UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

      For the fiscal year ended December 31, 1996

                                       OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the transition period from __________________ to _____________________

                         Commission file number 0-17379

                           INDIANA FEDERAL CORPORATION
             (Exact name of registrant as specified in its charter)

            Delaware                                    35-1735820
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)

56 Washington Street, Valparaiso, Indiana                  46383
 (Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code:   (219) 465-6607

           Securities Registered Pursuant to Section 12(b) of the Act:
                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
                                (Title of class)

         Indicate by check mark whether the registrant (1) 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
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  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]
<PAGE>
         The aggregate  market value of the voting stock held by  non-affiliates
of the  registrant,  computed by reference to the closing price of such stock on
the  Nasdaq  National  Market  as of March  21,  1997,  was  $113,582,569.  (The
exclusion from such amount of the market value of the shares owned by any person
shall  not be deemed  an  admission  by the  registrant  that such  person is an
affiliate of the registrant.)

         As of March 21,  1997,  there  were  issued and  outstanding  4,779,737
shares of the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Parts  II and IV of  Form  10-K -  Portions  of the  Annual  Report  to
Stockholders for the year ended December 31, 1996.

         Part III of Form 10-K - Portions of the Proxy  Statement for the Annual
Meeting of Stockholders for the year ended December 31, 1996.
<PAGE>
                                     PART I

Item 1.  Business

General

         Indiana Federal Corporation ("IFC" or the "Corporation") is a financial
services  holding  company  organized under the laws of the State of Delaware in
1988. The Corporation's  principal operating  subsidiary is Indiana Federal Bank
for Savings ("Indiana Federal" or the "Bank").  Indiana Federal was organized in
1887 and has  operated as a  federally-chartered  savings  and loan  association
since 1934.  In 1989,  IFC formed  IndFed  Mortgage  Company to  participate  in
various low and moderate  income housing  projects.  In May 1996, IFB Investment
Services  Corp.  ("IFB") was formed as a wholly owned  subsidiary of IFC. IFB, a
registered  broker/dealer,  provides investment services to its clients, such as
personal  investing and financial,  tax and business  succession  planning.  See
"Subsidiary Activities."

         On December 12, 1994,  the  Corporation  completed the  acquisition  of
American Bancorp,  Inc. ("ABI"),  and its wholly owned subsidiary American State
Bank  ("American"),  a commercial  bank organized under the laws of the State of
Indiana. Upon acquisition,  ABI was merged into the Corporation and American was
merged  into the Bank.  On January  31,  1995,  the  Corporation  completed  the
acquisition of NCB Corp.  ("NCB"),  and its wholly owned subsidiary  NorCen Bank
("NorCen"), an Indiana state chartered savings bank, located in Culver, Indiana.
Similarly, upon acquisition,  NCB was merged into the Corporation and NorCen was
merged into the Bank.

         In  February  1996,  IFC  purchased  a  one-third  interest  in Forrest
Holdings, Inc. of Oak Brook, Illinois.  Forrest Holdings, Inc. owns and operates
Forrest  Financial   Corporation  ("FFC"),  a  leasing  company  which  provides
financing  solutions  for the  acquisition  of  information  systems,  including
equipment, software, training and maintenance.

         On November 14, 1996,  IFC entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Pinnacle Financial Services, Inc. ("Pinnacle"),  a
Michigan-chartered bank holding company, pursuant to which IFC and Pinnacle will
merge (the "Merger"). As a result of the Merger, which is subject to approval by
IFC and Pinnacle  shareholders and certain regulatory  approvals,  each share of
IFC common stock will be exchanged for one share of Pinnacle  common  stock.  At
December 31, 1996, Pinnacle had total assets of $1.07 billion,  deposits of $761
million, and shareholders'  equity of $78 million. See "Management's  Discussion
and Analysis of Financial Condition and Results of Operations -- General" in the
Annual  Report to  Shareholders  attached  hereto  as  Exhibit  13 (the  "Annual
Report").

         The Bank, IFC's principal operating subsidiary, is primarily engaged in
the  business  of  attracting  savings  deposits  from the  general  public  and
investing  these funds,  together with  borrowings  and other funds,  in one- to
four-family  residential  real estate loans,  consumer  loans,  income-producing
property  loans,  commercial  business  loans and  agricultural  real estate and
operating loans.  During 1996,  Indiana Federal  conducted its activities from a
network of 16 full service  offices  located in Valparaiso  and other  northwest
Indiana communities. Indiana Federal also operates three loan production offices
in Highland, Mishawaka, and Valparaiso, Indiana.
<PAGE>
         The  Corporation's  executive  offices  are  located  at 56  Washington
Street,  Valparaiso,  Indiana  46383.  Its telephone  number is (219)  465-6607.
Unless  the  context  otherwise  requires,  references  herein  to  IFC  or  the
Corporation  include  the  Corporation,  the  Bank  and  its  subsidiaries  on a
consolidated basis.

Lending Activities

         General.  The primary  source of income to the Bank is interest  income
from lending  activities.  The principal  lending activity of the Bank is making
loans  to  enable  borrowers  to  purchase  or  refinance  one-  to  four-family
residential  properties  and  consumer,  income-producing  property,  commercial
business and  agricultural  loans.  The majority of Indiana  Federal's loans are
secured by first liens on real property.

         In addition to interest  earned on loans,  the Bank  receives  fees for
loan  originations,  commitments,  prepayments,  modifications,  late  payments,
transfers due to changes of property ownership,  insurance commissions and other
miscellaneous  services.  Loan fees vary with loan  origination  levels and vary
from time to time, generally depending on competitive conditions in the mortgage
market.

         The Bank has authority to make or purchase real estate loans throughout
the United States. A substantial majority of the real estate loans originated by
Indiana Federal are secured by properties located in northwest Indiana. The Bank
does, however, purchase loans outside its primary market area.

         The Bank  originates  its  real  estate  loans  through  internal  loan
production  personnel  and  loan  originators  who work on a  commission  basis.
Currently  a  substantial   portion  of  the  Bank's  loans  are  originated  by
commissioned  personnel.  Once a borrower has applied for a loan,  the completed
loan application package is reviewed by the Bank's salaried  personnel.  As part
of  the  loan  review  process,  independent  appraisers  who  are  approved  in
accordance with the Bank's appraisal  policy,  inspect and appraise the property
that will secure the loan. All appraisals  are  subsequently  reviewed by one of
the Bank's  loan  underwriters.  As part of the review  process  for real estate
loans,  information  is obtained  concerning  the income,  financial  condition,
employment and credit history of the borrower.  All  residential  mortgage loans
are  approved   according  to  guidelines   established  by  Indiana   Federal's
underwriting  policy. All residential mortgage loans up to $500,000 are approved
by staff underwriters.  Residential  mortgage loans in excess of $500,000 and up
to $1.0 million for new  customers  and $1.5 million for existing  customers are
approved by the Management  Senior Loan Committee.  All loans in excess of these
amounts are approved by the  Director\Senior  Management Loan  Committee,  which
consists  of the  members  of the  Management  Senior  Loan  Committee  and  two
directors on a rotating basis.

         The Bank requires title insurance on all loans secured by real property
and requires fire and extended coverage  casualty  insurance in amounts at least
equal to the  principal  amount of the loan.  The Bank will also  require  flood
insurance to protect the property securing its interests,  when it is determined
that the property lies within a designated flood plain.
<PAGE>
         The  following  tables set forth the  composition  of the  Bank's  loan
portfolio and the relative amounts of fixed-rate and adjustable-rate  loans, all
at the dates indicated.
<TABLE>
<CAPTION>
                                                                             December 31,
                                                 ---------------------------------------------------------------------
                                                         1996                    1995                    1994
                                                 --------------------   ----------------------  ----------------------
                                                 Amount       Percent    Amount        Percent   Amount        Percent
                                                --------      -------   --------       -------  --------       -------
                                                                        (Dollars in Thousands)
TYPE OF LOAN
<S>                                             <C>           <C>       <C>            <C>      <C>            <C>
 Real Estate Loans:
  One- to four-family residential.........      $287,655       45.26%   $278,680        52.34%  $270,008        51.12%
  Income-producing property...............        99,444       15.64      83,453        15.68    107,013        20.26
  Construction, income-producing property.         8,753        1.38       6,085         1.14     12,776         2.42
  Construction, one- to four-family.......        20,775        3.27      13,370         2.51     12,129         2.30
  Agricultural real estate................        11,511        1.81      12,940         2.43     10,323         1.96
                                                --------      ------    --------       ------   --------       ------
     Total real estate loans..............       428,138       67.36     394,528        74.10    412,249        78.06

 Consumer Loans:
  Second mortgage loans...................        74,039       11.65      33,554         6.30     28,783         5.46
  Boat loans..............................        18,244        2.87      19,161         3.60     19,973         3.78
  Recreational vehicle loans..............         7,755        1.22       9,574         1.80     11,273         2.13
  Automobile loans........................         7,510        1.18       8,712         1.63      7,818         1.48
  Deposit loans...........................         1,910        0.30       2,270          .43      1,812          .34
  Mobile home loans.......................         2,117        0.33       1,717          .32      2,375          .45
  Other...................................         8,551        1.35       7,774         1.46      6,460         1.22
                                                --------     -------    --------       ------   --------       ------
     Total consumer loans.................       120,126       18.90      82,762        15.54     78,494        14.86
                                                --------      ------    --------       ------   --------       ------
 Commercial business loans................        80,670       12.69      50,028         9.40     31,539         5.97
 Agricultural operating loans.............         6,652        1.05       5,096          .96      5,870         1.11
                                                --------      ------    --------       ------   --------       ------
Loans receivable, gross...................       635,586      100.00%    532,414       100.00%   528,152       100.00%
                                                              ======                   ======                  ======

 Less:
  Unearned discounts......................            59                     198                     295
  Undisbursed portion of loan proceeds....         7,830                   3,933                  10,361
  Deferred loan fees (costs)..............       (1,345)                 (1,065)                   (776)
  Allowance for loan losses...............         7,458                   6,655                   6,101
                                               ---------                --------                --------
                                                  14,002                   9,721                  15,981
                                               ---------                --------                --------
 Loans receivable, net....................      $621,584                $522,693                $512,171
                                                ========                ========                ========
<PAGE>
<CAPTION>
                                                                  December 31,
                                                ---------------------------------------------
                                                        1993                    1992
                                                ---------------------   ---------------------
                                                 Amount       Percent    Amount       Percent
                                                --------      ------    --------       -----
                                                            (Dollars in Thousands)
TYPE OF LOAN
<S>                                             <C>           <C>       <C>           <C>
 Real Estate Loans:
  One- to four-family residential.........      $214,442       50.12%   $197,809       48.43%
  Income-producing property...............       117,880       27.55     130,312       31.90
  Construction, income-producing property.         8,383        1.96         817         .20
  Construction, one- to four-family.......        11,379        2.66       9,964        2.44
  Agricultural real estate................           ---         ---         ---         ---
                                                --------      ------    --------       -----
     Total real estate loans..............       352,084       82.29     338,902       82.97

 Consumer Loans:
  Second mortgage loans...................        17,211        4.02      18,882        4.62
  Boat loans..............................        18,854        4.40      19,240        4.71
  Recreational vehicle loans..............        12,345        2.89      13,565        3.32
  Automobile loans........................         4,487        1.05       2,489         .61
  Deposit loans...........................         2,652         .62       1,952         .49
  Mobile home loans.......................         3,056         .71       4,013         .98
  Other...................................         4,054         .95       3,770         .92
                                                --------      ------    --------       -----
     Total consumer loans.................        62,659       14.64      63,911       15.65
                                                --------      ------    --------      ------
 Commercial business loans................        13,136        3.07       5,627        1.38
 Agricultural operating loans.............           ---         ---         ---         ---
                                                --------      ------    --------      ------
Loans receivable, gross...................       427,879      100.00%    408,440      100.00%
                                                              ======                  ======

 Less:
  Unearned discounts......................           350                     481
  Undisbursed portion of loan proceeds....         7,428                   3,521
  Deferred loan fees (costs)..............          (79)                     487
  Allowance for loan losses...............         5,356                   4,392
                                               ---------                --------
                                                  13,055                   8,881
                                               ---------                --------
 Loans receivable, net....................      $414,824                $399,559
                                                ========                ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                  December 31,
                                                   -------------------------------------------------------------------------
                                                           1996                      1995                     1994
                                                   --------------------     -----------------------  -----------------------
                                                    Amount      Percent      Amount         Percent   Amount         Percent
                                                   --------     -------     --------        -------  --------        -------
                                                                            (Dollars in Thousands)
<S>                                                <C>          <C>          <C>            <C>      <C>             <C>
FIXED-RATE/ADJUSTABLE-RATE LOANS

 Fixed-rate loans.............................     $211,985      33.35%      174,262         32.73%  $177,875         33.68%
 Adjustable-rate loans(1).....................      423,601      66.65       358,152         67.27    350,277         66.32
                                                   --------     ------      --------        ------   --------        ------
   Loans receivable, gross....................     $635,586     100.00%     $532,414        100.00%  $528,152        100.00%
                                                   ========     ======      ========        ======   ========        ======
<CAPTION>
                                                                      December 31,
                                                   ------------------------------------------------
                                                            1993                     1992
                                                   -----------------------  -----------------------
                                                    Amount         Percent   Amount         Percent
                                                   --------        -------  --------        -------
                                                                 (Dollars in Thousands)
<S>                                                <C>             <C>      <C>             <C>
FIXED-RATE/ADJUSTABLE-RATE LOANS

 Fixed-rate loans.............................     $173,009         40.43   $165,522         40.53%
 Adjustable-rate loans(1).....................      254,870         59.57    242,918         59.47
                                                   --------        ------   --------        ------
   Loans receivable, gross....................     $427,879        100.00%  $408,440        100.00%
                                                   ========        ======   ========        ======
</TABLE>
--------------------
(1)  Includes  15 and 30 year  adjustable-rate  loans  which have fixed rates of
     interest  for the  first  five or  seven  years  and then  adjust  annually
     thereafter.  These loans totaled approximately $98.9 million in 1996, $79.9
     million in 1995,  $71.3  million in 1994,  $57.8  million in 1993 and $48.4
     million in 1992.
<PAGE>
         The following table sets forth the  contractual  maturity of the Bank's
loan  portfolio  at  December  31,  1996.  Mortgages  which have  adjustable  or
renegotiable  interest rates are shown as maturing at the next  repricing  date.
This table does not reflect the effects of possible  prepayments  or enforcement
of due-on-sale clauses.
<TABLE>
<CAPTION>
                                                        Real Estate Loans
                                     ----------------------------------------------------
                                           Mortgage(1)                  Construction              Consumer Loans
                                     ----------------------        ----------------------       --------------------
                                                   Weighted                      Weighted                   Weighted
Due During Period                                   Average                      Average                    Average
Ending December 31,                   Amount         Rate          Amount          Rate          Amount       Rate
----------------------------------   --------       ------        --------        ------        --------     ------
                                                                  (Dollars in thousands)
<S>                                  <C>             <C>           <C>             <C>          <C>           <C>
1997(2)...........................   $168,898        8.32%         $27,085         9.39%         $33,280      9.37%
1998 - 2001.......................    165,827        7.46            2,447         9.73           55,383      9.30
2002 and following................     63,383        8.09              497         8.55           31,463      9.55
                                     --------                      -------                      --------
                                     $398,108        7.93%         $30,029         9.41%        $120,126      9.38%
                                     ========                      =======                      ========
<CAPTION>


                                           Commercial                     Total
                                     ----------------------      ----------------------
                                                   Weighted                    Weighted
Due During Period                                  Average                      Average
Ending December 31,                   Amount         Rate          Amount         Rate
----------------------------------   --------       ------        --------       -----
                                                  (Dollars in thousands)
<S>                                   <C>            <C>          <C>            <C>
1997(2)...........................    $61,846        9.32%        $291,109       8.75%
1998 - 2001.......................     19,992        9.08          243,649       8.03
2002 and following................      5,485        8.53          100,828       8.57
                                      -------                     --------
                                      $87,323        9.22%        $635,586       8.45%
                                      =======                     ========
</TABLE>
---------------------

(1)  Includes one- to  four-family,  multi-family,  commercial and  agricultural
     real estate loans.
(2)  Includes overdraft loans which have no stated maturity.
<PAGE>
         At December  31,  1996,  $166.2  million of the Bank's  loans due after
December 31, 1997, had fixed interest rates, while the total amount of loans due
after such date which had adjustable interest rates was $178.2 million.

         At December 31, 1996,  the maximum  amount  Indiana  Federal could have
loaned to any one borrower or group of related borrowers was approximately  $7.5
million.  See "-- Regulation--  Federal Regulation of Savings  Associations." At
that date,  the Bank had no loans or groups of loans to related  borrowers  with
outstanding  balances in excess of this amount.  At December  31, 1996,  Indiana
Federal's largest loan or lending relationship outstanding totaled $7.46 million
and was secured by one- to four-family  properties and a real estate development
loan in Porter County,  Indiana.  This loan is performing in accordance with its
loan  repayment  terms.  At December 31, 1996,  the Bank had seven other lending
relationships  or loans to individuals in excess of $5.0 million.  Each of these
loans was performing in accordance  with its terms at December 31, 1996,  except
for two  loans  (aggregating  $2.4  million)  which  were  part  of one  lending
relationship.  These two  loans  were  refinanced  during  February  1997 by the
borrower at another lending institution. See "-Non-accruing loan."

         One- to Four-Family Residential Real Estate Lending. The Bank's primary
lending program has been the origination of loans secured by one- to four-family
residences.  A  substantial  majority  of these loans are secured by real estate
located in northwest  Indiana,  which  includes  Lake,  Porter,  LaPorte and St.
Joseph counties, Indiana. The Bank evaluates both the borrower's ability to make
principal  and interest  payments and the value of the property that will secure
the loan.  Although  federal law permits the Bank to make loans in amounts of up
to 100% of the appraised value of the underlying real estate, the Bank generally
makes one- to four-family residential property loans in amounts up to 95% of the
lesser of the  appraised  value or the contract  price of the subject  property.
Where  loans are made in  amounts  which  exceed  80% of the  contract  price or
appraised  value of the underlying  real estate,  as the case may be, the Bank's
policy is to require private  mortgage  guarantee  insurance on the excess.  The
Bank also originates, FHA and VA guaranteed residential loans.

         In order to reduce its exposure to changes in interest rates,  the Bank
has  deemphasized  the  origination  of 30-year  fixed-rate  one- to four-family
residential  mortgage  loans for its own  portfolio.  In order to meet  consumer
demand,  however,  the Bank continues to originate such loans for the purpose of
sale in the secondary mortgage market. The Bank has retained a limited amount of
fixed-rate  residential loans consistent with its  asset/liability  policy.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Asset/Liability Management" in the Annual Report. The Bank currently
underwrites  and documents  substantially  all loans to permit their sale in the
secondary market, although a third party purchase commitment for the loan is not
required prior to origination. During 1996, the Bank originated $35.8 million of
fixed-rate one- to four-family residential mortgage loans of which $23.1 million
had terms in excess of 15 years. See "--Loan Originations, Purchases and Sales."
During the same  period,  the Bank sold  $41.3  million  of  fixed-rate  one- to
four-family  loans,  securitized  another  $9.8  million of  fixed-rate  one- to
four-family  loans,  and held for sale an additional  $2.0 million of such loans
which were recorded at the lower of cost or market. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Other Income" and
Note A of the  Notes to the  Consolidated  Financial  Statements  in the  Annual
Report.
<PAGE>
         A majority of the one- to four-family  residential loans originated and
retained for portfolio during 1996 were 15 or 30 year  adjustable-rate  mortgage
loans  ("AMLs")  which have a fixed rate for the first  three  years then adjust
annually thereafter.  The Bank also originated and retained for portfolio during
1996 some 15- or 30-year  adjustable-rate  loans which have a fixed rate for the
first five or seven years then adjust annually  thereafter.  The majority of the
Bank's  portfolio of one- to  four-family  residential  AMLs have interest rates
that adjust annually in accordance with the yields on the one-year U.S. Treasury
Constant Maturity Index. The Bank's AMLs generally limit interest rate increases
to 2% annually  and have an  established  ceiling rate at the time the loans are
made of up to 6% over the original  interest rate. To compete with other lenders
in its market area,  Indiana  Federal has made most of its  residential  AMLs at
interest rates which, for the first year, are below the fully indexed rate which
would have been applicable to these loans.  These loans are subject to increased
risk of  delinquency  or default as the higher,  fully-indexed  rate of interest
subsequently  comes into effect.  The Bank generally  underwrites  such loans to
comply  with  secondary  mortgage  market  agencies'  standards.  Most  one-  to
four-family  real  estate  mortgage  loans  originated  by the  Bank  contain  a
"due-on-sale"  clause  providing that the Bank may declare the unpaid  principal
balance  due and  payable  upon the sale of the  mortgaged  property.  It is the
Bank's policy to enforce these  due-on-sale  clauses to the extent  permitted by
law.

         At December 31, 1996,  one- to four-family  AMLs totaled $246.9 million
(including  $98.9  million in AMLs which have a fixed rate for the first five or
seven  years and $20.8  million in one- to  four-family  construction  loans) or
80.1%,  of the Banks one- to  four-family  residential  mortgage loan  portfolio
before net items.  The  construction  loans generally  adjust monthly at margins
over the  Citibank  prime  rate.  It is possible  that during  periods of rising
interest  rates,  the risk of  defaults on AMLs may  increase  due to the upward
adjustment  of  interest  costs to  borrowers.  The Bank does not make  negative
amortization mortgage loans.

         The Bank originates  residential  construction loans to individuals who
intend to occupy the premises upon  completion of the  construction  phase.  The
Bank  also  originates  such  loans to local  contractors  to build  residential
properties  for  resale or for sale to a buyer  under a contract  to build.  All
construction loans to individuals are made with a permanent loan commitment from
either the Bank or  another  financial  institution.  During  1996,  residential
construction loan originations amounted to $35.1 million.

         At  December  31,  1996,  the Bank had  $20.8  million  of  residential
construction  loans  outstanding,  of  which  $16.3  million  were  to  building
contractors  and $4.5 million were  originated as combination  construction  and
permanent  loans to  individual  owner-occupants.  Of the  $16.3  million  total
residential  construction  loans  to  contractors,  $5.3  million  are  for  the
construction  of homes that the contractor  has pre-sold.  At December 31, 1996,
the largest loan  outstanding to one contractor  totaled $1.5 million,  of which
$1.0 million represented construction loans for residences under contract.

         Construction  loans  afford  the Bank the  opportunity  to charge  loan
origination  fees, to increase the frequency of repricing of its loan  portfolio
and to earn yields  higher than those  obtainable  on loans  secured by existing
one- to four-family residential properties. The higher yields reflect the higher
risks  associated  with  construction  lending  (principally,  the difficulty in
evaluating  accurately  the total  funds  required to complete a project and the
post-completion  value of the  project).  As a result,  the Bank places a strong
emphasis upon the  borrower's  ability to repay and the experience and expertise
of the builder.
<PAGE>
         Income-Producing  Property  Lending.  The Bank  strives to  maintain an
income-producing  property  loan  portfolio  in the range of 15% to 20% of total
assets,  subject to market  conditions.  At December 31, 1996, the Bank's income
producing  property loan  portfolio  totaled  $108.2  million,  or 13.08% of the
Bank's total assets and 17.02% of the Bank's loan  portfolio,  before net items.
See   "--Loan   Originations,    Purchases   and   Sales."   Indiana   Federal's
income-producing  property  loans include loans secured by apartment  buildings,
nursing homes, motels, office buildings, shopping centers, mobile home parks and
special purpose  properties.  The Bank's policy is generally to lend or purchase
loans secured by properties located within a 250 mile radius of its home office,
preferably in its market area of Porter County and the surrounding six counties.
At December  31, 1996,  the Bank had a net book value of $10.7  million of loans
secured by properties outside of the 250 mile radius. See Note D of the Notes to
Consolidated  Financial  Statements  for the  composition  of the  Bank's  loans
collateralized by income-producing property categorized by state. The largest of
these loans totaled $1.7 million and was secured by a hotel in Atlanta, Georgia.
At December 31, 1996,  this loan was performing in accordance with its repayment
terms.

         The  Bank  utilizes  the same  underwriting  guidelines  and  criteria,
including  on-site  inspections  by  in-house  staff,  for all  income-producing
property  loans,  regardless of whether the loan was  originated or purchased by
the Bank.  The  Management  Senior Loan  Committee of the Bank is  authorized to
review  and  approve  income-producing  property  loans in amounts of up to $1.0
million for new customers and $1.5 million for existing customers while loans in
excess of such amounts  require the approval of the  Director\Senior  Management
Loan Committee.

         Most permanent  income-producing  property loans originated by the Bank
have carried  adjustable  interest rates that float with one of several indices.
The Bank will originate fixed-rate  income-producing  property loans only if the
funds  advanced  are  match-funded  with  FHLB  advances,  where  the  Bank  can
anticipate an acceptable interest rate spread.  During 1996, the Bank originated
$35.3  million of  income-producing  property  loans.  At December 31, 1996,  15
income-producing property loans had net outstanding principal balances in excess
of $2.0  million,  with the  largest  five loans  having  outstanding  principal
balances  of $5.8  million  (secured  by an  apartment  complex),  $4.3  million
(secured by an office  building),  $3.7 million (secured by a mobile home park),
$3.1 million  (secured by an office  building)  and $2.9 million  (secured by an
office  building).  In addition,  54 other income  producing  property loans had
principal  balances  between  $500,000 and $2.0 million.  See  "--Non-Performing
Assets,  Loan  Delinquencies  and  Defaults  and  Other  Problem  Loans"  for  a
description of the level of  delinquencies  the Bank has  experienced to date on
its income-producing property loans.

         The   Corporation's   subsidiary,   IndFed  Mortgage  Company  ("IndFed
Mortgage"),   participates   in  joint   ventures   for  the   construction   of
income-producing  properties. At December 31, 1996, the Bank had four such loans
outstanding.  These loans are for the  construction  of low to  moderate  income
apartment  housing  projects  located in  Elkhart,  Rensselaer  and  Valparaiso,
Indiana. See "Subsidiary  Activities." The total commitment for the Bank's loans
to these  projects  at  December  31,  1996 was  $6.6  million,  all of which is
currently outstanding.
<PAGE>
         The  Bank  also  originates  loans to  developers  for the  purpose  of
acquiring and developing subdivisions for one- to four-family homes. At December
31, 1996, the Bank had five  development  loans with  commitments  totaling $5.3
million and outstanding  principal  balances totaling $5.1 million.  The largest
development  loan outstanding at December 31, 1996 was a $1.6 million loan for a
development project in Valparaiso, Indiana.

         Income   producing   property  loans  are  generally   originated  with
loan-to-value ratios of up to 80%.  Income-producing  property loan originations
generally  have  a  term  of  up to 10  years  with  payment  amounts  based  on
amortization  schedules  of 15 to 30  years.  While  the Bank  seeks  to  obtain
personal  guarantees  or  letters  of  credit  on most  loans,  underwriting  is
primarily  based on the cash flow available  from the project,  after payment of
all expenses, and compliance with Indiana Federal's debt service coverage ratios
for the type of underlying income-producing property securing the loan.

         Income-producing  property  lending  affords the Bank an opportunity to
receive  interest at rates higher than those  generally  available  from one- to
four-family residential lending. Nevertheless,  loans secured by such properties
are  generally  larger  and  involve  a  greater  degree  of risk  than  one- to
four-family  residential  mortgage loans.  Because  payments on loans secured by
income-producing  property are often  dependent on the  successful  operation or
management of the properties,  repayment of such loans may be subject to adverse
conditions in the real estate  market or the economy.  If the cash flow from the
project is reduced (for  example,  if leases are not  obtained or renewed),  the
borrower's ability to repay the loan may be impaired.

         Consumer  Lending.  Consumer  loans are  generally  originated at fixed
interest  rates and carry  higher  yields than one- to  four-family  residential
mortgage loans.  The Bank generally  makes secured  consumer loans for personal,
family or household  purposes,  such as the financing of recreational  vehicles,
boats, automobiles,  second mortgage loans, mobile homes, and home improvements.
Although the Bank's home equity,  home  improvement  and boat loans are made for
terms of up to 180 months,  the actual  maturities  of such loans are  generally
shorter.  At December 31, 1996,  $120.1  million,  or 18.9%,  of the Bank's loan
portfolio before net items was invested in consumer loans.

         The Bank  originates  second  mortgage loans  consisting of home equity
lines of credit and loans at a fixed dollar  amount  ("closed  end loans").  The
Bank's second mortgage loans are generally originated in amounts,  together with
the amount of the first  mortgage,  of up to 90% of the  appraised  value of the
property securing the loan; however, home equity loans with loan-to-value ratios
in excess of 90% are generally  available at higher interest  rates.  Closed end
loans are originated at fixed  interest rates and provide for monthly  repayment
of principal  and  interest.  Home equity lines of credit are  originated  at an
adjustable  interest  rate and  provide for monthly  payments of  principal  and
interest amortized over a term of up to ten years.

          In  1995,  the  Bank  began  offering  credit  cards  directly  to its
customers.  At December 31, 1996, the Bank had $1.5 million of credit card loans
outstanding  and $5.4 million of unused credit  available  under its credit card
program,  compared  to $1.5  million of credit card loans  outstanding  and $4.5
million of unused credit available at December 31, 1995.
<PAGE>
         Indiana  Federal's  consumer  loans are  originated  through its branch
offices and  through a network of over 40 dealers in such items as  recreational
vehicles,  boats, automobiles,  and home improvement contractors.  These dealers
and contractors are located in Indiana, Illinois, Michigan,  Wisconsin, Missouri
and Kentucky. The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of ability to meet existing  obligations and payments on the proposed
loan.  The  stability  of  the  applicant's  monthly  income  is  determined  by
verification of gross monthly income from primary  employment,  and additionally
from any verifiable secondary income. Although creditworthiness of the applicant
is of primary consideration, the underwriting process also includes a comparison
of the value of the  security,  if any, in relation to the proposed loan amount.
The  determination of compliance with these standards is made by the Bank rather
than by a referring  dealer.  Indiana Federal,  from time to time, will purchase
consumer loans.  During 1996, Indiana Federal purchased a total of $29.8 million
of fixed-rate closed end home equity loans,  without  servicing  rights,  from a
bank in Des Moines, Iowa.

         Consumer  loans may entail  greater risk than do  residential  mortgage
loans,  particularly  in the case of consumer loans which are unsecured,  or are
secured by rapidly depreciable  assets, such as automobiles.  In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the  outstanding  loan balance as a result of the greater
likelihood  of  damage,  loss  or  depreciation.   In  addition,  consumer  loan
collections are dependent on the borrower's continuing financial stability,  and
thus  are  more  likely  to  be  affected  by  adverse  personal  circumstances.
Furthermore,  the  application  of various  federal  and state  laws,  including
bankruptcy and  insolvency  laws, may limit the amount which can be recovered on
such loans.  Although the level of  delinquencies  in the Bank's  consumer  loan
portfolio  has  historically  been  low (at  December  31,  1996,  $354,000,  or
approximately  .29% of the gross  consumer loan  portfolio,  was 60 days or more
delinquent),  there can be no assurance that  delinquencies will not increase in
the future.  See  "Non-Performing  Assets,  Loan  Delinquencies and Defaults and
Other Problem Loans."

         Commercial Business Lending.  Federally chartered savings  institutions
such as Indiana  Federal are authorized to make, up to a maximum of 10% of total
assets,  secured and unsecured  loans,  issue letters of credit for  commercial,
corporate,  business  and  agricultural  purposes  and to engage  in  commercial
leasing activities.

         Indiana  Federal began  originating  commercial  business loans in June
1992.  At December 31, 1996,  Indiana  Federal had $87.3  million in  commercial
business loans  outstanding,  representing  13.7% of the Bank's loan  portfolio,
before net items, and additional  commercial business loan commitments  totaling
$7.2 million.  The Bank's commercial business lending activities encompass loans
with a variety of purposes and  security,  including  loans to finance  accounts
receivable,  inventory and  equipment.  Indiana  Federal  intends to continue to
increase its commercial  business loan portfolio  while  maintaining its current
underwriting standards.
<PAGE>
         At December 31, 1996, the Bank had five commercial  business loans with
an outstanding  balance in excess of $1.0 million,  one of which was paid off by
the  borrower  during  February  1997.  The  largest  commercial  business  loan
outstanding  at December  31, 1996 had a balance of $2.1 million and was secured
by marketable securities.  At December 31, 1996, each of the foregoing loans was
performing in  accordance  with its  repayment  terms.  The Bank had seven other
commercial  business  loans  (aggregating  $4.1 million) with a net  outstanding
balance in excess of $500,000 at December 31, 1996, all of which were performing
in accordance with their repayment terms.

         The  commercial  business  loan market area  consists of the  following
Indiana counties:  Elkhart, Jasper, Lake, LaPorte,  Marshall, Porter, St. Joseph
and Starke.  Substantially  all loans are  currently  being  originated in Lake,
Porter and Starke  counties,  Indiana.  The  increase  in the Bank's  commercial
business  loans during 1994 and 1995 was due  primarily to the addition of $25.0
million and $19.0 million from the American and NCB acquisitions,  respectively.
The increase in the  commercial  business  lending  portfolio  during 1996 was a
result  of  the   Bank's   strategy   to  focus  on  growing   its   short-term,
higher-yielding loans.

         Authority  for  commercial   business  loan  approvals  is  granted  to
qualified personnel up to $125,000 and to the Senior Vice  President/Manager  of
commercial  business  lending  for  loans  up  to  $250,000.   The  Senior  Vice
President/Manager  of commercial business lending,  together with two commercial
loan  officers,  has authority to approve loans up to $500,000.  All  commercial
business  loans in excess of  $500,000  must be  approved  by a majority  of the
Senior Management Loan Committee,  which includes the President, Chief Financial
Officer,  Senior Vice President,  Vice Presidents of Commercial Business Lending
and the Senior Vice  President of  Residential  Lending.  Loans that exceed $1.0
million  for new  customers  or $1.5  million  for  existing  customers  must be
approved by a majority of the Director\Senior Management Loan Committee.

         The Bank  originates  commercial  business loans through  internal loan
production  personnel.  Once a borrower  has applied for a  commercial  business
loan, the complete loan application  package is reviewed,  including three years
of tax returns and  historical  operating  and other  financial  information.  A
credit  report and cash flow  analysis  may also be  reviewed  depending  on the
amount of the loan request. If real estate is provided as part of the underlying
collateral, the Bank may obtain, among other items, appraisals,  title insurance
and an environmental survey.

         Commercial  business loans are generally  originated with an adjustable
interest  rate based on a margin  over the  current  national  prime rate or the
selected U.S.  Treasury note rate. The adjustment  period and the index used are
contingent  on the loan amount,  risk  factors,  term and the  borrower's  other
relationships  with  Indiana  Federal.  There is no limit on upward or  downward
interest rate adjustments. Commercial business loans are negotiated on a case by
case basis and maturity, interest rate and other terms may vary.
<PAGE>
         Unlike  residential  mortgage  loans,  which  generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans are of higher risk and typically
are made on the basis of the borrower's  ability to make repayment from the cash
flow of the borrower's business.  As a result, the availability of funds for the
repayment of commercial  business  loans may be  substantially  dependent on the
success of the business  itself (which,  in turn, is likely to be dependent upon
the general economic  environment).  The Bank's commercial business loans almost
always include personal guarantees and are usually,  but not always,  secured by
business assets, such as accounts receivable, equipment and inventory as well as
real estate.  However,  the collateral  securing the loans may  depreciate  over
time,  may be  difficult  to appraise  and may  fluctuate  in value based on the
success of the business.  At December 31, 1996, $530,000, or .66%, of the Bank's
commercial business loans were non-performing loans.

         Agricultural  Related Lending. As a result of the American  acquisition
in December 1994, the Bank acquired agricultural real estate and operating loans
and an  agricultural  lending  department.  At December 31,  1996,  the Bank had
agricultural  real estate loans  secured by farmland of $11.5 million or 1.8% of
the Bank's gross loan  portfolio.  At the same date, $6.7 million or 1.0% of the
Bank's loan portfolio,  before net items,  consisted of secured loans related to
agricultural operations.

         Agricultural real estate loans are currently  originated with either an
adjustable or fixed rate of interest.  Generally,  adjustable rate  agricultural
real  estate  loans  provide  for a one,  three or five year  adjustment  of the
interest rate based on a margin over the  corresponding  U.S.  Treasury security
and may have maturity terms of 20 years or less while generally  providing for a
20 year  amortization  schedule.  Fixed  rate  agricultural  real  estate  loans
generally  are  balloon  loans  with  terms  up to  five  years  with a 20  year
amortization schedule. The loan to value ratio on agricultural real estate loans
is generally limited to 70%.  "Part-time" farms with quality primary  residences
of the farmer\owner-operator  located thereon may occasionally be financed up to
an 80% loan to value ratio.

         Agricultural   operating   loans  are  also  originated  at  either  an
adjustable  or fixed rate of interest for up to a five year term or, in the case
of livestock,  upon sale.  Most  agricultural  operating loans have terms of one
year or less. Such loans generally  provide for annual payments of principal and
interest or upon  maturity,  if the original  term is less than one year.  These
loans generally  provide for any proceeds from the sale of collateral be applied
to repayment of the loan.

         Agricultural  related  lending affords the Bank the opportunity to earn
yields higher than those obtainable on one- to four-family  residential lending.
Nevertheless,  agricultural related lending is generally recognized as involving
a higher degree of risk than residential lending because of the typically larger
loan amount,  the lengthy time period  involved in the  production  of crops and
livestock  and the  increased  sensitivity  of these loans to changes in general
economic  conditions  as well as other  factors  outside the control of the farm
borrower which can affect the success of the borrower.
<PAGE>
         Weather presents one of the greatest risks as hail, drought,  floods or
other  conditions can severely limit crop yields and thus impair loan repayments
and  the  value  of  the  underlying  collateral.   This  risk  can  be  reduced
substantially  by the farmer with multi-peril crop insurance which can limit the
dollar loss caused by yield  reductions.  Indiana Federal requires  borrowers to
obtain multi-peril crop insurance on a case by case basis.

         Grain and  livestock  prices also  present a risk as prices may decline
prior to sale resulting in the borrower's  inability to cover production  costs.
These  risks may be reduced by the farmer with the use of futures  contracts  or
options to provide a "floor" below which prices will not fall.

         Another risk is the  uncertainty  of  government  support  programs and
other  regulations.  Many  farmers  rely on the income,  in part,  from  support
programs  to  make  loan  payments.   If  these  programs  are  discontinued  or
significantly changed,  farmers will have to make a number of adjustments to try
to maintain income levels sufficient to make loan payments.

         In 1995,  Congress  eliminated farm commodity subsidy programs for feed
grains.  This  program,  in  certain  years,  was  instrumental  to  farmers  in
supporting grain prices and therefore farm revenues.  Under the new legislation,
support  for  commodity  prices  will be  decreased  each year until  eliminated
entirely in the year 2002. The Bank has adjusted its underwriting  standards and
criteria  related to agricultural  lending by discounting  government  commodity
supports in the projected cash flows of the farm operation.

         Finally,   many  farms  are  dependent  on  a  limited  number  of  key
individuals  whose injury or death may result in an  inability  to  successfully
operate the farm.  In this regard,  Indiana  Federal  provides an optional  farm
credit life program to farm borrowers.

         Loan Originations,  Purchases and Sales. In order to generate servicing
income and provide funds for additional lending  activities,  the Bank generally
seeks to sell, in the secondary mortgage market, one- to four-family residential
fixed-rate  loans which it originates.  During the year ended December 31, 1996,
the Bank,  consistent with its  asset/liability  management  strategy,  sold the
majority of the fixed-rate one- to four-family  residential loans it originated.
All loans sold in the  secondary  market have been sold without  recourse to the
Bank.  At December 31, 1996,  the Bank had $2.0  million of  fixed-rate  one- to
four-family  residential loans held for sale which were recorded at the lower of
cost or market. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Asset/Liability Management" in the Annual Report.

         Gains  and  losses  on  sales  of loans  and  loan  participations  are
recognized  at the time of the sale.  When  loans are sold,  the Bank  typically
retains  the   responsibility   for  collecting  and  remitting  loan  payments,
inspecting  the  properties  securing  the loans,  making  certain  that monthly
principal and interest  payments and real estate tax payments are made on behalf
of borrowers,  and otherwise  servicing the loans. The Bank receives a servicing
fee for  performing  these  services.  The amount of fees  received  by the Bank
varies  but  generally  ranges  from .25% to .375% per annum on the  outstanding
principal  amount of the loans  serviced.  The  servicing  fee is  recognized as
income  over the life of the  loans.  At  December  31,  1996,  Indiana  Federal
serviced  approximately  $146.0  million  in loans and loan  participations  for
others.
<PAGE>
         The Bank believes that purchases of loans and loan  participations  are
generally  desirable primarily when there is an excess supply of funds available
or when favorable  terms are available in areas outside its primary lending area
for loans which meet  Indiana  Federal's  regular  investment  and  underwriting
policy guidelines.  Loan purchases also may be made to diversify the Bank's loan
portfolio.  Loans  purchased by Indiana  Federal are  generally  serviced by the
seller.  At December 31, 1996,  approximately  $51.0 million of the Bank's loans
receivable were serviced by others.

         The table below shows the loan origination,  purchase and sale activity
of the Bank during the periods indicated.
<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                         ----------------------------------------
                                                                           1996            1995           1994
                                                                         ---------      ----------     ----------
                                                                                  (Dollars in Thousands)
<S>                                                                       <C>             <C>            <C>
Loans Originated:
 One- to four-family:
   Fixed-rates....................................................        $ 35,816        $ 46,902       $ 27,712
   Adjustable-rates(1)............................................          82,404          69,121        102,875
 Income-producing property........................................          35,308           7,052         12,443
 Consumer.........................................................          44,002          32,926         35,209
 Commercial business..............................................          47,636          36,743         20,386
 Agricultural Operating...........................................           6,133           3,623          1,225
                                                                          --------        --------       --------
     Total loans originated.......................................        $251,299        $196,367       $199,850
                                                                          --------        --------       --------

Loans Purchased:
 One- to four-family:
   Fixed-rates....................................................        $ 11,632       $   1,363       $    610
   Adjustable-rates...............................................             ---             ---            ---
 Income-producing property........................................             ---             962            ---
 Consumer.........................................................          29,779             ---          3,916
 Commercial business..............................................             ---             551            ---
                                                                          --------        --------       --------
     Total loans purchased........................................          41,411           2,876          4,526
                                                                          --------        --------       --------
     Total loans originated and purchased.........................        $292,710        $199,243       $204,376
                                                                          --------        --------       --------

Loans Sold:
 One- to four-family residential units:
   Fixed-rates....................................................        $ 41,271        $ 32,543       $ 30,122
 Income-producing property........................................             ---             ---            ---
                                                                          --------        --------       --------
     Total loans sold.............................................          41,271          32,543         30,122
                                                                          --------        --------       --------
Principal repayments..............................................         148,266         185,886        126,241
                                                                          --------        --------       --------
     Total loan sales and repayments..............................         189,537         218,429        156,363
                                                                          --------        --------       --------
Other net changes (2).............................................         (1,133)           (557)          (757)
                                                                          --------        --------       --------
Net loan activity.................................................        $102,040       $(19,743)       $ 47,256
                                                                          ========       ========        ========
</TABLE>
<PAGE>
---------------------
(1)      Includes 15 and 30 year AMLs which have fixed rates of interest for the
         first five or seven years and then adjust  annually  thereafter.  These
         loans totaled approximately $22.1 million in 1996, $9.5 million in 1995
         and $14.1 million in 1994.

(2)      Consists  primarily  of the  accretion  of unearned  discounts on other
         loans and the provision for loan losses.


         Non-Performing  Assets,  Loan  Delinquencies  and  Defaults  and  Other
Problem  Loans.  When a borrower  fails to make a required  payment on a one- to
four-family residential mortgage loan, the Bank attempts to cause the deficiency
to be cured by contacting the borrower. A notice is mailed to the borrower after
a payment  is 15 days past due and again  when the loan is 45 days past due.  In
addition,  the Bank attempts to contact the borrower via telephone  prior to the
loan being 30 days past due.  Generally,  if the delinquency is not cured within
60 days,  the Bank issues notice of intent to foreclose on the property,  and if
the deficiency is not cured within 90 days,  the Bank may institute  foreclosure
action.  If  foreclosed  on,  real  property is sold at a public sale and may be
purchased by the Bank.

         When a borrower fails to make a required payment on an income-producing
property  loan,  the  Bank  attempts  to  cause  the  deficiency  to be cured by
contacting  the borrower via telephone the first business day following the last
grace day pursuant to the note's payment schedule.  Generally, if the payment is
not paid within five business days after contact,  then a site  inspection and a
personal  interview with the property manager and/or owner may be performed.  If
upon the  interview/inspection  it is found that the property or future payments
may be in jeopardy, then immediate enforcement of assignment of leases and rents
will be  initiated  and all legal  steps  will be taken to gain  control  of the
project.  After  due  notice,  foreclosure  procedures  will  be  initiated.  If
foreclosed  on, real  property is sold at a public sale and may be  purchased by
the Bank.

         When a borrower  fails to make a required  payment on a consumer  loan,
the Bank attempts to cause the deficiency to be cured by contacting the borrower
by written  notice after a payment is 10 days past due and again when payment is
15  days  past  due  by  either  written  notice  and/or  by  telephone.  If the
delinquency  is not  cured  within  60 to 90 days the Bank may take  appropriate
steps to repossess the collateral securing the loan and/or file suit.

         When a  commercial  business  loan  borrower  fails to make a  required
payment,  the loan officer  immediately begins to record all relevant collection
efforts.  A  reminder  notice  is sent to the  borrower  15 days  after the loan
becomes past due and at 30 days past due the borrower is contacted directly by a
loan officer.  After the loan becomes 45 days past due, the loan file is sent to
loan review for a  documentation  check and the loan officer  discusses the loan
with the loan officer's  manager.  If the loan balance becomes 60 days past due,
the loan officer  reviews his course of action with his manager and sends out an
initial  demand  letter.  If the loan becomes 70 days past due, a second  demand
letter is sent. If the loan becomes 80 days past due, the loan officer  prepares
a problem  loan report and sends the loan file to the manager of the  Commercial
Banking Department for further action. If the debtor has not filed bankruptcy at
this point,  the loan  officer  prepares a workout  proposal to be reviewed  and
discussed with the Manager of the Commercial  Banking Department within 15 days.
If the  workout  plan is  successful  and the  debtor  can  make  at  least  two
consecutive payments under the restructured obligation,  the account is returned
to a commercial loan officer for handling.
<PAGE>
         The  following  table  sets  forth  information  concerning  delinquent
mortgage and other loans at December 31, 1996. The amounts  presented  represent
the total  remaining  principal  balances of the related loans (before  specific
reserves for losses and net items), rather than the actual payment amounts which
are overdue, and the percentage represented of each respective type of loan.
<TABLE>
<CAPTION>
                                                              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-family....   93     $3,667         1.27%      8      $188          .07%     25   $1,196           .42%
  Income producing(1)....    4      1,218         1.10       1        10          ---       8    4,927          4.44
  Construction...........    4        447         1.51       1       220          .75       2      464          1.57
Consumer.................   63        637          .53      12       102          .08      15      252           .21
Commercial business......   17        907         1.12       5       175          .22      14      530           .66
                           ---    -------                  ---      ----                   --   ------

Total ...................  181     $6,876         1.08%     27      $695          .11%     64   $7,369          1.16%
                           ===     ======                   ==      ====                   ==   ======
</TABLE>
------------------
(1)  Includes commercial, multi-family and agricultural real estate loans.


         The Office of Thrift  Supervision (the "OTS")  regulations  provide for
the  classification of loans and other assets such as debt and equity securities
considered by OTS examiners to be of lesser quality as "substandard," "doubtful"
or "loss" assets.  The  classification  of assets  regulation  requires  insured
institutions  to  classify  their own assets and to  establish  prudent  general
allowances for loan losses for assets  classified  "substandard"  or "doubtful."
For the portion of assets  classified as "loss",  an  institution is required to
either establish specific  allowances of 100% of the amount classified or charge
off such amount.  In addition,  the OTS examiner has been given the  discretion,
subject  to  approval  by  the  principal  supervisory  agent,  to  require  the
establishment of a general  allowance for loan losses based on assets classified
as "substandard" and "doubtful" or the general quality of the asset portfolio of
an institution.  At December 31, 1996,  approximately $11.1 million,  $1,100 and
$15,200 of the Bank's  assets were  classified  by  management  as  substandard,
doubtful  and loss,  respectively.  At that  date,  $10.2  million of the Bank's
classified  assets were  included in  non-performing  assets and  $900,000  were
included in other loans of concern, each as further described below.
<PAGE>
         The table below sets forth the amounts and categories of non-performing
assets in the Bank's  loan  portfolio  at the  indicated  dates (net of specific
reserves for losses and net items). Non-performing assets include those loans on
a non-accrual status, restructured loans which consist of loans where terms have
been  renegotiated  to provide a reduction  or deferral of interest or principal
because of the borrower's inability to make payments as scheduled ("Restructured
Loans"), accruing loans contractually past due 90 days or more as to interest or
principal and repossessed assets. It is the policy of the Bank to place any one-
to four-family residential loan on non-accrual status when the loan is in excess
of 90 days past due and the loan balance  exceeds 70% of the  collateral  value.
Income-producing  property,  commercial  business,  agricultural  operating  and
consumer loans are reviewed monthly to determine their status. Non-accrual loans
generally are returned to an accrual status when a loan is brought  current and,
in the opinion of management,  the financial  position of the borrower indicates
that  there no  longer  is any  reasonable  doubt as to the  timely  payment  of
principal  or  interest  by the  borrower.  Repossessed  assets  include  assets
acquired  in  settlement  of loans.  As of  December  31,  1996,  there  were no
concentrations  of loans in any  types of  industry  which  exceeded  10% of the
Bank's total loans, that are not included as a loan category in the table below.
<TABLE>
<CAPTION>
                                                                                 December 31,
                                                        1996          1995          1994          1993          1992
                                                      -------       -------       -------       -------       -------
                                                                           (Dollars in Thousands)
<S>                                                   <C>           <C>           <C>           <C>           <C>
Non-accruing loans:
  One- to four-family..........................     $     ---       $   ---       $   ---       $   ---       $   700
  Income-producing property....................         3,859         4,144         3,809         1,490         1,002
  Commercial business..........................           322            85           546           ---           ---
  Consumer.....................................            38           232           334           300           178
                                                      -------       -------       -------       -------       -------
    Total......................................        $4,219       $ 4,461       $ 4,689       $ 1,790       $ 1,880
                                                      =======       =======       =======       =======       =======
    Total as a percentage of total assets......          .50%          .62%          .65%          .28%          .31%

Accruing loans delinquent 90 days or more:
  One- to four-family(1).......................        $1,610       $ 1,522       $   882       $   881       $   375
  Income-producing property....................           298           ---           ---           ---           ---
  Commercial business..........................           168           161           ---           ---           ---
  Consumer.....................................           209           ---           ---           ---           ---
  Agricultural operating.......................           ---           193           ---           ---           ---
                                                      -------       -------       -------       -------       -------
    Total......................................        $2,285       $ 1,876       $   882       $   881       $   375
                                                      =======       =======       =======       =======       =======
    Total as a percentage of total assets......          .27%          .26%          .12%          .14%          .06%

Restructured loans:
  One- to four-family..........................        $  170       $   190       $   191       $   193       $ 1,421
  Income-producing property....................           ---           ---           ---         3,111         7,122
                                                      -------       -------       -------       -------       -------
    Total......................................        $  170       $   190       $   191       $ 3,304       $ 8,543
                                                      =======       =======       =======       =======       =======
    Total as a percentage of total assets......          .02%          .03%          .03%          .52%         1.42%
<PAGE>
<CAPTION>
                                                                                 December 31,
                                                        1996          1995          1994          1993          1992
                                                      -------       -------       -------       -------       -------
                                                                           (Dollars in Thousands)
<S>                                                   <C>           <C>           <C>           <C>           <C>
Repossessed assets:
  One- to four-family..........................       $   ---       $   149       $    59       $    26       $   107
  Income-producing property....................         3,383         4,265         4,734         1,320         3,394
  Consumer.....................................           100            80           155            80            46
                                                      -------       -------       -------       -------       -------
    Total......................................        $3,483       $ 4,494       $ 4,948       $ 1,426       $ 3,547
                                                      =======       =======       =======       =======       =======
    Total as a percentage of total assets......          .42%          .62%          .69%          .22%          .59%

Total non-performing assets....................       $10,157       $11,021       $10,710       $ 7,401       $14,345
Percentage of non-performing assets to total
assets.........................................         1.21%         1.53%         1.49%         1.16%         2.38%
</TABLE>
----------------------
(1)      Includes $464,000 of construction loans.

         During  1996,  gross  interest  income  would  have been  increased  by
$473,000 if all  non-accruing  loans had been current in  accordance  with their
original  terms.  The amount that was included as interest  income on such loans
was $298,000 for the year ended December 31, 1996. Interest on loans involved in
troubled  debt  restructurings  that would have been  recorded as income for the
year ended  December 31, 1996,  had the loans been  current in  accordance  with
their original terms totaled  $15,000.  Interest on such loans that was actually
recorded as income for the year ended December 31, 1996, totaled $6,000.

         Non-accruing  loans. As of December 31, 1996, the Bank had $4.2 million
in non-accruing  loans, which constituted .66% of the Bank's loan portfolio.  At
such date, there were no non-accruing  loans or aggregate  non-accruing loans to
one borrower in excess of $150,000 in net book value, except as described below.

         As of December 31, 1996, the Bank had two loans to entities  related to
Cardinal Industries, Inc. ("Cardinal") secured by apartment complexes located in
Indianapolis,   Indiana.  These  properties  were  previously  subject  to  loan
modification  agreements  with the Bank and were  classified  as  troubled  debt
restructurings in 1993.  Despite the loan  modifications,  these properties were
consistently  delinquent and became  non-performing  in 1994. As of December 31,
1996, the loan balances on each of these  properties were $1.3 and $1.1 million,
respectively. During February 1997, the borrower refinanced both properties with
another  lender  and the  Bank  received  full  payment  on both  loans  with no
additional loan losses.

         Non-accruing  loans at December  31, 1996 also  included a $1.5 million
(net of reserves)  income-producing  property loan secured by a shopping  center
located in Temple  Terrace,  Florida.  The major tenant  vacated the premises in
August 1995 and as a result cash flows from the  property  are  insufficient  to
meet principal and interest  payments.  As of December 31, 1996, the loan was 13
months  delinquent.  During the first quarter of 1996,  the borrower  executed a
purchase  contract to sell the  property to a major  grocery  store  chain.  The
borrower  has  filed  for  bankruptcy  and  signed  several  extensions  for the
contract.  The sale of the property is expected to close in April 1997, with the
Bank being paid the outstanding balance of the loan plus accrued interest.
<PAGE>
         Accruing  Loans  Delinquent 90 Days or More. At December 31, 1996,  the
Bank had $2.3 million in net book value of accruing loans  delinquent 90 days or
more, none of which exceeded 350,000 in net book value.

         Repossessed  Assets. As of December 31, 1996, the Bank had $3.4 million
of repossessed  assets.  Substantially all of the Bank's foreclosed  property at
December 31, 1996 consisted of income-producing property as discussed below.

         In July 1994, the Bank  foreclosed on an apartment  complex  located in
Gainesville, Florida. As of December 31, 1996, the Bank's net book value for the
property was $2.3 million. In February 1997, the Bank sold the property for $2.5
million.  The Bank provided the  purchaser  with the financing for the property,
which was made at market rates and with a loan to value ratio of 80%.

         Repossessed  assets at December 31, 1997 also  included a 63,000 square
foot shopping center located in Sturgis,  Michigan. As of December 31, 1996, the
Bank's net book value in this property was $1.0 million.  In February  1997, the
Bank sold the property for $1.0 million.  The Bank did not provide the purchaser
with the financing for the sale.

         At December 31, 1996, the Bank did not have any other  income-producing
properties repossessed.

         Other Loans of Concern.  In addition to the  non-performing  assets set
forth in the table above,  as of December 31, 1996,  there was also an aggregate
of approximately $900,000 in net book value of loans with respect to which known
information  about the  possible  credit  problems of the  borrowers or the cash
flows of the security  properties have caused  management to have concerns as to
the ability of the  borrowers to comply with present  loan  repayment  terms and
which may result in the  future  inclusion  of such items in the  non-performing
asset categories.

         Other loans of concern at December  31,  1996  consisted  solely of one
$900,000 income  producing  property loan (net of a $150,000  specific  reserve)
secured by an apartment complex located in Lansing, Michigan.  Although the loan
has always remained current,  management has designated the property substandard
since  cash  flow  from the  property  is  insufficient  to meet  debt  service.
Management will continue to monitor this loan.

         Allowance for Loan Losses. The allowance for loan losses is established
through a provision  for loan losses  based on  management's  evaluation  of the
risks  inherent in its loan  portfolio,  changes in the nature and volume of its
loan activity and other  relevant  factors.  Management's  determination  of the
adequacy of the allowance is based upon  evaluation of the portfolio,  past loss
experience,  current economic conditions,  volume, growth and composition of the
portfolio, and other relevant factors. Although management believes that it uses
the best information  available to make such determinations,  future adjustments
to reserves may be necessary, and net income could be significantly affected, if
circumstances  differ  substantially  from the  assumptions  used in making  the
initial determinations. At December 31, 1996, the Bank had an allowance for loan
losses  of  $7.5  million  or  1.2% of  total  loans.  See  Note D of  Notes  to
Consolidated Financial Statements in the Annual Report.
<PAGE>
         The following table sets forth an analysis of the Bank's  allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                                           1996        1995         1994        1993         1992
                                                          ------      ------       ------      ------       ------
                                                                           (Dollars in Thousands)

<S>                                                       <C>         <C>          <C>         <C>          <C>
Balance at beginning of period.....................       $6,655      $6,101       $5,356      $4,392       $3,210
                                                          ------      ------       ------      ------       ------

Charge-offs:
 One- to four-family ..............................          ---         (6)          ---         (8)        (113)
 Income-producing property.........................         (21)         ---          ---       (130)          ---
 Consumer loans....................................        (335)       (437)        (180)       (167)        (299)
 Commercial business...............................         (88)        (12)          ---         ---          ---
                                                          ------      ------       ------      ------       ------
   Total Chargeoffs................................        (444)       (455)        (180)       (305)        (412)
                                                          ------      ------       ------      ------       ------

Recoveries:
 One- to four-family...............................          ---         ---            1          47           37
 Income-producing property.........................          ---         ---          ---           1           16
 Consumer loans....................................           49          32           28          71          146
 Commercial........................................        83(1)       44(1)          63(1)       53(1)        ---
                                                          ------      ------       ------      ------       ------
   Total Recoveries................................          132          76           92         172          199
                                                          ------      ------       ------      ------       ------
     Net charge-offs...............................        (312)       (379)         (89)       (133)        (213)

Acquired from NorCen/American......................          ---         756          655         ---          ---
Provision for losses...............................        1,115         177          179       1,097        1,395
                                                          ------      ------       ------      ------       ------

Balance at end of period...........................       $7,458      $6,655       $6,101      $5,356       $4,392
                                                          ======      ======       ======      ======       ======

Ratio of net charge-offs during the period to
  average loans outstanding during the period......         .05%        .06%         .02%        .03%         .05%
</TABLE>
-----------------------
(1)      Represents  recoveries received from the State of Indiana for potential
         future  loan  losses  on  loans  originated  by the  Bank  through  its
         participation in a small business loan capitalization program. In 1996,
         recoveries  received from State of Indiana were  $29,000;  in all other
         years recoveries were for the total amounts indicated in the table.
<PAGE>
The  following  table  furnishes a breakdown of the allowance for loan losses at
the dates indicated.
<TABLE>
<CAPTION>
                                                               At December 31,
                              ----------------------------------------------------------------------------------
                                        1996                         1995                          1994
                              ------------------------      -----------------------      -----------------------
                                    Percent of                   Percent of                    Percent of
                                   Loan in Each                 Loan in Each                  Loan in Each
                                 Category to Net               Category to Net               Category to Net
                                      Loans                         Loans                         Loans
                              Amount       Receivable       Amount      Receivable       Amount       Receivable
                              ------       ----------       ------      ----------       ------       ----------
                                                                                          (Dollars in Thousands)
<S>                          <C>           <C>             <C>            <C>             <C>           <C>
Type of Loan:

One- to four-family........  $  434         49.75%          $ 434          55.27%        $   440         54.17%
Income-producing
 property..................   3,513         15.51           3,445           16.3           3,305         21.45
Agricultural
 real estate...............     ---          1.85             ---            2.4             ---          2.02
 Consumer..................   1,373         19.24             878          15.72           1,246         15.19
 Commercial
  business.................   2,138         12.58           1,648           9.19             860          6.12
Agricultural
 operating.................     ---          1.07             250            .98             250          1.05
                             ------        ------          ------         ------          ------        ------
     Total.................  $7,458        100.00%         $6,655         100.00%         $6,101        100.00%
                             ======        ======          ======         ======          ======        ======
<CAPTION>
                                                  At December 31,
                             ----------------------------------------------------
                                       1993                         1992
                             ------------------------      ----------------------
                                   Percent of                   Percent of
                                  Loan in Each                 Loan in Each
                                Category to Net               Category to Net
                                     Loans                         Loans
                             Amount       Receivable       Amount      Receivable
                             ------       ----------       ------      ----------
                                           (Dollars in Thousands)
<S>                          <C>            <C>            <C>           <C>
Type of Loan:

One- to four-family........  $  439          53.48%         $ 367         51.06%
Income-producing
 property..................   3,304          28.62          2,810         31.87
Agricultural
 real estate...............     ---            ---            ---           ---
 Consumer..................   1,305          14.81          1,100         15.69
 Commercial
  business.................     308           3.09            115          1.38
Agricultural
 operating.................     ---          ---              ---         ---
                             ------         ------         ------        ------
     Total.................  $5,356         100.00%        $4,392        100.00%
                             ======         ======         ======        ======
</TABLE>
<PAGE>
Investment Activities

         The  Bank's  investment   portfolio  is  managed  by  its  officers  in
accordance  with an investment  policy  approved by the Board of Directors.  The
Board reviews all transactions  and activities in the investment  portfolio on a
monthly  basis.  The  Corporation  invests  primarily  in short- to  medium-term
investments,  including United States Treasury securities,  bank certificates of
deposit, federal funds, FHLB overnight funds, repurchase agreements,  fixed-rate
and   adjustable   rate   Collateralized    Mortgage    Obligations    ("CMOs"),
mortgage-backed   securities,   asset-backed   securities   and  corporate  debt
obligations.  All outstanding  corporate debt securities are rated in one of the
top three  investment grade  categories by one of several  generally  recognized
independent rating agencies.

         The  following  table  sets forth  certain  information  regarding  the
investment portfolio of the Bank at the dates indicated by dollar amounts and as
a percentage of total assets. Dollar amounts reflect carrying value.
<TABLE>
<CAPTION>
                                                                          December 31,
                                          -----------------------------------------------------------------------------
                                                  1996                        1995                        1994
                                          ---------------------       ---------------------       ---------------------
                                          Amount        Percent       Amount        Percent       Amount        Percent
                                          ------        -------       ------        -------       ------        -------
                                                                     (Dollars in Thousands)
<S>                                         <C>          <C>            <C>          <C>            <C>         <C>
Short-Term Investments:
 Interest-bearing deposits............     $      66                    $    178                    $    282
 Federal funds loaned.................           ---                       5,375                         200
                                           ---------                    --------                    --------
     Total short-term investments.....            66      .01%             5,553      .77%               482      .07%
                                           ---------                    --------                    --------

Investment Securities:
 U.S. Government and agency
   securities.........................      $ 35,347                    $ 23,789                    $ 55,122
 CMOs.................................        23,834                      32,942                      36,614
 Asset-backed bonds...................        14,309                       2,080                         ---
 Corporate debt securities............        11,967                      12,360                      13,802
 Municipal obligations................           975                       1,502                       2,639
                                           ---------                    --------                    --------
     Total investment securities......        86,432     10.33            72,673     10.07           108,177    15.23
                                           ---------                    --------                    --------

 Mortgage-backed securities...........        43,281      5.17            26,737      3.71            29,241     4.12
                                            --------     -----          --------     -----          --------    -----
     Total investments................      $129,779     15.51%         $104,963     14.55%         $137,900    19.42%
                                            ========     =====          ========     =====          ========    =====
</TABLE>
<PAGE>
         The Bank  has,  from time to time,  acquired  for  investment  purposes
derivative mortgage-backed securities. These derivative securities are first and
second tranches of CMOs. CMOs are securities  derived by reallocating cash flows
from mortgage  pass-through  securities or from pools of mortgages.  At December
31,  1996,  the Bank had $9.6  million  of fixed  interest  rate  CMOs and $14.3
million of adjustable  interest rate CMOs.  These fixed and adjustable  interest
rate CMOs have estimated remaining lives of 0.8 and 8.6 years, respectively. The
Bank does not purchase interest only, principal only or residual interest CMOs.

         At December 31, 1996, all of the Bank's investment and  mortgage-backed
securities were available for sale.  Indiana Federal held no trading  securities
at December 31, 1996, although, in accordance with established policies, Indiana
Federal  periodically  acquires  securities  for  trading  purposes.  Securities
available  for sale and held for trading  purposes are recorded at market value.
For  additional   information   regarding  the  investment  and  mortgage-backed
securities,  see Note C to the Notes to Consolidated Financial Statements in the
Annual Report.

         The amortized  cost and fair values of investment  and  mortgage-backed
securities at the dates indicated are summarized as follows:
<TABLE>
<CAPTION>
                                                                       December 31,
                                       ----------------------------------------------------------------------------
                                                1996                       1995                       1994
                                       ---------------------    -----------------------    ------------------------
                                       Amortized      Fair       Amortized      Fair        Amortized       Fair
                                          Cost       Value         Cost         Value         Cost          Value
                                        --------    --------       -------      -------      --------      --------
                                                                (Dollars in Thousands)

<S>                                     <C>         <C>            <C>          <C>          <C>           <C>
U. S. Government and
 agency securities..................     $35,128     $35,347       $23,041      $23,789      $ 56,175      $ 55,122
CMOs................................      23,974      23,834        33,039       32,942        37,300        35,743
Corporate debt securities...........      12,000      11,967        12,459       12,360        13,998        13,802
Asset-backed bonds..................      14,473      14,309         1,998        2,080           ---           ---
Municipal securities................         937         975         1,445        1,502         2,639         2,645
                                        --------    --------       -------      -------      --------      --------
Total investment securities.........      86,512      86,432        71,982       72,673       110,112       107,312
Mortgage-backed  securities.........      42,605      43,281        26,138       26,737        30,736        29,310
                                        --------    --------       -------      -------      --------      --------

Total...............................    $129,117    $129,713       $98,120      $99,410      $140,848      $136,622
                                        ========    ========       =======      =======      ========      ========
</TABLE>
<PAGE>
         The  following   table  shows  the   maturities   of   investment   and
mortgage-backed  securities  (based on fair value) as of December 31,  1996,  as
well as the weighted average yields on such  securities.  Tax-free income is not
material,   accordingly,   weighted  average  yields  are  not  presented  on  a
tax-equivalent basis.
<TABLE>
<CAPTION>
                                                                   After One               After Five
                                            Within                But Within               But Within                 After
                                           One Year               Five Years                Ten Years               Ten Years
                                      ------------------      ------------------       ------------------       -----------------
                                      Amount       Yield      Amount       Yield       Amount       Yield       Amount      Yield
                                      ------       -----      ------       -----       ------       -----       ------      -----
                                                                        (Dollars in Thousands)
<S>                                     <C>         <C>       <C>           <C>        <C>          <C>           <C>        <C>
U.S. Government and
  Agency Securities................     $ 2,529     7.88%     $ 6,491       7.07%      $26,327      7.09%        $    ---    --- %
CMOs...............................         176     5.36        3,053       5.13           ---     ---             20,605    6.32
Corporate debt securities..........       5,998     5.91        5,969       5.86           ---     ---                ---     ---
Asset-backed bonds.................         ---      ---          ---        ---           ---     ---             14,309    6.98
Municipal obligations..............          76     6.19           53       5.51           642      6.05              204    6.28
                                       --------               -------                  -------                    -------
  Total investment securities......       8,779     6.47       15,566       6.22        26,969      7.06           35,118    6.59
                                        -------               -------                  -------                    -------
Mortgage-backed securities.........       4,346     6.18        3,307       6.38         2,308      6.60           33,320    7.23
                                        -------               -------              -   -------                    -------
    Total .........................     $13,125     6.38%     $18,873       6.25%      $29,277      7.03%         $68,438    6.90%
                                        =======               =======                  =======                    =======
</TABLE>

Sources of Funds

         General. Deposit accounts have traditionally been a principal source of
the Bank's funds for use in lending and for other general business purposes.  In
addition to deposits,  the Bank derives funds from loan  repayments,  whole loan
sales,  cash flows generated from operations (which include interest credited to
deposit  accounts),  FHLB  advances,  other  borrowings  and reverse  repurchase
agreements  entered into with primary  dealers,  and, to a lesser  extent,  loan
participation sales. Scheduled loan repayments are a relatively stable source of
funds,  while  deposit  inflows and  outflows and the related cost of such funds
have varied widely.  Borrowings may be used on a short-term  basis to compensate
for seasonal  reductions in deposits or deposit  inflows at less than  projected
levels  and may be used on a longer  term  basis  to  support  expanded  lending
activities.  The  availability  of funds  from loan sales is  influenced  by the
general level of interest rates.
<PAGE>
         Deposit  Activities.  The Bank attracts both  short-term  and long-term
deposits from the general  public by offering a wide  assortment of accounts and
rates. In recent past years, the Bank has been required by market  conditions to
rely increasingly on short-term accounts and other deposit alternatives that are
more  responsive to market  interest rates than the passbook  accounts and fixed
interest rate, fixed-term certificates. In 1996, however, the Bank's one and two
year  certificate of deposit  products were very popular among  customers as the
Bank, in an effort to attract such  deposits,  offered very  competitive  market
rates of interest. The Bank offers regular passbook accounts,  checking accounts
(both interest and non-interest bearing checking accounts), various money market
accounts,  fixed interest rate certificates with varying maturities,  negotiated
rate $100,000 or above jumbo  certificates of deposit and individual  retirement
accounts.  Negotiated  rate  $100,000  and above jumbo  certificates  of deposit
totaled $38.6 million or 6.8% of total  deposits at December 31, 1996.  The Bank
does not knowingly accept brokered deposits.

         The  following  table sets forth the Bank's  deposit  flows  during the
periods indicated.
<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                           1996        1995            1994
                                        ---------   ---------       ---------
                                               (Dollars in Thousands)

<S>                                     <C>         <C>             <C>
Opening balance .....................   $ 532,896   $ 510,475       $ 430,829
Net increase (decrease) in deposits .      11,483        (465)         64,637
Interest credited ...................      24,438      22,423          14,917
Increase in  accrued interest payable         261         463              92
                                        ---------   ---------       ---------
Ending balance ......................   $ 569,078   $ 532,896(1)    $ 510,475(2)
                                        =========   =========       =========
</TABLE>
---------------
(1) Substantially  all of the increase in deposits is attributable to the NorCen
    acquisition.   See  "Management's   Discussion  and  Analysis  of  Financial
    Condition - Liquidity" in the Annual Report.

(2) Substantially  all  of the  increase  in  deposits  is  attributable  to the
    American acquisition. See "Management's Discussion and Analysis of Financial
    Condition - Liquidity" in the Annual Report.

         The following  table sets forth the Bank's  certificates  of deposit of
$100,000 and more outstanding at December 31, 1996.


                                                                   Certificates
                                                                    of Deposit
                                                                   ------------
3 months or less..................................................    $36,135
Over 3 months through 6 months....................................      8,319
Over 6 months through 12 months...................................      9,729
Over 12 months....................................................      8,461
                                                                      -------
         Total....................................................    $62,644
                                                                      =======
<PAGE>
         The following  table sets forth the Bank's major deposit  categories by
average balances, interest paid and average rate for the periods indicated.
<TABLE>
<CAPTION>
                                               1996                             1995                              1994
                                     --------------------------       ---------------------------     ---------------------------
                                     Average                          Average                         Average
                                     Balance    Interest   Rate       Balance     Interest   Rate     Balance    Interest    Rate
                                    --------    -------    ----       --------    -------    ----     --------   -------     ----
<S>                                 <C>         <C>        <C>        <C>         <C>        <C>      <C>        <C>         <C>
                             (Dollars in Thousands)

   Non-interest bearing checking
      accounts...................    $30,035   $    ---    ---%       $ 27,267    $   ---    ---%     $  9,826 $    ---      ---%
   NOW accounts..................     50,792      1,086    2.13         50,741      1,079    2.13      39,028       751      1.92
   Passbook savings..............     56,583      1,621    2.86         46,121      1,332    2.89      28,895       764      2.64
   Money market accounts.........     78,916      2,397    3.04         91,763      2,619    2.85     118,336     3,510      2.97
   Certificates..................    337,413     19,334    5.73        316,992     17,393    5.47     237,821    11,454      4.82
                                    --------   --------               --------    -------             -------   -------
     Total deposits..............   $553,739    $24,438    4.41%      $532,884    $22,423    4.21%    $433,906   $16,479     3.80%
                                    ========    =======               ========    =======             ========   =======
</TABLE>

         The  following  table sets forth the  Bank's  deposit  flows by type of
account,   including  interest  credited,  during  the  periods  indicated.  The
composition of the Bank's deposits by type of account and average  interest rate
is set  forth in Note F of Notes to  Consolidated  Financial  Statements  in the
Annual Report.
<TABLE>
<CAPTION>
                                                       Increase (Decrease)
                                                     Year Ended December 31,
                                                  1996        1995       1994
                                               --------    --------    --------
                                                     (Dollars in Thousands)
<S>                                            <C>         <C>            <C>
Non-interest bearing checking accounts .....   $  3,425    $  5,581       3,758
NOW checking accounts ......................     (1,690)      6,399          66
Passbook and statement accounts ............     12,052       2,062        (235)
Money market accounts ......................      1,125     (26,540)    (18,334)
Jumbo certificates .........................      7,838      (6,021)     17,342
Six month certificates .....................      7,676      (4,879)      2,350
Twelve month certificates ..................     22,430      11,377      (3,456)
Twenty-four month certificates .............     15,580      (5,427)     12,166
Thirty-six month certificates ..............     (4,033)    (14,397)     (4,256)
Forty-eight month certificates .............     (2,102)        792         170
Sixty month certificates ...................     (1,404)        698      (1,031)
Seventy-two month certificates .............       (533)        581        (703)
Eighty-four month certificates .............        (15)        185         551
Ninety-six month certificates ..............     (1,280)     (1,417)     (2,676)
Other term certificates ....................    (23,148)     52,964      10,299
                                               --------    --------    --------
                                                 35,921      21,958      16,011
Accrued Interest Payable ...................        261         463          91
                                               --------    --------    --------
Total ......................................   $ 36,182    $ 22,421    $ 16,102
                                               ========    ========    ========
</TABLE>
<PAGE>
         The following  table sets forth, by nominal  interest rate  categories,
the composition of deposits at the Bank at the dates indicated.
<TABLE>
<CAPTION>
                                                                           December 31,
                                                                           -------------
                                                             1996              1995             1994
                                                            -----             ------            -----
                                                                       (Dollars in Thousands)
<S>                                                        <C>                <C>               <C>
 0.00% - 2.99%....................................         $231,555           $213,611          $205,892
 3.00% - 4.99%....................................            6,607             27,542           144,008
 5.00% - 6.99%....................................          326,027            281,444           145,798
 7.00% - 8.99%....................................            2,269              7,940            12,882
 9.00% - 10.99%...................................              ---                ---               ---
11.00% - 12.99%...................................              ---                ---               ---
  Accrued interest payable.                                   2,620              2,359             1,895
                                                           --------           --------          --------
  Total...........................................         $569,078           $532,896          $510,475
                                                           ========           ========          ========
</TABLE>

         The following table sets forth by nominal  interest rate categories the
amounts of deposits  maturing  during the twelve month period ending on December
31 of the years indicated.
<TABLE>
<CAPTION>
                                                                           Amounts Maturing in
                                                                                                     2000 and
                                                  1997              1998            1999            Thereafter          Total
                                                --------          -------          ------             -------          --------
                                                                         (Dollars In Thousands)
<S>                                             <C>               <C>              <C>                <C>              <C>
 0.00% -  2.99%.........................        $231,424          $    28          $  ---             $   103          $231,555
 3.00% -  4.99%.........................           4,547              731             691                 638             6,607
 5.00% -  6.99%.........................         255,455           49,758           9,044              11,770           326,027
 7.00% -  8.99%.........................             760            1,168              90                 251             2,269
 9.00% - 10.99%.........................             ---              ---             ---                 ---               ---
                                                --------          -------          ------             -------          --------

Accrued interest payable................           2,620              ---             ---                 ---             2,620
                                                --------          -------          ------             -------          --------
     Total..............................        $494,806          $51,685          $9,825             $12,762          $569,078
                                                ========          =======          ======             =======          ========
</TABLE>

         Management  believes  that the variety of accounts  offered by the Bank
has  allowed  it to be  competitive  in  obtaining  funds  and to  respond  with
flexibility (by paying rates of interest more closely approximating market rates
of interest) to, although not eliminating,  the threat of disintermediation (the
flow of funds away from  depository  institutions  such as savings  institutions
into direct  investment  vehicles such as government and corporate  securities).
Indiana Federal will also  occasionally  offer a promotion or a more competitive
interest rate to attract new deposits.  During recent years, the Bank has become
increasingly  subject to short-term  fluctuations in deposit flows, as customers
have become more interest rate conscious.  Therefore, the ability of the Bank to
attract  and  maintain  deposits,  and the cost of its funds,  has been and will
continue to be significantly affected by money market conditions.
<PAGE>
         Borrowings.  Apart from deposits,  the Bank's principal source of funds
in recent years has been FHLB advances. As a Federal Home Loan Bank (the "FHLB")
member,  the Bank is required to own capital stock in the FHLB and is authorized
to apply for advances from the FHLB.  Each Federal Home Loan Bank credit program
has its own  interest  rate,  which  may be  fixed  or  variable,  and  range of
maturities.  The FHLB may prescribe the acceptable  uses to which these advances
may be put, as well as  limitations  on the size of the advances  and  repayment
provision.  In addition,  the Bank periodically  enters into reverse  repurchase
agreements and purchases federal funds which are accounted for as borrowings.

         The Bank's borrowings as of recent dates are set forth in Note G of the
Notes to Consolidated  Financial  Statements in the Annual Report. The following
table sets  forth,  at the dates and during the periods  indicated,  the maximum
balance and the weighted average rate paid thereon for each type of borrowing.
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                            1996                         1995                       1994
                                                     -----------------------------------------------------------------------
                                                       Amount      Rate         Amount        Rate         Amount       Rate
                                                       ------      ----         ------        ----         ------       ----
                                                                              (Dollars In Thousands)
<S>                                                   <C>          <C>         <C>            <C>         <C>           <C>
At Date Ended:
 FHLB borrowings................................      $163,465     5.96%       $104,348       5.87%       $ 80,096      6.18%
 Repurchase agreements..........................         9,131     5.60           9,408       5.39          51,763      6.13
 Other borrowings...............................        20,000     7.31             ---        ---           5,975      6.75
                                                      --------                 --------                   --------

     Total......................................      $192,596     6.08%       $113,756       5.83%       $137,834      6.19%
                                                      ========                 ========                   ========

During Period Ended:
 Maximum amount of borrowings outstanding:
  FHLB borrowings...............................      $163,465                 $109,944                   $133,402
  Repurchase agreements.........................        27,769                   52,961                     52,311
  Other borrowings..............................        20,000                   15,000                     13,450
                                                      --------                 --------                   --------

     Total......................................      $211,234                 $177,905                   $199,163
                                                      ========                 ========                   ========

 Average borrowings  outstanding:
  FHLB borrowings...............................      $111,790     5.83%       $ 99,210       6.16%       $ 77,496      5.67%
  Repurchase agreements.........................        11,374     5.27          18,188       5.17          26,110      4.95
  Other borrowings..............................         5,341     5.64           6,033       6.22           3,946      4.99
                                                      --------                 --------                   --------

     Total......................................      $128,505     5.77%       $123,431       6.02%       $107,552      5.47%
                                                      ========                 ========                   ========
</TABLE>
<PAGE>
Trust and Private Banking Division

         On December  15, 1994,  the OTS granted  regulatory  authorization  for
Indiana  Federal to exercise full trust powers.  At December 31, 1996,  the Bank
had $22.9 million of assets managed by its Trust Department.

         The  Trust and  Private  Banking  Division  operates  primarily  in the
Northwestern  Indiana  area,  consisting  of  Lake  and  Porter  counties,  with
additional  smaller markets in Marshall,  Starke,  and St. Joseph counties.  The
Private Banking Group provides  services for the banking needs of high net worth
individuals in these areas.

         The Trust and Private  Banking  Division  originates  business  through
internal account  managers,  utilizing asset  management,  qualified  retirement
plans,  investment  and  insurance  products,  escrow  accounts,  and living and
testamentary trusts.  Guardianship and other fiduciary powers are available. The
Trust and Private  Banking  Division  activities  generate  primarily fee- based
income which can vary depending upon the size of the individual holdings.

         A Trust Committee,  consisting of the Chairman of the Board, President,
Chief  Operating  Officer,  Chief  Financial  Officer,  the  Vice  President  of
Commercial Lending, and a Board Member, establishes and reviews all functions of
the Trust  Department.  Meeting on a monthly basis,  the Committee  approves all
opening  and  closing of trust  accounts,  as well as all  purchases,  sales and
changes of trust assets,  taking into  consideration  federal and state laws, as
well as relevant economic considerations.

Subsidiary Activities

         Indiana  Federal is permitted by current OTS  regulations  to invest in
the capital  stock,  obligations,  or other  specified  types of  securities  of
subsidiaries  (referred to as "service  corporations") and to make loans to such
subsidiaries  and joint ventures in which such  subsidiaries are participants in
an  aggregate  amount  not  exceeding  2% of an  association's  assets,  plus an
additional 1% of assets if the amount above 2% is used for  specified  community
or inner-city  development  purposes.  In addition,  federal  regulations permit
associations to make specified types of loans to such  subsidiaries  (other than
special-purpose  finance subsidiaries),  in which the association owns more than
10% of the stock, in an aggregate amount not exceeding 50% of the  association's
loans-to-one-borrower  limit  if  the  association's  regulatory  capital  is in
compliance with minimum  regulatory  capital  requirements.  When an association
fails to meet that  standard,  such loans must be included  in amounts  invested
under the general  limit,  unless a waiver is obtained from the OTS. At December
31, 1996, the Bank's total investment in its service corporation was $385,000 or
 .05% of the Bank's assets.

         Indiana Federal's service corporation,  IndFed Financial Services, Inc.
operates  under  the  name  Indiana   Financial   Insurance   Agency   ("Indiana
Financial"). Indiana Financial is a full service insurance agency which provides
multiple lines of insurance coverage including,  commercial,  general liability,
workmans compensation, group health, payroll deduction and automobile insurance.
Indiana  Financial  also offers fixed  annuity  products.  During 1996,  Indiana
Financial recorded a net profit of $11,000.
<PAGE>
         In May 1996, IFB Investment Services Corp. was formed as a wholly owned
subsidiary  of IFC. IFB is a registered  broker/dealer  and provides  investment
services to its clients. Such services include personal investing and financial,
tax and  business  succession  planning.  Assets  under  management  by IFB were
$529,000 as of December  31,  1996.  During  1996,  IFB recorded a net profit of
$124,000.

         In December  1989,  IndFed  Mortgage  Company  ("IndFed  Mortgage") was
formed as a wholly-owned subsidiary of IFC. IndFed Mortgage's activities consist
of  participating  as an equity  partner in various joint venture  projects,  as
discussed below. During 1996, IndFed Mortgage recorded a net profit of $854,000.

         During 1991,  IndFed  Mortgage  entered into two joint  venture low and
moderate  income  apartment  housing  projects to take  advantage of certain tax
benefits under Section 42 of the Internal  Revenue Code of 1986, as amended (the
"Code").  Since 1991,  IndFed  Mortgage has entered into five  additional  joint
ventures for low and moderate income apartment  housing  projects;  two in 1992,
two in 1994 and one in 1995.

         IndFed Mortgage's equity investment in the seven joint ventures totaled
$6.5 million at December 31, 1996,  with the largest  investment  totaling  $1.6
million and the smallest  investment  totaling  $400,000.  In addition to IndFed
Mortgage's  equity  investments,  Indiana  Federal  has made loans to such joint
ventures. At December 31, 1996, Indiana Federal had outstanding loans to four of
these joint  ventures  totaling  $6.6 million,  all of which were  performing in
accordance with their repayment terms. The Corporation  received $1.2 million in
tax credits during 1996 as a result of IndFed Mortgage's activities.

Regulation

         General.  Indiana  Federal is a federally  chartered  savings bank, the
deposits of which are federally  insured and backed by the full faith and credit
of the United  States  Government.  Accordingly,  Indiana  Federal is subject to
broad federal regulation and oversight extending to all its operations. The Bank
is a member  of the FHLB of  Indianapolis  and is  subject  to  certain  limited
regulation  by the Board of Governors of the Federal  Reserve  System  ("Federal
Reserve Board"). As the savings and loan holding company of Indiana Federal, the
Corporation also is subject to federal regulation and oversight.  The purpose of
the  regulation of the  Corporation  and other  holding  companies is to protect
subsidiary  savings  associations.  Indiana  Federal is a member of the  Savings
Association  Insurance Fund (the "SAIF") which, together with the Bank Insurance
Fund (the "BIF"),  are the two deposit insurance funds  administered by the FDIC
and the deposits of Indiana  Federal are insured by the FDIC.  As a result,  the
FDIC has certain regulatory and examination authority over Indiana Federal.

         Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
<PAGE>
         Federal  Regulation  of  Savings  Associations.  The OTS has  extensive
authority  over  the  operations  of  savings  associations.  As  part  of  this
authority, Indiana Federal is required to file periodic reports with the OTS and
is subject to periodic  examinations  by the OTS and the FDIC.  The last regular
OTS and FDIC  examinations  of Indiana Federal were as of July 1996, and October
1991,  respectively.  Under  agency  scheduling  guidelines,  it is likely  that
another   examination  will  be  initiated  in  the  near  future.   When  these
examinations  are  conducted by the OTS and the FDIC,  the examiners may require
Indiana  Federal to provide for higher  general or specific loan loss  reserves.
All savings associations are subject to a semi-annual assessment, based upon the
savings  association's  total assets, to fund the operations of the OTS. Indiana
Federal's  OTS  assessment  for the fiscal year ended  December  31,  1996,  was
$152,000.

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

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

         Indiana    Federal's    general    permissible    lending   limit   for
loans-to-one-borrower  is equal to the greater of $500,000 or 15% of  unimpaired
capital  and  surplus  (except  for  loans  fully  secured  by  certain  readily
marketable  collateral,  in  which  case  this  limit  is  increased  to  25% of
unimpaired capital and surplus). At December 31, 1996, Indiana Federal's lending
limit under this restriction was $7.5 million.  Indiana Federal is in compliance
with the loans-to-one-borrower limitation.

         The OTS, as well as the other  federal  banking  agencies,  has adopted
guidelines  establishing  safety and soundness standards on such matters as loan
underwriting and  documentation,  asset quality,  earnings  standards,  internal
controls and audit  systems,  interest rate risk exposure and  compensation  and
other  employee  benefits.  Any  institution  which  fails to comply  with these
standards must submit a compliance plan. A failure to submit a plan or to comply
with an  approved  plan will  subject  the  institution  to further  enforcement
action.
<PAGE>
         Insurance of Accounts and Regulation by the FDIC.  Indiana Federal is a
member of the SAIF,  which is  administered  by the  Federal  Deposit  Insurance
Corporation  (the "FDIC").  Deposits are insured up to applicable  limits by the
FDIC and such  insurance  is backed by the full  faith and  credit of the United
States Government.  As insurer,  the FDIC imposes deposit insurance premiums and
is  authorized  to  conduct   examinations  of  and  to  require   reporting  by
FDIC-insured  institutions.  It also may prohibit any  FDIC-insured  institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious risk to the SAIF or BIF.  The FDIC also has the  authority to initiate
enforcement  actions  against  savings  associations,  after  giving  the OTS an
opportunity to take such action,  and may terminate the deposit  insurance if it
determines that the institution has engaged in unsafe or unsound practices or is
in an unsafe or unsound condition.

         The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums  based upon their  level of
capital and supervisory evaluation. Under the system, institutions classified as
well  capitalized  (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to  risk-weighted  assets  ("Tier 1  risk-based  capital") of at
least 6% and a risk-based  capital ratio of at least 10%) and considered healthy
pay the  lowest  premium  while  institutions  that  are  less  than  adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based  capital  ratio  of less  than  8%)  and  considered  of  substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.

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

         As is the case  with the SAIF,  the FDIC is  authorized  to adjust  the
insurance  premium  rates for banks  that are  insured by the BIF of the FDIC in
order to maintain the reserve ratio of the BIF at 1.25% of BIF insured deposits.
As a result of the BIF reaching its statutory reserve ratio the FDIC revised the
premium schedule for BIF insured institutions to provide a range of .04% to .31%
of deposits.  The  revisions  became  effective in the third quarter of 1995. In
addition, the BIF rates were further revised, effective January 1996, to provide
a range of 0% to .27%. The SAIF rates,  however,  were not adjusted. At the time
the FDIC revised the BIF premium  schedule,  it noted that,  absent  legislative
action (as discussed  below),  the SAIF would not attain its designated  reserve
ratio until the year 2002. As a result,  SAIF insured  members would continue to
be  generally  subject to higher  deposit  insurance  premiums  than BIF insured
institutions  until,  all things  being  equal,  the SAIF  attained its required
reserve ratio.

         In order to eliminate this disparity and any  competitive  disadvantage
between  BIF and SAIF  member  institutions  with  respect to deposit  insurance
premiums,  legislation to  recapitalize  the SAIF was enacted in September 1996.
The legislation provides for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to  recapitalize  the
SAIF. It also provides for the merger of the BIF and the SAIF on January 1, 1999
if no savings  associations  then exist.  The special  assessment  rate has been
established  at .657% of deposits by the FDIC and the  resulting  assessment  of
$2.8 million was paid in November 1996.  This special  assessment  significantly
increased  noninterest expense and adversely affected the Corporation's  results
of operations  for the year ended  December 31, 1996. As a result of the special
assessment,  the  Bank's  annual  deposit  insurance  premiums  were  reduced to
$306,000  based upon its  current  risk  classification  and the new  assessment
schedule for SAIF insured institutions.  These premiums are subject to change in
future periods.
<PAGE>
         Prior  to the  enactment  of the  legislation,  a  portion  of the SAIF
assessment imposed on savings  associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift  crisis in the 1980s.  Although the FDIC has  proposed  that the SAIF
assessment be equalized with the BIF assessment  schedule,  effective October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing  obligation.  Although the  legislation  also now
requires  assessments  to be made on  BIF-assessable  deposits for this purpose,
effective  January 1, 1997,  that  assessment will be limited to 20% of the rate
imposed on SAIF  assessable  deposits  until the earlier of December 31, 1999 or
when no  savings  association  continues  to exist,  thereby  imposing a greater
burden on SAIF member institutions such as Indiana Federal. Thereafter, however,
assessments  on  BIF-member  institutions  will  be made on the  same  basis  as
SAIF-member  institutions.  The rates to be established by the FDIC to implement
this  requirement for all  FDIC-insured  institutions is uncertain at this time,
but are  anticipated to be about a 6.5 basis points  assessment on SAIF deposits
and 1.5 basis points on BIF deposits until BIF insured institutions  participate
fully in the assessment.

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

         The capital  regulations  require  tangible capital of at least 1.5% of
adjusted total assets (as defined by  regulation).  Tangible  capital  generally
includes  common   stockholders'   equity  and  retained  income,   and  certain
noncumulative  perpetual  preferred stock and related income.  In addition,  all
intangible  assets,  other than a limited amount of purchased mortgage servicing
rights,  must be deducted from tangible capital for calculating  compliance with
the  requirement.  At December 31, 1996, the Bank had $4.5 million of intangible
assets, all of which was required to be deducted from tangible capital.

         The OTS regulations establish special  capitalization  requirements for
savings associations that own subsidiaries.  In determining  compliance with the
capital requirements,  all subsidiaries engaged solely in activities permissible
for national  banks or engaged in certain other  activities  solely as agent for
its customers are  "includable"  subsidiaries  that are consolidated for capital
purposes in proportion to the association's  level of ownership.  For excludable
subsidiaries the debt and equity  investments in such  subsidiaries are deducted
from assets and  capital.  As of December  31,  1996,  the Bank had  $245,000 in
investments  in and  advances  to  its  subsidiaries  that  were  excluded  from
regulatory capital.

         At December 31, 1996,  the Bank had tangible  capital of $49.4 million,
or 6.0% of adjusted total assets, which is approximately $37.2 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.
<PAGE>
         The capital standards also require core capital equal to at least 3% of
adjusted total assets.  Core capital generally consists of tangible capital plus
certain intangible  assets,  including a limited amount of purchased credit card
relationships.  As a result of the prompt corrective action provisions discussed
below,  however, a savings  association must maintain a core capital ratio of at
least  4%  to  be  considered  adequately  capitalized  unless  its  supervisory
condition is such to allow it to maintain a 3% ratio.  At December 31, 1996, the
Bank had $4.5 million of intangibles which were subject to these tests.

         At December 31, 1996, the Bank had core capital equal to $49.4 million,
or 6.0% of  adjusted  total  assets,  which is $24.8  million  above the minimum
leverage ratio requirement of 3% as in effect on that date.

         The OTS risk-based  requirement  requires savings  associations to have
total capital of at least 8% of risk-weighted  assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain  permanent  and  maturing  capital  instruments  that do not
qualify as core capital and general  valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based  requirement  only to the extent of core capital.  The
OTS is  also  authorized  to  require  a  savings  association  to  maintain  an
additional  amount of total capital to account for  concentration of credit risk
and the risk of  non-traditional  activities.  At  December  31,  1996,  Indiana
Federal had $6.4 million of general loss reserves,  which was less than 1.25% of
risk- weighted assets.

         Certain  exclusions from capital and assets are required to be made for
the purpose of calculating  total  capital.  Such  exclusions  consist of equity
investments  (as  defined  by  regulation)  and that  portion  of land loans and
nonresidential  construction  loans in excess of an 80% loan-to-value  ratio and
reciprocal  holdings of qualifying capital  instruments.  Indiana Federal had no
such exclusions from capital and assets at December 31, 1996.

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

         OTS regulations  also require that every savings  association with more
than normal  interest rate risk exposure to deduct from its total  capital,  for
purposes of determining compliance with such requirement, an amount equal to 50%
of its  interest-rate  risk  exposure  multiplied  by the  present  value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings  association,  greater  than 2% of the  present  value of its
assets,  based upon a  hypothetical  200 basis  point  increase  or  decrease in
interest rates (whichever results in a greater decline).  Net portfolio value is
the  present  value  of  expected  cash  flows  from  assets,   liabilities  and
off-balance  sheet  contracts.  The rule will not become effective until the OTS
evaluates the process by which savings  associations may appeal an interest rate
risk deduction determination.  It is uncertain as to when this evaluation may be
completed.  Any savings  association with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement  unless the
OTS determines otherwise.
<PAGE>
         On  December  31,  1996,  the Bank had total  capital of $55.6  million
(including  $49.4  million  in core  capital  and  $6.2  million  in  qualifying
supplementary  capital) and  risk-weighted  assets of $568.2  million;  or total
capital of 9.8% of risk-weighted assets. This amount was $10.1 million above the
8% requirement in effect on that date.

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

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

         Any savings  association  that fails to comply with its capital plan or
is  "significantly  undercapitalized"  (i.e.,  Tier 1 risk-based or core capital
ratios of less than 3% or a  risk-based  capital  ratio of less than 6%) must be
made  subject  to one or more of  additional  specified  actions  and  operating
restrictions  which may cover all aspects of its operations and include a forced
merger  or  acquisition  of  the   association.   An  association  that  becomes
"critically  undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly  undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator  with the concurrence of the FDIC) for a
savings  association,  with certain limited exceptions,  within 90 days after it
becomes critically  undercapitalized.  Any undercapitalized  association is also
subject to the general enforcement  authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.

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

         The  imposition  by the OTS or the  FDIC of any of  these  measures  on
Indiana  Federal  may have a  substantial  adverse  effect on Indiana  Federal's
operations and  profitability.  IFC shareholders do not have preemptive  rights,
and  therefore,  if IFC is directed  by the OTS or the FDIC to issue  additional
shares of  Common  Stock,  such  issuance  may  result  in the  dilution  in the
percentage of ownership of the Corporation.
<PAGE>
         Limitations   on  Dividends  and  Other  Capital   Distributions.   OTS
regulations impose various  restrictions on savings associations with respect to
their ability to make distributions of capital,  which include dividends,  stock
redemptions or repurchases,  cash-out mergers and other transactions  charged to
the capital account.  OTS regulations  also prohibit a savings  association from
declaring or paying any dividends or from repurchasing any of its stock if, as a
result,  the regulatory  capital of the  association  would be reduced below the
amount  required to be maintained  for the  liquidation  account  established in
connection with its mutual to stock conversion.

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

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

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

         Liquidity.  All savings  associations,  including Indiana Federal,  are
required  to  maintain  an average  daily  balance of liquid  assets  equal to a
certain  percentage of the sum of its average daily balance of net  withdrawable
deposit accounts and borrowings payable in one year or less. For a discussion of
what Indiana Federal includes in liquid assets, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity  and Capital
Resources."  This  liquid  asset  ratio  requirement  may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 5%.
<PAGE>
         In  addition,  short-term  liquid  assets  (e.g.,  cash,  certain  time
deposits,  certain  bankers  acceptances  and short-term  United States Treasury
obligations)  currently must constitute at least 1% of the association's average
daily  balance of net  withdrawable  deposit  accounts  and current  borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement.  At December 31, 1996, Indiana Federal was in compliance with
both  requirements,  with an overall liquid asset ratio of 6.6% and a short-term
liquid assets ratio of 3.3%.

         Accounting.   An  OTS  policy  statement   applicable  to  all  savings
associations  clarifies and  re-emphasizes  that the investment  activities of a
savings   association  must  be  in  compliance  with  approved  and  documented
investment policies and strategies, and must be accounted for in accordance with
GAAP. Under the policy statement,  management must support its classification of
and accounting for loans and securities (i.e., whether held for investment, sale
or trading) with appropriate documentation. The Bank is in compliance with these
amended rules.

         OTS accounting regulations,  which may be made more stringent than GAAP
by the OTS, require that transactions be reported in a manner that best reflects
their underlying economic substance and inherent risk and that financial reports
must  incorporate any other accounting  regulations or orders  prescribed by the
OTS.

         Qualified  Thrift  Lender  Test.  All savings  associations,  including
Indiana Federal,  are required to meet a qualified thrift lender ("QTL") test to
avoid certain  restrictions  on their  operations.  This test requires a savings
association  to have  at  least  65% of its  portfolio  assets  (as  defined  by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. As an alternative,  the savings  association
may maintain 60% of its assets in those assets specified in Section  7701(a)(19)
of the Internal Revenue Code.  Under either test, such assets primarily  consist
of residential housing related loans and investments.  At December 31, 1996, the
Bank met the test and has always met the test since it became effective.

         Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
the BIF.  If such an  association  has not yet  requalified  or  converted  to a
national  bank,  its  new  investments  and  activities  are  limited  to  those
permissible  for both a  savings  association  and a  national  bank,  and it is
limited to national bank branching  rights in its home state.  In addition,  the
association is immediately  ineligible to receive any new FHLB borrowings and is
subject to national  bank limits for payment of dividends.  If such  association
has not requalified or converted to a national bank within three years after the
failure,  it must  divest  of all  investments  and  cease  all  activities  not
permissible  for a  national  bank.  In  addition,  it must repay  promptly  any
outstanding FHLB borrowings,  which may result in prepayment  penalties.  If any
association  that fails the QTL test is  controlled by a holding  company,  then
within one year after the failure,  the holding  company must register as a bank
holding  company  and  become  subject  to  all  restrictions  on  bank  holding
companies. See "- Holding Company Regulation."
<PAGE>
         Community  Reinvestment  Act.  Under  the  Community  Reinvestment  Act
("CRA"),  every  FDIC  insured  institution  has a  continuing  and  affirmative
obligation  consistent  with safe and sound  banking  practices to help meet the
credit  needs  of its  entire  community,  including  low  and  moderate  income
neighborhoods.  The CRA does not  establish  specific  lending  requirements  or
programs  for  financial   institutions  nor  does  it  limit  an  institution's
discretion  to develop the types of products and  services  that it believes are
best  suited  to its  particular  community,  consistent  with the CRA.  The CRA
requires the OTS, in connection  with the  examination  of Indiana  Federal,  to
assess the institution's record of meeting the credit needs of its community and
to take such record into account in its evaluation of certain applications, such
as a merger or the  establishment  of a branch,  by the Bank. An  unsatisfactory
rating may be used as the basis for the denial of an application by the OTS.

         The federal banking agencies,  including the OTS, have recently revised
the CRA  regulations  and  the  methodology  for  determining  an  institution's
compliance with the CRA. Due to the heightened  attention being given to the CRA
in the past few years,  Indiana  Federal may be  required  to devote  additional
funds for investment  and lending in its local  community.  Indiana  Federal was
examined   for  CRA   compliance   in  April  1995  and  received  a  rating  of
"outstanding."

         Transactions with Affiliates. Generally, transactions between a savings
association or its  subsidiaries  and its affiliates are required to be on terms
as  favorable  to  the  association  as  transactions  with  non-affiliates.  In
addition,  certain of these  transactions,  such as loans to an  affiliate,  are
restricted to a percentage of the association's  capital.  Affiliates of Indiana
Federal  include the  Corporation  and any company which is under common control
with Indiana Federal.

         In  addition,  a  savings  association  may not  lend to any  affiliate
engaged in activities not  permissible for a bank holding company or acquire the
securities of most  affiliates.  Indiana  Federal's  subsidiaries are not deemed
affiliates, however; the OTS has the discretion to treat subsidiaries of savings
associations as affiliates on a case by case basis.

         Certain  transactions with directors,  officers or controlling  persons
are also subject to conflict of interest  regulations enforced by the OTS. These
conflict of interest  regulations and other statutes also impose restrictions on
loans to such persons and their  related  interests.  Among other  things,  such
loans must be made on terms  substantially the same as for loans to unaffiliated
individuals.

         Holding  Company  Regulation.  The Corporation is a unitary savings and
loan holding  company  subject to regulatory  oversight by the OTS. As such, the
Corporation is required to register and file reports with the OTS and is subject
to regulation and  examination by the OTS. In addition,  the OTS has enforcement
authority over the  Corporation  and its  non-savings  association  subsidiaries
which  also  permits  the  OTS to  restrict  or  prohibit  activities  that  are
determined to be a serious risk to the subsidiary savings association.
<PAGE>
         As  a  unitary  savings  and  loan  holding  company,  the  Corporation
generally is not subject to activity  restrictions.  If the Corporation acquires
control of another savings association as a separate subsidiary, it would become
a  multiple  savings  and  loan  holding  company,  and  the  activities  of the
Corporation and any of its subsidiaries  (other than the Bank or any other SAIF-
insured savings  association)  would become subject to such restrictions  unless
such other associations each qualify as a QTL and were acquired in a supervisory
acquisition.

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

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

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

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

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts).  At December 31, 1996, the Bank was in compliance with these
reserve  requirements.  The balances maintained to meet the reserve requirements
imposed  by  the  Federal  Reserve  Board  may  be  used  to  satisfy  liquidity
requirements that may be imposed by the OTS. See "--Liquidity."

         Savings  associations are authorized to borrow from the Federal Reserve
Bank  "discount   window,"  but  Federal  Reserve  Board   regulations   require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
<PAGE>
         Federal Home Loan Bank System.  Indiana Federal is a member of the FHLB
of  Indianapolis,  which is one of 12 regional FHLBs,  that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or  central  bank for its  members  within  its  assigned  region.  It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB  System.  It makes loans to members  (i.e.,  advances) in  accordance  with
policies and procedures established by the board of directors of the FHLB, which
are subject to the oversight of the Federal Housing Finance Board.  All advances
from the FHLB are  required  to be fully  secured by  sufficient  collateral  as
determined  by the FHLB.  In addition,  all  long-term  advances are required to
provide funds for residential home financing.

         As a member, Indiana Federal is required to purchase and maintain stock
in the FHLB of  Indianapolis.  At December  31, 1996,  Indiana  Federal had $8.2
million in FHLB stock,  which was in compliance with this  requirement.  In past
years,  the Bank has received  substantial  dividends on its FHLB stock. For the
year ended  December 31, 1996,  dividends  paid by the FHLB of  Indianapolis  to
Indiana Federal totaled  $606,000,  which constituted a $4,000 decrease from the
amount of dividends  received in calendar year 1995.  The dividends  received in
1996  reflect an  annualized  rate of 7.8%,  or 0.1% below the rate for calendar
1995.

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

         Federal Taxation.  Prior to 1996, savings associations such as the Bank
met certain  definitional  tests relating to the composition of assets and other
conditions  prescribed  by the Internal  Revenue  Code of 1986,  as amended (the
"Code"),  had been  permitted  to  establish  reserves for bad debts and to make
annual  additions  thereto which may,  within  specified  formula  limits,  were
allowed to be taken as a  deduction  in  computing  taxable  income for  federal
income  tax  purposes.  The  amount  of  the  bad  debt  reserve  deduction  for
"non-qualifying  loans" was computed under the experience  method. The amount of
the bad debt reserve  deduction for "qualifying real property loans"  (generally
loans secured by improved real estate) was computed  under either the experience
method or the percentage of taxable income method (based on an annual election).
Under  the  experience  method,  the bad debt  reserve  deduction  was an amount
determined under a formula based generally upon the bad debts actually sustained
by the savings association over a period of years.

         The  percentage of specially  computed  taxable income that was used to
compute a savings  association's bad debt reserve deduction under the percentage
of taxable  income  method  (the  "percentage  bad debt  deduction")  is 8%. The
percentage bad debt  deduction thus computed is reduced by the amount  permitted
as a deduction for non-qualifying  loans under the experience  method.  Prior to
1988, the  availability  of the  percentage of taxable  income method  permitted
qualifying savings  associations to be taxed at a lower effective federal income
tax rate than that applicable to  corporations  generally  (approximately  31.3%
assuming the maximum percentage bad debt deduction).
<PAGE>
         If an  association's  specified  assets  (generally,  loans  secured by
residential  real  estate  or  deposits,  educational  loans,  cash and  certain
government  obligations)  constituted  less  than 60% of its total  assets,  the
association  was not allowed to deduct any  addition  to a bad debt  reserve and
generally had to include existing reserves in income over a four year period.

         In  August  1996,   legislation   was  enacted  that   eliminates   the
percentage-of-taxable  income  method  for  computing  additions  to  a  savings
association's  tax bad debt  reserves  since  January 1, 1996 and  requires  all
savings  associations to recapture,  over a six year period, all or a portion of
their tax bad debt reserves  added since January 1, 1988. A savings  association
is allowed to postpone the recapture of bad debt reserves for up to two years if
the institution  meets a minimum level of mortgage lending activity during those
years.  The Bank  believes that it will engage in  sufficient  mortgage  lending
during  1996  and  1997 to be able to  postpone  any  recapture  of its bad debt
reserves  until 1998. As a result of this  legislation,  the Bank will determine
additions  to its tax bad debt  reserves  using the same method as a  commercial
bank of comparable size. The management of the Company does not believe that the
legislation  will have a material  impact on the Company or Bank.  See Note H to
the Note to Consolidated Financial Statements in the Annual Report.

         In addition to the regular income tax, corporations,  including savings
associations  such as the Bank,  generally  are  subject  to a minimum  tax.  An
alternative  minimum tax is imposed at a minimum tax rate of 20% on  alternative
minimum  taxable  income,  which is the sum of a  corporation's  regular taxable
income (with certain  adjustments) and tax preference  items, less any available
exemption.  The alternative  minimum tax is imposed to the extent it exceeds the
corporation's  regular  income tax and net  operating  losses can offset no more
than 90% of alternative  minimum  taxable  income.  For taxable years  beginning
after 1986 and before 1996, corporations, including savings associations such as
the Bank, are also subject to an environmental  tax equal to 0.12% of the excess
of alternative  minimum taxable income for the taxable year (determined  without
regard to net operating losses and the deduction for the environmental tax) over
$2.0 million.

         Indiana  Federal,  the Bank and their  subsidiaries  file  consolidated
federal  income tax returns on a calendar year basis using the accrual method of
accounting.  The  income  tax  returns  of the  Corporation,  the  Bank  and its
consolidated  subsidiaries  for the last  three  years  are open to audit by the
Internal Revenue Service (the "IRS"). With respect to years examined by the IRS,
either all  deficiencies  have been  satisfied or sufficient  reserves have been
established to satisfy asserted deficiencies.  In the opinion of management, any
examination  of still  open  returns  (including  returns  of  subsidiaries  and
predecessors  of, or  entities  merged  into,  the Bank)  would not  result in a
deficiency which could have a material adverse effect on the financial condition
of the Corporation and its consolidated subsidiaries.

         Indiana  Taxation.  Indiana  Federal  and the Bank are  subject  to the
Indiana Financial Institution's franchise tax. The franchise tax is imposed at a
rate of 8.5% of federal taxable income adjusted for Indiana tax purposes.

         Delaware  Taxation.  As a Delaware holding company,  the Corporation is
exempted  from Delaware  corporate  income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware.  The  Corporation is
also subject to an annual  franchise tax imposed by the State of Delaware  based
on the number of shares of Corporation capital stock.
<PAGE>
         For additional  information  regarding  taxation see Note H of Notes to
Consolidated Financial Statements in the Annual Report.

Competition

         Indiana  Federal  faces strong  competition  both in  originating  real
estate loans and in  attracting  deposits.  The Bank  believes  that its current
share  of the  savings  and  lending  activity  in its  primary  market  area is
approximately  15%.  The Bank defines its primary  market area as Porter,  Lake,
Jasper,  Starke,  Marshall,  St.  Joseph and  LaPorte  Counties  in Indiana  for
deposits,  and as Indiana  and  contiguous  states for its  lending  activities.
Competition in originating  real estate loans comes primarily from other savings
institutions,  commercial  banks and  mortgage  bankers  which  also make  loans
secured by real estate located primarily in the northwest Indiana area. The Bank
competes for real estate loans  principally  on the basis of the interest  rates
and loan fees it charges,  the types of loans it  originates  and the quality of
services it provides to borrowers.

         The Bank faces  substantial  competition  in  attracting  deposits from
other thrift  institutions,  commercial  banks,  money market and mutual  funds,
credit  unions and other  financial  institutions,  both  within and outside the
northwest  Indiana area. The ability of the Bank to attract and retain  deposits
depends on its ability to provide an investment  opportunity  that satisfies the
requirements  of  investors  as to rate of  return,  liquidity,  risk and  other
factors.  The Bank attracts a significant  amount of deposits through its branch
offices  primarily  from the  communities  in which  those  branch  offices  are
located;  therefore,  competition  for these deposits is principally  from other
thrift  institutions and commercial banks located in the same  communities.  The
Bank  competes for these  deposits by offering a variety of savings  accounts at
competitive  rates,   convenient  business  hours,  and  convenient  branch  and
automated  teller  machine  locations  with  interbranch  deposit and withdrawal
privileges at each.

         Pursuant to  provisions  of an Indiana Law adopted in 1985,  large bank
holding companies have acquired local commercial banking companies in all of the
communities in which Indiana Federal has branch locations.
<PAGE>
Executive Officers of the Registrant

         The following table sets forth certain information with respect to each
of the executive officers of the Corporation.
<TABLE>
<CAPTION>
        Name                           Age                      Position(s) Held
        ----                           ---                      ----------------
<S>                                     <C>             <C>
Donald A. Lesch                         46              Chairman of the Board and Chief Executive Officer

Peter R. Candela                        58              President, Chief Operating Officer and Director

George J. Eberhardt                     47              Executive Vice President/Chief Financial Officer

Michael J. Griffin                      49              Senior Vice President/Chief Marketing Officer

Terry D. Kimmel                         52              Senior Vice President/Community & Human
                                                        Relations

Timothy M. Scannell                     34              Senior Vice President/Trust and Private Banking

Richard C. Simaga                       48              Senior Vice President/Commercial Banking

Gary T. Brownlee                        44              Senior Vice President/Consumer and
                                                          Residential Lending
</TABLE>

         Donald A. Lesch.  Since June 1, 1993,  Mr.  Lesch has been a full-time,
salaried  Chairman of the Board of the  Corporation  and the Bank. He became the
Chief Executive  Officer in 1996.  Prior thereto,  Mr. Lesch was an investor and
consultant to Gough and Lesch Development Corporation, a real estate development
company located in Merrillville, Indiana.

         Peter R.  Candela.  Mr.  Candela had been  President,  Chief  Executive
Officer and a Director of the Bank since 1985.  In 1996,  Mr. Lesch became Chief
Executive Office and Mr. Candela became Chief Operating Officer. Previously, Mr.
Candela  held a  variety  of  positions  with the  Bank  including  Senior  Vice
President and Chief Financial Officer.  Mr. Candela has been with the Bank since
1973.

         George J.  Eberhardt.  Mr.  Eberhardt has been Executive Vice President
and Chief  Financial  Officer  since 1995 and has been with the Bank since 1985.
From 1984 to 1985, Mr. Eberhardt was Vice President and Chief Financial  Officer
of First Savings of Orland Park, Illinois.  From 1983 to 1984, Mr. Eberhardt was
Controller  of  Financial  Federal  Savings  Bank,  Olympia  Fields,   Illinois.
Previously,  Mr.  Eberhardt held a variety of positions at First Federal Savings
of East Chicago (now Citizens Federal Savings).

         Michael  J.   Griffin.   Mr.   Griffin   has  served  as  Senior   Vice
President/Chief  Marketing Officer of the Bank since May 1995. From 1974 to 1994
he owned and  operated  Griffin & Boyle,  Inc.,  a  full-service  marketing  and
communications  company  with  offices  in  Chicago,  Illinois  and  Chesterton,
Indiana.  He sold his interest in the company in 1994 and  performed  consulting
services prior to being hired by Indiana Federal Bank.
<PAGE>
         Terry D. Kimmel. Mr. Kimmel has been Senior Vice  President/Community &
Human  Relations  since June 1993. From 1984 to 1993, Mr. Kimmel was Senior Vice
President/Chief Lending Officer. Mr. Kimmel was Vice President and Chief Lending
Officer from 1981 to 1984.  From 1972 until 1981,  Mr.  Kimmel held a variety of
other positions with the Bank.

         Timothy M.  Scannell.  Mr.  Scannell has been Senior Vice President and
managing director of the Trust and Private Banking Division since November 1994.
Prior to joining the Bank in 1994,  Mr.  Scannell  worked as a certified  public
accountant  and certified  financial  planner in his own firm since 1986,  which
provided estate and financial planning services.

         Richard   C.   Simaga.   Mr.   Simaga   has   served  as  Senior   Vice
President/Commercial  Banking of the Bank since May, 1995. From 1993 to 1995, he
served as Vice President of Commercial  Loans at Indiana Federal Bank. From 1987
to  1995,  he  was  Senior  Vice  President/Commercial   Banking  at  Bank  One,
Merrillville, Indiana. Mr. Simaga has been in the banking industry since 1968.

         Gary  T.   Brownlee.   Mr.   Brownlee   has   served  as  Senior   Vice
President/Consumer  and  Residential  Lending of the Bank since April 1995. From
1990 to 1995,  he was a vice  president of GE Capital  Mortgage  Corporation  in
Raleigh,  North Carolina.  Mr. Brownlee was employed by Mellon Bank Corporation,
Pittsburgh,  Pennsylvania  from September 1978 to 1990,  where he last served as
President of Data-Link Systems, Inc., a wholly-owned subsidiary.

Employees

         At December  31, 1996,  the  Corporation  had a total of 317  employees
including  59  part-time  employees.  None of the  Corporation's  employees  are
represented  by  any  collective  bargaining  group.  Management  considers  its
employee relations to be good.

Item 2.  Properties

         The Bank and the  Corporation  own the office  building  in which their
home and executive  offices are located.  At December 31, 1996, the  Corporation
also  owned 11 of its  branch  offices.  The  remaining  offices  or  locations,
consisting  of five  branch  offices,  one loan  production  office and an annex
building where the operations  center is located were leased. As of December 31,
1996, the net book value of the Corporation's investment in premises,  equipment
and leaseholds,  excluding computer  equipment,  was approximately $8.8 million.
Management believes that its current facilities are adequate to meet the present
and immediately foreseeable needs of the Bank and the Corporation.

         The Bank  maintains  an on-line  data base of  depositor  and  borrower
customer  information.  The net book value of the data  processing  and computer
equipment utilized by the Bank at December 31, 1996 was $1.7 million.

Item 3.  Legal Proceedings

         The  Corporation  is a party to certain other  lawsuits  arising in the
ordinary  course of its business.  The  Corporation  believes that none of these
other current lawsuits would, if adversely  determined,  have a material adverse
effect on the Corporation.
<PAGE>
Item 4.  Submission of Matters to a Vote of Security Holders

         No matter was  submitted  to a vote of  security  holders,  through the
solicitation  of proxies or  otherwise,  during the quarter  ended  December 31,
1996.


                                     PART II


Item 5.  Market for the Registrant's Common Stock and
         Related Security Holder Matters

         Page 14 of the  attached  Annual  Report to  Shareholders  for the year
ended December 31, 1996 is herein incorporated by reference.

Item 6.  Selected Financial Data

         Page 6 of the attached Annual Report to Shareholders for the year ended
December 31, 1996 is herein incorporated by reference.

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

         Pages 7 through 14 of the attached  Annual Report to  Shareholders  for
the year ended December 31, 1996 are herein incorporated by reference.

Item 8.  Financial Statements and Supplementary Data

         Pages 15 through 35 of the attached Annual Report to  Shareholders  for
the year ended December 31, 1996 are herein incorporated by reference.

Item 9.  Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure

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


Item 10.  Directors and Executive Officers of the Registrant

         Information  concerning  Directors of the  Registrant  is  incorporated
herein by reference from the  Corporation's  definitive  Proxy Statement for the
Annual  Meeting of  Shareholders  scheduled  to be held in May 1997,  except for
information  contained  under  the  heading  "Compensation  Committee  Report on
Executive  Compensation" and "Shareholder  Return Performance  Presentation",  a
copy of which  will be filed  not  later  than 120 days  after  the close of the
fiscal
year.

Item 11.  Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference  from the  Corporation's  definitive  Proxy  Statement  for the Annual
Meeting of Shareholders scheduled to be held in May 1997, except for information
contained  under  the  heading  "Compensation   Committee  Report  on  Executive
Compensation" and "Shareholder Return Performance Presentation", a copy of which
will be filed not later than 120 days after the close of the fiscal
year.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

         Information  concerning security ownership of certain beneficial owners
and  management  is  incorporated  herein by  reference  from the  Corporation's
definitive  Proxy Statement for the Annual Meeting of Shareholders  scheduled to
be  held in May  1997,  except  for  information  contained  under  the  heading
"Compensation  Committee  Report on  Executive  Compensation"  and  "Shareholder
Return Performance  Presentation",  a copy of which will be filed not later than
120 days after the close of the fiscal year.

Item 13.  Certain Relationships and Related Transactions

         Information   concerning  certain  relationships  and  transactions  is
incorporated  herein  by  reference  from  the  Corporation's  definitive  Proxy
Statement  for the Annual  Meeting of  Shareholders  scheduled to be held in May
1997, except for information contained under the heading "Compensation Committee
Report  on  Executive   Compensation"   and  "Shareholder   Return   Performance
Presentation",  a copy of which  will be filed not later than 120 days after the
close of the fiscal year.
<PAGE>
                                     PART IV


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

         (a) (1)  Financial Statements:

         The financial  statements and report of independent  auditors appearing
on pages 15 - 35 in the Registrant's  Annual Report to Shareholders for the year
ended December 31, 1996, are  incorporated by reference in this Form 10-K Annual
Report as Exhibit 13.

         (a) (2)  Financial Statement Schedules:

         All financial  statement schedules have been omitted as the information
is not required under the related instructions or is inapplicable.

(a) (3)  Exhibits:
<TABLE>
<CAPTION>
  Regulation                                                                                         Reference of
     S-K                                                                                           Prior Filing or
   Exhibit                                                                                          Exhibit Number
    Number                                          Document                                        Attached Hereto
   --------                                        ----------                                      ----------------
<S>             <C>                                                                                      <C>
     2          Plan of acquisition, reorganization, arrangement, liquidation or success:
                         (i)      Merger Agreement by and between American and IFC                        (a)
                         (ii)     Merger Agreement by and between NCB and IFC                             (b)
                         (iii)    Merger Agreement by and between Pinnacle and IFC                        (c)
     3          Articles of Incorporation and Bylaws                                                      (d)
     4          Instrument defining the rights of security holders including indentures                   (d)
     9          Voting trust agreement                                                                   None
     10.1       Employment Agreement of Peter R. Candela                                                  (e)
     10.2       Employment Agreement of Donald A. Lesch                                                   (b)
     10.3       Form of First Amendment to Employment Agreements                                          (f)
     10.4       Form of Severance Agreement                                                               (e)
     10.5       Form of First Amendment to the Severance Agreement                                        (f)
     10.6       Incentive Compensation Plan                                                               (e)
     10.7       Employee Stock Ownership Plan                                                             (d)
     10.8       Stock Option and Incentive Plan, as amended                                               (f)
     10.9       Director Deferred Compensation Agreements                                                 (g)
     10.10      Restated Executive Deferred Compensation Agreements                                       (g)
     10.11      Executive Death Benefit Agreements                                                        (g)
     10.12      Executive Supplemental Income Agreements                                                  (g)
     11         Statement re:  computation of per share earnings                                         None
<PAGE>
<CAPTION>
  Regulation                                                                                         Reference of
     S-K                                                                                           Prior Filing or
   Exhibit                                                                                          Exhibit Number
    Number                                          Document                                        Attached Hereto
   --------                                        ----------                                      ----------------
<S>             <C>                                                                                      <C>
     12         Statement re:  computation of ratios                                                 Not required
     13         Annual Report to Security Holders                                                         13
     16         Letter re:  change in certifying accountant                                          Not required
     18         Letter re: change in accounting principles                                               None
     21         Subsidiaries of Registrant                                                                21
     22         Published report regarding matters submitted to vote of security holders                 None
     23         Consent of Ernst & Young LLP                                                              23
     24         Power of Attorney                                                                    Not required
     27         Financial Data Schedule                                                                   27
     99         Additional exhibits                                                                      None
</TABLE>

(a)      Filed  pursuant to a Current Report on Form 8-K dated December 12, 1994
         (File No. 0-17379) pursuant to the Securities Exchange Act of 1934. All
         such  previously  filed  documents  are hereby  incorporated  herein by
         reference in accordance with Item 601 of Regulation S-K.

(b)      Filed on March 31,  1995 as an  exhibit to the  Registrant's  Form 10-K
         (File No. 0-17379) pursuant to the Securities Exchange Act of 1934. All
         of such previously  filed documents are hereby  incorporated  herein by
         reference in accordance with Item 601 of Regulation S-K.

(c)      Filed  pursuant to a Current Report on Form 8-K dated November 25, 1996
         (File No. 0-17379) pursuant to the Securities Exchange Act of 1934. All
         such  previously  filed  documents  are hereby  incorporated  herein by
         reference in accordance with Item 601 of Regulation S-K.

(d)      Filed  on March 2,  1988,  as  exhibits  to the  Registrant's  Form S-4
         registration  statement  (Registration  No.  33-20412)  pursuant to the
         Securities  Act  of  1933  or as a part  of  reports  filed  thereafter
         pursuant to Section 13 the Securities Exchange Act of 1934. All of such
         previously filed documents are hereby  incorporated herein by reference
         in accordance with Item 601 of Regulation S-K.

(e)      Filed on March 30, 1993 as exhibits to the Registrant's Form 10-K (File
         No.  0-17379)  pursuant to the Securities  Exchange Act of 1934. All of
         such  previously  filed  documents  are hereby  incorporated  herein by
         reference in accordance with Item 601 of Regulation S-K.

(f)      Filed on March 28, 1996 as Exhibits to the Registrant's Form 10-K (File
         No.  0-17379)  pursuant to the Securities  Exchange Act of 1934. All of
         such  previously  filed  documents  are hereby  incorporated  herein by
         reference in accordance with Item 601 of Regulation S-K.

(g)      Filed on March 30,  1994 as an  exhibit to the  Registrant's  Form 10-K
         (File No. 0-17379) pursuant to the Securities Exchange Act of 1934. All
         of such previously  filed documents are hereby  incorporated  herein by
         reference in accordance with Item 601 of Regulation S-K.

         (b)  Reports on Form 8-K:

         One  Current  Report  on Form  8-K was  filed  with the  Commission  on
November 25, 1996 relating to the Merger between Pinnacle and IFC.
<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.

                                        INDIANA FEDERAL CORPORATION



Date: March 31, 1997                    By:    /s/Donald A. Lesch
                                               ---------------------------------
                                               Donald A. Lesch
                                               (Duly Authorized Representative)


         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.



By:   /s/Donald A. Lesch                    By: /s/Peter R. Candela
      -------------------------                 ----------------------------
      Donald A. Lesch, Chairman                 Peter R. Candela, President
        of the Board and Chief                  and Director
        Executive Officer


Date: March 31, 1997                        Date: March 31, 1997



By:   /s/James E. Hutton                    By:  /s/Barbara A. Young
      -------------------------                  ----------------------------
      James E. Hutton, Director                  Barbara A. Young, Director


Date: March 31, 1997                        Date: March 31, 1997



By:   /s/Byron Smith                        By:  /s/Philip A. Maxwell
      -------------------------                  ----------------------------
      Byron Smith, III, Director                 Philip A. Maxwell, Director


Date: March 31, 1997                        Date: March 31, 1997
<PAGE>
By:  /s/John R. Poncher                     By:  /s/Fred A. Wittlinger
     ---------------------------                 -----------------------------
     John R. Poncher, M.D.,                      Fred A. Wittlinger, Director
     Director



Date: March 31, 1997                       Date: March 31, 1997



By:  /s/George J. Eberhardt
     -----------------------------
     George J. Eberhardt, Senior
     Vice President and Chief
     Financial Officer



Date: March 31, 1997
<PAGE>
                                INDEX TO EXHIBITS




Exhibit
-------

  13              Annual Report to security holders

  21              Subsidiaries of the registrant

  23              Consent of Independent Auditors

  27              Financial Data Schedule