
Allowance for losses
     on loans              1,958               2,111             2,117              1,895              1,650
                       ----------          ----------         ---------         ----------         ----------
Net loans              $ 360,161           $ 356,953          $ 385,020         $ 403,295          $ 390,435
                       ==========          ==========         =========         ==========         ==========
</TABLE>

Origination, Purchase and Sale of Loans and Loan Concentrations

     The  Banks  originate   residential   loans  in  conformity  with  standard
underwriting  criteria to assure maximum  eligibility for possible resale in the
secondary  market.  Although the Banks have  authority  to lend  anywhere in the
United States, they have confined their loan origination activities primarily in
the Banks' service areas.

     Loan  originations  are developed from a number of sources,  primarily from
referrals  from  real  estate  brokers,   builders,  and  existing  and  walk-in
customers.  Peoples  Federal 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 Peoples Federal.

     The  Banks'  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
committees of the Banks can approve  residential and commercial loans ranging up
to  $500,000.  The Banks'  Boards of  Directors  must  approve  loans  exceeding

                                       10
<PAGE>


$500,000.  The Banks utilize  independent  qualified  appraisers approved by the
Board of Directors to appraise the  properties  securing their loans and require
title  insurance  or title  opinions so as to insure that the Banks have a valid
lien on the mortgaged real estate.  The Banks require 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
Banks also evaluate the feasibility of the proposed construction project and the
experience  and track record of the  developer.  In addition,  all  construction
loans generally require a commitment from a third-party lender or from the Banks
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  Banks'  policy  to  originate  both  fixed-rate  and
adjustable-rate  loans,  providing  all such loans are  eligible for sale in the
secondary  market.  Peoples Federal currently holds all originated and purchased
loans in its  portfolio.  First  Savings is  currently  active in the  secondary
market and sells the majority of its fixed rate loan products.

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

                                                     Years Ended September 30
                                                 -------------------------------
                                                    2004     2003       2002
                                                 --------- ---------- ----------
                                                       (Dollars in thousands)
Mortgage loans originated
   for the purpose of:
     Construction-commercial                     $         $          $     365
     Construction-residential                      10,693     10,321     10,715
     Purchase/refinance-commercial                  3,526      3,349      3,884
     Purchase/refinance-residential                75,179    123,978    109,247
Consumer and other loans originated                24,678     29,805     30,329
                                                 ---------  --------- ----------
   Total loans originated                         114,076    167,453    154,540
                                                 ---------  --------------------
Loan credits:
    Loans sold                                      9,498     37,157     22,766
   Principal repayments and other adjustments     100,869    158,249    149,650
                                                 ---------  --------------------
Other:
   Provision for losses on loans                       40        537        348
   Amortization of loan fees                         (506)      (759)      (680)
   Loan foreclosures, net                             967        336        731
                                                 --------- ---------- ----------
                                                      501        114        399
                                                 --------- ---------- ----------

     Total credits, net                           101,370    158,363    150,049
                                                 --------- ---------- ----------
Net increases (decreases) in mortgage and other
   loans receivable, net                         $  3,208  $ (28,067) $ (18,275)
                                                 ========= ========== ==========

                                       11
<PAGE>

Interest Rates, Points and Fees

     The Banks  realize  interest,  point,  and fee income  from  their  lending
activities.  The Banks  also  realize  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  Banks  account  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
amortized, generally by the interest method, over the estimated life of the loan
as an adjustment of yield.

     First  Savings  also  realizes  income  from  gains on sales of loans,  and
servicing fees for loans sold with servicing retained.

Nonperforming Assets

     Loans  are  reviewed  on a  regular  basis  and  are  generally  placed  on
nonaccrual  status when the loans  become 90 days or more past due, 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 Banks are unable to resolve a delinquency satisfactorily within 45 days
after  the  loan  is  past  due,  they  will  undertake   foreclosure  or  other
proceedings, as necessary, to minimize any potential loss.

     Real estate  acquired by the Banks 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 at
September 30, 2004:

<TABLE>
                                                      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
                 -------------------  ----------  ----------------------------  -------------------  -----------
<S>                  <C>    <C>          <C>          <C>    <C>        <C>        <C>       <C>          <C>
Real estate:                                         (Dollars in thousands)
  One to four        28     $ 1,985       0.69%         4     $267      0.09%        7       $ 467        0.16%
   family

Consumer             26         141       0.29%        11       82      0.17%        6          52        0.11%
                 -------  ----------              -------- --------             -------  ----------

   Total             54     $ 2,126       0.58%        15     $349      0.10%       13       $ 519        0.14%
                 =======  ==========              ======== ========             =======  ==========

</TABLE>

    The following table sets forth the Banks' nonperforming assets at the dates
indicated:



                                       12
<PAGE>

                                           At September 30,
                               -----------------------------------------

                                 2004     2003     2002    2001   2000
                               -------  -------  -------  ------  -----
                                (Dollars in thousands)
Nonaccrual loans               $  493   $1,127   $  801    $676   $587
Loans past due 90 days and
    still accruing                 26       90      106      52      7
                               -------  -------  -------  ------  -----
                                  519    1,217      907     728    594
Real estate owned, net
   of allowance                   940      854      489     117    165
Total Nonperforming            -------  -------  -------  ------  -----
assets                         $1,459   $2,071   $1,396    $845   $759
                               =======  =======  =======  ======  =====

     Consumer loans are placed on nonaccrual  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.

     The decrease in  non-accrual  loans since  September  30, 2003 is primarily
from the 1 to 4 family portion of the loan  portfolio,  and management  believes
the increase has been  appropriately  considered in determining  the adequacy of
the allowance for loan and REO losses at September 30, 2004.  There have been no
significant  changes in potential  problem loans since  September 30, 2003.  Net
charge-offs  for the years ended  September  30, 2004 and 2003 were $192,751 and
$543,635,  respectively.  Net  charge-offs  were slightly  above average  during
fiscal 2003 due to the  aforementioned  economic  conditions.  This was combined
with a large loss on one commercial loan to make up the net charge-off  increase
for this year.

     Interest  income  that  would  have  been  recognized  for the  year  ended
September  30, 2004, if  nonaccrual  loans had been current in  accordance  with
their original terms,  approximated $11,000.  Interest income recognized on such
loans for the year ended September 30, 2003,  approximated  $7,000. At September
30, 2004 the Banks 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 Banks 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.  It is the  Company's
policy to  reserve  5% of the loan  balance  for  loans  classified  as  special
mention.

     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).
Substandard  loans are reserved at 20% of the loan balance.  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, and
the company reserves 50% of the loan balance.

     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.

                                       13
<PAGE>

     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,   the  Banks'  management
continually  reviews the mix and  delinquency  status of its loan  portfolio and
classifies those loans, which it deems appropriate.

     As of September 30, 2004,  loan  balances  were  classified by the Banks as
follows:

             Loss                          $      -0-
             Doubtful                             -0-
             Substandard                    1,653,000
             Special Mention                1,369,000

Allowance for Losses on Loans

     The  allowances  for loan  losses  represent  amounts  available  to absorb
inherent losses in the loan  portfolios.  The allowance is 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
allowance 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 allowance to levels  considered  necessary by  management.  Losses are
charged to the  allowance  when  considered  probable.  As of September 30, 2004
allowance for losses on loans was $1,958,569.  Overall,  the general composition
of the loan portfolio has remained similar to the prior year with no significant
shift of risk between  components  of the loan  portfolio  that would impact the
calculation  of the allowance for loan losses.  The Banks'  management  believes
that the  allowance  is  adequate  to absorb  known and  inherent  losses in the
portfolios.  No assurance can be given,  however, that economic conditions which
may adversely affect the Banks' markets or other  circumstances  will not result
in additions to the allowance for loan and real estate owned losses.

     The following table presents an allocation of the Banks' allowance for loan
losses at the dates  indicated  and the  percentage of loans in each category to
total loans.  The  unallocated  portion  relates to  qualitative  factors in the
portfolio such as economic  conditions in the banks' market areas,  which cannot
be separated by loan type.

<TABLE>
                                                             September 30,
                                  2004            2003           2002            2001           2000
                             -------------- -------------- --------------  -------------- ---------------
                              Amount   %     Amount    %    Amount    %    Amount    %     Amount     %
                             ------- ------ ------- ------ ------- ------ ------- ------- -------- ------
<S>                          <C>     <C>    <C>     <C>     <C>    <C>      <C>    <C>      <C>    <C>
Balance at end of                                    (Dollars in thousands)
period applicable to:
Residential Mortgage Loans   $1,334   87.8% $1,420   82.1%  $1,361  81.2%   $ 910   82.4%   $1,122  84.2%
Commercial/ Commercial Real
     Estate Loans               231    8.8%    166    5.8%     404   5.7%     527    6.2%      101   5.5%
Consumer Loans                  140    3.4%    311   12.1%     294  13.1%     342   11.4%      196  10.3%
Unallocated                     254            214              58            116              231
                            -------- ------ ------- ------ ------- ------ ------- ------- -------- ------
Total                        $1,959  100.0% $2,111  100.0%  $2,117 100.0%  $1,895  100.0%   $1,650 100.0%
                            ======== ====== ======= ====== ======= ====== ======= ======= ======== ======

</TABLE>

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

                                       14
<PAGE>

Summary of Loan Loss Experience             Years ended September 30,
                                  --------------------------------------
                                     2004    2003   2002    2001   2000
                                   -------  ------ ------ ------- ------
Balance of loan loss allowance at               (Dollars in Thousands)
beginning of year                   $2,111  $2,117 $1,895  $1,650 $1,005
 Allowance acquired in merger            -       -      -       -    562
  Charge-offs
     Residential                         4      25     36       4      -
     Commercial real estate            144       -      -       -      -
     Commercial                          -     395      -       -      -
     Consumer                           93     138    118     139    118
                                  --------  ------ ------  ------ ------
          Total Charge-offs            241     558    154     143    118
                                  --------  ------ ------  ------ ------
     Recoveries
     Residential                         -       -      -       -      -
     Consumer                           49      15     28      34     41
                                  --------  ------ ------  ------ ------
          Total Recoveries              49      15     28      34     41
                                  --------  ------ ------  ------ ------
     Net Charge-offs (Recoveries)      192     543    126     109     77
Provision for loan losses               40     537    348     354    160
                                  --------  ------ ------  ------ ------
     Balance of loan loss allowance at
     end of year                    $1,959  $2,111 $2,117  $1,895 $1,650
                                  ========  ====== ======  ====== ======
 Ratio of net charge-offs to average
     loans outstanding               0.05%   0.14%  0.03%   0.02%  0.01%

Investment Activities

     Federal thrift institutions, such as the Banks, 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 Banks 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.

     The carrying  values of the Banks'  investment  securities,  including  its
liquid assets, as of the dates indicated are presented in the following table.

                                       15
<PAGE>

                                            At September 30,
                                     ----------------------------
                                       2004      2003      2002
                                     --------  ---------  -------
Interest-bearing deposits and           (Dollars in thousands)
     certificates of deposit (1)     $  7,725   $ 29,965  $30,995
U.S. government and federal
     agency securities
     Held to maturity                       -          -        -
     Available for sale                71,985     61,352   36,713
Mortgage backed securities
     Held to Maturity                   1,112      2,117    6,848
     Available for sale                10,742     13,953   13,504
Stock in FHLB of Indianapolis           4,737      4,519    4,405
Other
     Held to maturity                       -          -      295
     Available for sale(2)             12,954     10,199    4,679
                                     --------   --------  -------

          Total investments          $109,255   $122,105  $97,439
                                     ========   ========  =======

--------------------------------------------
(1)  In  Interest-bearing  accounts at FHLB of Indianapolis  $4,654,  In insured
     certificates  of deposit $3,071 at September 30, 2004; In  Interest-bearing
     accounts  at FHLB of  Indianapolis  $26,695,  In  Insured  certificates  of
     deposit $3,270 at September 30, 2003; In Interest-bearing  accounts at FHLB
     of  Indianapolis  $27,175,  In Insured  Certificates  of deposit  $3,820 at
     September 30, 2002;
(2)  Van Kampen Prime Income Fund $2,442, Van Kampen Senior Income Trust $1,538,
     State and Municipal  obligations  $8,974 at September 30, 2004;  Van kampen
     Prime Income Fund $2,298, Van Kampen Senior Income Trust $1,397,  State and
     Municipal obligations $6,504 at September 30, 2003; Van Kampen Prime Income
     Fund $2,146,  Van Kampen Senior  Income Trust  $1,160,  State and Municipal
     oblications $1,668 at September 30, 2002;

     The  following  table  sets  forth   information   regarding  the  maturity
distribution  of investment  securities at September 30, 2004,  and the weighted
average yield on those securities.

<TABLE>
                                                               At September 30, 2004
                                        ----------------------------------------------------------------
                                               Available for Sale                  Held to Maturity
                                        -------------------------------- -------------------------------
                                                    Weighted Approximate           Weighted  Approximate
                                         Amortized   Average    Fair     Amortized  Average     Fair
Maturity Distribution at September 30:     Cost       Yield     Value      Cost      Yield      Value
                                        ---------- --------- ----------- --------- -------- ------------
                                                            (Dollars in thousands)
<S>                                       <C>         <C>       <C>       <C>         <C>     <C>
Due in one year or less                   $   591     2.93%     $   596   $    -              $    -
Due after one through five years           53,713     3.03%      53,683        -                   -
Due after five through ten years           24,265     3.62%      24,251        -                   -
Due after ten years                         2,492     3.42%       2,429        -                   -
                                        ----------           ---------- ----------            ---------
                                           81,061                80,959        -                   -
Mortgage-backed securities                 10,773     3.84%      10,742    1,112      4.84%    1,144
Marketable equity securities                3,980                 3,980        -                   -
                                        ----------           ---------- ----------          -----------
                  Total                   $95,814               $95,681   $1,112              $1,144
                                        ==========           ========== ==========          ===========

</TABLE>

                                       16
<PAGE>

Sources of Funds

General

     Deposits have  traditionally  been the primary source of funds of the Banks
for use in lending and investment activities. In addition to deposits, the Banks
derive 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 Banks'  primary market
areas  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 Banks  also offer  individual  retirement
accounts ("IRA's").

     The Banks' policies are designed  primarily to attract  deposits from local
residents  rather than to solicit  deposits  from areas  outside  their  primary
markets. The Banks do 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 Banks 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 Banks' average cost of funds is the distribution
of the Banks'  accounts by interest  rate paid.  An  important  indicator of the
Banks' stability of lendable funds is the distribution of the Banks' accounts by
maturity.

     For  information  on the amounts of  certificate  accounts at September 30,
2004,  maturing during the next five years and thereafter see Note 6 of Notes to
Consolidated Financial Statements on page 24 and 25 of the Company's 2004 Annual
Report to Stockholders.

     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,
                    ------------------------
                           2004
                        ------------
                     (Dollars In thousands)
3 months or less            $ 3,223
3-6 months                      777
6-12 months                   8,291
over 12 months               21,139
                        ------------
Total                      $ 33,430
                        ============


Borrowings

     As members of the FHLB System and the FHLB of  Indianapolis,  the Banks are
eligible to arrange  borrowings or advances for various  purposes and on various
terms.  As of  September  30,  2004,  2003 and 2002 the  Banks  had  outstanding
advances  from  the  FHLB  of  Indianapolis  of  $50,100,000,  $54,100,000,  and
$59,100,000,  respectively.  See Note 8 of the Notes to  Consolidated  Financial
Statements  beginning  on  page  25 of  the  Company's  2004  Annual  Report  to
Stockholders for the maturity breakdown of these long-term instruments.

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

                                       17
<PAGE>

     The  following  tables  set  forth  certain  information  as to the  Banks'
short-term  borrowings  consisting  of  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
                                                        ------------------------
                                                           2004    2003   2002
                                                          ------- ------ ------
                                                          (Dollars in thousands)
Average balance of short-term borrowings                    $3,328 $4,294 $2,885
Highest month-end balance of total short-term borrowings     5,166  7,136  5,131
Weighted average interest rate of total short-term borrowings1.26%  1.53%  2.39%

                                                                  At Sep30
                                                          ---------------------
                                                           2004    2003   2002
                                                          ------- ------ ------
Reverse Repurchase agreements                                3,321  2,650  3,193
                                                           -------  ------ -----
Total short-term borrowings                                 $3,321 $2,650 $3,193
                                                           ======= ====== ======

Weighted average interest rate                               1.38%   1.49% 1.98%


Trust Department

     In October  1984,  the FHLB of  Indianapolis  granted  full trust powers to
Peoples Federal,  one of the first savings institutions in Indiana to be granted
such powers. As of September 30, 2004, Peoples Federal's trust department assets
totaled approximately  $85,766,000 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 740 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.  The trust  department  provides a
needed  service  to the  communities  served  by  Peoples  Federal,  as  well as
generating fee income which is largely unaffected by interest rate fluctuations.

     During 2003,  Peoples Federal purchased the trust business of First Federal
Savings  Bank of  Huntington,  IN. The  purchase  was  affected  using a revenue
sharing agreement, rather than an up-front cash payment. Regulatory approval has
been  received,  and these  assets are  included in the number of  accounts  and
amount of assets referenced above.

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 Peoples Federal and conducts
a general  insurance  business  within  the State of  Indiana  under the name of
Peoples Insurance Agency. During fiscal years ended September 30, 2004 and 2003,
PFSI recorded total income of $51,078 and 54,326, respectively,  with net income
for such periods amounting to $4,244 and $5,686, respectively.

     Alpha  Financial was  organized  under the laws of the state of Michigan in
1975 as a wholly owned subsidiary of First Savings. First Savings' investment in
Alpha  Financial,  Inc. was $251,825 at September 30, 2004.  The assets of Alpha
Financial  consist of cash and seven percent of the stock of MBT Title Services,
which reinsures credit life insurance policies written on the lives of borrowers
of various financial institutions.

Employees

     As of  September  30, 2004,  the Banks  employed 146 persons on a full-time
basis  and 17  persons  on a  part-time  basis.  The  Banks'  employees  are not
represented by any collective  bargaining  group,  and management  considers its
relations  with its  employees  to be  excellent.  The  holding  company  has no
employees.


                                       18
<PAGE>

                                   REGULATION

General

     The  Company,  as a savings and loan  holding  company,  and the Banks,  as
federally chartered savings associations, are subject to extensive regulation by
the OTS and the FDIC. The lending  activities and other investments of the Banks
must  comply  with  various  federal  regulatory   requirements,   and  the  OTS
periodically   examines  the  Banks  for  compliance  with  various   regulatory
requirements and for safe and sound operations.  The FDIC also has the authority
to conduct  examinations.  The Banks must file reports  with the OTS  describing
their activities and financial condition and are 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

     Sarbanes-Oxley.  The  Sarbanes-Oxley  Act requires  audit  committees to be
directly  responsible  for the  appointment,  compensation  and oversight of the
Company's  public  accounting  firm,  including the resolution of  disagreements
between management and the auditor regarding financial  reporting.  The auditors
are required to report directly to the audit committee, and members of the audit
committee must be truly independent  unless the SEC grants an exemption.  If the
audit committee does not include a financial expert,  the absence of such expert
must be disclosed.  Audit committees are required to adopt written procedures to
receive and address  complaints  regarding  accounting,  internal  controls  and
auditing issues, including procedures to maintain the confidentiality of whistle
blowers.

     USA Patriot Act of 2001.  The Patriot Act is intended is to strengthen  the
U.S  law  enforcement  and  the  intelligence  communities'  abilities  to  work
cohesively to combat  terrorism on a variety of fronts.  The potential impact of
the Patriot Act on financial  institutions  of all kinds is significant and wide
ranging.  The Patriot Act contains sweeping anti-money  laundering and financial
transparency laws and requires various regulations, including:

     due diligence  requirements  for financial  institutions  that  administer,
     maintain,  or manage private banks accounts or  correspondent  accounts for
     non-US persons;
     standards for verifying customer identification at account opening;
     rules to promote cooperation among financial institutions,  regulators, and
     law  enforcement  entities in  identifying  parties that may be involved in
     terrorism or money laundering; and
     reports by  non-financial  trades and  businesses  filed with the  Treasury
     Department's   Financial  Crimes   Enforcement   Network  for  transactions
     exceeding $10,000,  and filing of suspicious  activities reports securities
     by brokers and dealers if they  believe a customer  may be  violating  U.S.
     laws and regulations.

The  implementing  regulations  require  financial  institutions  to among other
things,  incorporate  into their written money laundering plans a board approved
customer  identification  program  implementing  reasonable  procedures  for:

     verifying  the  identity of any person  seeking to open an account,  to the
     extent reasonable and practicable;
     maintaining  records  of  the  information  used  to  verify  the  person's
     identity; and
     determining  whether the person  appears on any list of known or  suspected
     terrorists or terrorist  organizations  within a reasonable  time after the
     account is opened.

Account is defined as a formal banking or business  relationship  established to
provide ongoing services, dealings, or other financial transactions and includes
a relationship to establish a safety deposit box or other safekeeping  services,
or cash management, custodian and trust services..

     Financial   Services   Modernization   Legislation.    Financial   Services
Modernization Act repealed 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

                                       19
<PAGE>


member  bank  and  any  company  or  person  "primarily  engaged"  in  specified
securities  activities.  In addition,  the Financial Services  Modernization Act
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,  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 laws prior
to the Financial Services  Modernization Act as long as the company continues to
meet the two tests: (i) it can control only one savings  institution,  excluding
supervisory acquisitions, and (ii) 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.

     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  Banks do not  believe  that the  Financial  Services
Modernization  Act will have a material  adverse effect on the operations of the
Company  and the Banks 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  acquirers 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 savings and loan  holding  company as defined by
the Home  Owners'  Loan Act, as amended (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 Banks are subject to certain restrictions in their 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 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

                                       20
<PAGE>


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 25% 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
between the savings institution and the savings and loan holding company and any
of its  affiliates  must  conform to Sections 11 of te Home Owners' Loan Act and
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 Banks

     Federal  Home Loan Bank  System.  The Banks are members 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
members of the FHLB of Indianapolis,  the Banks are 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  Banks  were  in  compliance  with  this  requirement  with an
investment in FHLB of Indianapolis stock at September 30, 2004, of $4,736,500.

     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, 2004,
the Banks had advances totaling  $50,100,000  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
sufficient to ensure its safe and sound  operation.  The Banks  maintain  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

                                       21
<PAGE>


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  Banks  maintain  an  appropriate  level of  certain  specified  investments
(primarily  residential  mortgages and related  investments,  including  certain
mortgage-related  securities)  and  otherwise  qualify  as QTL's  or a  domestic
building  and loan  association,  they 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, 2004, the Banks were in compliance  with their
QTL  requirements  and  met the  definition  of a  domestic  building  and  loan
association.

     Branching. Subject to certain limitations, the HOLA and the OTS regulations
currently permit federally  chartered savings  institutions such as the Banks to
establish  branches  in  any  state  of  the  United  States.   Federal  savings
associations with branches in more than one state must satisfy either the QTL or
the DBLA test on a  state-by-state  basis.  The authority for a federal  savings
institution  to  establish  an  interstate  branch  network  would  facilitate a
geographic diversification of the institution's activities. This authority under
the HOLA and the OTS  regulations  preempts any state law purporting to regulate
branching by federal savings institutions.

     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
(a combination of core and "supplementary" capital) equal to 8% of risk-weighted
assets.  In addition,  OTS  regulations  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.

     On December 1, 1998, the OTS issued Thrift  Bulletin 13a ("TB 13a"),  which
replaced  previous thrift  bulletins and certain other guidance on interest rate
risk to assist  institutions in interpreting  the rules governing  interest rate
risk.  TB 13a sets forth a  definition  and  sources of  interest  rate risk and
directs the Board of Directors  of a savings  association  to set interest  rate
risk  limits for the  savings  association  and to adopt a system for  measuring
interest  rate risk.  TB 13a also  describes  certain due  diligence  management
should undertake before taking a position in investment  securities or financial
derivatives,  requires certain  record-keeping of such  investments,  and states
that the  savings  association's  activities  in this  area will be  subject  to
assessment  by  examiners.  TB 13a  discusses  the two elements to an examiner's
assessment of interest rate risk;  the level of market risk as measured by a net
portfolio value model,  and the quality of the savings  association's  practices
for  managing  interest  rate risk.  In the event the OTS  believes  supervisory
action is required to address  interest rate risk at a savings  association,  TB
13a outlines the range of agency responses, from written plans from the board to
reduce risk to formal enforcement action,  including  supervisory  agreements or
cease and desist orders.

     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

                                       22
<PAGE>


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, 2004, the Banks exceeded all  regulatory  minimum  capital
requirements.

     Insurance of Deposit  Accounts.  The Banks' 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,  2002,  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. The rate paid to retire the Fico Bonds is 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  Banks  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,  and $1,620,000 plus 10% on the
amount over $54.0  million.  . 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, 2004, the Banks met
their reserve requirements.

     Dividend  and  Other  Capital  Distribution  Limitations.  The OTS  imposes
various  restrictions or requirements on the ability of savings  institutions to
make capital distributions, including cash dividends. A savings institution that
is a subsidiary of a savings and loan holding  company,  such as the Bank,  must
file an  application  or a notice with the OTS at least 30 days before  making a
capital  distribution.   Savings  institutions  are  not  required  to  file  an
application for permission to make a capital  distribution  and need only file a
notice if the following  conditions are met: (1) they are eligible for expedited
treatment under OTS regulations,  (2) they would remain  adequately  capitalized
after the distribution,  (3) the annual amount of capital  distribution does not
exceed net income for that year to date added to retained net income for the two
preceding  years,  and  (4) the  capital  distribution  would  not  violate  any
agreements  between the OTS and the savings  institution or any OTS regulations.
Any other situation would require an application to the OTS.

                                       23
<PAGE>

     In addition,  the OTS could prohibit a proposed capital distribution by any
institution,  which would otherwise be permitted by the  regulation,  if the OTS
determines that the distribution would constitute an unsafe or unsound practice.
A federal savings  institution is prohibited from making a capital  distribution
if, after making the  distribution,  the savings  institution would be unable to
meet  any  one  of  its  minimum   regulatory  capital   requirements.   Savings
institutions  cannot  distribute  regulatory  capital  that  is  needed  for its
liquidation account.

     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.

     Standards   for  Safety  and   Soundness.   Under   applicable   regulatory
requirements,  the Banks are required to prescribe  standards,  by regulation or
guideline, relating to internal controls, information systems and internal audit
systems, loan documentation,  credit underwriting,  interest rate risk exposure,
asset  growth,  asset  quality,  operational  and  managerial  standards  as the
agencies deem appropriate. The OTS and the federal bank regulatory agencies have
adopted a set of guidelines  prescribing safety and soundness standards pursuant
to the statute.  The safety and soundness guidelines establish general standards
relating to internal controls and information  systems,  internal audit systems,
loan  documentation,  credit  underwriting,  interest rate risk exposure,  asset
growth,  and compensation,  asset quality and earnings  standards,  and fees and
benefits.  In general, the guidelines require,  among other things,  appropriate
systems and  practices  to identify  and manage the risks  associated  with each
aspect of an institution's  operations.  The guidelines also prohibit  excessive
compensation  as an unsafe and unsound  practice  and describe  compensation  as
excessive  when the amounts paid are  unreasonable  or  disproportionate  to the
services  performed by an  executive  officer,  employee,  director or principal
stockholder.

     With respect to asset quality and earnings standards, a savings institution
would be required to maintain systems, commensurate with its size and the nature
and  scope  of  its   operations,   to  identify   problem  assets  and  prevent
deterioration  in those assets as well as to evaluate  and monitor  earnings and
ensure that earnings are sufficient to maintain adequate capital and reserves.

                                       24
<PAGE>

     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, 2004, the
Banks met the capital  requirements  of "well  capitalized"  institutions  under
applicable OTS regulations.

     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.

     Real  Estate  Lending  Standards.  Under joint  regulations  of the federal
banking  agencies,  including  the OTS,  savings  institutions  must  adopt  and
maintain  written policies that establish  appropriate  limits and standards for
extensions  of credit that are secured by liens or  interests  in real estate or
extensions  of credit that are secured by liens or  interests  in real estate or
are made for the purpose of  financing  permanent  improvements  to real estate.
These policies must establish loan portfolio diversification standards,  prudent
underwriting  standards,  including  loan-to  value  limits  that are  clear and
measurable,  loan  administration  procedures  and  documentation,  approval and
reporting requirements. An institution's real estate lending policy must reflect
consideration  of the  Interagency  Guidelines for Real Estate Lending  Policies
(the  "Interagency  Guidelines")  that have been adopted by the federal  banking
agencies. The Interagency  Guidelines,  among other things, call upon depository
institutions  to  establish  internal  loan-to-value  limits  specified  in  the
Interagency  Guidelines  for  the  various  types  of  real  estate  loans.  The
Interagency  Guidelines  state that it may be appropriate in individual cases to
originate  or  purchase  loans  with  loan-to-value  ratios  in  excess  of  the
supervisory loan-to-value limits not exceeding those specified, but require that
the  aggregate  amount of loans with  loan-to-value  ratios in excess of certain
specified  levels may not exceed the amount of the savings  association's  total
capital.   (Amounts   in  excess  of  core   capital   must  be  deducted  on  a
dollar-for-dollar basis from this capital.)

     Federal  Consumer  Credit and  Non-Discrimination  Legislation.  The Banks'
mortgage lending activities arc subject to the provisions of various federal and
state  statutes,  including,  among others,  the Truth in Lending Act, the Equal
Credit  Opportunity  Act, the Real Estate  Settlement  Procedures  Act, the Fair
Housing Act and the  regulations  promulgated  thereunder.  These  statutes  and
regulations,  among other things,  prohibit discrimination on the basis of race,
gender or other designated characteristics,  prohibit unfair and deceptive trade
practices,  require the  disclosure  of certain  basic  information  to mortgage
borrowers  concerning credit terms and settlement costs, and otherwise  regulate
terms and conditions of credit and the procedures by which credit is offered and
administered.   Each   of  the   foregoing   statutes   provides   for   various
administrative,  civil  and,  in  limited  circumstances,  criminal  enforcement
procedures, and violations thereof may also lead to class actions seeking actual
and/or punitive damages.

     Community  Reinvestment  Act and Fair Lending  Developments.  The Banks are
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

                                       25
<PAGE>


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. As of the latest CRA Examinations, the Banks each received a rating
of "satisfactory" in complying with its CRA obligations.

Item 2.  Properties

     Peoples Federal owns nine  full-service  banking offices located in Avilla,
Auburn, Columbia City, Garrett,  Kendallville,  LaGrange,  Topeka, and Waterloo,
Indiana.

     The following table provides  certain  information  with respect to Peoples
Federal's full-service offices at September 30, 2004:

         Full Service                Date         Net Book
            Offices                 Opened       Value (1)
------------------------------------------------------------
                                   (Dollars in thousands)
Main Office, Auburn                      1973         $ 299
Avilla                                   1980            91
Garrett                                  1972            41
Columbia City-Downtown                   1971            91
Columbia City-North                      1998           504
Kendallville                             1941           391
LaGrange                                 1972           227
Waterloo                                 2000           900
Topeka                                   2002           485

(1) Of real estate at September 30, 2004.

     The total net book value of Peoples  Federal's  premises  and  equipment at
September 30, 2004, was $3.8 million.

     First Savings Bank owns six  full-service  banking offices located in Three
Rivers, Union, and Schoolcraft, Michigan and Howe and Middlebury, Indiana.

     The following  table  provides  certain  information  with respect to First
Saving's full service offices at September 30, 2004.

         Full Service                Date         Net Book
            Offices                 Opened       Value (1)
------------------------------------------------------------
                                   (Dollars in thousands)
Main Office, Three Rivers                1981         $ 554
Schoolcraft                              1971            55
Union                                    1988           167
Three Rivers, branch                     1988           577
Howe                                     1998           340
Middlebury                               1998           596

(1) Of real estate at September 30, 2004.

                                       26
<PAGE>

     The  total net book  value of First  Savings'  premises  and  equipment  at
September 30, 2004 was $2.6 million.

Item 3.  Legal Proceedings

     There are no material pending legal  proceedings to which the Company,  the
Banks 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 Item 12  under  Part  III of this  form  10-K for the
Equity Compensation Plan Table required by Regulation S-K.

     The Company did not sell any common stock  during the year ended  September
30, 2004 that was not registered for sale under the Securities Act of 1933.

     The  following  table  details the common stock  information  for the years
ended September 30, 2004 and 2003.

                                   Market Price
                                 ----------------------    Dividends
                                   Low           High      Per Share
                                 ------------------------------------
Fiscal 2004
1st QTR                           $21.60       $25.75        $0.17
2nd QTR                            23.67        27.66         0.17
3rd QTR                            22.78        26.95         0.17
4th QTR                            21.50        24.98         0.18

Fiscal 2003
1st QTR                           $15.86       $19.88        $0.16
2nd QTR                            17.25        20.99         0.16
3rd QTR                            18.90        21.50         0.16
4th QTR                            21.15        25.51         0.17

     In February 2003, the Board authorized a two year stock repurchase program.
Purchases of up to 300,000  shares of the Company's  common stock may be made in
open market or in privately negotiated  transactions.  As of September 30, 2004,
the  Company  had  repurchased  101,205  shares  and  198,795  shares may yet be
purchased under the plan. This plan expires on February 18, 2005.

     The following table details stock  repurchased by the Company during fiscal
year 2004 as per the plan referenced on page 3 of this document.

                                       27
<PAGE>

                                                       Total            Maximum
                                                     Numer of         Number of
                           Total        Average   Shares Purchased   Shares that
                         Number of       Price       as Part of         May yet
                           Shares        Paid         Publicly      be Purchased
Period                   Purchased     Per Share   Announced Plan Under the Plan
--------------------------------------------------------------------------------
July 1-31, 2004             4,799      $ 23.90           4,799         203,529
August 1-31, 2004           4,524        15.75           4,524         199,005
September 1-30, 2004          210        21.55             210         198,795
                          -------    ----------   ------------
Total                       9,533      $ 19.98           9,533
                          ========   ==========   =============

Item 6.  Selected Financial Data

     Reference is made to page 2 of the Company's  Annual Report to Stockholders
for the year ended  September  30, 2004,  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 3 to 11 of the  Company's  Annual  Report  to
Stockholders for the year ended September 30, 2004, 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 page 5 of the Company's  Annual Report to Stockholders
for the year ended  September  30, 2004,  for the  information  required by this
item, which is hereby incorporated by reference.

Item 8.  Financial Statements and Supplementary Data

     Reference  is made to  pages 14 to 39 of the  Company's  Annual  Report  to
Stockholders for the year ended September 30, 2004 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.

Item 9A. Controls and Procedures

     Our management, with participation of our chief executive officer and chief
financial  officer,   conducted  an  evaluation  of  the  effectiveness  of  our
disclosure controls and procedures, as defined in Exchange Act Rule 13a-15*e) as
of September 30, 2004. Based on that evaluation, our chief executive officer and
chief financial  officer  concluded that our disclosure  controls and procedures
were effective in reaching a reasonable  level of assurance  that  management Is
timely alerted to material information relating to us during the period when our
periodic reports are being prepared.

     No changes  occurred in our internal control over financial  reporting,  as
defined in Exchange Act Rule  13a-15(f),  during the quarter ended September 30,
2004 that have  materially  affected,  or are  reasonably  likely to  materially
affect, our internal control over financial reporting.

     The Company's  management,  including the CEO and CFO, does not expect that
its  disclosure  controls or its internal  controls and procedures for financial
reporting will prevent all error and all fraud. A control system,  no matter how
well  conceived  and  operated,  can  provide  only  reasonable,  not  absolute,
assurance that the objectives of the control system are met. Further, the design
of a control  system must reflect the fact that there are resource  constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent  limitations in all control  systems,  no evaluation of controls
can provide  absolute  assurance that all control issues and instances of fraud,
if any,  within the  Company  have been  detected.  These  inherent  limitations
include the realities that judgments in decision-making  can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally,  controls

                                       28
<PAGE>


can be circumvented by the individual acts of some persons,  by collusion of two
or more people,  or by  management  override of the  control.  The design of any
system of  controls  also is based in part upon  certain  assumptions  about the
likelihood of future events,  and there can be no assurance that any design will
succeed in achieving  its stated goals under all  potential  future  conditions;
over time,  control may become inadequate  because of changes in conditions,  or
the degree of  compliance  with the  policies  or  procedures  may  deteriorate.
Because  of  the  inherent  limitations  in  a  cost-effective  control  system,
misstatements due to error or fraud may occur and not be detected.

     Effective  November  16, 2004 Mr.  Maurice F.  Winkler  III, a director and
Chief Executive Officer of the Company and President and Chief Executive Officer
of Peoples  entered into an employment  agreement  with the Company and Peoples.
The employment agreement provides for full-time employment for a period of three
years as President and Chief Executive  Officer of the Company and Peoples.  The
agreement  provides  for a base salary of $132,500  per year  subject to cost of
living  increases or decreases in certain  circumstances.  Additionally,  upon a
change in control of the Company or Peoples,  as defined in the  agreement,  Mr.
Winkler  will  receive  2.99 times his base  salary  plus 2.99 times the average
amount of any bonus compensation  earnings during the three year period prior to
any change in control,  plus  certain  other  benefits  as  provided  for in the
agreement. In addition, Mr. Winkler will be eligible to receive such benefits as
are made  available to senior  executives of Peoples.  A copy of the  employment
agreement is filed as Exhibit 10.8.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

     Reference  is  made  to  the  section  captioned  "Proposal  1-Election  of
Directors"  in the Company's  Proxy  Statement  dated  December 10, 2004 for the
information required by this Item, which is hereby incorporated by reference.

     Code of Ethics.  The company has adopted an ethics  policy that  applies to
Financial  Managers of the Company  and its  subsidiaries.  A copy of the Ethics
Policy is attached as Exhibit 14 to this annual report.  The Company  intends to
satisfy  the  disclosure  requirement  under  Item 10 of Form 8-K  regarding  an
amendment  to a  provision  of its Code of Ethics and  Conduct  by posting  such
information on the Company's website www.Peoplesbancorp.us.

Item 11.  Executive Compensation

     Reference  is made to the section  captioned  "The Peoples  Bancorp  Annual
Meeting-Compensation of Executive Officers and Directors" in the Company's Proxy
Statement  dated  December 10, 2004 for the  information  required by this Item,
which is hereby incorporated by reference.

                      Equity Compensation Plan Information

<TABLE>


                                                                                          (c)
                                                                                           Number of securities
                                                                                            remaining available for
                                                                                             future issuance under
                                                                            (b)               equity compensation
                                                  (a)             Weighted-average plans
                                                                                               (excluding
            Plan Category               Number of securities to      exercise price of      securities reflected in
                                        be issued upon exercise     outstanding options,          column (a))
                                        of outstanding options,     warrants and rights
                                          warrants and rights
-------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                        <C>                      <C>
Equity compensation plans approved              88,043(1)                  $14.40                   89,751
by security holders.................
Equity compensation plans not                     -0-                                                 -0-
approved by security holders........
Total...............................             88,043                    $14.40                   89,751
</TABLE>

                                       29
<PAGE>

(1)......80,249 shares were assumed in connection with the acquisition of Three
         Rivers Financial Corp at a weighted average exercise price of $11.78.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     Reference is made to the sections captioned "Election of Directors-Nominees
for Election as  Directors"  and  "Securities  Ownership  of Certain  Beneficial
Owners"  in the  Company's  Proxy  Statement  dated  December  10,  2004 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  "Transactions  with  Certain
Related  Persons" in the Company's  Proxy  Statement dated December 10, 2004 for
the  information  required  by  this  Item,  which  is  hereby  incorporated  by
reference.

Item 14. Principal Accounting Fees and Services

     Reference  is made to the  section  captioned  "Accountant's  Fees"  in the
Company's Proxy  Statement dated December 10, 2004 for the information  required
by this Item, which is hereby incorporated by reference.

Item 15.  Exhibits, Financial Statements, Schedules, and Reports on Form 8-K

     (a) The following  consolidated financial statements of Peoples Bancorp and
Its Wholly-owned Subsidiaries,  included in the Annual Report to Stockholders of
the registrant  for the year ended  September 30, 2004 are filed as part of this
report:

                  1.  Financial Statements

     REPORT OF BKD LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PAGE 13.
     CONSOLIDATED BALANCE SHEETS - AS OF SEPTEMBER 30, 2004, AND 2003 PAGE 14.
     CONSOLIDATED  STATEMENTS OF INCOME FOR THE YEARS ENDED  SEPTEMBER 30, 2004,
     2003, AND 2002 PAGE 15.
     CONSOLIDATED  STATEMENTS  OF  STOCKHOLDERS'  EQUITY  FOR  THE  YEARS  ENDED
     SEPTEMBER 30, 2004, 2003, AND 2002 PAGE 16.
     CONSOLIDATED  STATEMENTS  OF CASH FLOWS FOR THE YEARS ENDED  SEPTEMBER  30,
     2004, 2003, AND 2002 PAGE 17.
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAGES 18-39.

                  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,  as amended and  restated on December 14, 2004.
     (2)

10.1 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)

                                       30
<PAGE>

10.2* 1998 Peoples Bancorp Stock Option and Incentive Plan. (4)

10.3*Three Rivers  Financial  Corporation  Stock Option and  Incentive  Plan (as
     assumed by Peoples Bancorp). (5)

10.4* Employment Agreement with Maurice F. Winkler III.

10.5* Employment Agreement with G. Richard Gatton.

13    Annual Report to Stockholders

14    Code of Ethical Conduct for Financial Managers

22    Subsidiaries of the Registrant

23    Consent of BKD LLP

31.1  Rule 13a-14(a)/15d-14(a) Certification of CEO

31.1  Rule 13a-14(a)/15d-14(a) Certification of CFO.

32.1  Section 1350 Certifications

* Indicates management contract or compensatory plan, contract or arrangement.
--------------------------------
     (1)  Incorporated  by  reference  to the  same  Exhibit  in  the  Company's
Registration  Statement on Form S-4  (33-37343)  filed with the  Securities  and
Exchange Commission on October 17, 1990.

     (2) Incorporated by reference to the same Exhibit in the Company's  Current
Report on Form 8-K  (Commission  File Number  0-18991) filed with the Securities
and Exchange Commission on December 20, 2004.

     (3)  Incorporated by reference to the same Exhibit in the Company's  Annual
Report  on Form  10-K  (Commission  File  Number  0-18991)  for the  year  ended
September 30, 1992.

     (4)  Incorporated by reference to the same Exhibit in the Company's  Annual
Report  on Form  10-K  (Commission  File  Number  0-18991)  for the  year  ended
September 30, 1998.

     (5)  Incorporated  by  reference  to the same  Exhibit in the Three  Rivers
Financial  Corporation's  Annual Report on Form 10-KSB  (Commission  File Number
1-13826) for the year ended June 30, 1996.

     (b) A report on Form 8-K was filed on August 2, 2004 reporting earnings for
the period ended June 30, 2004.

The  Securities  and  Exchange  Commission  maintains  a Web site 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.


                                       31
<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 14, 2004                         /s/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 14, 2004                         /s/Roger J. Wertenberger,
                                          Chairman of the Board,
                                          and Director

December 14, 2004                         /s/Maurice F. Winkler III,
                                          President, Chief Executive Officer
                                          and Director

December 14, 2004                         /s/Deborah K. Stanger
                                          Vice President-Chief Financial Officer

December 14, 2004                         /s/G. Richard Gatton, Director

December 14, 2004                         /s/Bruce S. Holwerda, Director

December 14, 2004                         /s/Erica D. Dekko, Director

December 14, 2004                         /s/Douglas D. Marsh, Director

December 14, 2004                         /s/Stephen R. Olson, Direct

December 14, 2004                         /s/John C. Thrapp, Director



                                       32
<PAGE>

                                                                    Exhibit 10.4

                Employment Agreement with Maurice F. Winkler, III

     This Employment Agreement ("Agreement") is made and entered into as of this
16th day of November 2, (the  "Effective  Date") by and among  Peoples  Bancorp,
("Peoples"),  the  holding  company of Peoples  Federal  Savings  Bank of DeKalb
County (the "Bank"),  the Bank and Maurice F. Winkler,  III ("Executive"),  with
reference to the following:

WHEREAS,  Executive is currently  employed by the Bank,  which is a wholly owned
     subsidiary of Peoples;

WHEREAS,  Peoples  and the Bank  desire to  provide  for the  employment  of the
     Executive by the Bank;

WHEREAS, the  Executive is willing to commit  himself to serving the Bank on the
     terms and conditions herein provided;

     NOW,  THEREFORE,  IN  CONSIDERATION OF the recitals set forth above and the
mutual promises, covenants, agreements,  conditions and undertakings hereinafter
set  forth,   the  adequacy  and  receipt  of  which   consideration  is  hereby
acknowledged, the parties hereto agree as follows:

1.       Term.

     This Agreement  shall have a term of three (3) years,  commencing as of the
Effective  Date set forth above (the  "Term").  Where used herein,  "Term" shall
refer to the entire period of employment of Executive by the Bank from and after
the Effective Date of this Agreement,  whether for the period provided above and
as extended or terminated earlier as hereinafter provided.

2. Position and Duties.

     (a) During the Term,  Executive  shall be employed on a full-time  basis to
serve as  President  and Chief  Executive  Officer of the Bank and  perform  the
duties customarily performed by such officer of a savings association, including
the general  supervision  and operation of the business and affairs of the Bank,
and reporting to the applicable regulatory  authorities regarding the activities
of the Bank,  subject to the  direction  of and the powers  vested by law in the
Board of  Directors  of the  Bank  (the  "Board")  and the  Bank's  shareholder,
Peoples.  Except as provided for herein, the duties and position of Executive as
President  and Chief  Executive  Officer  hereunder  may be changed  only by the
mutual written  agreement of the parties hereto.  The parties may mutually agree
to extend Executive's full-time status for additional 12-month periods following
the Effective Date.

     (b) During the Term hereof,  Executive  shall  perform the services  herein
contemplated to be performed by Executive faithfully, diligently and to the best
of  Executive's  ability in  compliance  with  instructions  and policies of the
Board,  the Bank's Federal  Charter and Bylaws and with all applicable  laws and
regulations.

3.      Compensation.

     (a) Base Salary.  For executive's  services  rendered  hereunder,  the Bank
shall pay or cause to be paid a base salary to Executive at the rate of $132,500
per annum,  payable in  conformity  with the Bank's normal  payroll  periods and
procedures.  During the Term, Executive's base salary shall be reviewed at least
once every  twelve (12) months and shall be  increased  (but not reduced) at any
time, and from time to time, as shall be substantially consistent with increases
in base salary  generally  awarded in the  ordinary  course of business to other
executives of the Bank, provided that Executive's Base Salary shall be increased

                                       33
<PAGE>


by a percentage no less than the annual increase of the cost of living index for
the Fort Wayne, Indiana metropolitan area. Any increase in base salary shall not
serve to limit or reduce  any  other  obligation  to the  Executive  under  this
Agreement.  The term "Base Salary" as utilized in this Agreement  shall refer to
base salary as so increased.

     (b)  Discretionary  Bonus. In addition to Executive's  Base Salary provided
for under Paragraph 4(a) above, the Executive shall  participate in an equitable
manner with all other senior management  executives of the Bank in discretionary
bonuses  that  the  Board  may  award  from  time to time to the  Bank's  senior
management  executives.  No other  compensation  provided for in this  Agreement
shall be deemed a substitute  for the  Executive's  right to participate in such
discretionary bonuses.

     (c) Stock Awards.  The Executive  shall be eligible for  consideration  for
stock  option  grants by Peoples  pursuant to any stock  option plan  adopted by
Peoples, for so long as Executive shall be employed by the Bank.

     (e) Other  benefits.  The  Executive  will  eligible to  participate  in or
receive  benefits  under  any  employee  benefit  plans  of the Bank  which  are
available to senior executives and key management employees of the Bank, subject
to  and  on  a  basis   consistent  with  the  terms,   conditions  and  overall
administration of such plans and  arrangements.  Nothing paid to Executive under
any such plan or arrangement will be deemed to be in lieu of other  compensation
to which the Executive is entitled under this Agreement.

4.       Vacation and Sick Leave.

     During the Term hereof,  Executive  shall be entitled to paid  vacation and
paid sick leave,  the amount and term of which shall be determined in accordance
with the  policies of the Bank as in effect  from time to time,  but in no event
shall the vacation period be less than four weeks per year.

5.       Group Medical, Life Insurance and Other Benefits.

     The Executive shall participate in any plan that the Bank maintains for the
benefit of its executives if the plan relates to (i) pension,  profit sharing or
other  retirement  benefits,  (ii)  medical  insurance or the  reimbursement  of
medical or dependent care  expenses,  or (iii) other group  benefits,  including
disability and life insurance plans.

6.       Business Expenses.

     Executive  shall be entitled to  reimbursement  by the Bank for any and all
ordinary and necessary business expenses reasonably incurred by Executive in the
performance of Executive's  duties and in acting for the Bank during the Term of
this  Agreement,  provided that Executive  furnishes to the Bank, for review and
approval by the Chairman of the Board,  adequate records and other documentation
as may be required for the  substantiation  of such  expenditures  as a business
expense of the Bank.

7.       Termination for Cause.

     (a) The Board may for cause  terminate  Executive's  employment at any time
during the Term of this Agreement.  In such event, all rights of Executive under
this  Agreement  shall  terminate and  Executive  shall have no right to receive
compensation  or other  benefits for any period after the effective date of such

                                       34
<PAGE>


termination for cause. Termination for cause shall be defined as the Executive's
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law,  rule or  regulation  (other  than  traffic  violations  or  similar
offenses) or final  cease-and-desist  order, or material breach of any provision
of this Agreement.

     (b)  Notwithstanding  the  foregoing,  no  termination  for cause  shall be
effective  with respect to the Executive  unless and until there shall have been
delivered to him a copy of a resolution,  finding that in the good faith opinion
of the Board of Directors of the Bank (the  "Board"),  the  Executive's  actions
and/or  failure  to act  justifies  termination  for  cause and  specifying  the
particulars  thereof in  detail.  Reasonable  notice  shall be  provided  to the
Executive and he shall  receive an  opportunity,  together  with counsel,  to be
heard  before  the  Board.  The  Executive  shall not have the right to  receive
compensation  or other  benefits for any period after a  termination  for cause,
except that  benefits  previously  vested or accrued shall be unaffected by such
termination.

8.       Events of Termination; Payments to Executive.

     The  provisions of this  Paragraph 9 shall apply upon the  occurrence of an
Event of Termination (as herein defined).

     (a) As used in this  Agreement,  an "Event of  Termination"  shall mean and
include any one or more of the following: (i) the termination by the Bank of the
Executive's employment hereunder for any reason other than for cause (as defined
in Paragraph 7 hereinabove) during the Term; or (ii) the Executive's resignation
or constructive termination from the Bank's employ, upon any (A) material change
in the Executive's  function,  duties, or  responsibilities,  which change would
cause  the  Executive's  position  to  become  one  of  lesser   responsibility,
importance,  or scope from the  position  and  attributes  thereof (and any such
material  change shall be deemed a  continuing  breach of this  Agreement),  (B)
Relocation  of  the  principal  place  at  which  Executive's  duties  are to be
performed to a location  outside a thirty (30) mile radius  around the principal
location at which  Executive's  duties are  performed  immediately  prior to the
termination  of  employment,   (C)  material   reduction  in  the  benefits  and
perquisites  to the Executive from those being provided as of the Effective Date
of this Agreement except for any changes that are generally applicable to senior
executives  and key  management  employees  or  expressly  contemplated  by this
Agreement  (any  such  reduction  to be  deemed  a  continuing  breach  of  this
Agreement),  or (D) or any other material  breach of this Agreement by the Bank.
Upon the  occurrence  of any event  described  in clauses  (A),  (B), (C) or (D)
above,  the Executive  shall have the right to elect to terminate his employment
under this  Agreement  by  resignation  upon not less than sixty (60) days prior
written notice given within a reasonable period of time not to exceed, except in
case of a continuing  breach,  four  calendar  months after the later of the (i)
occurrence of the event giving rise to said right to elect  termination  or (ii)
actual  knowledge  of such event by the  Executive.  In the case of a continuing
breach,  the  Executive  may give such sixty (60) days prior notice at any time.
Either of  Executive's  sixty (60) days prior notice of his Date of  Termination
shall  be  referred  to as  "Notice  of  Termination."  The  date  specified  in
Executive's  Notice of  Termination  to the Bank of his last date of  employment
shall be the "Date of Termination."

     (b)  Upon  the  occurrence  of an  Event  of  Termination,  on the  Date of
Termination,  as defined in this  Paragraph 9, the Bank shall pay the Executive,
or, in the event of his subsequent death, his beneficiary or beneficiaries as he
may have designated, or his estate, if no beneficiary designation has been made,
or if no  beneficiaries  survive the  Executive,  as severance pay or liquidated
damages,  or both, a sum equal to (i) the amount of Base Salary of the Executive
for each year during the remaining Term of this Agreement,  plus (ii) bonuses in
an amount equal to the last bonus  received,  multiplied  by the number of years
remaining in the Term of this Agreement,  as well as (iii) health and/or medical
benefits as provided under Paragraph 6 and retirement benefits under Paragraph 6
of this Agreement, provided, however, that if the Bank is not in compliance with
its minimum  capital  requirements  or if such  payments  would cause the Bank's
capital to be reduced  below its minimum  capital  requirements,  such  payments
shall be  deferred  until such time as the Bank is in capital  compliance.  Such

                                       35
<PAGE>


health benefit  payments shall be made as incurred,  and such salary,  bonus and
retirement  benefit payments shall be made in a lump sum within ten (10) days of
the Date of Termination  unless the Executive  makes an election within ten (10)
days of the Notice of  Termination  to have such  payments made under the Bank's
current payment  procedures  during the remaining Term of Employment  under this
Agreement.

     (c)  The  payments  provided  under  this  Paragraph  9 upon  an  Event  of
Termination shall be in lieu of any other payments or damages recoverable in any
causes of action by  Executive  related to this  Agreement.  As a  condition  to
receipt  of  payments  hereunder,  the  Executive  shall  execute a Release  and
Settlement  Agreement  pursuant to which the  Executive  shall waive any and all
claims  resulting  from  employment at or  termination  from the Bank other than
payments or benefits which are expressly provided for in this Agreement.

9.       Termination as a Result of a Change of Control.

     (a)  Change of  Control.  For  purposes  of this  Agreement  and  except as
provided in Paragraph 12(c) below relating to supervisory transactions, the term
"Change of Control" shall mean the occurrence of any of the following events:

     (i) Any  "person"  (as such term is used in Section  13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")),  other than a
trustee or other fiduciary holding  securities under an employee benefit plan of
Peoples or a corporation  owned  directly or indirectly by the  shareholders  of
Peoples in  substantially  the same  proportions as their  ownership of stock in
Peoples,  becomes  after the date hereof the  "beneficial  owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of the securities of
Peoples  representing  fifty  percent  (50%) or more of the total  voting  power
represented by Peoples then  outstanding  securities  that vote generally in the
election of directors ("Voting Securities");

     (ii) Any "person"  (as such term is used in Section  13(d) and 14(d) of the
Exchange Act), other than a trustee or other fiduciary holding  securities under
an  employee  benefit  plan  of  Peoples  or a  corporation  owned  directly  or
indirectly by the shareholders of Peoples in substantially  the same proportions
as their  ownership  of stock in  Peoples,  becomes  after the date  hereof  the
"beneficial owner" (as defined in Rule 13 d-3 under the Exchange Act),  directly
or indirectly,  of twenty-five percent (25%) or more of the Voting Securities of
Peoples,  and,  within a period of twelve  (12)  months of such  acquisition  of
beneficial ownership, individuals who at the beginning of such period constitute
the Board of  Directors  of  Peoples,  or any new  director  whose  election  or
nomination  was approved by a vote of at least  two-thirds  of the  directors of
Peoples then still in office who were directors at the beginning of such period,
or whose election or nomination was previously so approved, cease for any reason
to constitute at least sixty percent (60%) of the directors of Peoples;

                                       36
<PAGE>

                                                                    Exhibit 10.5

                  EMPLOYMENT AGREEMENT WITH G. RICHARD GATTON

     The Employment Agreement  ("Agreement") is made and entered into as of this
29th day of February, 2000, (the "Effective Date") by and among Peoples Bancorp,
("Peoples"),  the holding  company of First Savings Bank, A Federal Savings Bank
(the "Bank"),  the Bank and G. Richard Gatton  ("Executive"),  with reference to
the following:

     WHEREAS, Executive is currently employed by the Bank, which became a wholly
owned  subsidiary of Peoples as a result of the merger of Three Rivers Financial
Corporation, the parent of Bank, with and into Peoples, in which Peoples was the
surviving corporation ("Merger");

     WHEREAS,  Peoples and the Bank desire to provide for the  employment of the
Executive  by the Bank upon  closing of the Merger and in  consideration  of the
Executive's  agreement to terminate  his former  employment  agreement  with the
Bank, for the period provided in this Agreement; and

     WHEREAS,  the Executive is willing to commit himself to serving the Bank on
the terms and conditions herein provided.

     NOW,  THEREFORE,  IN  CONSIDERATION OF the recitals set forth above and the
mutual promises, covenants, agreements,  conditions and undertakings hereinafter
set  forth,   the  adequacy  and  receipt  of  which   consideration  is  hereby
acknowledged, the parties hereto agree as follows:

     1.  Supersedure.  This Agreement shall supersede and replace the Employment
Agreement  by and  between  the Bank and  Executive  dated  August 23, 1995 (the
"Prior Agreement"),  but shall not replace or otherwise effect the Bank's Salary
Continuation  Agreement  dated  September  18,  1996 (the  "Salary  Continuation
Plan"),  except  that the  parties  agree that the Merger  shall not be deemed a
"Change of Control" under the Salary Continuation Plan.

     2. Term. This Agreement  shall have a term of six (6) years,  commencing as
of the Effective  Date set forth above (the "Term").  Where used herein,  "Term"
shall refer to the entire period of employment of Executive by the Bank from and
after the  Effective  Date of this  Agreement,  whether for the period  provided
above and as extended or terminated earlier as hereinafter provided.

     3.  Position  and  Duties.  (a) For the first  three (3) years of the Term,
Executive shall be employed on a full-time basis to serve as President and Chief
Executive  Officer of the Bank and perform the duties  customarily  performed by
such officer of a savings  association,  including the general  supervision  and
operation  of the  business  and  affairs  of the  Bank,  and  reporting  to the
applicable regulatory  authorities regarding the activities of the Bank, subject
to the  direction  of and the powers  vested by law in the Board of Directors of
the Bank (the "Board") and the Bank's shareholder,  Peoples.  Except as provided
for  herein,  the  duties and  position  of  Executive  as  President  and Chief
Executive  Officer hereunder may be changed only by the mutual written agreement
of the parties hereto. If Executive Continues his full-time  employment with the
Bank for a period of no less than  thirty (30) months  following  the  Effective
Date, the parties may mutually agree to extend Executive's  full-time status for
an  additional  12-month  period;  i.e.,  for a total  period  of four (4) years

                                       37
<PAGE>


following the Effective  Date. If Executive  continues his full-time  employment
with the Bank for three and one-half (3 1/2) years following the Effective Date,
the parties may  mutually  agree to extend  Executive's  full-time  status for a
further twelve (12) month period;  i.e.,  five (5) years following the Effective
Date. Following the conclusion of his status as a full-time employee, whether or
not  extended  beyond  the first  three (3) years of the Term,  Executive  shall
perform services for the Bank in accordance with Paragraph 3(b), hereinbelow.

     (b) Commencing  with the third (3rd)  anniversary of the Effective Date (or
upon subsequent  termination of Executive's  full-time status,  following one or
more  extensions  under  Paragraph 3 (a), and for three (3) years  thereafter or
until October 3, 2007 ("Reduced  Service  Period"),  Executive  shall devote not
less than twenty (20) hours per week in order to monitor the  activities  of the
Bank and to perform such other  services as are  reasonably  established  by the
Board of Directors in consultation with the Executive.  Executive's  non-working
time  during  each year in the  Reduced  Service  Period  shall be spread out as
evenly  as  possible  during  the  year so as to  ensure  that he  continues  to
appropriately  monitor  the  activities  of the Bank  throughout  the  year.  If
Executive  agrees to continue his full-time  status for four years,  the Reduced
Services  Period  will  remain at three years but will end three years after the
end of the Executive's  full-time  status.  If Executive  agrees to continue his
full-time status for five years, the Reduced Services Period will end on October
3, 2007.

     (c) During the Term hereof,  Executive  shall  perform the services  herein
contemplated to be performed by Executive faithfully, diligently and to the best
of  Executive's  ability in  compliance  with  instructions  and policies of the
Board,  the Bank's Federal  Charter and Bylaws and with all applicable  laws and
regulations.

     4.  Compensation.  (a)  Base  Salary.  For  Executive's  services  rendered
hereunder,  during  his  full-time  employment  as set forth in  Paragraph  3(a)
hereinabove,  the Bank shall pay or cause to be paid a base salary to  Executive
at the rate of One Hundred Four Thousand  Five Hundred  Dollars  ($104,500)  per
annum,  payable  in  conformity  with the  Bank's  normal  payroll  periods  and
procedures.  Subject to the provisions of Paragraph 11(a) hereinbelow,  for each
year during the Reduced Service Period, the Bank shall pay or cause to be paid a
base salary to Executive at the rate of Seventy-Five  Thousand Dollars ($75,000)
per  annum,  paid in  conformity  with the Bank's  normal  payroll  periods  and
procedures.  During the Term, Executive's base salary shall be reviewed at least
once every  twelve (12) months and shall be  increased  (but not reduced) at any
time, and from time to time, as shall be substantially consistent with increases
in base salary  generally  awarded in the  ordinary  course of business to other
executives of the Bank, provided that Executive's Base Salary shall be increased
by a percentage no less than the annual increase of the cost of living index for
the Detroit,  Michigan  metropolitan area. Any increase in base salary shall not
serve to limit or reduce  any  other  obligation  to the  Executive  under  this
Agreement.  The term "Base Salary" as utilized in this Agreement  shall refer to
base salary as so  increased,  or to the  $75,000  (or $60,000 if Section  11(a)
hereof applies) amount applicable during the Reduced Service Period.

     (b)  Discretionary  Bonus. In addition to Executive's  Base Salary provided
for under Paragraph 4(a) above, the Executive shall  participate in an equitable
manner with all other senior management  executives of the Bank in discretionary
bonuses  that  the  Board  may  award  from  time to time to the  Bank's  senior
management  executives.  No other  compensation  provided for in this  Agreement
shall be deemed a substitute  for the  Executive's  right to participate in such
discretionary bonuses.

                                       38
<PAGE>

     (c) Automobile  Allowance.  The Bank shall provide  Executive an automobile
titled in the name of the Bank with a purchase price not to exceed $30,000.  The
automobile currently being used by Executive shall be traded in at the time this
newly acquired automobile is purchased. Executive shall select the automobile to
be purchased. The Bank shall pay the cost of the insurance and the title for the
automobile and shall reimburse Executive for his business use of the automobile.

     (d) Stock Awards.  The Executive  shall be eligible for  consideration  for
stock  option  grants by Peoples  pursuant to any stock  option plan  adopted by
Peoples,  for so long as  Executive  shall be  employed  by the  Bank.  Upon the
termination  of this  Agreement,  for any reason,  Executive  shall  immediately
become vested in any accrued but unvested options to which he may be entitled.

     (e) Other  Benefits.  The Executive  will be eligible to  participate in or
receive  benefits  under  any  employee  benefit  plans  of the Bank  which  are
available to senior executives and key management employees of the Bank, subject
to  and  on  a  basis   consistent  with  the  terms,   conditions  and  overall
administration of such plans and  arrangements.  Nothing paid to Executive under
any such plan or arrangement will be deemed to be in lieu of other  compensation
to which the Executive is entitled under this Agreement.

     5.  Vacation  and Sick Leave.  During the Term hereof,  Executive  shall be
entitled  to paid  vacation  and paid sick  leave,  the amount and term of which
shall be  determined  in  accordance  with the policies of the Bank as in effect
from time to time,  but in no event shall the vacation  period be less than five
(5) weeks per year.

     6. Group  Medical,  Life  Insurance and Other  Benefits.  (a) The Executive
shall  participate  in any plan that the Bank  maintains  for the benefit of its
executives  if  the  plan  relates  to  (i)  pension,  profit-sharing  or  other
retirement  benefits,  (ii) medical insurance or the reimbursement of medical or
dependent care expenses, or (iii) other group benefits, including disability and
life  insurance  plans.  As of  the  Effective  Date,  the  Executive  shall  be
immediately  vested  in the  health  and  medical  benefits  that are  currently
provided by the Bank and such benefits shall continue  until  Executive  reaches
the age of sixty-five  (65) years.  Such  benefits  shall not be affected by any
termination of the Executive's employment under any provision of this Agreement.
In the event the Bank  enhances its health and medical  benefits,  the Executive
shall be  immediately  vested in the enhanced  benefits.  To the extent that the
commencement date of Medicare benefits is extended beyond age 65, the provisions
of the Paragraph 6 shall be extended to the  commencement  date of such Medicare
benefits, whether or not this Agreement is then in effect.

     (b) During the Term of this  Agreement,  the  Executive  shall  continue to
participate in the Three Rivers Financial Corporation's  Retirement Plan and the
Salary Continuation Plan. Unless there is a termination for cause or a voluntary
early termination by Executive of either his full-time  employment or employment
under the Reduced Service Period,  Executive shall receive additional retirement
benefits  from  Peoples  or the Bank  equivalent  to the  amount  of  retirement
benefits he would have received as if he had continued in the  employment of the
Bank  continuously  through  the age of  sixty-five  (65)  years,  which are not
otherwise  paid to him under the  Retirement  Plan and the  Salary  Continuation
Plan.

                                       39
<PAGE>

     7. Business  Expenses.  Executive shall be entitled to reimbursement by the
Bank  for  any and all  ordinary  and  necessary  business  expenses  reasonably
incurred by Executive in the performance of Executive's duties and in acting for
the Bank during the Term of this Agreement, provided that Executive furnishes to
the Bank, for review and approval by the Chairman of the Board, adequate records
and  other  documentation  as may be  required  for the  substantiation  of such
expenditures as a business expense of the Bank.  During the period of employment
hereunder the Executive  shall be entitled to an office or offices of a size and
with furnishings and other appointments,  and to exclusive personal  secretarial
and other  assistance,  at least equal to the most favorable of the foregoing as
provided generally at any time hereafter with respect to other executives of the
Bank.  The  Executive  shall  also be  entitled  to  receive  reimbursement  for
membership  fees  and/or  dues in the  Michigan  county  club,  of  which  he is
currently a member, for each year during the Term.

     8. Termination for Cause. (a) The Board may for cause terminate Executive's
employment  at any time during the Term of this  Agreement.  In such event,  all
rights of Executive  under this Agreement  shall  terminate and Executive  shall
have no right to receive compensation or other benefits for any period after the
effective date of such  termination  for cause.  Termination  for cause shall be
defined as the Executive's dishonesty,  incompetence, willful misconduct, breach
of fiduciary  duty involving  personal  profit,  intentional  failure to perform
stated  duties,  willful  violation of any law, rule or  regulation  (other than
traffic  violations or similar  offenses) or final  cease-and-desist  order,  or
material breach of any provision of this Agreement.

     (b)  Notwithstanding  the  foregoing,  no  termination  for cause  shall be
effective  with respect to the Executive  unless and until there shall have been
delivered to him a copy of a resolution,  find that in the good faith opinion of
the Board of Directors  of the Bank,  (the  "Board"),  the  Executive's  actions
and/or  failure  to act  justifies  termination  for  cause and  specifying  the
particulars  thereof in  detail.  Reasonable  notice  shall be  provided  to the
Executive and he shall  receive an  opportunity,  together  with counsel,  to be
heard  before  the  Board.  The  Executive  shall not have the right to  receive
compensation  or other  benefits for any period after a  termination  for cause,
except that he shall  immediately  become  vested in any  accrued  but  unvested
options  granted to him  pursuant to any stock  option plan  adopted by the Bank
upon his  termination  for  cause and any other  benefits  previously  vested or
accrued shall be unaffected by such termination;  including without  limitation,
vested and/or accrued but unvested right of the Executive under the Three Rivers
Financial  Corporation  Retirement Plan and the Salary Continuation Plan and the
benefits provided under Paragraph 6(a) of this Agreement.

9.       Events of Termination; Payments to Executive.

     The  provisions  of the  Paragraph 9 shall apply upon the  occurrence of an
Event of Termination (as herein defined).

     (a) As used in this  Agreement,  an "Event of  Termination"  shall mean and
include any one of more of the following: (i) the termination by the Bank of the
Executive's employment hereunder for any reason other than for cause (as defined
in Paragraph 8 hereinabove) during the Term; or (ii) the Executive's resignation
or constructive termination from the Bank's employ, upon any (A) material change
in the Executive's function, duties, or responsibilities (other than the changes
contemplated by Paragraph 3(b) hereof), which change would cause the Executive's
position to become one of lesser responsibility,  importance,  or scope from the
position  and  attributes  thereof  described in Paragraph 3 above (and any such
material  change shall be deemed a  continuing  breach of this  Agreement),  (B)
Relocation  of  the  principal  place  at  which  Executive's  duties  are to be
performed to a location  outside a thirty (30) mile radius  around the principal
location at which  Executive's  duties are  performed  immediately  prior to the
termination  of  employment,   (C)  material   reduction  in  the  benefits  and
perquisites  to the Executive from those being provided as of the Effective Date

                                       40
<PAGE>


of this Agreement except for any changes that are generally applicable to senior
executives  and key  management  employees  or  expressly  contemplated  by this
Agreement  (any  such  reduction  to be  deemed  a  continuing  breach  of  this
Agreement),  or (D) or any other material  breach of this Agreement by the Bank.
Upon the  occurrence  of any event  described  in clauses  (A),  (B), (C) or (D)
above,  the Executive  shall have the right to elect to terminate his employment
under this  Agreement  by  resignation  upon not less than sixty (60) days prior
written notice given within a reasonable period of time not to exceed, except in
case of a continuing  breach,  four  calendar  months after the later of the (i)
occurrence of the event giving rise to said right to elect  termination  or (ii)
actual  knowledge  of such event by the  Executive.  In the case of a continuing
breach,  the  Executive  may give such sixty (60) days prior notice at any time.
Either of  Executive's  sixty (60) days prior notice of his Date of  Termination
shall  be  referred  to as  "Notice  of  Termination".  The  date  specified  in
Executive's  Notice of  Termination  to the Bank of his last date of  employment
shall be the "Date of Termination".

     (b)  Upon  the  occurrence  of an  Event  of  Termination,  on the  Date of
Termination,  as defined in this  Paragraph 9, the Bank shall pay the Executive,
or, in the event of his subsequent death, his beneficiary or beneficiaries as he
may have designed,  or his estate, if no beneficiary  designation has been made,
or if no  beneficiaries  survive the  Executive,  as severance pay or liquidated
damages,  or both, a sum equal to (i) the amount of Base Salary of the Executive
for each year during the remaining Term of this Agreement,  plus (ii) bonuses in
an  amount  equal  to the last  bonus  received,  multiplied  by the  number  of
full-service  years  remaining in the Term of this  Agreement,  as well as (iii)
health and/or medical  benefits as provided under Paragraph 6(a) and retirements
benefits  under  Paragraph  6(b) of this  Agreement to the age of 65,  provided,
however,  that  if the  Bank  is not in  compliance  with  its  minimum  capital
requirements  or if such payments  would cause the Bank's  capital to be reduced
below its minimum  capital  requirements,  such payments shall be deferred until
such time as the Bank is in capital  compliance.  Such health  benefit  payments
shall be made as  incurred,  and  such  salary,  bonus  and  retirement  benefit
payments  shall  be made in a lump  sum  within  ten  (10)  days of the  Date of
Termination  unless the Executive  makes an election within ten (10) days of the
Notice of  Termination  to have such  payments  made  under the  Bank's  current
payment procedures during the remaining Term of Employment under this Agreement.
Such  payments  shall not be reduced in the event the  Executive  obtains  other
employment following  termination of employment and the Executive shall be under
no duty or  obligation  to seek or accept  other  employment  after the Event of
Termination  and shall not be required to  mitigate  the amount of any  payments
provided by this Agreement by seeking employment or otherwise.

     (c)  The  payments  provided  under  this  Paragraph  9 upon  an  Event  of
Termination shall be in lieu of any other payments or damages recoverable in any
causes of action by  Executive  related to this  Agreement.  As a  condition  to
receipt  of  payments  hereunder,  the  Executive  shall  execute a Release  and
Settlement  Agreement  pursuant to which the  Executive  shall waive any and all
claims  resulting  from  employment at or  termination  from the Bank other than
payments or benefits which are expressly provided for in this agreement.  Vested
and/or  accrued but  unvested  rights of the  Executive  under the Three  Rivers
Financial Corporation's Retirement Plan and the Salary Continuation Plan and the
benefits  provided under Paragraphs 4(d) and 6(a) hereof,  shall not be affected
by an Event of Termination under this Agreement.

                                       41
<PAGE>

     10. Termination as a Result of a Change of Control.  (a) Change of Control.
For purposes of this  Agreement and except as provided in Paragraph  12(c) below
relating to  supervisory  transactions,  the term "Change of Control" shall mean
the occurrence of any of the following events;

     (i) Any  "person"  (as such term is used in Section  13(d) and 14(d) of the
Securities  Exchange Act of 1934, as amended (the "Exchange Act"),  other than a
trustee or other fiduciary holding  securities under an employee benefit plan of
Peoples or a corporation  owned  directly or indirectly by the  shareholders  of
Peoples in  substantially  the same  proportions as their  ownership of stock in
Peoples,  becomes  after the date hereof the  "beneficial  owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of the securities of
Peoples  representing  fifty  percent  (50%) or more of the total  voting  power
represented by Peoples then  outstanding  securities  that vote generally in the
election of directors ("Voting Securities");

     (ii) Any "person"  (as such term is used in Section  13(d) and 14(d) of the
Exchange Act), other than a trustee or other fiduciary holding  securities under
an  employee  benefit  plan  of  Peoples  or a  corporation  owned  directly  or
indirectly by the shareholders of Peoples in substantially  the same proportions
as their  ownership  of stock in  Peoples,  becomes  after the date  hereof  the
"beneficial  Owner" (as defined in Rule 13d-3 under the Exchange Act),  directly
or indirectly, of twenty-five (25%) or more of the Voting Securities of Peoples,
and,  within a period of twelve (12) months of such  acquisition  of  beneficial
ownership,  individuals who at the beginning of such period constitute the Board
of Directors of Peoples,  or any new director  whose  election or nomination was
approved by a vote of at least two-thirds of the directors of Peoples then still
in office who were directors at the beginning of such period,  or whose election
or nomination was previously so approved,  cease for any reason to constitute at
least sixty percent (60%) of the directors of Peoples;

     (iii) The merger or  consolidation  of Peoples with any other  corporation,
other  than a merger or  consolidation  in which  the  shareholders  of  Peoples
immediately  prior  thereto  continue  to own,  directly or  indirectly,  Voting
Securities  representing at least seventy-five percent (75%) of the total voting
power of the entity surviving such merger or consolidation; or

     (iv) The complete liquidation of Peoples or the Bank or sale or disposition
by Peoples or the Bank (in one transaction or a series of  transactions)  of all
or substantially all of Peoples or the Bank's assets.

     (b)  Severance  Payment.  If  Executive's   employment  with  the  Bank  is
terminated  as a result of a Change of Control of  Peoples,  Executive  shall be
entitled to receive as his sole and exclusive  remedy a severance  payment equal
to 2.99 years of Executive's  Base Salary,  as provided for in Paragraph 3(a) of
this Agreement,  plus the amount of any bonus  compensation  earned by Executive
during the 2.99  years  immediately  preceding  the  Change of  Control,  health
benefits under Paragraph 6(a) and retirement benefits under Paragraph 6(b), both
of which shall be  received  until  Executive  reaches the age of 65, as well as
rights to any vested or accrued but unvested options,  less any amounts required
to be  deducted  by the Bank for  federal  and state  taxes or other  applicable
requirements.  The severance  payment  hereunder shall be paid to Executive upon
the effectiveness of Executive's termination of employment from the Bank and the
termination  of this  Agreement.  In the event a  severance  payment  is paid to
Executive under this Paragraph 10(b), this Agreement shall be terminated and the
Bank shall have no further obligation to Executive under this Agreement,  except
as provided herein.

                                       42
<PAGE>

     (c) Upon the  occurrence  of a Change in  Control,  the  Executive  will be
entitled to any  benefits  granted to him  pursuant  to any stock  option or any
other  benefit  plan of the Bank  whether or not such  benefits  have  vested in
accordance  with Paragraph  4(d).  Vested and/or accrued but unvested  rights of
Executive  under the Bank's  Retirement  Plan, the Retirement  Plan of the Three
Rivers Financial  Corporation,  the Salary Continuation Plan or any supplemental
plan, and Executive's  health and/or medical  benefits  provided under Paragraph
6(a) of this Agreement shall not be affected by a Change in Control.

     (d)  Notwithstanding  the preceding  paragraphs  of this  Paragraph 10, the
payments or benefits to be made or afforded to  Executive  under this  Agreement
when aggregated with any other "golden parachute" amounts (defined under Section
280G  of the  Internal  Revenue  Code  of  1986,  as  amended  (the  "Code")  as
compensation  that  becomes  payable or  accelerated  due to a Change in Control
payable  under any other plans,  agreements  or policies of Peoples or the Bank,
shall be reduced to the highest amount  permissible under Sections 280G and 4999
of the Code before the Executive becomes subject to the excess parachute payment
excise tax under  Section  4999 of the Code and Peoples or the Bank loses all or
part of its  compensation  deduction for such  payments.  The  allocation of the
reduction  required hereby among the benefits to which the Executive is entitled
shall be determined by the Executive.

     (e)  Compliance  with Law and  Regulation.  The  parties  hereto  expressly
acknowledge  and agree that any  payments  made to  Executive  pursuant  to this
Agreement or otherwise are subject to and  conditioned  upon  compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder.

11.      Other Termination.

     (a) Termination By Executive.  At any time after the expiration of eighteen
(18) months  following the Effective Date, the Executive shall have the right to
terminate his full-time  employment  with the Bank and continue  employment with
the Bank in  accordance  with Section 3 (b),  hereinabove.  Notwithstanding  any
provision  to the  contrary  herein,  should  Executive  exercise  his  right to
terminate his full-time  employment  prior to the  conclusion of three (3) years
following the Effective  Date,  Executive's  Base Salary shall be Sixty Thousand
Dollars ($60,000) per annum for the Reduced Services Period for the remainder of
the Term. Notwithstanding any provision to the contrary herein contained, during
the Term of this Agreement, the Executive shall have the right to terminate this
Agreement and his employment  hereunder with no further  obligation to the Bank,
upon thirty (30) days notice to the Bank. Upon termination by the Executive,  he
shall be paid the compensation  provided under Paragraph 4 (a) of this Agreement
only through the effective date of such  termination and will not be entitled to
any  further  accruals  of  retirement  benefits,  except  that any  accrued but
unvested options granted to Executive  pursuant to any stock option plan adopted
by the Bank  will  vest  immediately  upon the  effective  date of  termination,
Executive shall be entitled to receive the health and medical benefits  accruing
to  Executive  as set forth in  Paragraph  6 (a) until he reaches  the age of 65
years and  Executive  shall be entitled to receive all benefits  pursuant to the
terms of any applicable welfare benefit plans as set forth in this Agreement.

     (b) Disability. In the event that Executive shall fail, because of illness,
incapacity or injury, to render the services  contemplated by this Agreement for
three (3) consecutive  calendar months, or for shorter periods  aggregating four
(4) months in twelve (12) month period,  Executive's employment hereunder may be
terminated  by  written  notice  from the Bank to  Executive.  In the event that
Executive's  employment is  terminated  under this  Paragraph 11 (b),  Executive
shall receive the  difference  between any disability  payments  provided by the

                                       43
<PAGE>


Bank's  insurance  plans and his Base  Salary as set  forth in  Paragraph  4 (a)
hereof which he would have received during the remaining Term of this Agreement,
plus the amount of any bonus  compensation  payable to Executive under Section 4
(b) hereof for any number of  full-service  years  remaining in the Term of this
Agreement, prorated as appropriate. Such termination shall not effect any rights
which  Executive  may have  pursuant to any  insurance  or other death  benefit,
retirement or stock award plans or arrangements of the Bank, or any stock option
plans or options  thereunder,  which rights shall continue to be governed by the
provisions of such plans and  arrangements.  No termination for disability shall
effect  Executive's  right to receive  health and/or  medical  benefits until he
reaches the age of 65 years.

     (c) Death. If Executive's employment is terminated by reason of Executive's
death, this Agreement shall terminate without further obligations of the Bank to
Executive (or Executive's heirs or legal  representatives) under this Agreement,
other than for payment of (i) Executive's  Base Salary which he was receiving at
the time of death, prorated through the date of termination;  (ii) the amount of
any bonus  compensation  payable  to  Executive  at the time of his death  under
Section  4 (b)  above,  prorated  through  the date of  termination;  (iii)  any
compensation previously deferred by Executive;  (iv) any accrued vacation and/or
sick leave pay; (v) any vested and/or  accrued but unvested  rights in any stock
options and (vi) any amounts due pursuant to the terms of any applicable welfare
benefit plan. All of the foregoing  amounts shall be paid to Executive's  estate
or  beneficiary,  as  applicable,  in a lump sum in cash within thirty (30) days
after the date of termination or earlier as required by applicable law.

12. Regulatory Provisions.

     (a)  Suspension  and Removal  Orders.  If  Executive  is  suspended  and/or
temporarily  prohibited from  participating in the conduct of the Bank's affairs
by notice  served  under  Section 8 (e) (3) or 8 (g) (1) of the Federal  Deposit
Insurance  Act  (12  U.S.C.  Section  1818  (e) (3) and  (g)  (1)),  the  Bank's
obligations  under this Agreement  shall be suspended as of the date of service,
unless  stayed by  appropriate  proceedings.  If the  charges  in the notice are
dismissed, the Bank may in its discretion:  (i) pay Executive all or part of the
compensation withheld while its obligations under this Agreement were suspended;
and (ii)  reinstate  (in whole or in part)  any of its  obligations  which  were
suspended.   If  Executive  is  removed  and/or   permanently   prohibited  from
participating  in the  conduct of the Bank's  affairs by an order  issued  under
Section 8 (e) (4) or 8 (g) (1) of the Federal  Deposit  Insurance Act (12 U.S.C.
Section  1818  (e) (4) or (g)  (1)),  all  obligations  of the Bank  under  this
Agreement  shall  terminate as of the  effective  date of the order,  but vested
rights of the parties shall not be effected.

     (b)  Termination  by  Default.  If the Bank is in  default  (as  defined in
Section 3 (x) (1) of the Federal Deposit  Insurance Act (12 U.S.C.  Section 1813
(x) (1)), all obligations under this Agreement shall terminate as of the date of
default, but vested rights of the parties shall not be affected.

     (c) Supervisory  Assistance or Merger. All obligations under this Agreement
shall  be  terminated,   except  to  the  extent  that  it  is  determined  that
continuation  of the Agreement is necessary  for the continued  operation of the
Bank: (i) by the Director of the Office of Thrift  Supervision  (the "Director")
or his  or her  designee,  at  the  time  that  the  Federal  Deposit  Insurance
Corporation  or the Office of Thrift  Supervision  enters into an  agreement  to
provide assistance to or on behalf of the Bank under the authority  contained in
Section 13 (c) of the Federal  Deposit  Insurance  Act (12 U.S.C.  Section  1823
(c));  or (ii) by the  Director  or his or her  designee,  at the time  that the
Director  or his or her  designee  approves  a  supervisory  merger  to  resolve
problems  related to the  operation of the Bank or when the Bank is in an unsafe
or  unsound  condition.  All rights of the  parties  that have  already  vested,
however, shall not be effected by such action.

                                       44
<PAGE>

     13. Disclosure or Use of Trade  Secrets/Non-Compete  Agreement.  During the
Term  hereof,  Executive  will have  access to and become  acquainted  with what
Executive  and the Bank  acknowledge  are trade  secrets of the Bank.  Executive
shall not use or disclose any trade secrets or,  directly or  indirectly,  cause
them to be used or  disclosed  in any  manner,  during the Term  hereof or for a
period of one (1) year after the termination of this Agreement, except as may be
required or requested  by the Bank,  by court order or under  applicable  law or
regulation. While Executive is employed by the Bank and for a period of one year
after  termination  of  Executive's  employment  by the Bank for cause or by the
Executive,  Executive  shall not  directly or  indirectly  engage in any bank or
bank-related  business which competes with the business of the Bank as conducted
during  Executive's  employment  by the  Bank  for  any  financial  institution,
including,  but not limited to, banks,  savings  associations  and credit unions
within a 50-mile radius of Three Rivers, Michigan.

     14.  Return of  Documents.  Executive  expressly  agrees that all  manuals,
documents,  files, reports,  studies or other materials used and/or developed by
Executive for the Bank during the Term of this  Agreement or prior thereto while
Executive was employed by the Bank are solely the property of the Bank, and that
Executive has no right,  title or interest  therein.  Upon  termination  of this
Agreement,  Executive  or  Executive's  representative  shall  promptly  deliver
possession of all such materials (including any copies thereof) to the Bank.

     15. Notices. All notices,  demands or other communications  hereunder shall
be in  writing  and shall be deemed to have  been  duly  given if  delivered  in
person,  or sent by United  States mail,  certified or  registered,  with return
receipt requested, if to Executive, addressed to Executive at the last residence
address of  Executive  as shown in the records of the Bank,  and if to the Bank,
addressed to the Chairman of the Board at the Bank's principal office.

     16. Governing Law and Jurisdiction. This Agreement shall be governed by and
interpreted  in accordance  with the laws of the State of Michigan.  Each of the
parties hereto  consents to the  jurisdiction of the Michigan or federal courts,
as the case may be, for the enforcement of this Agreement and matters pertaining
to the transactions and activities contemplated hereby.

     17.  Attorneys'  Fees.  In the event that a dispute  arises with respect to
this  Agreement,  the  prevailing  party in such  dispute  shall be  entitled to
recover all expenses, including, without limitation, reasonable attorneys' fees,
incurred in connection with such dispute.

     18. Benefit of Agreement.  This  Agreement  shall be binding upon and shall
inure to the benefit of the parties hereto and their  respective  successors and
assigns;  provided,  however, that executive may not assign any interest in this
Agreement without the prior written consent of the Bank.

     19. Captions. Captions and paragraph heading used in this Agreement are for
convenience  only and  shall  not be used in  interpreting  or  construing  this
Agreement.

     20. Entire Agreement.  This Agreement  contains the entire agreement of the
parties  with  respect  to the  employment  of  Executive  by the  Bank,  and it
expressly  supersedes  any and all other  agreements,  either  oral or  written,
relating thereto.

                                       45
<PAGE>

     21. Severability.  Should any provision of this Agreement for any reason be
declared  invalid,  void or unenforceable by a court of competent  jurisdiction,
the  validity and binding  effect of any  remaining  portions of this  Agreement
shall  remain in full force and effect as if this  Agreement  had been  executed
with  such  invalid,  void or  unenforceable  provisions  eliminated;  provided,
however,  that the remaining  provisions still reflect the intent of the parties
to this Agreement.

     22.  Amendments.  This Agreement may not be amended or modified except by a
written  agreement  signed by Executive  and the Bank.  This  Agreement  and any
amendment thereof may be executed in counterparts.


                                       46
<PAGE>

                                                                      Exhibit 13
                          Annual Report to Shareholders



                                TABLE OF CONTENTS


FINANCIAL REVIEW

    Five Year Summary of Selected Financial Data                               2

    Management's Discussion and Analysis                                       3

    Statement of Management's Responsibility                                  12

    Independent Accountants' Report                                           13

    Consolidated Balance Sheets                                               14

    Consolidated Statements of Income                                         15

    Consolidated Statements of Stockholder's Equity                           16

    Consolidated Statements of Cash Flows                                     17

    Notes to Consolidated Financial Statements                                18




                                       1
<PAGE>

               Selected Consolidated Financial Data of the Company


<TABLE>
                                                           September 30
                                ---------------------------------------------------------------
                                     2004        2003         2002         2001        2000
                                ------------ ------------ ------------ ------------ ------------
<S>                             <C>          <C>          <C>          <C>           <C>
Financial Condition Data:
Total assets                    $491,445,300 $502,920,006 $506,460,255 $479,412,813 $459,908,211
Loans receivable, net            360,454,908  356,953,361  385,019,764  403,627,702  390,435,094
Investments and other
   interest-earning assets       109,254,698  122,104,691   97,439,040   53,306,663   44,651,407
Deposits                         370,824,854  380,115,884  379,936,471  368,479,589  352,855,715
Borrowed funds                    53,421,460   56,749,653   62,292,774   49,476,688   47,182,393
Stockholders' equity              64,991,560   63,924,854   60,846,197   58,053,551   57,299,548

                                                    For Year Ended September 30
                                ---------------------------------------------------------------
                                     2004        2003         2002         2001         2000
                                ------------ ------------ ------------ ------------ ------------
Operating Data:
Interest income                 $ 26,866,634 $ 29,748,296 $ 33,365,200 $ 35,560,673 $ 30,425,367
Interest expense                  10,335,942   12,147,419   15,704,094   19,761,387   16,327,846
                                ------------ ------------ ------------ ------------ ------------
Net interest income               16,530,692   17,600,877   17,661,106   15,799,286   14,097,521
Provision
  for losses on loans                40,374       537,181      347,862      353,936      159,869
                                ------------ ------------ ------------ ------------ ------------
Net interest income
   after provision
   for losses on loans            16,490,318   17,063,696   17,313,244   15,445,350   13,937,652
Other income                       1,646,944    2,713,522    2,205,742    1,804,949    1,280,830
Other expenses                    11,411,108   11,032,427   10,656,380    9,689,079    7,770,839
                                ------------ ------------ ----------- ------------ -------------
Income before income taxes         6,726,154    8,744,791    8,862,606    7,561,220    7,447,643
Income tax expense                 1,991,957    2,995,486    3,457,625    2,873,175    2,899,689
                                ------------ ------------ ----------- ------------ -------------
Net income                      $  4,734,197 $  5,749,305 $  5,404,981  $ 4,688,045 $  4,547,954
                                ============ ============ ============ ============ ============
Basic earnings per share               $1.40        $1.67        $1.56        $1.33        $1.33
                                ============ ============ ============ ============ ============
 Diluted earnings per share            $1.39        $1.66        $1.56        $1.32        $1.32
                                ============ ============ ============ ============ ============
Dividends per common share             $0.69        $0.65        $0.61        $0.57        $0.53
                                ============ ============ ============ ============ ============
Other Data:
Average yield
   on interest-earning assets          5.68%        6.21%        7.25%        8.04%        8.20%
Average cost
   of interest-bearing liabilities     2.39         2.76         3.69         4.82         5.06
                                ------------ ------------ ------------ ------------ ------------
Interest rate spread                   3.29%        3.45%        3.56%        3.22%        3.14%
                                ============ ============ ============ ============ ============

Number of full service banking offices   15           15           15           14           14
Return on assets (net income divided by
   average total assets)               0.95%        1.14%        1.11%        0.99%        1.20%
Return on equity (net income divided
   by average total equity)            7.41%        9.19%        9.14%        8.17%        8.66%
Dividend payout ratio
   (dividends per common share divided by
   net income per common share)       49.29%       38.92%       39.10%       42.86%       39.85%
Equity to assets ratio (average total equity
   divided by average total assets)   12.87%       12.39%       12.15%       12.17%       13.53%


</TABLE>

                                       2
<PAGE>

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


Forward Looking Statements

     This Annual Report  contains  statements  that  constitute  forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These  statements  appear in a number of places in this report and include
statements regarding the intent,  belief,  outlook,  estimate or expectations of
Peoples Bancorp (the  "Company"),  its directors or its officers  primarily with
respect to future events and the future  financial  performance  of the Company.
Readers of this report are cautioned  that any such forward  looking  statements
are not  guarantees  of  future  events or  performance  and  involve  risks and
uncertainties,  and that actual results may differ  materially from those in the
forward  looking  statements as a result of various  factors.  The  accompanying
information  contained in this report  identifies  important  factors that could
cause such differences. These factors include changes in interest rates, loss of
deposits and loan demand to other financial institutions, substantial changes in
financial  markets,  changes in real estate  values and the real estate  market,
regulatory changes, unanticipated conversion expenses, increases in compensation
and employee expenses, or unanticipated results in pending legal proceedings.

Overview

     Peoples  Bancorp had net income of $4,734,197  or $1.40 basic  earnings per
share for the year ended September 30, 2004.  Several factors combined to reduce
earnings  from the prior  year's  record  level of $1.67 per share.  As interest
rates began to rise this year, fewer borrowers were refinancing  mortgage loans.
Since  many of these  loans had  already  been  refinanced  in the  prior  year,
interest income was reflected at the lower rates. As deposit products reprice at
higher rates,  the net interest  margin  begins to be  compressed.  Also,  fewer
refinancings  lead to fewer loan sales,  reducing the gains on these sales,  and
further reducing income.  Management is aware of these pressures on income,  and
expects them to continue in the coming year. As many consumers now have very low
interest mortgage loans, prepayments will probably slow down, and demand for new
loans will stay slow.  This  slower loan  demand may  depress  loan  sales,  and
further reduce gains recognized on loan sales.

     To offset these negative  pressures on earnings,  the Company will continue
to closely monitor costs. The Check Clearing for the 21st Century Act (Check 21)
offers  potential cost savings in the processing of check products by presenting
electronic  images rather than actual paper checks.  This eliminates the need to
transport  paper items from place to place,  and increases the efficiency of the
process. The Company has made a significant investment in equipment to take full
advantage of Check 21.

     Several branch  facilities have been updated during the past year to better
serve  customers.  An ATM machine was added at the Peoples  Federal  Avilla,  IN
office  for  a  total  of  eight  machines  in  the  Peoples  network.  Internet
banking/bill  pay was also implemented this year to give customers 24/7 accesses
to accounts and information.  Data Warehouse software has been added in order to
better  identify  customer  needs to allow  management  to more closely  monitor
customer's accounts.  Management believes the combination of new technology with
excellent  customer  service will position the Company for continued  success in
the future.

Critical Accounting Policies

     The notes to the consolidated financial statements contain a summary of the
Company's significant accounting policies presented on pages 18-39 of the annual
report for fiscal year 2004.  Certain of these  policies  are  important  to the
portrayal of the Company's financial condition and results of operations,  since
they require management to make difficult, complex or subjective judgments, some
of which may relate to matters that are  significant  and inherently  uncertain.
Management  believes that it's critical  accounting policies include determining
the allowance for loan losses ("ALL") and accounting for goodwill.

Allowance For Loan Losses

     The ALL is a  significant  estimate  that  can and  does  change  based  on
management's  assumptions about specific  borrowers and applicable  economic and
environmental conditions,  among other factors.  Management reviews the adequacy
of the ALL on a monthly basis. This review is based on specific identified risks
or  anticipated  losses in individual  loans,  a percentage  factor based on the
classification  of certain loans, and managements'  analysis of overall economic
conditions  such as employment,  bankruptcy  trends,  property value changes and
changes in delinquency levels.

     Credits are evaluated  individually  based on degree of delinquency  and/or
identified  risk ratings of special mention or worse.  Credits with  delinquency
levels of less than 60 days and risk ratings of  satisfactory/monitor or better,
are reviewed in the aggregate.  Percentage factors applied to individual credits
are based on risk rating,  the type of credit and estimated  potential losses in
the event liquidation  becomes  necessary.  Percentage  factors applied to loans
reviewed in the  aggregate  are based solely on the type of credit.  Anticipated
losses on loans transferred to real estate owned are recognized immediately upon
recording the asset.

     The ALL also  includes a component  based on  management's  assumptions  of
changes in risk in  non-quantifiable  areas such as market conditions,  property
values, employment conditions and perceived changes in overall portfolio quality
due to changes in  concentration,  underwriting  changes and both  national  and
regional trends.

     External  factors such as increases in unemployment,  regional  softness in
property  values and  increasing  national  numbers in  bankruptcy  and internal
factors  such as the  continuing  increase  in the  commercial  loan  portfolio,
increasing unsecured delinquency and charge offs may result in larger losses in


                                       3
<PAGE>


                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


     current economic conditions. Charge-offs have remained stable over the last
five  years at  $100-$200  thousand,  with the  exception  of 2003  when a large
charge-off  was taken on a  commercial  loan  caused by fraud on the part of the
borrower.  Management  feels they have done a good job of  identifying  specific
risks  in  the  portfolio,  however,  as in the  case  of  the  commercial  loan
charge-off,  fraud on the part of borrowers can not always be anticipated by the
Banks.  Changes in loan  concentration,  delinquency and portfolio are addressed
through the variation in  percentages  used in  calculating  the ALL for various
types of credit as well as  individual  review of "high risk"  credits and large
loans.

Accounting for Goodwill

     Goodwill  is no longer  amortized  by the  Company  but  instead  is tested
annually for impairment.  The impairment testing involves estimating the implied
fair value of the goodwill and comparing to the carrying amount.  If the implied
fair value is less than the carrying value, goodwill impairment is indicated and
goodwill is written down to the implied fair value.

General

     The Company is an Indiana  corporation  organized in October 1990 to become
the thrift  holding  company  for  Peoples  Federal  Savings  Bank  ("Peoples").
Effective  February 29, 2000 the Company  purchased Three Rivers Financial Corp.
and its wholly owned  subsidiary,  First  Savings Bank  ("First  Savings").  The
Company is the sole  stockholder  of Peoples  and First  Savings  ("collectively
Banks").  Peoples  conducts  business  from its main office in Auburn and in its
eight  full  service  offices  located  in  Avilla,   Columbia  City,   Garrett,
Kendallville,  LaGrange,  Topeka,  and Waterloo  Indiana.  Peoples offers a full
range of retail deposit services and lending  services to northeastern  Indiana.
First Savings conducts  business from its main office in Three Rivers,  Michigan
and its five full  service  offices  in Three  Rivers,  Schoolcraft  and  Union,
Michigan  and Howe and  Middlebury,  Indiana.  The  Company's  primary  business
activity is being the holding company for Peoples and First Savings.

     The  Company's  earnings are primarily  dependent  upon the earnings of the
Banks. Historically,  the principal business of savings banks, including Peoples
and First Savings,  has consisted of attracting deposits from the general public
and making loans secured by residential real estate. The Banks' net earnings are
contingent  on the  difference  or spread  between the interest  earned on their
loans  and  investments  and the  interest  paid on its  consumer  deposits  and
borrowings.  Prevailing economic conditions,  government policies,  regulations,
interest rates, and local competition also significantly affect the Banks.

     Interest  income is a  function  of the  balance  of loans and  investments
outstanding  during a given  period  and the  yield  earned  on such  loans  and
investments.  Interest  expense is a function  of the  amounts of  deposits  and
borrowings  outstanding  during  the  same  period  and the  rates  paid on such
deposits and  borrowings.  The Banks'  earnings  are also  affected by gains and
losses on sales of loans and  investments,  provisions for loan losses,  service
charges, income from subsidiary activities, operating expenses and income taxes.

     On a yearly basis,  the Company updates its long-term  strategic plan. This
plan  includes,  among other things,  the Company'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 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 are emphasized.

     The   following   table   sets   forth   the   weighted-average   yield  on
interest-earning  assets  and  the  weighted-average  rate  on  interest-bearing
liabilities for the years ending September 30, 2004, 2003, and 2002.

                                       September 30
                                   ----------------------
                                   2004     2003   2002
                                   ------  ------- ------
Weighted average interest rate on:
    Loans                          6.44%   7.09%   7.88%
    Securities                     3.31    3.69    4.57
    Other interest-earning assets  2.49    2.03    3.04
    Combined                       5.68    6.21    7.25
Weighted average cost of:
    NOW and savings deposits       0.73    0.86    1.59
    Certificates of deposit        2.91    3.42    4.68
    Borrowings                     5.41    5.36    5.71
    Combined                       2.39    2.76    3.69
Interest rate spread               3.29    3.45    3.56
Net yield on weighted average
     interest-earning assets       3.49    3.67    3.83



                                       4
<PAGE>




                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


     The   following   table   sets   forth   the   weighted-average   yield  on
interest-earning  assets  and  the  weighted-average  rate  of  interest-bearing
liabilities at September 30, 2004, 2003 and 2002.


                                            At September 30
                                      ------------------------------
                                        2004       2003      2002
                                      ---------  ---------  --------
Weighted average interest rate on:
   Loans                               6.38%      6.69%      7.46%
   Securities                           3.36       3.13      4.14
   Other interest-earning assets        3.95       1.78      3.72
   Combined                             5.70       5.69      6.76
Weighted average cost of:
   NOW and savings deposits             0.76       0.76      1.87
   Certificates of deposit              2.96       2.99      5.49
   Borrowings                           5.43       5.52      4.65
   Combined                             2.41       2.48      4.08
Interest rate spread                    3.29       3.21      2.68


Asset and Liability Management

     The Banks,  like other savings banks,  are subject to interest rate risk to
the degree that their  interest-bearing  liabilities,  primarily  deposits  with
short and  medium-term  maturities,  mature or  reprice  more  rapidly  than its
interest-earning assets. Although having liabilities that mature or reprice more
frequently  on average  than assets  will be  beneficial  in times of  declining
interest  rates,  such an  asset/liability  structure  will  result in lower net
income during periods of rising interest  rates,  unless offset by other factors
such as noninterest income.

     Historically, all of the Banks' real estate loans were made at fixed rates.
More  recently,  the Banks have adopted an asset and liability  management  plan
that calls for the  origination  of  residential  mortgage loans and other loans
with adjustable  interest rates,  the origination of 15-year or less residential
mortgage loans with fixed rates,  and the maintenance of investments  with short
to medium terms.

     The OTS issued a regulation,  which uses a net market value  methodology to
measure the interest rate risk exposure of thrift  institutions.  Under this OTS
regulation,  an institution's  "normal" level of interest rate risk in the event
of an assumed change in interest rates is a decrease in the institution's NPV in
an  amount  not  exceeding  2% of  the  present  value  of  its  assets.  Thrift
institutions  with over  $300  million  in assets or less than a 12%  risk-based
capital  ratio are required to file OTS Schedule  CMR. Data from Schedule CMR is
used by the OTS to calculate  changes in NPV (and the related  "normal" level of
interest rate risk) based upon certain interest rate changes  (discussed below).
Institutions that do not meet either of the filing requirements are not required
to file OTS  Schedule  CMR,  but may do so  voluntarily.  Under the  regulation,
institutions  that must file are required to take a deduction (the interest rate
risk capital  component)  from their total capital  available to calculate their
risk-based  capital  requirement if their interest rate exposure is greater than
"normal". The amount of that deduction is one-half of the difference between (a)
the institution's  actual calculated exposure to a 200 basis point interest rate
increase or  decrease  (whichever  results in the greater pro forma  decrease in
NPV) and (b) its "normal"  level of exposure which is 2% of the present value of
its assets.

     Presented  below,  as of  September  30,  2004  and  2003,  is an  analysis
performed  by the OTS of Peoples'  interest  rate risk as measured by changes in
NPV for instantaneous  and sustained  parallel shifts in the yield curve, in 100
basis  point  increments,  up 200 basis  points  and down 100 basis  points.  At
September  30, 2004 and 2003,  2% of the present  value of Peoples'  assets were
approximately $7.8 million and $8.0 million. Because the interest rate risk of a
200 basis point  increase in market  rates  (which was greater than the interest
rate risk of a 100 basis point decrease) was $10.3 million at September 30, 2004
and $5.5 million at September 30, 2003, Peoples Federal would have been required
to make a deduction from its total capital available to calculate its risk based
capital  requirement at September 30, 2004 and 2003 if the OTS's  regulation had
been enacted.


                          Peoples Federal Savings Bank
                   Interest Rate Risk As of September 30, 2004
                             (dollars in thousands)
   Changes              Market Value
  in Rates   $ Amount    $ Change     % Change    NPV Ratio    Change
---------------------------------------------------------------------------
+300 bp       37,608     (17,540)        -32%      10.40%        (381)
+200 bp       44,829     (10,319)        -19%      12.06%        (215)
+100 bp       50,731      (4,417)         -8%      13.32%         (88)
   0 bp       55,148           -            -      14.20%           -
-100 bp       55,199          51           0%      14.10%         (11)


                          Peoples Federal Savings Bank
                   Interest Rate Risk As of September 30, 2003
                             (dollars in thousands)
   Changes               Market Value
 in Rates     $ Amount    $ Change     % Change    NPV Ratio    Change
---------------------------------------------------------------------------
+300 bp       42,468     (11,450)        -21%       0.11%         (224)
+200 bp       48,414      (5,503)        -10%      12.57%         (97)
+100 bp       52,878      (1,039)         -2%      13.45%         (10)
   0 bp       53,918           -            -      13.55%           -
-100 bp       54,222         305           1%      13.48%          -7




                                       5
<PAGE>

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

     The  following,  as of September  30, 2004 and 2003,  is the same  analysis
performed by the OTS of First Savings' interest rate risk. At September 30, 2004
and 2003, 2% of the present value of First  Savings'  assets were  approximately
$2.4  million  and $2.5  million.  The  interest  rate risk of a 200 basis point
increase in market rates (which was greater than the interest rate risk of a 200
basis point decrease) was $.9 million at September 30, 2004, and $.02 million at
September  30, 2003.  At September 30, 2004 and 2003, 2% of the present value of
First Savings  assets  exceeded the 200 basis point  decrease of $.9 million and
$.6 million, therefore no reduction of capital would be required.

                               First Savings Bank
                   Interest Rate Risk As of September 30, 2004
                             (dollars in thousands)
   Changes                Market Value
  in Rates     $ Amount    $ Change     % Change    NPV Ratio    Change
---------------------------------------------------------------------------
+300 bp       15,153      (2,015)        -12%      13.32%        (106)
+200 bp       16,242        (927)         -5%      14.01%         (37)
+100 bp       16,908        (260)         -2%      14.35%          (2)
   0 bp       17,168           -           -       14.38%           -
-100 bp       16,850        (319)         -2%      13.97%         (40)


   First Savings Bank
   Interest Rate Risk As of September 30, 2003
 (dollars in thousands)
   Changes                 Market Value
  in Rates     $ Amount    $ Change     % Change    NPV Ratio    Change
---------------------------------------------------------------------------
+300 bp       14,284        (643)         -4%      12.02%          (3)
+200 bp       14,904         (22)          0%      12.34%          29
+100 bp       15,101         175           1%      12.33%          28
   0 bp       14,927           -            -      12.05%           -
-100 bp       14,404        (523)         -4%      11.51%         (54)


     In  evaluating  the  Banks'   exposure  to  interest  rate  risk,   certain
shortcomings,  inherent in the method of  analysis  presented  in the  foregoing
table must be considered.  For example,  although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while  interest rates on other types may lag behind changes in
market rates.  Further, in the event of a change in interest rates,  prepayments
and early withdrawal  levels could deviate  significantly  from those assumed in
calculating the table.  Finally,  the ability of many borrowers to service their
debt may decrease in the event of an interest rate  increase.  As a result,  the
actual effect of changing  interest  rates may differ from that presented in the
foregoing tables.

 Loans, Non-performing Assets and Summary of Loan Loss Experience

     The  following  table  presents the  composition  of the loan  portfolio at
September 30, 2004 and September 30, 2003 (in thousands):

                                   September 30, 2004         September 30, 2003
                              --------------------------------------------------
TYPE OF LOAN                   AMOUNT  ercent of Total   AMOUNT Percent of Total
                              -------- --------------- -------- ----------------
Residential:                         (Dollars in thousands)
     Single family units      $288,452      78.8%      $301,265      82.7%
     2-4 family units            1,550       0.4%         1,797       0.5%
     Over 4 family units         2,401       0.7%         2,593       0.7%
Home Equity Lines of Credit     23,227       6.3%        19,922       5.5%
Commercial real estate          22,447       6.1%        14,750       4.1%
Land acquisition and
     development                 1,683       0.5%         1,480       0.4%
Consumer and other loans        25,558       7.0%        21,826       6.0%
Loans on deposits                  675       0.2%           521       0.1%
                              -------- --------------- -------- ----------------
                               365,993     100.0%       364,154     100.0%
                              -------- --------------- -------- ----------------
Less:
Undisbursed portion
     of loans                    2,440                    3,467
Deferred loan fees and
     discounts                   1,434                    1,623
                              --------                 --------
                                 3,874                    5,090
                              --------                 --------
Total loans receivable         362,119                  359,064
Allowance for losses
     on loans                    1,958                    2,111
                              --------                 --------
Net loans                     $360,161                 $356,953
                              ========                 ========




                                       6
<PAGE>


                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


     Non-performing  assets at  September  30,  2004 and 2003 are as follows (in
thousands):

                                        September 30, 2004    September 30, 2003
Non-accruing loans                            $   493               $ 1,127
Loans contractually past due 90 days
     or more other than nonaccruing                26                    90
Real estate owned (REO)                           940                   854
Restructured loans                                922                   640
                                          ------------          ------------
                                              $ 2,381               $ 2,711
                                          ============          ============


     It is the  Company's  policy to carry REO at net  realizable  value.  After
repossession, appraised value is reduced for estimated repair and selling costs,
and the net  amount  is the  carrying  value of the  property.  Any  changes  in
estimated  realizable  value  after the initial  repossession,  are charged to a
specific loss reserve  account for REO. The decrease in non-accrual  loans since
September  30,  2003 is  primarily  from the 1 to 4 family  portion  of the loan
portfolio,   and  management   believes  the  decrease  has  been  appropriately
considered  in  determining  the  adequacy of the  allowance  for loan losses at
September 30, 2004. There have been no significant  changes in potential problem
loans since  September 30, 2003. Net  charge-offs  for the years ended September
30, 2004 and 2003 were $192,751 and $543,635, respectively. Net charge-offs were
above average last year due a large loss on one commercial loan.

     The  allowances  for loan and real estate  owned losses  represent  amounts
available to absorb losses inherent in the 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  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, or in
the case of REO, at the time of repossession  or when  additional  impairment is
identified.  Overall, the general composition of the loan portfolio has remained
similar to the prior year with no significant  shift of risk between  components
of the loan  portfolio  that would impact the  calculation  of the allowance for
loan losses. Net charge-offs for the last five years have remained  consistently
at $100-$200  thousand,  with the exception of 2003. The  charge-off  figure for
2003 was higher than normal due to a large commercial loan that was charged off.
This charge-off had not been identified during the normal loan review process as
a potential loss due to fraud on the part of the borrower.  Management  believes
that the  allowances  are adequate to absorb  known and  inherent  losses in the
portfolios.  No assurance can be given,  however, that economic conditions which
may adversely affect the Company's markets or other  circumstances,  such as the
aforementioned fraud, will not result in future losses in the portfolios.

    Interest Income

     Net interest  income  decreases  during periods when the spread is narrowed
between the Company's  weighted-average  rate at which new loans are  originated
and its weighted-average cost of liabilities. In addition, the Company's ability
to  originate  and sell  mortgage  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 following  table sets forth the  weighted-average  yields earned on the
Company's assets and the weighted-average rate paid on deposits and borrowings.



                                       7
<PAGE>

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
<TABLE>

                                                                Years ended September 30
                                                                 (Dollars in Thousands)
                                 -----------------------------------------------------------------------------------------
                                               2004                          2003                          2002
                                 ---------------------------- -----------------------------  -----------------------------
                                   Average   Interest            Average   Interest             Average   Interest
                                 Outstanding  Earned/ Yield/  Outstanding   Earned/  Yield/  Outstanding   Earned/  Yield/
                                   Balance     Paid    Rate     Balance      Paid     Rate     Balance      Paid     Rate
--------------                   ----------- -------- ------- ----------- --------- -------  -----------  --------- ------
<S>                               <C>         <C>       <C>    <C>          <C>       <C>        <C>       <C>       <C>
Interest-earning assets:
  Loans(1)                        $361,821    $23,313   6.44%  $372,071     $26,376   7.09%      $384,317  $30,268   7.88%
  Investment securities(2)          94,575      3,135   3.31     72,112       2,661   3.69         51,022    2,334   4.57
  Other interest-earning assets     16,829        419   2.49     34,942         711   2.03         25,033      763   3.04
                                 ----------- --------         ----------  ---------          ------------ ---------
  Total interest-earning assets    473,225     26,867   5.68    479,125      29,748   6.21        460,372   33,365   7.25
                                             --------                    ----------                       ---------
Allowance for loan losses           (2,045)                      (2,114)                           (1,855)
Other assets                        27,681                       27,679                            28,327
                                 -----------                  ----------                     -------------
Total Assets                      $498,861                     $504,690                          $486,844
                                 ===========                  ==========                     =============

Interest-bearing liabilities:
   NOW and savings deposits       $167,450     $1,218   0.73   $160,789      $1,377   0.86       $153,733   $2,445   1.59
   Certificates of deposit         209,004      6,075   2.91    218,365       7,479   3.42        222,767   10,435   4.68
   Borrowings                       56,266      3,043   5.41     61,392       3,291   5.36         49,457    2,824   5.71
                                 ----------- --------         ----------  ---------          ------------- --------
Total interest-bearing liabilitie  432,720     10,336   2.39    440,546      12,147   2.76        425,957   15,704   3.69
                                             --------                     ---------                        --------
Other liabilities                    2,217                        1,602                              1,743
Stockholders' equity                63,924                       62,542                             59,144
                                 -----------                  -----------                    --------------
Total Liabilities and
     Stockholders' equity         $498,861                     $504,690                           $486,844
                                 ===========                  ===========                    ==============

Net interest income/spread                    $16,531   3.29                $17,601   3.45                 $17,661   3.56
                                              =======                     =========                        ========
Net yield on interest earning assets                    3.49%                         3.67%                          3.83%

(1) Average balances include nonaccrual balances.
(2) Yield on investment securities is computed based on amortized cost.

</TABLE>

     The Company has  supplemented  its  interest  income  through  purchases of
investment   securities  when  appropriate.   Such  investments  include  U.  S.
Government securities, including those issued and guaranteed by the Federal Home
Loan Mortgage Corporation  ("FHLMC"),  the Federal National Mortgage Association
("FNMA"),  and the Government National Mortgage Association ("GNMA"),  and state
and local  obligations.  This  activity (a)  generates  positive  interest  rate
spreads on large principal  balances with minimal  administrative  expense;  (b)
lowers  the  credit  risk of the  Banks'  loan  portfolios  as a  result  of the
guarantees of full payment of principal and interest by FHLMC,  FNMA,  and GNMA;
(c) enables the Banks to use  securities  as  collateral  for  financings in the
capital markets; and (d) increases the liquidity of the Banks.

     In  addition  to changes in  interest  rates,  changes in volume can have a
significant  effect on net interest  income.  The following  table describes the
extent to which  changes in  interest  rates and  changes in volume of  interest
related  assets and  liabilities  have affected the Banks'  interest  income and
expense  for the periods  indicated.  For the  purposes  of this table,  changes
attributable  to both rate and  volume,  which  cannot be  separated,  have been
allocated  proportionately  to the  change  due to volume  and the change due to
rate.  Tax-exempt  income was calculated using actual rates and not adjusted for
the tax effects.



                                       8
<PAGE>

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


                                           Years ended September 30,
                             ---------------------------------------------------
                                   2004 vs 2003              2003 vs 2002
                             -------------------------- ------------------------
                                  Increase                  Increase
                                 (Decrease)                (Decrease)
                                  Due to     Total        Due to         Total
                             ---------------- Increase  --------------  Increase
                             Volume    Rate  (Decrease) Volume  Rate  (Decrease)
                             ------- -------- --------- ------ -------- --------
Interest income from:
Loans                        (708)  $(2,355)  $(3,063) $(939) $(2,953)  $(3,892)
Investment securities         682      (208)      474    525     (198)      327
Other interest-earning assets(658)      365      (293)    71     (123)      (52)
                             ------  -------- --------- ------ -------- --------
Total interest income        (684)   (2,198)   (2,882)  (343)  (3,274)   (3,617)
                             ------  -------- --------- ------ -------- --------
Interest expense from:
NOW and savings deposits       60      (220)     (160)   118   (1,186)   (1,068)
Certificates of deposit      (313)   (1,091)   (1,404)  (202)  (2,754)   (2,956)
Borrowings                   (280)       32      (248)   626     (159)      467
                            ------  -------- --------- ------ -------- ---------
Total interest expense       (533)   (1,279)   (1,812)   542   (4,099)   (3,557)
                            ------  -------- --------- ------ -------- ---------
Net interest income(expense)$(151)  $  (919)  $(1,070) $(885) $   825   $   (60)
                            ======  ======== ========= ====== ======== =========

Operating Expense

     While  operating  expenses have  increased,  the increases have been due in
large part to the  expansion of the  Company's  operations.  The  increases  are
service related and consist of occupancy and equipment expense for remodeling of
branches,  and  conversion of First  Savings to the same service  bureau used by
Peoples.  Operating expenses, as a percentage of the Company's total assets were
2.32%,  2.19%,  and 2.10% for fiscal years ended  September 30, 2004,  2003, and
2002, respectively.

     The  Company  continuously  seeks to  reduce  operating  expenses.  In this
regard,  the budget  committee of the Board of Directors  monitors the Company's
current operating budget on at least a quarterly basis to ascertain that expense
levels remain within projected ranges and to establish  competitive,  as opposed
to aggressive,  rates for the Company's various deposit accounts.  The Company's
efforts to contain  operating  expense also include  underwriting  policies that
attempt to reduce potential losses and conservative expansion of personnel.

Liquidity and Capital Resources

     The standard  measure of liquidity  for savings  banks is the ratio of cash
and eligible investments to a certain percentage of net withdrawable savings and
borrowings  due  within one year.  Liquid  assets  consist of cash and  eligible
investments,   which  include  certain  United  States   Treasury   obligations,
securities  of  various  federal  agencies,  certificates  of deposit at insured
banks, federal funds, and bankers'  acceptances.  At September 30, 2004, Peoples
had liquid assets of  $23,910,523.  This  represents a ratio of liquid assets to
total assets of 6.45%. First Savings had liquid assets of $25,534,782 or a ratio
of 22.03%.

     The primary  internal  sources of funds for  operations  are  principal and
interest payments on loans and new deposits.  In addition,  if greater liquidity
is  required,  the  Banks  can  borrow  from  the  FHLB.  Under  existing  board
resolutions,  First Savings may borrow an additional $10.5 million,  and Peoples
may borrow an additional  $8.4 million.  If borrowing in excess of these amounts
is ever needed,  Board  resolution  could increase the available  credit amounts
significantly.  First Savings operates under a blanket collateral agreement with
FHLB,  whereby their single family loans act as collateral  for the  borrowings.
Peoples  Federal has pledged  specific  government  agency  securities to secure
their borrowings at FHLB. In the opinion of management, the Banks' liquid assets
are adequate to meet outstanding loan commitments and other obligations.

     During  the year  ended  September  30,  2004  cash  and  cash  equivalents
decreased $24.2 million,  investment  securities increased $9.2 million, and net
loans increased $3.2 million.  Deposits  decreased $9.3 million and Federal Home
Loan Bank advances decreased $4.0 million. Operations provided $5.0 million

     During  the year  ended  September  30,  2003,  cash  and cash  equivalents
decreased $0.4 million,  investment  securities increased $25.6 million, and net
loans  (excluding  loans  held  for  sale)  decreased  $28.1  million.  Deposits
increased $0.2 million and borrowings  from the Federal Home Loan Bank decreased
$5.0 million. Operations provided $7.1 million.

Off-Balance Sheet Arrangements

     The Company does not have any off-balance  sheet  arrangements that have or
are  reasonably  likely to have a  current  or  future  effect on the  Company's
financial  condition,  changes in  financial  condition,  revenues or  expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors.

Contractual Obligations

     In the  ordinary  course of  operations,  the Company  enters into  certain
contractual   obligations.   The  following   table   summarizes  the  Company's
significant fixed and determinable contractual obligations,  by payment date, at
September 30, 2004.


                                       9
<PAGE>


                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


                             Contractual Obligations Due by Period
                                    One        Three
                       Within     Year to     Years to     After
                       One Year  Three Years Five Years Five Years   Total
                       -------- ------------ ---------- ---------- --------
                       (Dollars in thousands)
Borrowings              $5,000    $ 9,400     $11,000     $24,700   $50,100
Service Contract (1)       816      1,632         340          -     2,788
Dividends Payable          604          -           -          -       604
                       -------- ------------ ---------- ---------- --------
                        $6,420    $11,032     $11,340    $24,700   $53,492
                       ======== ============ ========== ========== ========

(1) The service  contract is with Bisys to provide  Peoples Bancorp with service
bureau support for  processing of deposit and loan  accounts.  The contract fees
are based on the number of accounts processed and additional  reporting services
provided  from time to time.  The amount  shown is an  estimate of cost based on
current account support and reporting fee structures. The contract expires March
1, 2008.

Results of Operations,  Fiscal Year Ended  September 30, 2004 Compared to Fiscal
Year Ended September 30, 2003

     The Company's net interest income  decreased  $1,070,185 to $16,530,692 for
the  fiscal  year  ended  September  30,  2004.  Interest  earned  on loans  and
investments and interest paid on deposits both fell during the year. Loan volume
increased  slightly,  while deposit volume  decreased,  however  interest income
decreased  more  rapidly  than  interest  expense due to the spread  compression
discussed  earlier.  Interest on long-term  debt  decreased to $3,001,454 due to
lower volumes of FHLB advances as maturing advances were not renewed.

     Provision  for  loan  losses  decreased   $496,807  to  $40,374  reflecting
adjustments due to  management's  continuing  review of its loan portfolio.  The
provision  for 2003 was  higher  than  normal due to the  commercial  loan fraud
charge-off mentioned in a previous section of this document. Management's review
of its  loan  portfolio  is  based on  historical  information,  concentrations,
delinquency trends,  experience of lending personnel,  review of specific loans,
and general economic conditions. Historic charge-offs have been very stable with
the exception of 2003 due to the aforementioned commercial loan.

     Other income decreased  $1,066,578 to $1,646,944 due primarily to the lower
volume of loan sales generating less income.  The very active refinancing market
of the previous  year slowed  considerably  as predicted.  Since many  consumers
already have very low interest mortgage loans, fewer loans are being refinanced,
and so fewer loans are being  originated  to be resold.  Gains on sales of loans
decreased  $700,453 from the prior year due to this lower volume of sales.  This
trend may continue to have a negative impact on earnings in the future. However,
the merger of the trust  departments  of Peoples  Federal  and First  Federal of
Huntington,  Indiana  has  increased  fiduciary  fees to  partially  offset  the
decrease in loan sales income.  Fiduciary  activities fees increased $108,098 to
$364,661 for the year ended September 30, 2004.  Finally,  an unrealized loss of
$473,246  was  recognized  on a mutual fund held by the Bancorp to reflect  what
management believes to be an other than temporary impairment of its value.

     Total non-interest expense was $11,411,108 for the year ended September 30,
2004.  Salaries  and benefits  increased  $234,376 to  $6,289,496  due to normal
salary increases for employees.  Data processing  expense increased $141,815 due
to the  addition of  internet  banking and data  warehouse  services.  Currently
budgeted expenses do not anticipate  significant increases in these expenses for
next year.

     The  effective  tax rate for the Company for the years ended  September 30,
2004 and 2003 was  29.6% and  34.3%,  respectively.  Effective  tax rates can be
affected by the mix of taxable versus tax-exempt  interest income,  the level of
non-deductible  expenses for the year,  and the timing of the  deductibility  of
certain  items.  Please see note 11 on pages 27 and 28 for a breakdown  of these
differences.

Results of Operations,  Fiscal Year Ended  September 30, 2003 Compared to Fiscal
Year Ended September 30, 2002

     The Company's net interest income decreased  $60,229 to $17,600,877 for the
fiscal year ended  September 30, 2003.  Interest earned on loans and investments
and interest paid on deposits both fell during the year.  Loan volume,  however,
decreased significantly, while deposit volume remained relatively stable causing
interest  income to decrease more that interest  expense.  Interest on long-term
debt increased to $3,224,134 due to higher volumes of FHLB advances.

     Provision  for  loan  losses  increased  $189,319  to  $537,181  reflecting
adjustments  due  to  management's  continuing  review  of its  loan  portfolio.
Management's  review of its loan  portfolio is based on historical  information,
concentrations,  delinquency trends, experience of lending personnel,  review of
specific loans, and general economic conditions.

     Other income  increased  $507,780 to  $2,713,522  due to the high volume of
loan sales  generating  additional  income.  The low interest  rate  environment
encouraged  large  amounts  of  mortgage  loan  refinancing.  As the rates  have
increased   slightly   over  the  last  few   months,   this  trend  has  slowed
substantially.  This may have a  negative  impact  on  earnings  in the  future.
However,  the  merger of the trust  departments  of  Peoples  Federal  and First
Federal of  Huntington,  Indiana  should  increase  fiduciary  fees to partially
offset any decrease in loan sales income. The merger with First Federal, which

                                       10
<PAGE>



                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

still needs final  regulatory  approval,  will  increase  total trust  assets by
approximately  50  percent.  Income,  however,  will  not  increase  in the same
proportion,  due to the revenue sharing  agreement entered into in the merger in
lieu of a cash payment for the assets.

     Total non-interest expense was $11,032,427 for the year ended September 30,
2003.  Salaries  and benefits  increased  $220,790 to  $6,055,120  due to normal
salary  increases  for  employees.  Occupancy and  equipment  expense  increased
$89,433 due to the conversion of First Savings to the Bisys service bureau. Data
processing expense decreased $37,487 due partially to this conversion.

     The  effective  tax rate for the Company for the years ended  September 30,
2003 and 2002 was  34.3% and  39.0%,  respectively.  Effective  tax rates can be
affected by the mix of taxable versus tax-exempt  interest income,  the level of
non-deductible  expenses for the year,  and the timing of the  deductibility  of
certain  items.  Please see note 12 on pages 27 and 28 for a breakdown  of these
differences.

Impact of Inflation and Changing Prices

     The  consolidated  financial  statements and related data presented  herein
have been prepared in accordance with generally accepted  accounting  principles
which require the  measurement of financial  condition and operating  results in
terms of  historical  dollars or fair value without  considering  changes in the
relative purchasing power of money over time due to inflation.

     Virtually all of the assets and liabilities of a financial  institution are
monetary in nature. As a result,  interest rates have a more significant  impact
on a financial  institution's  performance than the effects of general levels of
inflation.  Interest rates do not necessarily move in the same direction or with
the same  magnitude as the prices of goods and  services,  since such prices are
affected by inflation.  In a volatile interest rate  environment,  liquidity and
the maturity  structure of the Banks' assets and liabilities are critical to the
maintenance of acceptable performance levels.

Impact of New Accounting Standards

     In March 2004, the SEC issued Staff Accounting  Bulletin No. 105 (SAB 105),
Application of Accounting  Principles to Loan  Commitments.  Current  accounting
guidance requires the commitment to originate mortgage loans to be held for sale
to be  recognized  on the  balance  sheet at fair value from  inception  through
expiration or funding. SAB 105 requires that the fair-value  measurement include
only differences between the guaranteed interest rate in the loan commitment and
a market interest rate,  excluding any expected future cash flows related to the
customer  relationship or loan servicing.  SAB 105 was effective for commitments
to originate  mortgage  loans to be held for sale,  that were entered into after
March 31, 2004. Its adoption did not have a material impact on the  consolidated
financial position or results of operations of the Company.

     Emerging    Issues   Task   Force   Issue   No.   03-1   The   Meaning   of
Other-Than-Temporary  Impairment  and Its  Application  to  Certain  Investments
("EITF 03-1") was issued in late 2003 with an effective  date of March 31, 2004.
EITF   03-1    provides    guidance    for    determining    the    meaning   of
"other-than-temporarily impaired" and its application to certain debt and equity
securities within the scope of Statement of Financial  Accounting  Standards No.
115 Accounting  for Certain  Investments  in Debt and Equity  Securities  ("SFAS
115") and investments accounted for under the cost method. The guidance requires
that  investments  which have declined in value due to credit concerns or solely
due to changes in  interest  rates must be  recorded  as  other-than-temporarily
impaired unless the Company can assert and demonstrate its intention to hold the
security for a period of time  sufficient  to allow for a recovery of fair value
up to or beyond the cost of the investment which might mean maturity. This issue
also requires  disclosures  assessing the ability and intent to hold investments
in  instances in which an investor  determines  that an  investment  with a fair
value less than cost is not other-than-temporarily impaired.

     On September 30, 2004, the FASB delayed indefinitely the effective date for
the  measurement and  recognition  guidance  contained in Issue 03-1. This delay
does not suspend the requirement to recognize  other-than-temporary  impairments
as  required  by  existing  authoritative  literature  or  to  disclose  certain
information on impaired investments.


                                       11
<PAGE>

                    STATEMENT OF MANAGEMENT'S RESPONSIBILITY


     The management of Peoples  Bancorp is responsible  for the  preparation and
integrity of the  consolidated  financial  statements and all other  information
presented in this annual report. The consolidated financial statements have been
prepared in accordance with generally accepted accounting  principles applied on
a  consistent  basis and  therefore,  include  estimates  based on  managements'
judgment and estimates.

     Management   maintains   a  system  of   internal   controls  to  meet  its
responsibility for reliable financial  information and the protection of assets.
This  system  includes  proper  segregation  of  duties,  the  establishment  of
appropriate  policies  and  procedures,  and  careful  selection,  training  and
supervision of qualified personnel.  In addition,  both independent auditors and
management  periodically review the system of internal controls and report their
findings to the Audit Committee of the Board of Directors.

     The   Committee  is  composed  of   non-management   directors   and  meets
periodically  with the  independent  auditors  and  management  to review  their
respective activities and responsibilities. Each has free and separate access to
the Committee to discuss accounting,  financial reporting,  internal control and
audit matters.

     Management recognizes that the cost of a system of internal controls should
not exceed the benefits  derived and that there are inherent  limitations  to be
considered in the potential  effectiveness  of any system.  However,  management
believes  that the Company's  system of internal  controls  provides  reasonable
assurance  that  financial  information is reliable and that assets and customer
deposits are protected.


/s/Roger J. Wertenberger    /s/Maurice F. Winkler III   /s/Deborah K. Stanger
Chairman of the Board       President and Chief         Chief Financial Officer
                            Executive Officer




                                       12
<PAGE>

             Report of Independent Registered Public Accounting Firm


To the Audit Committee, Stockholders, and
Board of Directors
Peoples Bancorp
Auburn, Indiana


We have audited the accompanying  consolidated balance sheets of Peoples Bancorp
as of September 30, 2004 and 2003,  and the related  consolidated  statements of
income,  stockholders'  equity and cash flows for each of the three years in the
period  ended   September  30,  2004.   These   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Peoples Bancorp as
of September 30, 2004 and 2003,  and the results of its  operations and its cash
flows for each of the three years in the period ended  September  30,  2004,  in
conformity with accounting principles generally accepted in the United States of
America.

As more fully  discussed in Note 1, the Company changed its method of accounting
for goodwill in 2002.



Indianapolis, Indiana
October 29, 2004


                                       13
<PAGE>


                                   Peoples Bancorp
                           Consolidated Balance Sheets
                           September 30, 2004 and 2003


Assets


                                                        2004          2003
                                                    ------------- ------------

Cash and due from banks                             $  6,270,919  $  8,467,367
Interest-bearing deposits                              4,653,901    26,694,454
                                                    ------------  ------------
           Total cash and cash equivalents            10,924,820    35,161,821
Interest-bearing time deposits                         3,071,046     3,270,106
Investment securities
    Available for sale                                95,681,497    85,504,604
    Held to maturity (fair value of $1,144,383
           and $2,218,264)                             1,111,754     2,116,827
                                                    ------------  ------------
           Total investment securities                96,793,251    87,621,431
Loans, net of allowance for loan losses
   of $1,958,569 and $2,110,946                      360,161,158   356,953,361
Mortgage loans held for sale                             293,750            --
Premises and equipment                                 6,369,290     6,322,532
Federal Home Loan Bank of Indianapolis stock, at cost  4,736,500     4,518,700
Core deposit intangible                                  470,975       608,822
Goodwill                                               2,330,198     2,330,198
Other assets                                           6,294,312     6,133,035
                                                    ------------  ------------

           Total assets                             $491,445,300  $502,920,006
                                                    ============  ============

Liabilities

NOW and savings deposits                            $166,792,843  $163,510,816
Certificates of deposit                              204,032,011   216,605,068
                                                    ------------  ------------
           Total deposits                            370,824,854   380,115,884
Short-term borrowings                                  3,321,460     2,649,653
Federal Home Loan Bank advances                       50,100,000    54,100,000
Other liabilities                                      2,207,426     2,129,615
                                                    ------------  ------------
           Total liabilities                         426,453,740   438,995,152
                                                    ------------  ------------

Commitments and Contingencies

Stockholders' Equity

Preferred stock, $1 par value
    Authorized and unissued - 5,000,000 shares
Common stock, $1 par value
 Authorized - 7,000,000 shares
 Issued and outstanding - 3,367,803 and
        3,421,895 shares                               3,367,803     3,421,895
Additional paid-in capital                             6,002,637     7,370,513
Retained earnings                                     55,711,953    53,302,385
Unearned RRP                                                  --        (1,522)
Accumulated other comprehensive loss                     (90,833)     (168,417)
                                                    ------------  ------------
      Total stockholders' equity                      64,991,560    63,924,854
                                                    ------------  ------------

      Total liabilities and stockholders' equity    $491,445,300  $502,920,006
                                                    ============  ============
See Notes to Financial Statements
                                       14
<PAGE>


                                 Peoples Bancorp
                        Consolidated Statements of Income
                  Years Ended September 30, 2004, 2003 and 2002


                                               2004         2003       2002
                                            ----------- ----------- -----------

Interest Income
    Loans                                   $23,312,917 $26,375,695 $30,267,454
    Investment securities                     3,135,348   2,661,226   2,334,440
    Other interest and dividend income          418,369     711,375     763,306
                                            ----------- ----------- -----------
                                             26,866,634  29,748,296  33,365,200
                                            ----------- ----------- -----------
Interest Expense
    Deposits
       NOW and savings deposits               1,217,470   1,376,917   2,444,507
       Certificates of deposit                6,075,211   7,479,489  10,435,126
    Short-term borrowings                        41,807      66,879      69,050
    Long-term debt                            3,001,454   3,224,134   2,755,411
                                            ----------- ----------- -----------
                                             10,335,942  12,147,419  15,704,094
                                            ----------- ----------- -----------

Net Interest Income                          16,530,692  17,600,877  17,661,106
    Provision for loan losses                    40,374     537,181     347,862
                                            ----------- ----------- -----------
Net Interest Income After Provision for Loan
   Losses                                    16,490,318  17,063,696  17,313,244
                                            ----------- ----------- -----------

Other Income
    Fiduciary activities                        364,661     256,563     251,018
    Fees and service charges                  1,185,345   1,124,040   1,175,862
    Net gains (losses) on  available-for-sale
      securities                               (465,933)     32,025      62,931
    Gain on sale of loans                       189,094     889,547     539,554
    Other income                                373,777     411,347     176,377
                                            ----------- ----------- -----------
           Total other income                 1,646,944   2,713,522   2,205,742
                                            ----------- ----------- -----------

Other Expenses
    Salaries and employee benefits            6,289,496   6,055,120   5,834,330
    Net occupancy expense                       880,728     839,491     804,418
    Equipment expense                           812,939     857,026     802,666
    Data processing expense                   1,013,150     871,335     833,848
    Deposit insurance expense                    56,990      62,002      66,208
    Other expenses                            2,357,805   2,347,453   2,314,910
                                            ----------- ----------- -----------
           Total other expenses              11,411,108  11,032,427  10,656,380
                                            ----------- ----------- -----------

Income Before Income Tax                      6,726,154   8,744,791   8,862,606
    Income tax expense                        1,991,957   2,995,486   3,457,625
                                            ----------- ----------- -----------

Net Income                                  $ 4,734,197 $ 5,749,305 $ 5,404,981
                                            =========== =========== ===========

Basic Earnings per Share                    $      1.40 $      1.67 $      1.56
Diluted Earnings per Share                         1.39        1.66        1.56
Weighted-Average Shares Outstanding - Basic   3,382,135   3,435,112   3,456,324
Weighted-Average Shares Outstanding - Diluted 3,415,085   3,462,758   3,473,559

 See Notes to Financial Statements


                                       15
<PAGE>



                                 Peoples Bancorp
                 Consolidated Statements of Stockholders' Equity
                  Years Ended September 30, 2004, 2003 and 2002



<TABLE>
                                                                                                      Accumulated
                                                                                                    Unearned      Other
                                               Additional                                       Recognition   Comprehensive
                               Common Stock     Paid-in  Comprehensive  Retained      Unearned      And         Income
                           Outstanding  Amount   Capital    Income      Earnings    ESOP Shares Retention Plan   (Loss)     Total
                           ---------------------------------------------------------------------------------------------------------
<S>                        <C>        <C>        <C>         <C>       <C>           <C>          <C>        <C>        <C>
Balances October 1, 2001   3,506,348  $3,506,348 $8,498,348            $46,500,707   $(281,450)   $(40,719)  $(129,683) $58,053,551
Comprehensive income
   Net income                                                $5,404,981  5,404,981                                        5,404,981
   Other comprehensive
      income, net of tax
       Unrealized losses on
          securities, net of
          reclassification
          adjustment                                            (97,415)                                       (97,415)     (97,415)
                                                             ----------
Comprehensive income                                         $5,307,566
                                                             ==========
Cash dividends ($0.61 per
  share)                                                                (2,120,534)                                      (2,120,534)
ESOP shares earned                                   48,777                                                                  48,777
Termination of ESOP           (18,456)    (18,456)  (34,534)                           281,450                              228,460
RRP shares earned                                                                                   20,929                   20,929
Repurchase of common stock    (40,706)    (40,706) (651,846)                                                               (692,552)
                             --------    --------  ----------          -----------   ---------   ---------  ----------   -----------
Balances September 30,2002  3,447,186   3,447,186 7,860,745             49,785,154         0     (19,790)     (227,098)  60,846,197
Comprehensive income
   Net income                                                $5,749,305  5,749,305                                        5,749,305
   Other comprehensive
      income, net of tax
       Unrealized gains on
          securities, net of
          reclassification
          adjustment                                             58,681                                         58,681       58,681
                                                             ----------
Comprehensive income                                         $5,807,986
                                                             ==========
Cash dividends ($.65 per
  share)                                                                 2,232,074)                                      (2,232,074)
RRP shares earned                                                                                   18,268                   18,268
Repurchase of common stock    (25,291)    (25,291)   (490,232)                                                             (515,523)
                             --------    --------  ----------            ----------- ---------   ---------  ----------   -----------
Balances September 30, 2003 3,421,895   3,421,895  7,370,513            53,302,385         0      (1,522)   (168,417)    63,924,854
Comprehensive income
   Net income                                                $4,734,197  4,734,197                                        4,734,197
   Other comprehensive
      income, net of tax
       Unrealized gains on
          securities, net of
          reclassification
          adjustment                                             77,584                                         77,584       77,584
                                                             ----------
Comprehensive income                                         $4,811,781
                                                             ==========
Cash dividends ($.69 per
  share)                                                                (2,324,629)                                      (2,324,629)
RRP shares earned                                                                                  1,522                      1,522
Stock options exercised        22,206      22,206     304,073                                                               326,279
Tax benefit on stock options
  exercised                                            56,700                                                                56,700
Repurchase of common stock    (76,298)    (76,298) (1,728,649)                                                           (1,804,947)
                             --------    --------  ----------          -----------  ---------   ---------   ---------  -----------
Balances September 30, 2004 3,367,803  $3,367,803 $6,002,637          $55,711,953   $     0    $       0    $(90,833)   $64,991,560
                            =========   ========= ==========          ===========   ========    =========   =========   ===========
</TABLE>

See Notes to Financial Statements
                                       16
<PAGE>


                                 Peoples Bancorp
                      Consolidated Statements of Cash Flows
                  Years Ended September 30, 2004, 2003 and 2002

<TABLE>

                                                               2004         2003          2002
                                                           ------------ ------------ ------------
<S>                                                        <C>          <C>          <C>
Operating Activities
    Net income                                             $ 4,734,197  $ 5,749,305  $ 5,404,981
    Items not requiring (providing) cash
       Provision for loan losses                                40,374      537,181      347,862
       Depreciation and amortization                           805,109      831,897      778,898
       Investment securities amortization, net                 480,200      800,769      175,692
       Loans originated for sale                            (9,687,269) (35,283,710) (23,389,439)
       Proceeds from sale of loans held for sale             9,497,637   37,157,478   22,765,618
       Gain on sale of loans                                  (189,094)    (889,547)    (539,554)
       Amortization of deferred loan fees                     (505,838)    (758,718)    (679,971)
       Net gains (losses) on investment securities             465,933      (32,025)     (62,931)
       Gain on sale of premises and equipment                       --           --      (17,318)
       ESOP shares earned                                           --           --      208,036
       RRP compensation expense                                  1,522       18,268       20,929
    Change in
       Deferred income tax                                    (518,493)       6,909     (108,526)
       Interest receivable                                     235,923      102,643      (10,542)
       Interest payable                                        (24,511)     (67,188)    (121,904)
    Other adjustments                                         (379,270)  (1,111,851)     169,591
                                                           -----------  -----------  ------------
     Net cash provided by operating activities               4,956,420    7,061,411    4,941,422
                                                           -----------  -----------  ------------
Investing Activities
    Net change in interest-bearing deposits                    199,060      549,941     (364,249)
    Purchases of securities available for sale             (49,323,461) (73,599,501) (42,562,911)
    Purchases of securities held to maturity                         --   (1,374,930)  (3,891,807)
    Proceeds from maturities and paydowns of securities                   6,301,518
      held to maturity                                       1,015,484                 3,051,158
    Proceeds from maturities and paydowns of securities                  40,870,498
      available for sale                                    32,177,342                12,576,525
    Proceeds from sale of securities available for sale      6,139,750    1,587,115    4,370,107
    Net change in loans                                     (3,889,712)  27,028,594   18,607,047
    Purchases of premises and equipment                       (851,867)  (1,034,422)  (1,145,057)
    Proceeds from sales of premises and equipment                   --           --       40,565
    Purchases of Federal Home Loan Bank of Indianapolis             --           --
      stock                                                                              (13,500)
    Proceeds from sale of foreclosed real estate             1,738,662      274,811           --
                                                           -----------  -----------  ------------
     Net cash provided by(used in) investing activities    (12,794,742)     603,624   (9,332,122)
                                                           -----------  -----------   -----------
Financing Activities
    Net change in
       NOW and savings deposits                              3,282,027    6,002,121   15,962,631
       Certificates of deposit                             (12,573,057)  (5,822,708)  (4,505,749)
       Short-term borrowings                                   671,807     (543,121)  (1,190,949)
    Proceeds from Federal Home Loan Bank advances                    --    3,000,000   17,000,000
    Repayment of Federal Home Loan Bank advances            (4,000,000)  (8,000,000)  (2,992,965)
    Cash dividends                                          (2,300,788)  (2,201,904)  (2,094,402)
    Stock options exercised                                    326,279           --           --
    Repurchase of common stock                              (1,804,947)    (515,523)    (692,552)
                                                           -----------  -----------  ------------
     Net cash provided by(used in) financing activities    (16,398,679)  (8,081,135)  21,486,014
                                                           -----------  -----------  ------------
Net Change in Cash and Cash Equivalents                    (24,237,001)    (416,100)  17,095,314
Cash and Cash Equivalents, Beginning of Year                35,161,821   35,577,921   18,482,607
                                                           -----------  -----------  ------------
Cash and Cash Equivalents, End of Year                     $10,924,820  $35,161,821  $35,577,921
                                                           ===========  ===========  ============

Additional Cash Flows and Supplementary Information
    Interest paid                                          $10,360,453  $12,214,607  $15,826,808
    Income tax paid                                          2,563,767    3,552,078    2,997,665

</TABLE>

See Notes to Financial Statements

                                       17
<PAGE>

                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


Note 1:  Nature of Operations and Summary of Significant Accounting Policies

The accounting and reporting policies of Peoples Bancorp  (Company),  its wholly
owned  subsidiaries,  Peoples Federal  Savings Bank of DeKalb County  (Peoples),
First Savings Bank (First Savings)  (collectively,  the Banks),  Peoples' wholly
owned subsidiary, Peoples Financial Services, Inc. (Peoples Financial) and First
Savings'  wholly owned  subsidiary,  Alpha  Financial,  Inc.  (Alpha) conform to
accounting  principles  generally  accepted in the United  States of America and
reporting practices followed by the thrift industry. The more significant of the
policies are described below.

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

The  Company  is a  thrift  holding  company  whose  principal  activity  is the
ownership and  management of the Banks.  The Banks operate under federal  thrift
charters  and provide  full  banking  services,  including  trust  services.  As
federally-chartered  thrifts,  the Banks are  subject to the  regulation  of the
Office  of  Thrift   Supervision   (OTS)  and  the  Federal  Deposit   Insurance
Corporation.

The Company  generates  commercial,  mortgage  and  consumer  loans and receives
deposits  from  customers  located  primarily in north central and north eastern
Indiana and south central Michigan. The Company's loans are generally secured by
specific items of collateral including real property and consumer assets.

Consolidation - The consolidated  financial  statements  include the accounts of
the Company,  the Banks,  Alpha and Peoples  Financial after  elimination of all
material intercompany transactions.

Cash  Equivalents - The Company  considers all liquid  investments with original
maturities of three months or less to be cash equivalents.

Investment  Securities - Debt securities are classified as held to maturity when
the  Company  has the  positive  intent and  ability to hold the  securities  to
maturity.  Securities  held to maturity  are  carried at  amortized  cost.  Debt
securities not classified as held to maturity and marketable  equity  securities
are classified as available for sale.  Securities available for sale are carried
at fair value with unrealized gains and losses reported separately,  net of tax,
in accumulated other  comprehensive  income. The Company holds no securities for
trading.

Amortization  of premiums and  accretion  of discounts  are recorded as interest
income from  securities.  Realized gains and losses are recorded as net security
gains  (losses).  Gains and losses on sales of securities  are determined on the
specific-identification method.



                                       18
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


Mortgage  loans held for sale are  carried  at the lower of cost or fair  value,
determined using an aggregate basis. Write-downs to fair value are recognized as
a  charge  to  earnings  at the  time  the  decline  in  value  occurs.  Forward
commitments  to sell  mortgage  loans  are  acquired  to reduce  market  risk on
mortgage loans in the process of  origination  and mortgage loans held for sale.
Gains and losses  resulting from sales of mortgage loans are recognized when the
respective  loans are sold to investors.  Gains and losses are determined by the
difference  between the selling price and the carrying amount of the loans sold,
net of discounts collected or paid and considering a normal servicing rate.

Loans are  carried  at the  principal  amount  outstanding.  Interest  income is
accrued  on the  principal  balances  of loans.  Generally,  loans are placed on
non-accrual  status at ninety days past due. The accrual of interest on impaired
loans is discontinued when, in management's  opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued,  all
unpaid  accrued  interest is reversed when  considered  uncollectible.  Interest
income is subsequently recognized only to the extent cash payments are received.
Certain  loan fees and  direct  costs are being  deferred  and  amortized  as an
adjustment of yield on the loans.

Allowance  for  loan  losses  is  maintained  to  absorb  loan  losses  based on
management's  continuing  review and  evaluation  of the loan  portfolio and its
judgment  as to  the  impact  of  economic  conditions  on  the  portfolio.  The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio,  the current  condition and amount of loans
outstanding,  and the probability of collecting all amounts due.  Impaired loans
are  measured by the present  value of expected  future cash flows,  or the fair
value of the  collateral  of the loan if collateral  dependent.  Loan losses are
charged against the allowance when management believes the uncollectibility of a
loan balance is  confirmed.  Subsequent  recoveries,  if any are credited to the
allowance.

The  determination  of the adequacy of the allowance for loan losses is based on
estimates  that are  particularly  susceptible  to  significant  changes  in the
economic  environment  and market  conditions.  Management  believes that, as of
September  30,  2004,  the  allowance  for  loan  losses  is  adequate  based on
information  currently available.  A worsening or protracted economic decline in
the area within which the Company  operates  would  increase the  likelihood  of
additional  losses due to credit and market  risks and could create the need for
additional loss reserves.

Premises  and  equipment  are carried at cost net of  accumulated  depreciation.
Depreciation  is computed  using  accelerated  and  straight-line  methods based
principally  on the  estimated  useful lives of the assets which range from five
years to  thirty-nine  years.  Maintenance  and repairs are expensed as incurred
while major  additions and  improvements  are  capitalized.  Gains and losses on
dispositions are included in current operations.

Federal Home Loan Bank stock is a required  investment for institutions that are
members of the Federal Home Loan Bank system.  The  required  investment  in the
common stock is based on a predetermined formula.

Foreclosed  assets are carried at the lower of cost or fair value less estimated
selling costs. When foreclosed assets are acquired,  any required  adjustment is
charged to the allowance for loan losses. All subsequent activity is included in
current operations.


                                       19
<PAGE>

                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


Goodwill is annually  tested for impairment as the Company changed its method of
accounting and financial  reporting for goodwill and other intangible  assets by
adopting the  provisions of Statement of Financial  Accounting  Standard No. 142
during  2002.  If the implied  fair value of goodwill is lower than its carrying
amount,  a goodwill  impairment is indicated and goodwill is written down to its
implied fair value. Subsequent increases in goodwill value are not recognized in
the financial statements.

Core deposit  intangible is being amortized on an accelerated  method over eight
years until such time that  straight-line  amortization  exceeds the accelerated
method,  and is periodically  evaluated as to the recoverability of its carrying
value.

Investments in limited  partnerships  are included in other assets.  The Company
utilizes the equity method of accounting for these investments. At September 30,
2004 and 2003, these investments totaled $310,000 and $400,000.

Pension  plan costs are based on actuarial  computations  and charged to current
operations.  The funding policy is to pay at least the minimum amounts  required
by ERISA.

Stock Options - The Company has a stock-based employee  compensation plan, which
is described more fully in Note 18. The Company accounts for stock option grants
in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and  related  interpretations,  and,  accordingly,  recognizes  no  compensation
expense for the stock option grants as all options granted under the plan had an
exercise  price  equal to or  greater  than the market  value of the  underlying
common stock at the date of grant. The following table illustrates the effect on
net income and  earnings  per share if the  Company  had  applied the fair value
provisions of FASB Statement No. 123,  Accounting for Stock-Based  Compensation,
to stock-based employee compensation.

                                                  2004      2003       2002
                                              ----------- ---------- ---------

Net income, as reported                        $4,734,197 $5,749,305 $5,404,981
Less:  Total stock-based employee compensation
   cost determined under the fair value based
   method, net of income taxes                     11,560     64,362     77,874
                                                ---------  ---------  ---------

Pro forma net income                           $4,722,637 $5,684,943 $5,327,107
                                                =========  =========  =========

Earnings per share
    Basic - as reported                        $     1.40 $     1.67 $     1.56
    Basic - pro forma                                1.40       1.65       1.54
    Diluted - as reported                            1.39       1.66       1.56
    Diluted - pro forma                              1.38       1.64       1.53


Income tax in the consolidated statements of income includes deferred income tax
provisions or benefits for all significant  temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiaries.



                                       20
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


Earnings per share have been  computed  based upon the  weighted-average  common
shares outstanding during each year.

Reclassifications  of certain amounts in the 2003 and 2002 financial  statements
have been made to conform with the current year presentation.

Note 2:  Restriction on Cash

The Banks are required to maintain  reserve funds in cash and/or on deposit with
the Federal  Reserve Bank.  The reserves  required at September 30, 2004 totaled
$2,497,000.

Note 3:  Investment Securities
                                                    2004
                                                Gross       Gross
                                 Amortized    Unrealized  Unrealized     Fair
                                   Cost          Gains     Losses        Value
                                ------------------------------------------------

Available for sale
  Federal agencies              $72,050,336    $166,146   $ 230,753  $71,985,729
  State and municipal
    obligations                   9,010,084      65,092     101,130    8,974,046
  Mortgage-backed securities     10,773,294      78,963     110,477   10,741,780
  Marketable equity securities    3,979,942          --          --    3,979,942
                                 ----------     --------  ----------   ---------
     Total available for sale    95,813,656     310,201      442,360  95,681,497
Held to maturity
 Mortgage-backed securities      1,111,754      37,855       5,226     1,144,383
                                ----------     -------    ---------   ----------
    Total investment
       securities              $96,925,410    $348,056    $ 447,586  $96,825,880
                                ==========     =======    =========  ===========


                                                   2003
                                                Gross       Gross
                                 Amortized    Unrealized  Unrealized     Fair
                                  Cost          Gains      Losses        Value
                                ------------------------------------------------

Available for sale
 Federal agencies              $60,813,138    $620,111    $   80,846 $61,352,403
 State and municipal
   obligations                   6,508,524      91,010        95,555   6,503,979
 Mortgage-backed securities     13,989,719     134,810       171,512  13,953,017
 Marketable equity securities    4,453,187          --       757,982   3,695,205
                                ----------     --------    ---------- ----------
    Total available for sale    85,764,568     845,931     1,105,895  85,504,604
Held to maturity
 Mortgage-backed securities      2,116,827     103,527         2,090   2,218,264
                                ----------     -------     ---------  ----------
    Total investment
       securities              $87,881,395    $949,458    $1,107,985 $87,722,868
                               ===========    ========    ========== ===========


                                       21
<PAGE>




                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


The amortized  cost and fair value of securities  held to maturity and available
for sale at  September  30,  2004,  by  contractual  maturity,  are shown below.
Expected maturities will differ from contractual  maturities because issuers may
have the right to call or prepay  obligations with or without call or prepayment
penalties.

                                                    2004
                                   Available for Sale         Held to Maturity
 Maturity Distributions          Amortized      Fair      Amortized       Fair
 at September 30                   Cost         Value        Cost         Value
--------------------------------------------------------------------------------
Within one year                 $   591,107  $   595,775  $       --  $       --
One to five years                53,712,799   53,683,465          --          --
Five to ten years                24,264,780   24,251,210          --          --
After ten years                   2,491,734    2,429,325          --          --
                                 ----------   ----------   ----------  ---------
                                 81,060,420   80,959,775          --          --
Mortgage-backed securities       10,773,294   10,741,780   1,111,754   1,144,383
Marketable equity securities      3,979,942    3,979,942          --          --
                                 ----------   ----------   ----------  ---------

                                $95,813,656  $95,681,497  $1,111,754  $1,144,383
                                 ==========   ==========   =========  ==========

Securities with a carrying value of $6,221,000 and  $12,642,000  were pledged at
September 30, 2004 and 2003 to secure repurchase  agreements.  Securities with a
carrying value of $55,384,000  were pledged at September 30, 2004 to secure FHLB
advances.  Securities  with a  carrying  value of  $4,512,000  were  pledged  at
September 30, 2004 to secure certain deposits.

Proceeds from sales of securities  available for sale during 2004, 2003 and 2002
were $6,140,000, $1,587,000 and $4,370,000, respectively. Gross gains of $7,000,
$32,000 and $63,000 were  realized on those sales  during  2004,  2003 and 2002,
respectively.  Gross losses of $473,000  were  recognized  in 2004 on marketable
equity    securities    due   to    unrealized    losses    considered   to   be
other-than-temporary.   The  income  tax  expense   (benefit)  on  the  security
gains/losses  for the  years  ended  September  30,  2004,  2003 and  2002  were
$(185,000), $13,000 and $25,000, respectively.

Certain investments in debt securities are reported in the financial  statements
at an  amount  less  than  their  historical  cost.  Total  fair  value of these
investments at September 30, 2004, was $43,568,000,  which is approximately  45%
of the Company's  available-for-sale and held-to-maturity  investment portfolio.
These declines primarily resulted from recent increases in market interest rates
and failure of certain investments to maintain consistent credit quality ratings
or meet projected earnings targets.

Based on evaluation of available  evidence,  including  recent changes in market
interest  rates,  credit  rating  information  and  information   obtained  from
regulatory  filings,  management  believes  the declines in fair value for these
securities are temporary.

Should the impairment of any of these  securities  become other than  temporary,
the  cost  basis  of the  investment  will be  reduced  and the  resulting  loss
recognized  in net income in the period the  other-than-temporary  impairment is
identified.


                                       22
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


The following  table shows our  investments'  gross  unrealized  losses and fair
value,  aggregated  by  investment  category and length of time that  individual
securities  have been in a continuous  unrealized loss position at September 30,
2004:
<TABLE>

                             Less than 12 Months   12 Months or More          Total
Description of                Fair      Unrealized   Fair   Unrealized    Fair   Unrealized
  Securities                  Value       Losses     Value     Losses     Value    Losses
-------------------------------------------------------------------------------------------
<S>                         <C>          <C>      <C>         <C>      <C>         <C>
 Federal agencies           $26,399,331  $181,810 $ 4,496,867 $ 48,943 $30,896,198 $230,753
 State and municipal
    obligations               2,548,825    24,493   1,729,846   76,637   4,278,671  101,130
 Mortgage-backed securities   3,217,485    45,826   5,175,544   69,877   8,393,029  115,703
                             ----------   -------  ----------  -------  ----------  -------
 Total temporarily
  impaired securities       $32,165,641  $252,129 $11,402,257 $195,457 $43,567,898 $447,586
                            ===========  ======== =========== ======== =========== ========
</TABLE>


Note 4:  Loans and Allowance

                                                         2004          2003
                                                     --------------------------

Commercial and commercial mortgage loans              $ 32,132,322 $ 29,972,078
Real estate loans                                      315,473,869  318,240,818
Construction loans                                       5,861,164    6,126,007
Individuals' loans for household and other personal
   expenditures                                         12,526,326    9,815,123
                                                       -----------  -----------
                                                       365,993,681  364,154,026
                                                       -----------  -----------
Less:
    Undisbursed portion of loans                         2,439,829    3,466,536
    Deferred loan fees and discounts                     1,434,125    1,623,183
    Allowance for loan losses                            1,958,569    2,110,946
                                                       -----------  -----------
                                                         5,832,523    7,200,665
                                                       -----------  -----------

       Total loans                                    $360,161,158 $356,953,361
                                                      ============ ============


                                    2004          2003          2002
                               ----------------------------------------

Allowance for loan losses
    Balances, October 1         $ 2,110,946    $2,117,400    $1,894,787
    Provision for losses             40,374       537,181       347,862
    Recoveries on loans              49,496        15,005        28,500
    Loans charged off              (242,247)     (558,640)     (153,749)
                                 ----------     ---------     ---------

    Balances, September 30      $ 1,958,569    $2,110,946    $2,117,400
                                 ==========     =========     =========


There  were no  impaired  loans  at  September  30,  2004 or 2003.  The  Company
considers its investment in one-to-four  family  residential  loans and consumer
loans to be homogeneous and therefore excluded from separate  identification for
evaluation of impairment.


                                       23
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


Interest of $35,000 and $276,000 was  recognized  on the average  impaired  loan
balances of $1,756,000 and $4,504,000  during 2003 and 2002.  Interest of $7,000
and $288,000 was recognized on a cash basis during 2003 and 2002.

At  September  30,  2004 and 2003,  accruing  loans  delinquent  90 days or more
totaled $26,000 and $90,000,  respectively.  Nonaccruing  loans at September 30,
2004 and 2003 were $493,000 and $1,127,000,  respectively.  Loans  delinquent 90
days or more at September 30, 2004 and 2003  consisted of  homogeneous  pools of
residential and consumer loans.

Note 5:  Premises and Equipment

                                                2004             2003
                                           -----------------------------

Land                                         $ 1,333,537     $ 1,335,338
Buildings                                      8,961,152       8,537,301
Equipment                                      5,642,499       5,191,610
                                              ----------      ----------
       Total cost                             15,937,188      15,064,249
Accumulated depreciation                      (9,567,898)     (8,741,717)
                                              ----------      ----------

       Net                                   $ 6,369,290     $ 6,322,532
                                              ==========      ==========


Depreciation  and  amortization  expense for 2004,  2003 and 2002 was  $805,000,
$832,000 and $779,000, respectively.

Note 6:  Deposits

                                                     2004          2003
                                                --------------------------

Demand deposits                                  $109,357,641 $109,206,539
Savings deposits                                   57,435,202   54,304,277
Certificates and other time deposits
   of $100,000 or more                             33,429,756   36,343,484
Other certificates and time deposits              170,602,255  180,261,584
                                                  -----------  -----------

                                                 $370,824,854 $380,115,884
                                                 ============= ===========


                                       24
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


    Certificates and other time deposits maturing in years ending September 30:

           2005                        $103,958,248
           2006                          55,484,761
           2007                          28,553,199
           2008                          10,482,579
           2009                           5,553,224
                                        -----------
                                       $204,032,011

Note 7:  Short-Term Borrowings

Short-term  borrowings at September 30, 2004 and 2003 consist of securities sold
under  agreements  to  repurchase  totaling   $3,321,000  and  $2,650,000.   The
obligations were secured by investment securities and such collateral is held by
a  safekeeping  agent.  The  maximum  amount of  outstanding  agreements  at any
month-end during 2004 and 2003 totaled $5,166,000 and $7,136,000 and the average
of such  agreements  for the years ended  September  30,  2004 and 2003  totaled
$3,328,000 and $4,294,000, respectively.

Note 8:  Federal Home Loan Bank Advances

Federal  Home  Loan  Bank  advances  at  September  30,  2004 and  2003  totaled
$50,100,000 and $54,100,000 and were at various rates ranging from 3.55 to 7.21%
maturing  at various  dates  through  March  2013.  The  Federal  Home Loan Bank
advances are secured by first mortgage loans and investment  securities totaling
$98,352,000.  Advances are subject to  restrictions or penalties in the event of
prepayment.

                                                                   Weighted
Maturities in years ending September 30             Amount       Average Rate
-----------------------------------------------------------------------------

2005                                             $ 5,000,000         6.36%
2006                                               1,150,000         6.16
2007                                               8,250,000         5.22
2008                                               7,000,000         5.79
2009                                               4,000,000         4.43
Thereafter                                        24,700,000         5.51
                                                 -----------
                                                 $50,100,000         5.51
                                                 ===========


                                       25
<PAGE>

                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


Amounts advanced  totaling  $15,500,000 are subject to an option for the FHLB to
convert the entire  advance to a periodic  adjustable  rate five years after the
date of the advance.  The adjustable rate would be for the remaining term at the
predetermined  rate of three-month  LIBOR or  three-month  LIBOR plus .0002 (.02
basis points),  varying by advance.  If the FHLB exercises its option to convert
the advance to an adjustable  rate, the advance will be prepayable at the Banks'
option, at par without a penalty fee.

At September  30, 2004 and 2003,  the Banks had a $1,000,000  overdraft  line of
credit  agreement  with the Federal  Home Loan Bank.  The Banks had not borrowed
against  this line of credit at September  30, 2004 or 2003.  The line of credit
expires March 15, 2005.

Note 9:  Loan Servicing

Loans  serviced  for others are not  included in the  accompanying  consolidated
balance  sheets.  The unpaid  principal  balances of loans  serviced  for others
totaled  $52,099,000  and $51,385,000 at September 30, 2004 and 2003. The amount
of  mortgage  servicing  rights  capitalized  is  immaterial  to  the  financial
statements.

Note 10: Core Deposit Intangible

The carrying  basis and  accumulated  amortization  of  recognized  core deposit
intangibles at September 30, 2004 and 2003, were:

                                             2004         2003
                                        --------------------------

  Gross carrying amount                   $1,154,000   $1,154,000
  Accumulated amortization                  (683,024)    (545,178)
                                          -----------  -----------

                                          $  470,976   $  608,822
                                          ===========  ===========


Amortization  expense for the years ended  September 30, 2004, 2003 and 2002 was
$138,000,  $138,000 and $138,000,  respectively.  Estimated amortization expense
for each of the following four years is:

           2005                            $138,000
           2006                             138,000
           2007                             138,000
           2008                              57,000




                                       26
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


Note 11: Income Tax

                                           2004         2003       2002
                                        -----------------------------------

Income tax expense
    Currently payable
       Federal                           $2,125,983  $2,655,707  $2,918,857
       State                                384,467     332,870     647,294
    Deferred
       Federal                             (451,253)    (55,482)   (132,507)
       State                                (67,240)     62,391      23,981
                                         ----------  ----------  ----------

          Total income tax expense       $1,991,957  $2,995,486  $3,457,625
                                         ==========  ==========  ==========

Reconciliation of federal statutory to
   actual tax expense
    Federal statutory income tax at 34%  $2,286,892  $2,973,229  $3,013,286
    Tax exempt interest                     (69,450)    (48,554)    (31,550)
    Nondeductible expenses                    4,943      12,149       9,224
    Effect of state income taxes            209,370     260,872     443,042
    Effect of low income housing credits   (139,023)   (141,348)   (152,845)
    Change in valuation allowance          (290,305)   (152,958)    297,386
    Other                                   (10,470)     92,096    (120,918)
                                          ---------   ---------   ---------

          Actual tax expense             $1,991,957  $2,995,486  $3,457,625
                                         ==========  ==========  ==========



                                       27
<PAGE>





                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


A cumulative net deferred tax asset is included in other assets.  The components
of the asset are as follows:

                                                            2004        2003
                                                       ------------------------
Assets
 Allowance for loan losses                             $  795,072    $  814,671
 Loan fees                                                389,183       436,807
 Net unrealized losses on securities available for sale    56,396       108,103
 Impairment losses on securities available for sale       188,377            --
 Other                                                    181,512       156,441
                                                        ---------     ---------
    Total assets                                        1,610,540     1,516,022
                                                        ---------     ---------

Liabilities
 Depreciation                                             129,685       156,696
 State income tax                                          56,228        56,860
 Tax bad debt reserves in excess of base year                  --       166,711
 FHLB of Indianapolis stock dividend                      210,889       124,869
 Prepaid expenses                                          38,961            --
 Other                                                    328,039       340,630
                                                        ---------     ---------
    Total liabilities                                     763,802       845,766
                                                        ---------     ---------
    Subtotal                                              846,738       670,256
                                                        ---------     ---------
Valuation Allowance
 Beginning balance                                       (290,305)     (443,263)
 Decrease during the year                                 290,305       152,958
                                                        ---------     ---------
 Ending balance                                               --       (290,305)
                                                        ----------    ----------
                                                       $   846,738   $  379,951
                                                       ============  ===========


The valuation  allowance at September 30, 2003 was a result of unrealized losses
on equity securities. Management believes no valuation allowance is necessary at
September 30, 2004.

Retained  earnings at September 30, 2004 include  approximately  $8,102,000  for
which no  deferred  income  tax  liability  has  been  recognized.  This  amount
represents an  allocation  of income to bad debt  deductions as of June 30, 1988
for tax purposes only. Reduction of amounts so allocated for purposes other than
tax bad debt losses or  adjustments  arising  from  carryback  of net  operating
losses would create income for tax purposes only,  which income would be subject
to the then current  corporate  income tax rate. The unrecorded  deferred income
tax liability on the above amount was approximately  $2,755,000 at September 30,
2004.


                                       28
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


Note 12: Other Comprehensive Income

                                                             2004
                                                              Tax
                                              Before-Tax    Expense   Net-of-Tax
                                                Amount     (Benefit)    Amount
                                              ---------------------------------
 Unrealized losses on securities
  Unrealized holding losses arising during the
    year                                       $(337,461)  $(133,668) $(203,793)
  Less: reclassification adjustment for losses
    realized in net income                      (465,933)   (184,556)  (281,377)
                                               ---------   ---------  ---------
  Net unrealized gains                         $ 128,472   $  50,888  $  77,584
                                               =========   =========  =========

                                                             2003
                                              Before-Tax      Tax     Net-of-Tax
                                                Amount      Expense     Amount
                                                --------------------------------
 Unrealized gains on securities
  Unrealized holding gains arising during the
    year                                       $ 129,195   $  51,174  $  78,021
  Less: reclassification adjustment for gains
    realized in net income                        32,025      12,685     19,340
                                                --------    --------   --------
  Net unrealized gains                         $  97,170    $ 38,489  $  58,681
                                                ========    ========  =========


                                                             2002
                                                              Tax
                                              Before-Tax    Expense   Net-of-Tax
                                                Amount     (Benefit)    Amount
                                              ----------------------------------
 Unrealized losses on securities
 Unrealized holding losses arising during the
   year                                        $ (98,379)   $(38,968)  $(59,411)
 Less: reclassification adjustment for gains
   realized in net income                         62,931      24,927     38,004
                                               ---------    --------   --------
 Net unrealized loss                           $(161,310)   $(63,895)  $(97,415)
                                               =========    ========   ========


Note 13: Commitments and Contingent Liabilities

In  the  normal  course  of  business  there  are  outstanding  commitments  and
contingent  liabilities,  such as commitments  to extend  credit,  which are not
included in the accompanying  consolidated  financial statements.  The Company's
exposure to credit loss in the event of nonperformance by the other party to the
financial  instruments  for  commitments  to extend credit is represented by the
contractual or notional amount of those  instruments.  The Company uses the same
credit policies in making such  commitments as it does for instruments  that are
included in the consolidated balance sheet.


                                       29
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


Financial  instruments whose contract amount represents credit risk at September
30, 2004 and 2003 consisted of commitments to extend credit totaling $36,212,000
and $42,359,000.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company  upon  extension  of credit,  is based on  management's
credit  evaluation.  Collateral held varies,  but may include  residential  real
estate, income-producing commercial properties, or other assets of the borrower.

The Company has employment agreements with two officers which include provisions
for payment to them of three years' salary in the event of their  termination in
connection with any change in ownership or control of the Company, other than by
agreement.  The  agreements  have  terms of three  years  which may be  extended
annually for successive periods of one year.

The Company and  subsidiaries  are also subject to possible  claims and lawsuits
which arise primarily in the ordinary  course of business.  It is the opinion of
management  that the  disposition  or ultimate  determination  of such  possible
claims or lawsuits will not have a material  adverse effect on the  consolidated
financial position of the Company.

Note 14: Dividends and Capital Restrictions

Without prior approval,  current  regulations allow Peoples and First Savings to
pay  dividends  to the Company not  exceeding  net profits (as  defined) for the
current  calendar  year to date  plus  those  for the  previous  two  years.  At
September 30, 2004,  such  limitations  totaled  $3,213,000.  The Banks normally
restrict  dividends  to a  lesser  amount  because  of the need to  maintain  an
adequate capital structure.

Note 15: Regulatory Capital

The Banks are subject to various regulatory capital requirements administered by
the  federal  banking  agencies  and are  assigned  to a capital  category.  The
assigned  capital  category is largely  determined by ratios that are calculated
according  to the  regulations.  The ratios  are  intended  to  measure  capital
relative to assets and credit risk  associated with those assets and off-balance
sheet exposures of the entity.  The capital  category  assigned to an entity can
also be affected by qualitative  judgments made by regulatory agencies about the
risk  inherent in the entity's  activities  that are not part of the  calculated
ratios.

                                       30
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


There are five capital categories defined in the regulations,  ranging from well
capitalized to critically  undercapitalized.  Classification of a bank in any of
the  undercapitalized  categories can result in actions by regulators that could
have a material effect on a bank's operations.  At September 30, 2004, the Banks
are  categorized  as  well  capitalized  and met all  subject  capital  adequacy
requirements.  There are no conditions  or events since  September 30, 2004 that
management believes have changed the Banks' classification.

Peoples' actual and required capital amounts and ratios are as follows:

                                                  2004
                                           Required for Adequate  To Be Well
                                 Actual         Capital(1)       Capitalized(1)
                           Amount    Ratio     Amount     Ratio   Amount  Ratio
                         -------------------------------------------------------
Total risk-based
   capital(1) (to
   risk-weighted assets) $42,423,000  22.21% $15,283,000  8.0% $19,104,000 10.0%
Tier 1 risk-based
   capital(1) (to
   risk-weighted assets)  41,046,000  21.49    7,641,000  4.0   11,462,000  6.0
Core capital(1) (to
   adjusted total
   assets)                41,046,000  11.06   14,851,000  4.0   18,564,000  5.0
Core capital(1) (to
   adjusted tangible
   assets)                41,046,000  11.06    7,425,000  2.0           NA   NA
Tangible capital(1) (to
   adjusted total
   assets)                41,046,000  11.06    5,569,000  1.5           NA   NA


                                                                2003
                                           Required for Adequate  To Be Well
                                 Actual         Capital(1)        Capitalized(1)
                           Amount    Ratio     Amount     Ratio    Amount Ratio
                         -------------------------------------------------------
Total risk-based
   capital(1) (to
   risk-weighted assets) $42,391,000  21.23% $15,977,000  8.0% $19,972,000 10.0%
Tier 1 risk-based
   capital(1) (to
   risk-weighted assets)  40,946,000  20.50    7,989,000  4.0   11,983,000  6.0
Core capital(1) (to
   adjusted total
   assets)                40,946,000  10.83   15,118,000  4.0   18,898,000  5.0
Core capital(1) (to
   adjusted tangible
   assets)                40,946,000  10.83    7,559,000  2.0           NA   NA
Tangible capital(1) (to
   adjusted total
   assets)                40,946,000  10.83    5,669,000  1.5           NA   NA



                                       31
<PAGE>





                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


        First Savings' actual and required capital amounts and ratios are as
follows:

                                                  2004
                                           Required for Adequate  To Be Well
                                 Actual        Capital(1)         Capitalized(1)
                           Amount    Ratio  Amount     Ratio     Amount   Ratio
                         -------------------------------------------------------
Total risk-based capital
   (1) (to risk-weighted
   assets)               $13,592,000  22.46% $4,841,000   8.0%  $6,051,000 10.0%
Tier 1 risk-based capital
   (1)(to risk-weighted
   assets)                13,028,000  21.53   2,421,000   4.0    3,631,000  6.0
Core capital(1) (to
   adjusted total assets) 13,028,000  11.49   4,536,000   4.0    5,670,000  5.0
Core capital(1) (to
   adjusted tangible
   assets)                13,028,000  11.49   2,268,000   2.0           NA   NA
Tangible capital(1) (to
   adjusted total assets) 13,028,000  11.49   1,701,000   1.5           NA   NA


                                                2003
                                           Required for Adequate   To Be Well
                                 Actual        Capital(1)         Capitalized(1)
                           Amount    Ratio  Amount      Ratio    Amount   Ratio
                         -------------------------------------------------------
Total risk-based capital
   (1)(to risk-weighted
   assets)               $12,880,000  21.2%  $4,879,000   8.0%  $6,098,000 10.0%
Tier 1 risk-based capital
   (1)(to risk-weighted
   assets)                12,289,000  20.2    2,439,000   4.0    3,659,000  6.0
Core capital(1) (to
   adjusted total assets) 12,289,000  10.5    4,697,000   4.0    5,871,000  5.0
Core capital(1) (to
   adjusted tangible
   assets)                12,289,000  10.5    2,349,000   2.0           NA   NA
Tangible capital(1) (to
   adjusted total assets) 12,289,000  10.5    1,761,000   1.5           NA   NA
(1)As defined by Regulatory Agencies


Note 16: Employee Benefit Plans

The Banks are participants in a pension fund known as the Financial Institutions
Retirement Fund (FIRF).  This plan is a multi-employer  plan; separate actuarial
valuations are not made with respect to each participating  employer.  This plan
provides  pension  benefits for  substantially  all of the Company's  employees.
According to FIRF administrators,  the value of the vested benefits exceeded the
market value of the fund's assets and  accordingly  the Banks had  approximately
$6,000 and $341,000 accrued at September 30, 2004 and 2003.  Pension expense was
$583,000, $521,000 and $592,000 for 2004, 2003 and 2002.

A profit-sharing  plan is maintained for the benefit of substantially all of the
Company's employees and allows for both employee and Company contributions.  The
Company  contribution  consists  of a  matching  contribution  of 50  percent of
employee contributions,  up to 6 percent of eligible employee compensation.  The
Company  contribution  to the plan was $107,000,  $108,000 and $99,000 for 2004,
2003 and 2002.


                                       32
<PAGE>

                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


In connection with the acquisition of Three Rivers Financial  Corporation (Three
Rivers) in 2000,  the Company  assumed both the Employee  Stock  Ownership  Plan
(ESOP) and Recognition and Retention Plan (RRP) of Three Rivers.  At the date of
the merger,  the ESOP had debt  payable to Three Rivers of $422,000 and unearned
shares  totaling  50,082.  With the merger,  the ESOP was obligated to repay the
outstanding  debt to the Company.  Accordingly,  the balance of shares that were
collateral  for the debt had been  reflected  as a  reduction  to  stockholders'
equity. Unearned ESOP shares totaled 31,367 at September 30, 2001 and had a fair
value of $470,500.  Shares were released to participants  proportionately as the
loan was repaid.  Dividends on allocated  shares were  recorded as dividends and
charged to retained  earnings.  Dividends on unallocated  shares were applied to
the  principal  and  interest due on the loan.  During  2002,  the ESOP plan was
terminated.  A portion of the shares held in the ESOP was sold and the  proceeds
from  that  sale  were  used to pay off the  loan.  The  remaining  shares  were
distributed to the participants and expensed based upon the fair market value at
the date the ESOP was terminated.

Compensation expense was recorded in an amount equal to the fair market value of
the stock at the time shares were  committed to be released.  The expense  under
the ESOP was $208,000 for 2002.

Effective  with the  merger,  the  Company  continued  the RRP under which Three
Rivers  had  previously  granted  awards  to  various  directors,  officers  and
employees of the Three Rivers and First Savings.  These awards generally vest at
a rate of 20  percent  per  year on the  anniversary  dates of each  grant.  The
expense  under the RRP was $2,000 for 2004,  $18,000  for 2003 and  $21,000  for
2002.

Note 17: Stock Option Plan

Under the  Company's  incentive  stock  option plan  approved in 1998,  which is
accounted for in accordance with Accounting  Principles  Board Opinion (APB) No.
25, Accounting for Stock Issued to Employees, and related  interpretations,  the
Company grants  selected  executives and other key employees stock option awards
which vest and become  fully  exercisable  at the end of five years of continued
employment.  During 1999, the Company  authorized the grant of options for up to
200,000 shares of the Company's common stock. The exercise price of each option,
which has a ten-year  life, was equal to or greater than the market price of the
Company's stock on the date of grant;  therefore,  no  compensation  expense was
recognized. The Company has not granted any options during the three year period
ended  September  30,  2004.  The pro forma effect on net income is disclosed in
Note 1.


                                       33
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


The following is a summary of the status of the Company's  stock option plan and
changes in that plan as of and for the years ended  September 30, 2004, 2003 and
2002.

                               2004                 2003              2002
                                  Weighted-          Weighted-         Weighted-
                                   Average             Average           Average
                                  Exercise            Exercise          Exercise
    Options              Shares    Price       Shares    Price    Shares   Price
--------------------------------------------------------------------------------
Outstanding, beginning
   of year                110,249  $14.43   110,249  $14.43   110,249   $ 14.43
Exercised                  22,206   14.70        --      --        --        --
                          -------   -----   -------- -------  -------- --------
Outstanding, end of year   88,043  $14.40   110,249  $14.43   110,249   $ 14.43
                          =======   =====   =======   =====   =======   =======
Options exercisable at
   year end                88,043           101,327            90,028


As of  September  30,  2004,  other  information  by exercise  price for options
outstanding is as follows:

                                          Weighted-
                             Number       Average
                               of        Remaining
Exercise Price              Shares    Contractual Life    Exercisable
----------------------------------------------------------------------

 $11.16                     41,818        1.5 years        41,818
 $13.05                     18,473        3.0 years        18,473
 $13.78                      4,752        4.0 years         4,752
 $21.50                     23,000        4.5 years        23,000
                           -------                        -------
                            88,043                         88,043
                           =======                        =======


                                       34
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


Note 18: Earnings Per Share

Earnings per share (EPS) were computed as follows:

                                                             2004
                                                             Weighted-
                                                              Averag  Per-Share
                                                   Income     Shares     Amount
                                                  -----------------------------
Basic Earnings Per Share
    Net income available to common stockholders   $4,734,197  3,382,135   $1.40

Effect of Dilutive Securities
    Stock options and RRP awards                          --     32,950
                                                  ----------  -----------
Diluted Earnings Per Share
    Income available to common stockholders and
      assumed conversions                         $4,734,197  3,415,085   $1.39
                                                  ==========  ==========


                                                              2003
                                                            Weighted-
                                                             Average  Per-Share
                                                  Income     Shares     Amount
                                                  -----------------------------
Basic Earnings Per Share
    Net income available to common stockholders   $5,749,305   3,435,112  $1.67

Effect of Dilutive Securities
    Stock options and RRP awards                           --      27,646
                                                   ----------  ----------
Diluted Earnings Per Share
    Income available to common stockholders and
      assumed conversions                         $5,749,305   3,462,758  $1.66
                                                  ==========   =========


                                                             2002
                                                            Weighted-
                                                             Average  Per-Share
                                                   Income   Shares       Amount
                                                  -----------------------------
Basic Earnings Per Share
    Net income available to common stockholders   $5,404,981   3,456,324  $1.56

Effect of Dilutive Securities
    Stock options and RRP awards                          --      17,235
                                                   ----------  ----------

Diluted Earnings Per Share
    Income available to common stockholders and
      assumed conversions                         $5,404,981   3,473,559  $1.56
                                                  ==========   =========


Options  to  purchase  30,000  shares of common  stock at $21.50  per share were
outstanding at September 30, 2002,  but were not included in the  computation of
diluted EPS because the  options'  exercise  price was greater  than the average
market price of the common shares.

                                       35
<PAGE>

                           Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


Note 19: Fair Values of Financial Instruments

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instrument:

Cash  and Cash  Equivalents  - The  fair  value  of cash  and  cash  equivalents
approximates carrying value.

Interest-bearing  Deposits - The fair value of  interest-bearing  time  deposits
approximates carrying value.

Securities  and  Mortgage-backed  Securities  - Fair  values are based on quoted
market prices.

Loans  and Loans  Held for Sale - For both  short-term  loans and  variable-rate
loans that reprice  frequently  and with no  significant  change in credit risk,
fair  values are based on  carrying  values.  The fair value for other  loans is
estimated  using  discounted  cash flow analyses using interest rates  currently
being  offered  for loans with  similar  terms to  borrowers  of similar  credit
quality.

Interest  Receivable/Payable  - The fair values of  interest  receivable/payable
approximate carrying values.

FHLB  Stock - Fair  value of FHLB stock is based on the price at which it may be
resold to the FHLB.

Deposits - The fair values of  noninterest-bearing,  interest-bearing demand and
savings  accounts are equal to the amount payable on demand at the balance sheet
date. The carrying amounts for variable rate, fixed-term certificates of deposit
approximate  their  fair  values at the  balance  sheet  date.  Fair  values for
fixed-rate  certificates  of deposit are estimated  using a discounted cash flow
calculation  that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on such time deposits.

Short-term  Borrowings - The fair value of  short-term  borrowings  approximates
carrying value.

Federal  Home  Loan  Bank  advances  - The fair  value of  these  borrowings  is
estimated using a discounted cash flow  calculation,  based on current rates for
similar advances.


                                       36
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


        The estimated fair values of the Company's financial instruments are as
follows:

                                         2004                      2003
                                  Carrying      Fair        Carrying     Fair
                                   Amount       Value         Amount    Value
                               -------------------------- ----------------------

Assets
 Cash and cash equivalents  $ 10,924,820  $ 10,924,820 $ 35,161,821 $ 35,161,821
 Interest-bearing time
   deposits                    3,071,046     3,071,046    3,270,106    3,270,106
 Investment securities
   available for sale         95,681,497    95,681,497   85,504,604   85,504,604
 Investment securities held
   to maturity                 1,111,754     1,144,383    2,116,827    2,218,264
 Loans, including loans
   held for sale             360,454,908   367,834,000  356,953,361  368,992,000
 Stock in FHLB                 4,736,500     4,736,500    4,518,700    4,518,700

Liabilities
 Deposits                    370,824,854   372,390,000  380,115,884  385,690,000
 Short-term borrowings         3,321,460     3,321,460    2,649,653    2,649,653
 Federal Home Loan Bank
   advances                   50,100,000    53,447,000   54,100,000   59,316,000


Note 20: Quarterly Results of Operations (Unaudited)


<TABLE>
                                                                                 Basic
                                              rovision               Average    Earnings
Quarter     Interest     Interest  Net Interest   For        Net      Shares      Per
Ending       Income      Expense      Income  Loan Losses  Income   Outstanding  Share
-----------------------------------------------------------------------------------------
<S>        <C>          <C>         <C>         <C>        <C>       <C>         <C>
 Dec 03    $ 6,844,042 $ 2,656,575 $ 4,187,467 $ 41,196   $1,276,439 3,402,938   $ .38
 Mar 04      6,714,082   2,584,346   4,129,736   41,801    1,108,833 3,385,104     .33
 Jun 04      6,592,868   2,542,286   4,050,582   21,121    1,135,804 3,371,266     .34
 Sep 04(a)   6,715,642   2,552,735   4,162,907  (63,744)   1,213,121 3,369,147     .36
            ----------  ----------  ----------  -------    ---------
           $26,866,634 $10,335,942 $16,530,692 $ 40,374   $4,734,197
            ==========  ==========  ==========  =======    =========

 Dec 02    $ 8,033,234 $ 3,423,588 $ 4,609,646 $206,805   $1,501,293 3,446,883   $0.44
 Mar 03      7,484,943   3,093,705   4,391,238  178,721    1,387,403 3,441,328    0.40
 Jun 03      7,240,986   2,874,364   4,366,622   71,973    1,502,968 3,428,544    0.44
 Sep 03      6,989,133   2,755,762   4,233,371   79,682    1,357,641 3,422,181    0.40
            ----------  ----------  ----------  -------    ---------
           $29,748,296 $12,147,419 $17,600,877 $537,181   $5,749,305
           =========== =========== =========== ========   ==========

</TABLE>

(a) Net  income  and  earnings  per  share in the  fourth  quarter  of 2004 were
affected by an adjustment to the provision for loan losses based on management's
quarterly  evaluation of the loan  portfolio and the related  allowance for loan
losses.


                                       37
<PAGE>


                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


Note 21: Condensed Financial Information (Parent Company Only)

Presented  below is condensed  financial  information as to financial  position,
results of operations and cash flows of the Company.

                                  Condensed Balance Sheets

                                                      2004            2003
                                                   ---------------------------
Assets
    Cash                                           $ 3,929,051     $ 3,452,717
    Investment in subsidiaries                      56,714,406      56,376,711
    Securities available for sale                    4,655,545       4,610,463
    Other assets                                       352,734         124,247
                                                   -----------     -----------
       Total assets                                $65,651,736     $64,564,138
                                                   ===========     ===========
Liabilities
    Dividends payable on common stock              $   603,725     $   579,884
    Other                                               56,451          59,400
                                                   -----------     -----------
       Total liabilities                               660,176         639,284
                                                   -----------     -----------
Stockholders' Equity
    Common stock                                     3,367,803       3,421,895
    Additional paid-in capital                       6,002,637       7,370,513
    Retained earnings                               55,711,953      53,302,385
    Unearned RRP                                            --          (1,522)
    Accumulated other comprehensive income             (90,833)       (168,417)
                                                   -----------     -----------
                                                    64,991,560      63,924,854
                                                   -----------     -----------
    Total liabilities and stockholders' equity     $65,651,736     $64,564,138
                                                   ===========     ===========



                                       38
<PAGE>



                                 Peoples Bancorp
                   Notes to Consolidated Financial Statements
                        September 30, 2004, 2003 and 2002


                                          Condensed Statements of Income

                                                  2004       2003      2002
                                              ---------------------------------
Income
    Dividends from subsidiaries                $4,000,000 $4,000,000 $3,200,000
    Interest on investments                       171,220    196,705    176,047
    Net losses on available-for-sale
      securities                                 (471,946)        --         --
                                               ---------- ----------------------
                                                3,699,274  4,196,705  3,376,047
Expenses                                         (144,775)  (144,012)  (175,163)
                                               ---------- ---------- ----------
Income before equity in undistributed income
   of subsidiaries and income tax expense       3,554,499  4,052,693  3,200,884
Equity in undistributed income of subsidiaries    705,950  1,703,737  2,223,747
                                               ---------- ---------- ----------
Income before income tax                        4,260,449  5,756,430  5,424,631
Income tax expense (benefit)                     (473,748)     7,125     19,650
                                               ---------- ---------- ----------
Net income                                     $4,734,197 $5,749,305 $5,404,981
                                               ========== ========== ==========


                             Condensed Statements of Cash Flows

                                               2004         2003         2002
                                            -----------------------------------

Net cash provided by operating activities   $ 4,032,062 $ 4,046,297 $ 3,571,079
                                            ----------- ----------- -----------
Cash flows from investing activities
    Proceeds from maturities of securities
      held to maturity                               --      40,000      40,000
    Proceeds from maturities and calls of
      securities available for sale             223,728     198,238     280,000
                                            ----------  ----------- -----------
       Net cash provided by investing
          activities                            223,728     238,238     320,000
                                            ----------- ----------- -----------
Cash flows from financing activities
    Stock repurchased                        (1,804,947)   (513,523)   (692,552)
    Stock options exercised                     326,279          --          --
    Cash dividends                           (2,300,788) (2,201,904) (2,094,402)
                                            ----------- ----------- -----------
       Net cash used in financing activities (3,779,456) (2,715,427) (2,786,954)
                                            ----------- ----------- -----------
Net change in cash                              476,334   1,569,108   1,104,125
Cash at beginning of year                     3,452,717   1,883,609     779,484
                                            ----------- ----------- -----------
Cash at end of year                         $ 3,929,051 $ 3,452,717 $ 1,883,609
                                            =========== =========== ===========



                                       39
<PAGE>

                                                                      Exhibit 14

Code of Ethical Conduct for Financial Managers

In my role as a finance manager of the Peoples Bancorp Corporation,

I recognize  that  financial  managers  hold an important  and elevated  role in
corporate  governance.  I am  uniquely  capable  and  empowered  to ensure  that
stakeholders'  interests are  appropriately  balanced,  protected and preserved.
Accordingly,  this Code  provides  principles  to which  financial  managers are
expected to adhere and advocate.  The Code embodies rules  regarding  individual
and peer  responsibilities,  as well as  responsibilities  to the  company,  the
public and other stakeholders.

I certify to you that I adhere to and  advocate  the  following  principles  and
responsibilities governing my professional and ethical conduct.

To the best of my knowledge and ability:

1.   I act with honesty and integrity,  avoiding actual or apparent conflicts of
     interest in personal and professional relationships.

2.   I  provide  constituents  with  information  that  is  accurate,  complete,
     objective, relevant, timely and understandable.

3.   I comply with rules and regulations of federal, state, provincial and local
     governments, and other appropriate private and public regulatory agencies.

4.   I act in good faith, responsibly,  with due care, competence and diligence,
     without misrepresenting  material facts or allowing my independent judgment
     to be subordinated.

5.   I respect the  confidentiality of information  acquired in the course of my
     work except when  authorized  or otherwise  legally  obligated to disclose.
     Confidential  information acquired in the course of my work is not used for
     personal advantage.

6.   I  share  knowledge  and  maintain  skills  important  and  relevant  to my
     constituents' needs.

7.   I proactively promote ethical behavior as a responsible partner among peers
     in my work environment and community.

8.   I achieve  responsible  use of and  control  over all assets and  resources
     employed or entrusted to me.


                                       46
<PAGE>

                                                                      Exhibit 21


                                           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


First Savings Bank
Federal Savings Bank                        United States of America

And its subsidiary

Alpha Financial, Inc.                       Michigan


                                       47
<PAGE>


                                                                    Exhibit 23.1

     We hereby  consent to the  incorporation  by reference in the  Registration
Statement on Form S-8 (File No. 333-120950) relating to the Employees' Savings &
Profit  Sharing  Plan  and  Trust  of  Peoples  Bancorp  ) and the  Registration
Statement  on Form  S-8  (File  No.  333-45164)  relating  to the  Three  Rivers
Financial  Corporation  Stock Option and  Incentive  Plan (as assumed by Peoples
Bancorp) and the 1998 Peoples  Bancorp  Stock Option and  Incentive  Plan of our
report  dated  October 29,  2004,  with  respect to the  consolidated  financial
statements of Peoples Bancorp  included in its Annual Report to Stockholders for
the year ended  September  30,  2004,  filed with the  Securities  and  Exchange
Commission  on December  10, 2004  (incorporated  by  reference  into its Annual
Report on Form 10-K for the year ended September 30, 2004).




/s/BKD, LLP

Indianapolis, Indiana
December 22, 2004

                                       48
<PAGE>


                                                                    Exhibit 31.1


                                  CERTIFICATION

I, Maurice F. Winkler III, President-Chief Executive Officer, certify that:

1.   I have  reviewed  this  annual  report  on Form  10-K of  Peoples  Bancorp,
     Incorporated;
2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;
3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included in this annual report fairly  present in all material
     respects the financial  condition,  results or operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;
4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     (a)  Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this annual report is being prepared;
     (b)  [intentionally omitted].
     (c)  Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and
     (d)  Disclosed  in  this  annual  report  any  change  in the  registrant's
          internal  control over financial  reporting  that occurred  during the
          registrant's fourth fiscal quarter that has materially affected, or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons  performing  the  equivalent  functions):

     (a)  All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process,  summarize and report financial information;  and
     (b)  Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


December 14, 2004
                                               /s/Maurice F. Winkler III
                                               President-Chief Executive Officer

                                       49
<PAGE>




                                                                    Exhibit 31.1
                                  CERTIFICATION

I Deborah K. Stanger, Vice President-Chief Financial Officer, certify that:

1.   I have  reviewed  this  annual  report  on Form  10-K of  Peoples  Bancorp,
     Incorporated;
2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;
3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included in this annual report fairly  present in all material
     respects the financial  condition,  results or operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;
4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     (a)  Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this annual report is being prepared;

     (b)  [intentionally omitted].
     (c)  Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and
     (d)  Disclosed  in  this  annual  report  any  change  in the  registrant's
          internal  control over financial  reporting  that occurred  during the
          registrant's fourth fiscal quarter that has materially affected, or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons  performing  the  equivalent  functions):

     (a)  All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process,  summarize and report financial information;  and
     (b)  Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


Date:  December 14, 2004                  /s/Deborah K. Stanger
                                          Vice President-Chief Financial Officer

                                       50
<PAGE>


                                                                      Exhibit 32



                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



Pursuant  to Section  906 of the  Sarbanes-Oxley  Act of 2002  (Section  1350 of
Chapter  63 of Title 18 of the  United  States  Code),  each of the  undersigned
officers of Peoples  Bancorp (the "Company") does hereby certify with respect to
the annual report on Form 10-K for the period ended September 30, 2004, as filed
with the Securities and Exchange Commission (the "Report"), that:

     1.   The Report fully  complies with the  requirements  of section 13(a) of
          the Securities Exchange Act of 1934; and

     2.   The  information  contained  in the  Report  fairly  presents,  in all
          material respects,  the financial  condition and results of operations
          of the Company.




Date: December 14, 2004                                /s/Maurice F. Winkler III
                                                       Chief Executive Officer


Date: December 14, 2004                                /s/Deborah K. Stanger
                                                       Chief Financial Officer


                                       51
<PAGE>