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, 1997

     [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934 For the transition period from ________ to ________

                         Commission File Number 0-18991

                                 PEOPLES BANCORP
             (Exact name of registrant as specified in its charter)

        INDIANA                                                35-1811284
(State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                         Identification Number)

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

       Registrant's telephone number, including area code: (219) 925-2500
        Securities registered pursuant to Section 12(b) of the Act: None
           Securities registered pursuant to Section 12(g) of the Act

                     Common Stock, par value $1.00 per share
                                (Title of Class)

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

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

     Aggregate  market  value of  voting  stock  held by  non-affiliates  of the
registrant, as of December 26, 1997: $72,968,495.

        Indicate the number of shares  outstanding  of each of the  registrant's
classes of common stock, as of December 26, 1997:

           3,390,953 shares of Common Stock, par value $1.00 per share

                      Documents Incorporated by Reference:

        Portions of the definitive  Proxy  Statement for the 1998 Annual Meeting
of Stockholders  (Part III) and the Annual Report to  Stockholders  for the year
ended September 30, 1997 (Parts II and IV).


                                     PART I

Item 1.  Business

General


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

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

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

         In  May,  1997,  the  Board  authorized  a  stock  repurchase  program.
Purchases  of up to 240,000  shares may be made in open  market or in  privately
negotiated  transactions.  As of September 30, 1997, the Company had repurchased
25,656 shares.

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

      The  Bank  offers  a wide  range  of  consumer  and  commercial  financial
services.  These  services  include:   consumer  demand  deposit  accounts;  NOW
accounts;   regular  and  term  savings   accounts  and  savings   certificates;
residential and commercial real estate loans; and secured and unsecured consumer
loans.  The Bank provides these services  through a branch network  comprised of
six full-service banking offices. It also provides credit card services, as well
as enhancements to its loan and deposit products  designed to provide  customers
with added  conveniences.  The Bank has  historically  concentrated its business
activities in northeastern  Indiana.  The Bank's current strategy is to maintain
its branch office network as well as remain alert to new opportunities.

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


The Thrift Industry

      Thrift institutions are financial  intermediaries  which historically have
accepted  savings  deposits  from the general  public  and, to a lesser  extent,
borrowed  funds from  outside  sources and  invested  those  deposits  and funds
primarily in loans  secured by first  mortgage  liens on  residential  and other
types of real estate.  Such  institutions may also invest their funds in various
types of short- and long-term  securities.  The deposits of thrift  institutions
are insured by the SAIF as administered by the FDIC, and these  institutions are
subject to extensive regulations.  These regulations govern, among other things,
the lending and other investment  powers of thrift  institutions,  including the
terms of mortgage  instruments these institutions are permitted to utilize,  the
types of deposits they are permitted to accept, and reserve requirements.

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

Earnings

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

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

Competition

      The Bank experiences  strong  competition both in making real estate loans
and in attracting savings deposits.  In the past, thrift institutions  generally
competed  for  real  estate  loans  with  commercial  banks,   mortgage  banking
companies,   insurance  companies,   and  other  institutional  lenders.  Recent
legislative  and regulatory  actions have increased  competition  between thrift
institutions  and other  financial  institutions,  such as commercial  banks, by
expanding  the range of services  that may be offered  such as demand  deposits,
trust services, and consumer and commercial lending. The most direct competition
for savings has historically come 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 and, more recently, money market mutual
funds. The principal  methods  generally used by thrift  institutions to attract
deposit accounts include:  competitive interest rates, advertising,  providing a
variety of financial services,  convenient office locations,  flexible hours for
the public, and promotions for opening or adding to deposit accounts.

      Net Interest Income

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

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

Interest Rate and Volume of Interest-Related Assets and Liabilities

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

      For information  regarding the total dollar amount of interest income from
interest-earning assets, the average yields, the amount of interest expense from
interest-bearing liabilities and the average rate, net interest income, interest
rate spread, and the net yield on  interest-earning  assets,  refer to page 8 of
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  in  the  Company's  1997  Annual  Report,   incorporated  herein  by
reference.

      For information regarding the combined weighted average effective interest
rate earned by the Bank on its loan  portfolio  and  investments,  the  combined
weighted  average  effective  cost of the Bank's  deposits and  borrowings,  the
interest rate spread of the Bank, and the net yield on combined monthly weighted
average   interest-earning  assets  of  the  Bank  on  its  loan  portfolio  and
investments for the fiscal years ending September 30, 1997, 1996, and 1995 refer
to page 6 of  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations in the Company's 1997 Annual Report incorporated herein by
reference.

      For  information  concerning the extent to which changes in interest rates
and changes in volume of  interest-related  assets and liabilities have affected
the Bank's interest income and expense during the fiscal years ending  September
30, 1997, 1996, and 1995 refer to page 9 of Management's Discussion and Analysis
of Financial  Condition and Results of  Operations in the Company's  1997 Annual
Report incorporated herein by reference.

Market Area

    The Bank's market area in northeastern Indiana spans the counties of DeKalb,
Whitley, Noble, and LaGrange. This market area has a population of approximately
130,000 and consists of a diversified  industrial economic base with an emphasis
on the production  sector that includes  major  manufacturers  of  international
scope. Moreover, the distribution sector,  primarily in the wholesale and retail
trades,  constitutes a substantial portion of the area's economy,  both in terms
of product  mix,  sales  receipts,  and  employment.  The most rapid  growth has
occurred in the manufacturing sector, especially in the production of automotive
and electronics  products,  and in the service sector with respect to packaging,
warehousing, and distribution services.

Lending Activities

    General

    The  Bank  has  attempted  to  emphasize   investments  in   adjustable-rate
residential  mortgages and consumer loans in its market area. In order to lessen
its risk from interest rate fluctuations, the Bank emphasizes the origination of
interest rate sensitive loan products, such as one year adjustable-rate mortgage
loans, and prime plus equity loans.

    Residential Mortgage Loans

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

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

    During the  fiscal  year  ended  September  30,  1997,  the Bank  originated
$62,904,000  of  residential  loans of which  $60,126,065  were five- to 30-year
fixed-rate  mortgages  and  $2,777,935  were  adjustable-rate  loans.  The rates
offered on the Bank's  adjustable-rate  residential mortgage loans are generally
competitive  with the rates offered by other thrift  institutions  in the Bank's
market  area and are based upon the Bank's  cost of funds and the rate of return
the Bank can receive on comparable investments.  Fixed-rate loans are originated
only under terms and conditions and using documentation which would permit their
sale in the secondary  market and at rates which are generally  competitive with
rates offered by other financial institutions in the Bank's market area.

    Set  forth  below  are  the  amounts  and   percentages  of  fixed-rate  and
adjustable-rate  loans (which include consumer loans) in the Bank's portfolio at
September 30, 1997, 1996, and 1995 (in thousands).

                             September 30,
--------------------------------------------------------------------------------
        1997                   1996                  1995
----------------------- --------------------- ----------------------------------
  Fixed    Adjustable   Fixed     Adjustable    Fixed      Adjustable
--------- ------------ --------- ------------ ----------- ----------------
 $180,631   $59,025    $154,416     $73,159    $133,508      $89,221
   75.4%     24.6%       67.9%       32.1%         59.9%       40.1%


    The terms of the residential  loans originated by the Bank range from one to
30 years. Experience during recent years reveals that as a result of prepayments
in  connection  with  refinancings  and  sales  of  the  underlying  properties,
residential loans generally remain outstanding for periods substantially shorter
than  maturity  of the loan  contracts.  At  September  30,  1997,  the  average
contractual  maturity of the Bank's  portfolio of fixed-rate  loans was 11 years
and 4  months,  and 19 years  and 4 months  with  respect  to its  portfolio  of
adjustable-rate loans.

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

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

    Commercial Real Estate Loans

    Federal  laws  and   regulations   permit  a   federally-chartered   savings
institution to make  commercial  real estate loans.  From September 30, 1996, to
September 30, 1997,  commercial  real estate loans  increased from $7,476,884 to
$7,850,076,  with the percentage of commercial  real estate loans to total loans
remaining at 3.30%.  These loans consisted of  construction  and permanent loans
secured by mortgages on mid-size commercial real estate. The terms of commercial
real  estate   loans  vary  from  loan  to  loan  but  are   usually   five-year
adjustable-rate  loans with terms of 20 to 25 years.  The loan-to-value ratio of
commercial real estate loans is generally 75% or less.

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

Construction Loans

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

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

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

Consumer and Other Loans

    Federal  laws  and   regulations   permit  a   federally-chartered   savings
institution to make secured and unsecured  consumer loans  including home equity
loans  (loans  secured  by the  equity  in the  borrower's  residence,  but  not
necessarily  for the purpose of  improvement),  home  improvement  loans  (loans
secured by a residential  second  mortgage),  loans secured by deposit accounts,
educational loans (insured by the State Student Loan Commission of Indiana), and
credit card loans  (unsecured).  The Bank offers all of these types of loans and
is  currently  emphasizing  home equity  loans to take  advantage  of the recent
changes in the tax laws. These loans are often at adjustable interest rates that
generally are higher than the rates offered on mortgage loans.

    Loan Portfolio Cash Flows

     The following  table sets forth the  estimated  maturity of the Bank's loan
portfolio by type of loan at September 30, 1997. The estimated maturity reflects
contractual  terms at September 30, 1997.  Contractual  principal  repayments of
loans do not  necessarily  reflect the actual term of the Bank's loan portfolio.
The average life of mortgage loans is substantially  less than their contractual
terms because of loan  prepayments  and because of  enforcement of "due on sale"
clauses.  The average life of mortgage  loans tends to increase,  however,  when
current  mortgage  loan rates  substantially  exceed rates on existing  mortgage
loans.
                                   Years Ended September 30
                            -----------------------------------------
                                      1999-     2003 and
                             1998     2002      thereafter    Total
                            -------  --------  ------------ ---------
                                        (In thousands)
Type of Loan:
Construction loans --
   residential real estate $ 5,197   $     -    $      -    $  5,197
Real estate loans:
   Mortgage-residential     57,995    45,860     110,786     214,641
   Commercial                3,325     3,375         382       7,082
Installment loans -- 
   consumer                  8,701     2,776       1,259      12,736
                           --------  --------  -----------  ---------

         Total             $75,218   $52,011    $112,427    $239,656
                           ========  ========  ===========  =========


    The  following  table sets forth the  estimated  maturity of the Bank's loan
portfolio on and after one year from  September 30, 1997,  in the  categories of
fixed rate and adjustable rate.


        Cash Flows of Loans
   October 1, 1998 and thereafter
---------------------------------
     Fixed         Adjustable           Total at September 30, 1997
----------------  ---------------    --------------------------------
      $112,840       $51,598                   $164,438

Loan Portfolio Composition

     The following table sets forth the composition of the Bank's loan portfolio
by type of security 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>


                                 1997                1996               1995                1994            1993
                         ------------------- ------------------ ------------------ ----------------- ----------------
TYPE OF SECURITY           AMOUNT       %      AMOUNT    %        AMOUNT     %       AMOUNT    %       AMOUNT    %
                         ----------- ------- --------- -------- --------- -------- -------- -------- -------- -------
                                                                (Dollars in thousands)
<S>                        <C>        <C>    <C>        <C>     <C>       <C>     <C>        <C>     <C>        <C>
Residential:
     Single family units   $217,528   90.8%  $207,028   91.0%   $203,211   91.2%  $195,525   91.7%   $188,135   91.9%
     2-4 family units         1,541    0.6%     1,234    0.5%      1,008    0.4%     1,006    0.5%        654    0.3%
     Over 4 family units      2,813    1.2%     2,769    1.2%      1,738    0.8%     1,835    0.8%      1,751    0.9%
Commercial real estate        4,269    1.8%     4,006    1.8%      3,696    1.7%     2,729    1.3%      2,344    1.1%
Land acquisition and
     development                769    0.3%       702    0.3%        838    0.4%       438    0.2%        560    0.3%
Consumer and other loans     11,915    5.0%    10,959    4.8%     11,337    5.1%    10,931    5.1%     10,441    5.1%
Loans on deposits               821    0.3%       877    0.4%        901    0.4%       860    0.4%        888    0.4%
                         ----------- ------- --------- -------  --------- ------  --------- ------   --------- ------
                            239,656  100.0%   227,575  100.0%    222,729  100.0%   213,324  100.0%    204,773  100.0%
                         ----------- ------- --------- -------  --------- ------  --------- ------   --------- ------
Less:
Undisbursed portion
     of loans                 2,444            2,717               2,237             1,971              1,762
Deferred loan fees and
     discounts                1,070              959                 916               988                893
                         -----------        ---------           ---------         ----------         ---------
                              3,514            3,676               3,153             2,959              2,655
                         -----------        ---------           ---------         ----------         ---------
Total loans receivable      236,142          223,899             219,576           210,365            202,118
Allowance for losses
     on loans                   887              888                 912             1,035              1,025
                         -----------       ----------           ---------         ----------         ---------
Net loans                  $235,255         $223,011            $218,664          $209,330           $201,093
                         ===========       ==========           =========         ==========         =========
</TABLE>


Origination, Purchase and Sale of Loans and Loan Concentrations

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

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

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

    The  procedure  for  approval  of  construction  loans  is the  same  as for
residential  mortgage  loans,  except that the appraiser  evaluates the building
plans,  construction  specifications,  and estimates of construction  costs. The
Bank also evaluates the feasibility of the proposed construction project and the
experience  and track record of the  developer.  In addition,  all  construction
loans generally require a commitment from a third-party  lender or from the Bank
for a permanent  long-term loan to replace the construction loan upon completion
of construction.
<PAGE>

    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.  Consumer  loans  must be
approved by a consumer loan officer.  Consumer loan  originations  currently are
being generated primarily through advertising.

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

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

                                              Years Ended September 30
                                       --------------------------------------
                                          1997          1996          1995
                                       ----------    ----------   -----------
                                             (Dollars in thousands)
Mortgage loans originated
   for the purpose of:
     Construction-commercial            $    -        $   995      $      -
     Construction-residential             9,120         6,582         7,069
     Purchase/refinance-commercial          618         1,905         1,910
     Purchase/refinance-residential      53,374        51,926        41,376
Consumer and other loans originated       9,462         6,837         9,160
                                       ----------    ----------   -----------
   Total loans originated                72,574        68,245        59,515
                                       ----------    ----------   -----------
Loans  purchased                              -            -            -
                                       ----------    ----------   -----------
                                         72,574        68,245        59,515
                                       ----------    ----------   -----------
   Principal repayments                  60,368        64,146        50,316
                                      ----------    ----------   -----------
Other:
   Provision for losses on loans             50             9            50
   Amortization of loan fees               (271)         (368)         (412)
   Loan foreclosures, net                   183           111           228
                                       ----------    ----------   -----------
                                            (38)         (248)         (134)
                                       ----------    ----------   -----------
     Total credits, net                   60,330        63,898        50,182
                                       ----------    ----------   -----------
Net increases in mortgage and other
   loans receivable, net                $12,244        $ 4,347       $ 9,333
                                       ==========    ==========   ============



    Interest Rates, Points and Fees

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

    The Bank accounts for loan origination fees in accordance with the Statement
of Financial Accounting Standards on Accounting for Nonrefundable Fees and Costs
Associated  with  Originating  or Acquiring  Loans ("SFAS No. 91") issued by the
Financial  Accounting  Standards  Board (the "FASB").  SFAS No. 91 prohibits the
immediate  recognition  of loan  origination  fees as revenues and requires that
such income  (net of certain  direct  loan  origination  costs) for each loan be
amortized, generally by the interest method, over the estimated life of the loan
as an adjustment of yield.

<PAGE>

Nonperforming Assets

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

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

    The following table reflects the amount of loans in delinquent  status as of
the dates indicated:
<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
             ------- -------- ---------- ------ ------ --------- ------ ------ ---------  
                                 (Dollars in thousands)
<S>            <C>    <C>       <C>        <C>   <C>     <C>      <C>    <C>      <C>    
Real estate:
  One to four  31     $1,187    0.54%      8     $298    0.14%    30     $671     0.31%
   family
Consumer       18        192    1.51%      9       74    0.58%    14       94     0.74%
              ====  ==========           ====  =======           ====  ========
   Total       49     $1,379    0.58%     17     $372    0.16%    44     $765     0.32%
              ====  ==========           ====  =======           ====  ========
</TABLE>



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

                                        At September 30,
                           ------------------------------------------
                            1997    1996    1995    1994      1993
                           ------ ------- -------  -------- ---------     
                                   (Dollars in thousands)
Nonaccrual loans            $658    $814    $765   $1,020     $866
Loans past due 90 days and 
    still accruing            64      88      99       49       87
                           ------ ------- ------- -------- ----------
                             722     902     864    1,069      953
Real estate owned, net
   of allowance                -     110      47       25      106
                           ------ ------- ------- -------- ----------
Total nonperforming
   assets                   $722  $1,012    $911   $1,094    $1,059
                           ====== ======= ======= ======== ==========

     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.
<PAGE>

    Interest income that would have been recognized for the year ended September
1997, if nonaccrual  loans had been current in  accordance  with their  original
terms, approximated  $38,000.  Interest income  recognized on such loans for the
year ended September 30, 1997, approximated $25,000.

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

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

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

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

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

    As of  September  30, 1997, loan  balances  were  classified  by the Bank as
follows:

             Loss                          $   11,567
             Doubtful                             -0-
             Substandard                      808,459
             Special Mention                  605,383

Allowance for Losses on Loans and Real Estate Owned

    The  allowances  for loan and real estate  owned  losses  represent  amounts
available to absorb inherent  losses in the loan portfolio.  Such allowances are
based  on  management's   continuing   review  of  the  portfolios,   historical
charge-offs,  current  economic  conditions,  and such other  factors,  which in
management's  judgment deserve  recognition in estimating  possible  losses.  In
addition,  various regulatory agencies, as an integral part of their examination
process,  periodically  review the allowance for loan losses.  Such agencies may
require   additions  to  the  allowances  based  on  their  judgment  about  the
information  available to them at the time of their examination.  Provisions for
losses are  charged to  earnings to bring the  allowances  to levels  considered
necessary by management.  Losses are charged to the allowances  when  considered
probable.  As of September 30, 1997, the allowances for losses on loans and real
estate owned were $886,567 and $-0- respectively.  Management  believes that the
allowances are adequate to absorb known and inherent losses in the portfolio. No
assurance can be given,  however,  that economic  conditions which may adversely
affect the Bank's markets or other circumstances will not result in additions to
the allowance for loan losses.

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

                                                           September 30,
                              ----------------------------------------------------------------------------
                                   1997           1996            1995           1994           1993
                              ----------------------------------------------------------------------------
                               Amount    %   Amount    %      Amount   %    Amount    %    Amount   %
                              ----------------------------------------------------------------------------
                                          (Dollars in thousands)
                              ----------------------------------------------------------------------------
<S>                            <C>     <C>     <C>    <C>     <C>    <C>     <C>    <C>    <C>     <C>   
Balance at end of
period applicable to:
Residential Mortgage Loans     $  9    91.7%   $ 19   91.8%   $ 42   92.2%   $ 20   92.6%  $ 177   92.4%
Commercial Real Estate Loans      -     3.0%      -    3.0%      -    2.0%    140    1.3%    140    1.1%
Consumer Loans                    2     5.3%      -    5.2%     30    5.8%     42    6.1%     15    6.5%
Unallocated                     875             868            840            832            693
                             -----------------------------------------------------------------------------

Total                         $ 886   100.0%   $887  100.0%   $912  100.0% $1,034  100.0% $1,025  100.0%
                             -----------------------------------------------------------------------------
</TABLE>

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

Summary of Loan Loss Experience             Years ended September 30,
                                    ------------------------------------------
(Dollars in Thousands)               1997   1996    1995    1994     1993
                                    ------ ------ -------- -------- ----------
Balance of loan loss allowance at
 beginning of year                   $887   $912   $1,034   $1,025     $895
 Charge-offs
    Residential                         -      -      153        5        1
    Commercial real estate              -      -        -        -        -
    Commercial                          -      -        -        -        -
    Consumer                           84     55       47       30       45
                                    ------ ------ -------- -------- ----------
         Total Charge-offs             84     55      200       35       46
                                   ------- ------ -------- -------- ----------

  Recoveries
    Residential                         -      -        -        -        -
    Consumer                           33     21       28       21       22
                                    ------ ------ -------- -------- ----------
         Total Recoveries              33     21       28       21       22
                                    ------ ------ -------- -------- ----------

    Net Charge-offs (Recoveries)       51     34      172       14       24
Provision for loan losses              50      9       50       23      154
                                    ------ ------ -------- -------- ----------
Balance of loan loss allowance at
     end of year                     $886   $887   $  912   $1,034   $1,025
                                    ====== ====== ======== ======== ==========

Ratio of net charge-offs to average
     loans outstanding              0.02%   0.02%   0.08%    0.01%    0.02%


<PAGE>


Investment Activities

    Federal  thrift  institutions  have  authority to invest in various types of
liquid assets,  including  United States Treasury  obligations and securities of
various federal  agencies,  certificates  of deposit at insured banks,  bankers'
acceptances  and federal  funds.  As a member of the FHLB System,  the Bank must
maintain  minimum  levels of liquid assets  specified by the OTS which vary from
time to  time.  Subject  to  various  regulatory  restrictions,  federal  thrift
institutions  may also  invest a portion of their  assets in certain  commercial
paper,  corporate  debt  securities and mutual funds whose assets conform to the
investments that a federal thrift institution is authorized to make directly. At
September 30, 1997, the Bank's ratio of liquid assets to total assets was 13.0%,
which exceeds the regulatory requirement.

                                                 At September 30,
                                  -------------------------------------------
                                       1997           1996          1995
                                  -------------  ------------- --------------
Interest-bearing deposits and
     certificates of deposit (1)   $ 8,714,990    $ 7,823,900    $ 8,190,942
U.S. government and federal 
     agency securities
     Held to maturity                8,000,000     13,175,118     26,987,247
     Available for sale             19,822,410     20,590,450      6,966,562
Mortgage backed securities
     Held to Maturity                  498,823        630,503        794,328
Stock in FHLB of Indianapolis        2,062,200      2,004,400      1,941,100
Other
     Held to maturity                  757,855        455,414      1,158,980
     Available for sale              8,645,390      5,295,565      4,103,300
                                  -------------  -------------  -------------

          Total investments        $48,501,668    $49,975,350    $50,142,459
                                  =============  =============  =============

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

     (1)In FHLB of Indianapolis  ($7,738,990) and insured certficates of deposit
($976,000) at September 30, 1997; in FHLB of Indianapolis at September 30, 1996;
in FHLB  of  Indianapolis  ($7,800,686)  and  insured  certificates  of  deposit
($390,256) at September 30, 1995.

     The  following  table  sets  forth   information   regarding  the  maturity
distribution  of  investment  securities at September 30, 1997, and the weighted
average yield on those securities.                                             
<TABLE>

                                                          At September 30, 1997
                                    ----------------------------------------------------------------------
                                          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
                                    ------------ ------ ------------- ------------- -------- -------------
<S>                                 <C>           <C>    <C>            <C>          <C>      <C>       
Due in one year or less             $ 3,321,375   5.60%  $ 3,326,153    $2,075,000   5.37%    $2,065,967
Due after one through five years     14,787,543   5.79%   14,823,974     6,290,000   5.36%     6,266,561
Due after five through ten years      5,658,899   7.08%    5,681,031       367,855   5.93%       382,524
Due after ten years                   2,015,504   7.70%    2,072,688        25,000   6.50%        25,000
                                   -------------        ------------- -------------          -------------
                                     25,783,321           25,903,846     8,757,855             8,740,052
Mortgage-backed securities                    -      -             -       498,823   9.58%       523,035
Marketable equity securities          2,563,954            2,563,954             -                     -
                                   -------------       -------------- -------------          -------------
                                    $28,347,275         $28,467,800     $9,256,678            $9,263,087
                                   =============       ============== =============          =============

</TABLE>
                               

Sources of Funds

    General

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

    Deposits

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

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

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

    For  information  on the various  interest rate  categories,  the amounts of
certificate  accounts at September 30, 1997, maturing during the next five years
and  thereafter  see the  Notes  to  Consolidated  Financial  Statements  in the
Company's 1997 Annual Report.

    The following  table lists  maturities of certificates of deposits where the
balance of the certificate  exceeds $100,000 for the periods indicated.  None of
these certificates were brokered deposits.
<PAGE>
                       At September 30, 1997
                      ----------------------
3 months or less           $ 5,598,526
3-6 months                   2,815,865
6-12 months                  5,704,785
over 12 months               3,247,415
                         --------------
Total                      $17,366,591
                         ==============
 
Borrowings

    As a member of the FHLB  System  and the FHLB of  Indianapolis,  the Bank is
eligible to arrange  borrowings or advances for various  purposes and on various
terms. The Bank had no advances at September 30, 1997. As of September 30, 1996,
and 1995 the Bank had  outstanding  advances to the FHLB of  Indianapolis of -0-
and $1,000,000 respectively.

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

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

                                                   Years Ended September 30
                                                --------------------------------
                                                   1997      1996       1995
                                                 ---------- --------- ----------
Average balance of total borrowings..............$2,412,000 $  723,000 $ 279,000
Highest month-end balance of total borrowings...  3,292,639  1,000,000 1,000,000
Weighted average interest rate of total borrowings   4.85%      5.83%     5.83%

                                                        At September 30
                                                  ------------------------------
                                                     1997      1996     1995
                                                  ---------- ------- -----------
Advances from FHLB of Indianapolis............... $        -    $ -   $1,000,000
Reverse Repurchase agreements..................... 3,162,400      -            -
                                                  ----------- ------ -----------
Total borrowings..................................$3,162,400.   $ -   $1,000,000
                                                  =========== ====== ===========

Weighted average interest rate.................       5.31%       -      5.83%


Trust Department and Discount Brokerage Services

    In October 1984, the FHLB of  Indianapolis  granted full trust powers to the
Bank,  one of the first  savings  institutions  in Indiana  to be  granted  such
powers.  As of September 30, 1997,  the Bank's trust  department  assets totaled
approximately  $43,699,000  including  self-directed  IRA  accounts,  and it was
offering a variety of trust services including estate planning. As of that date,
the  trust  department  was  administering  approximately  765  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   Individual   Retirement   Accounts  ("IRA's")  and
Simplified Employee Pension IRA's for small businesses.

<PAGE>

Non-Bank Subsidiary

    Peoples  Financial  Services,  Inc. ("PFSI") was organized in 1977 under the
laws of the State of  Indiana.  It is wholly  owned by the Bank and  conducts  a
general insurance business within the State of Indiana under the name of Peoples
Insurance  Agency. During  fiscal years ended  September 30, 1997 and 1996, PFSI
recorded total income of $41,094 and $36,851, respectively,  with net income for
such periods amounting to $15,538 and $13,411, respectively.

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

Employees

    As of September  30, 1997, the Bank employed 78 persons on a full-time basis
and 8 persons on a part-time basis. A comprehensive employee benefits program is
maintained  which  provides   hospitalization   and  major  medical   insurance,
retirement  income,  life insurance and disability  insurance  which is provided
under the Bank's  pension  program.  The Bank also  maintains an Employee  Stock
Ownership Plan for the benefit of its employees which provides for distributions
of  an  employee's  vested  portions  upon  retirement,   disability,  death  or
termination  of  employment.  The Bank's  employees are not  represented  by any
collective  bargaining  group,  and management  considers its relations with its
employees to be excellent.



                                   REGULATION

General

         The Company, as a savings and loan holding company,  and the Bank, as a
federally chartered savings association,  are subject to extensive regulation by
the OTS. The lending  activities  and other  investments of the Bank must comply
with various federal regulatory requirements,  and the OTS periodically examines
the Bank for compliance with various  regulatory  requirements  and for safe and
sound operations.  The FDIC also has the authority to conduct examinations.  The
Bank must file reports with the OTS  describing  its  activities  and  financial
condition and is also subject to certain reserve requirements promulgated by the
Federal Reserve Board. 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.

         In  recent  years,   significant   legislative  proposals  and  reforms
affecting the financial  services  industry have been discussed and evaluated by
Congress.  Such proposals include  legislation to revise the Glass-Steagall Act,
the Bank Holding Company Act of 1956, as amended, and the Home Owners' Loan Act,
as  amended,  to  expand  permissible  activities  for  banks,   principally  to
facilitate  the  convergence  of  commercial  and  investment  banking.  Certain
proposals also sought to expand  insurance  activities of banks and to eliminate
the thrift charter.  In addition,  certain proposals seek to limit the powers of
unitary savings and loan holding  companies.  It is unclear whether any of these
proposals,  or any form of them, will be introduced in the current  Congress and
become law.  Consequently,  it is not possible to determine what effect, if any,
they may have on the Company and the Bank.

Regulation of the Company

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

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

         Restrictions on  Acquisitions.  Savings and loan holding  companies are
prohibited from acquiring, without prior approval of the OTS, (i) control of any
other savings  institution or savings and loan holding company or  substantially
all the assets  thereof  or (ii) more than 5% of the voting  shares of a savings
institution or holding company thereof which is not a subsidiary.  Under certain
circumstances,  a registered  savings and loan  holding  company is permitted to
acquire,  with the  approval  of the OTS,  up to 15% of the voting  shares of an
undercapitalized  savings  institution  pursuant to a "qualified stock issuance"
without that savings institution being deemed controlled by the holding company.
In order for the shares acquired to constitute a "qualified stock issuance," the
shares must consist of previously  unissued stock or treasury shares, the shares
must be  acquired  for  cash,  the  saving  and  loan  holding  company's  other
subsidiaries  must have  tangible  capital of at least  6-1/2% of total  assets,
there must not be more than one common  director or officer  between the savings
and loan holding company and the issuing savings  institution,  and transactions
between the savings institution and the savings and loan holding company and any
of its  affiliates  must conform to Sections 23A and 23B of the Federal  Reserve
Act.  Except  with the prior  approval  of the OTS,  no director or officer of a
savings and loan holding  company or person  owning by proxy or  otherwise  more
than 25% of such  company's  stock,  may also  acquire  control  of any  savings
institution,  other  than a  subsidiary  savings  institution,  or of any  other
savings and loan holding company.


Regulation of the Bank

         Federal Home Loan Bank System. The Bank is a member of the FHLB System,
which consists of 12 district Federal Home Loan Banks subject to supervision and
regulation by the Federal Housing Finance Board ("FHFB").  The Federal Home Loan
Banks provide a central credit facility primarily for member institutions.  As a
member of the FHLB of  Indianapolis,  the Bank is  required  to acquire and hold
shares of capital stock in the FHLB of  Indianapolis in an amount at least equal
to 1% of the  aggregate  unpaid  principal  of its  home  mortgage  loans,  home
purchase  contracts,  and similar  obligations at the beginning of each year, or
1/20 of its advances (i.e., borrowings) from the FHLB of Indianapolis, whichever
is greater.  The Bank was in compliance with this requirement with an investment
in FHLB of Indianapolis stock at September 30, 1997, of $2,062,200.

         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, 1997, the Bank had no advances  outstanding.  See "Business of the
Company--Deposit Activity and Other Sources of Funds" and "--Borrowings."

         Liquidity Requirements.  The Bank is required to maintain average daily
balances of liquid assets (cash,  certain time deposits,  bankers'  acceptances,
highly rated corporate debt and commercial  paper,  securities of certain mutual
funds,  and  specified  United  States  government,   state  or  federal  agency
obligations)  equal  to the  monthly  average  of not  less  than  4% of its net
withdrawable savings deposits plus short-term borrowings. Monetary penalties may
be imposed for failure to meet liquidity requirements.

<PAGE>

     Qualified Thrift Lender Test.  Savings  institutions  must meet a qualified
thrift  lender  ("QTL")  test,  which  test may be met either by  maintaining  a
specified level of assets in qualified  thrift  investments as specified in HOLA
or by meeting the definition of a "domestic  building and loan  association"  in
section 7701 of the Internal  Revenue Code of 1986, as amended (the "Code").  If
the Bank  maintains  an  appropriate  level  of  certain  specified  investments
(primarily  residential  mortgages and related  investments,  including  certain
mortgage-related  securities)  and  otherwise  qualifies  as a QTL or a domestic
building  and  loan  association,  it will  continue  to  enjoy  full  borrowing
privileges from the FHLB. The required  percentage of investments  under HOLA is
65% of  assets  while  the  Code  requires  investments  of 60%  of  assets.  An
association  must be in  compliance  with the QTL test or definition of domestic
building and loan association on a monthly basis in nine out of every 12 months.
Associations  that fail to meet the QTL test will  generally be prohibited  from
engaging in any activity not  permitted  for both a national  bank and a savings
association.  As of September 30, 1997, the Bank was in compliance  with its QTL
requirement and met the definition of a domestic building and loan association.

         Uniform Lending Standards. Under OTS regulations,  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 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 and
approval and  reporting  requirements.  The real estate  lending  policies  must
reflect  consideration  of the  Interagency  Guidelines  for Real Estate Lending
Policies (the  "Interagency  Guidelines")  that have been adopted by the federal
bank regulators.

     The  Interagency  Guidelines,  among  other  things,  call upon  depository
institutions to establish  internal  loan-to-value  limits for real estate loans
that are not in  excess  of the  following  supervisory  limits:  (i) for  loans
secured by raw land, the supervisory  loan-to-value limit is 65% of the value of
the collateral;  (ii) for land development loans (i.e., loans for the purpose of
improving  unimproved  property  prior  to  the  erection  of  structures),  the
supervisory  limit is 75%, (iii) for loans for the  construction  of commercial,
multifamily or other nonresidential property, the supervisory limit is 80%; (iv)
for loans for the construction of one to four-family properties, the supervisory
limit is 85%;  and (v) for  loans  secured  by other  improved  property  (e.g.,
farmland,  completed  commercial  property and other  income-producing  property
including  nonowner-occupied,  one to four-family  property),  the limit is 85%.
Although  no  supervisory  loan-to-value  limit has been  established  for owner
occupied,  one to four-family and home equity loans, the Interagency  Guidelines
state that for any such loan with a  loan-to-value  ratio that equals or exceeds
90% at origination, an institution should require appropriate credit enhancement
in the form of either mortgage insurance or readily marketable collateral.

     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, based on the support provided by other credit
factors.   The  aggregate   amount  of  loans  in  excess  of  the   supervisory
loan-to-value limits,  however,  should not exceed 100% of total capital and the
total of such loans secured by commercial,  agricultural,  multifamily and other
non-one to  four-family  residential  properties  should not exceed 30% of total
capital. The supervisory loan-to-value limits do not apply to certain categories
of loans  including  loans insured or guaranteed by the U.S.  government and its
agencies or by  financially  capable  state,  local or municipal  governments or
agencies, loans backed by the full faith and credit of a state government, loans
that are to be sold promptly after origination without recourse to a financially
responsible  party, loans that are renewed,  refinanced or restructured  without
the advancement of new funds, loans that are renewed, refinanced or restructured
in connection with a workout,  loans to facilitate sales of real estate acquired
by the  institution  in the  ordinary  course of  collecting  a debt  previously
contracted and loans where the real estate is not the primary collateral

     Management believes that the Bank's current lending policies conform to the
Interagency Guidelines and that the Interagency Guidelines will have no material
effect on its lending  activities.  

     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  which impose  certain  restrictions  on
savings  associations  that have a total  risk-based  capital ratio that is less
than 8.0%, a ratio of Tier 1 capital to  risk-weighted  assets of less than 4.0%
or a ratio of Tier 1 capital to adjusted total assets of less than 4.0% (or 3.0%
if the  institution  is  rated  Composite  1 under  the OTS  examination  rating
system).
<PAGE>

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

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

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

     At September 30, 1997,  the Bank exceeded all  regulatory  minimum  capital
requirements as indicated in the table below.

                                      Dollars in Thousands
                           Actual              Required              Excess
                       Amount     %       Amount     %           Amount     %

Tangible capital      $34,080    12.00%   $4,261     1.5%       $29,819   10.50%
Core capital           34,080    12.00     8,523     3.0         25,557    9.00
Risk-based capital     34,955    24.67    11,334     8.0         23,621   16.67


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

     The FDIC charges an annual  assessment  for the insurance of deposits based
on the risk a particular  institution poses to its deposit insurance fund. Under
this system as of December  31,  1995,  SAIF  members  paid within a range of 23
cents  to  31  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 FDIC
imposed a special  assessment  on SAIF  members  to  capitalize  the SAIF at the
designated  reserve  level of 1.25% as of October  1, 1996.  Based on the Bank's
deposits as of March 31, 1995,  the date for measuring the amount of the special
assessment  pursuant to the Act, at  September  30,  1997,  the Bank  recorded a
pretax  expense of $1,500,871  and paid such special  assessment on November 27,
1996 to recapitalize the SAIF.
<PAGE>

     Pursuant  to the Act,  the Bank pays,  in  addition  to its normal  deposit
insurance  premium as a member of the SAIF  ranging from 0 to 27 basis points as
of October 1, 1996, 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.  Beginning no later than January 1, 2000, the
rate paid to retire the Fico Bonds will be equal for  members of the BIF and the
SAIF.  The Act also  provides for the merging of the BIF and the SAIF by January
1, 1999, provided there are no financial institutions still chartered as savings
associations  at that time.  Should the insurance funds be merged before January
1, 2000,  the rate paid by all members of this new fund to retire the Fico Bonds
would be equal.

     Federal  Reserve  System.  Pursuant to regulations  of the Federal  Reserve
Board, a savings institution must maintain average daily reserves equal to 3% on
the first $54.0 million of transaction accounts, plus 10% on the remainder. This
percentage  is subject to  adjustment  by the  Federal  Reserve  Board.  Because
required  reserves  must  be  maintained  in the  form  of  vault  cash  or in a
non-interest  bearing  account  at a Federal  Reserve  Bank,  the  effect of the
reserve   requirement   is  to   reduce   the   amount   of  the   institution's
interest-earning  assets.  As of September  30,  1997,  the Bank met its reserve
requirements.

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

     OTS regulations  impose additional  limitations on the payment of dividends
and other capital  distributions  (including stock repurchases and cash mergers)
by the Bank. Under these regulations,  a savings  institution that,  immediately
prior to, and on a pro forma basis after  giving  effect to, a proposed  capital
distribution,  has total capital (as defined by OTS regulation) that is equal to
or greater than the amount of its fully phased-in capital  requirements (a "Tier
1  Association")  is  generally   permitted,   after  notice,  to  make  capital
distributions  during a calendar year in the amount equal to the greater of: (a)
75% of its net income for the previous four  quarters;  or (b) up to 100% of its
net income to date during the calendar  year plus an amount that would reduce by
50% its surplus  capital ratio at the beginning of the calendar  year. A savings
institution  with  total  capital  in excess of current  minimum  capital  ratio
requirements  but not in excess of the fully  phased-in  requirements (a "Tier 2
Association") is permitted,  after notice, to make capital distributions without
OTS approval of up to 75% of its net income for the previous four quarters, less
dividends already paid for such period. A savings institution that fails to meet
current minimum capital requirements (a "Tier 3 Association") is prohibited from
making any capital distributions without the prior approval of the OTS. A Tier 1
Association  that has been  notified  by the OTS that it is in need of more than
normal  supervision  will be treated  as either a Tier 2 or Tier 3  Association.
Except  under  limited   circumstances   and  with  OTS  approval,   no  capital
distributions  would be permitted if they would cause the  institution to become
undercapitalized.  As of September  30, 1997,  the Bank was  considered a Tier 1
Association under OTS regulations.

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

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

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

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

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

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

     The regulation establishes five categories of capital classification: "well
capitalized,"  "adequately  capitalized,"   "undercapitalized,"   "significantly
undercapitalized," and "critically  undercapitalized." Under the regulation, the
risk-based  capital,  leverage capital,  and tangible capital ratios are used to
determine an institution's  capital  classification.  At September 30, 1997, the
Bank met the capital  requirements  of a "well  capitalized"  institution  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.
<PAGE>

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

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

     Year 2000  Compliance.  In May 1997,  the  Federal  Financial  Institutions
Examination  Council  issued an  interagency  statement  to the chief  executive
officers of all federally supervised financial  institutions regarding Year 2000
project management awareness.  It is expected that unless financial institutions
address the  technology  issues  relating to the coming of the year 2000,  there
will be major  disruptions  in the  operations  of financial  institutions.  The
statement  provides  guidance  to  financial  institutions,  providers  of  data
services,  and all examining personnel of the federal banking agencies regarding
the year 2000 problem.  The federal banking agencies intend to conduct year 2000
compliance examinations, and the failure to implement a year 2000 program may be
seen by the federal banking agencies as an unsafe and unsound banking  practice.
In  addition,  federal  banking  agencies  will be taking into account year 2000
compliance  programs when  analyzing  applications  and may deny an  application
based on year 2000 related issues.

Item 2.  Properties


     The Bank owns six full-service  banking offices located in Avilla,  Auburn,
Columbia City, Garrett, Kendallville and LaGrange, Indiana.

    The following table provides certain  information with respect to the Bank's
full-service offices at September 30, 1997.
                                    Full Service              Net Book         
       Offices                       Date Opened              Value(1)
       ----------                    -----------              --------
       Main Office, Auburn            1973                   $177,520
       Avilla                         1980                    131,852
       Garrett                        1972                     59,178
       Columbia City                  1971                    139,929
       Kendallville                   1941                    495,246
       LaGrange                       1972                    180,881


(1) Of real estate at September 30, 1997.

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

     The total net book value of the Bank's  premises and equipment at September
30, 1997, was $1,712,774.

Item 3.  Legal Proceedings

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

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

    Not Applicable.

                                     PART II

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

    Reference is made to page 2 of the Company's  Annual Report to Stockholders,
for the year ended  September  30, 1997,  for the  information  required by this
Item, which is hereby incorporated by reference.


Item 6.  Selected Financial Data

    Reference is made to page 12 of the Company's  Annual Report to Stockholders
for the year ended September 30, 1997, 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  6 to 11 of the  Company's  Annual  Report  to
Stockholders for the year ended September 30, 1997, 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  13 to 26 of the  Company's  Annual  Report  to
Stockholders for the year ended September 30, 1997, for the information required
by this Item which is hereby incorporated by reference.

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

    None.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

    Reference is made to pages 2 - 4 of the Company's definitive Proxy Statement
for the 1998 Annual Meeting of Stockholders for the information required by this
Item which is hereby incorporated by reference.

Item 11.  Executive Compensation

    Reference  is  made  to  pages  6 - 10 of  the  Company's  definitive  Proxy
Statement  for the 1998  Annual  Meeting  of  Stockholders  for the  information
required by this Item which is hereby incorporated by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

    Reference  is  made  to  pages  2 and 5 of the  Company's  definitive  Proxy
Statement  for the 1998  Annual  Meeting  of  Stockholders  for the  information
required by this Item which is hereby incorporated by reference.

Item 13.  Certain Relationships and Related Transactions

    Reference  is  made  to  pages  5 and 6 of the  Company's  definitive  Proxy
Statement  for the 1998  Annual  Meeting  of  Stockholders  for the  information
required by this Item which is hereby incorporated by reference.

<PAGE>


                                     PART IV

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

    (a) The following  consolidated  financial statements of Peoples Bancorp and
Its  Wholly-owned  Subsidiary,  included in the Annual Report to Stockholders of
the registrant for the year ended  September 30, 1997, are filed as part of this
report:

         1.  Financial Statements

    o  REPORT OF GEO. S. OLIVE & CO. LLC, INDEPENDENT AUDITORS.
    o  CONSOLIDATED STATEMENT OF FINANCIAL CONDITION - AS OF SEPTEMBER 30, 1997,
       AND 1996.
    o  CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED SEPTEMBER 30, 1997,
       1996, AND 1995.
    o  CONSOLIDATED  STATEMENT OF CHANGE IN STOCKHOLDERS' EQUITY FOR THE YEARS 
       ENDED SEPTEMBER 30, 1997, 1996, AND 1995.
    o  CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30,
       1997, 1996, AND 1995.
    o  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


    2.         Financial Statement Schedules

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


             3.       Exhibits

Exhibit No.    Description of Exhibit

3.1          Articles of Incorporation of Peoples Bancorp (1)

3.2          Bylaws of Peoples Bancorp (1)

10.2         Employment Agreement of Roger J. Wertenberger (1)

10.2(a)      Amendment No. 1 to Employment Agreement of Roger J. Wertenberger(1)

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

10.5         Employee Stock Ownership Plan (1)

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

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

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


Exhibit No.   Description of Exhibit

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

13          Annual Report to Stockholders

22          Subsidiaries of the Registrant

23          Consent of Auditors

27          Financial Data Schedule (4)

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

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

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

    (4)  For electronic filing purposes only.


<PAGE>
                                   SIGNATURES


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

                                          PEOPLES BANCORP
                                       
December 29, 1997                       Roger J. Wertenberger
                                        Chairman of the Board,
                                        Principal Executive Officer,
                                        and Director

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

                                                         
December 29, 1997                       Roger J. Wertenberger,
                                        Chairman of the Board,
                                        Principal Executive Officer,
                                        and Director

                                       
December 29, 1997                       Maurice F. Winkler III,
                                        President, and Director
               
December 29, 1997                       Robert D. Ball, Director

                                                        
December 29, 1997                       Jack L. Buttermore, Director

                                                         
December 29, 1997                       John C. Harvey, Director

                                                       
December 29, 1997                       Douglas D. Marsh, Director

                                                         
December 29, 1997                       Lawrence  R. Bowmar, Director

                                                     
December 29, 1997                       John C. Thrapp, Director

<PAGE>

                                   EXHIBIT 22



                         SUBSIDIARIES OF THE REGISTRANT


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

and its subsidiary

Peoples Financial Services Inc.                  Indiana