Letter To Shareholders

To Our Shareholders:

     Two  significant  developments  highlighted  the events in 1996. One, which
affected  all  savings  institutions,  was the  recapitalization  of the Savings
Association  Insurance  Fund (SAIF).  The other was the decision by the Board of
Directors of Indiana Federal  Corporation to undertake a "merger of equals" with
Pinnacle Financial Services, Inc. of St. Joseph, Michigan.

     The one-time  special  assessment to recapitalize  the SAIF reduced Indiana
Federal  Corporation's  1996  after-tax  earnings  by $1.7  million or $0.36 per
share. The long-term effect of this one-time special  assessment should create a
healthier,  more competitive  industry because it will result in much lower FDIC
insurance premiums beginning in 1997 thereby creating a more level playing field
with commercial banks. For Indiana Federal,  pre-tax deposit insurance  premiums
are expected to be reduced by $750,000 in 1997.

     The decision to merge with Pinnacle Financial Services, Inc., when approved
by  regulators  and  shareholders,   will  create  the  largest  locally-managed
financial institution on the southern tip of Lake Michigan with approximately $2
billion in assets and a network of 47 full-service  banking centers and 45 ATMs.
The  "merger of equals"  was a key point in the  Board's  decision to merge with
Pinnacle.  Both  companies  will  benefit  from  the  synergies  created  by the
tremendous  innovation  and creativity  inherent in the  combination of two high
performance  teams. In addition,  the expected  economies of scale,  streamlined
operations and reduced costs that result will benefit our  respective  customers
and shareholders with more competitive products and increased shareholder value.

     For  1996,  IFC  reported  net  income of $4.6  million  or $0.96 per share
compared to $7.3 million or $1.51 per share in 1995. To get a clearer picture of
how the Corporation is currently performing, let us look at the specifics of the
last two reporting  quarters  ended  September 30 and December 31. Third quarter
earnings  per share  increased 18 percent,  before the $0.36 per share  one-time
SAIF special assessment charge, compared to 1995's third quarter ended September
30. Fourth quarter earnings per share would have increased 3 percent over 1995's
strong fourth  quarter,  if 1996's fourth quarter  earnings were not impacted by
the $500,000 additional  provision for loan losses, and a $325,000 write-down of
a real estate owned property.

Statement of Condition Highlights

     Assets  increased  16.0 percent to $836.8  million at December 31, 1996, up
$115.5  million  from $721.3  million the previous  year.  Total loans grew just
short of $100  million to $629.0  million,  an increase of 18.8  percent for the
year.  Loans  originated  and purchased  totaled  $292.7 million in 1996, a 47.0
percent increase over 1995's $199.2 million. Deposits also grew nicely to $569.1
million,  up 6.8  percent  from the  previous  year's  ending  balance of $532.9
million.  The balance of 1996's  asset  growth was funded with Federal Home Loan
Bank  advances  and  other  borrowings,  which  were up 69.0  percent  to $192.8
million. Most of the loan and asset growth came in the second half of the year.

Other Income

     In addition to the expected  improvement  in net  interest  income in 1997,
other  income,  when  excluding  non-recurring  gains and  losses on the sale of
assets,  was up 10.9 percent in 1996 and is expected to continue  that growth in
1997.  One reason for that  optimism is the  continued  improvement  in revenues
<PAGE>
generated  by the newly formed IFB  Investment  Services,  Inc., a  wholly-owned
subsidiary   specializing  in  financial  planning,   portfolio  management  and
non-traditional  bank  investment  products.   Launched  last  April,  this  new
subsidiary, with its revenue momentum and with most of the start-up costs out of
the way, is expected to show much improved bottom-line results in 1997.

     Another  announcement  made last year was the  acquisition  of a  one-third
ownership interest in Forrest Holdings,  Inc., of Oak Brook, Illinois, a leasing
company specializing in information  systems.  Although it has not added much to
Indiana Federal Corporation's bottom-line to date, the company is on target with
its business plan and is building shareholder value.

Operating Expense Management

     We  indicated  in last  year's  report  that we were  committed  to expense
management  and cost  containment  as an  ongoing  process,  and our goal was to
reduce  operating  expenses  in 1996 from the  record  level in 1995.  Operating
expenses  increased $2.3 million because of the non-recurring  pre-tax charge of
$2.8 million to recapitalize SAIF.

     If the $2.8  million is  excluded,  operating  expenses for 1996 would have
decreased  $570,000 or 2.8  percent  from 1995's  level.  We expect  1997's core
operating  expense to  decrease  again due to our strong  commitment  to improve
productivity  and cost  containment.  As a result,  our efficiency ratio in 1997
should fall below 60 percent.

Asset Quality

     One of our main objectives in 1996 was to improve asset quality by reducing
non-performing  assets.  Non-performing  assets declined at December 31, 1996 to
$10.1 million or 1.21 percent of total assets from $11.0 million or 1.53 percent
at the  beginning  of the year.  Moreover,  two  parcels  of real  estate  owned
acquired  through  foreclosure  totaling  $3.3  million  have been sold and were
closed in February of 1997.

     In addition, two non-accruing  multi-family apartment loans with a combined
book balance of $2.4 million were paid off in February of 1997 as a result of an
agreement with the borrower who refinanced  both properties with another lender.
A discount  given the borrower as an incentive to repay the loans was taken as a
charge to 1996 earnings.

     The above transactions will reduce  non-performing  assets by approximately
57 percent from the December 31 level, and will reduce  non-performing assets as
a percentage of total assets to the lowest level since the Corporation  became a
public company in 1987.

     As we approach 10 years as a public  company,  we should reflect on what we
have been  able to  accomplish  during  that  period.  We have  added  major new
products such as securities,  tax-deferred annuities, commercial lending, demand
deposit accounts,  trust services,  and debit and credit cards. We have enhanced
customer  service  and  convenience  by  providing   extended  hours  and  seven
days-a-week  banking  with our  in-store  banking  centers.  We have doubled our
retail franchise from 8 full-service  banking centers to sixteen.  Assets during
that time have grown 82 percent from $461 million to $837 million. Shareholders'
equity has grown 217 percent from $22.5 million to $71.4 million,  and the price
<PAGE>
of stock per share has increased five fold from $5 per share (adjusted for stock
splits) to  approximately  $25 per share. If dividends are included,  which have
consistently  increased  every year since 1988 from 2-1/2  cents  (adjusted  for
stock  splits) to the  current  quarterly  dividend  of 18 cents per share,  the
average annual return to  shareholders  during this 10 year period would be 63.7
percent.

     Our  success,  of  course,   could  not  have  been  achieved  without  the
dedication,  experience  and  quality of our  employees.  To them,  our  deepest
gratitude  cannot be adequately  expressed.  They have truly made us what we are
today.  And  finally  to you,  our  shareholders,  we thank you for  having  the
confidence  in us, for  staying  with us, even when our  industry  was facing an
uncertain future.

     We look to 1997 with great optimism;  we embrace change. We are not looking
at next year as an end of an era, but a new beginning  with new challenges and a
bright future.

     Finally,  enclosed with this annual report is Indiana Federal Corporation's
and Pinnacle's joint proxy statement-prospectus relating to the proposed merger.
It lays out the  reasons  for the merger and some  background  data.  This is an
extremely important event, so please give it your careful attention.



/s/Donald A. Lesch
------------------
Donald A. Lesch
Chairman, C.E.O.

/s/Peter R. Candela
-------------------
Peter R. Candela
President, C.O.O.
March 1997
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights


                                                                   December 31,
                                                   ----------------------------------------
(Dollars in thousands, except per share data)        1996             1995           1994
                                                     ----             ----           ----
<S>                                                <C>             <C>             <C>
Total assets .........................             $836,825        $721,333        $717,574
Net loans receivable .................              621,584         522,693         512,171
Mortgage-backed securities ...........               43,281          26,737          29,241
Deposits .............................              569,078         532,896         510,475
Shareholders' equity .................               71,366          70,730          64,315
Equity to total assets ...............                  8.5%            9.8%            9.0%
Net interest income ..................             $ 25,000        $ 25,315        $ 21,208
Provision for loan losses ............                1,115             177             179
Net income ...........................                4,623           7,304           7,262
Loans originated and purchased .......              292,710         199,243         204,376
Interest spread during the year ......                 3.54%           3.69%           3.47%
Earnings per share ...................             $   0.96        $   1.51        $   1.50
Dividend per share ...................                 0.82            0.86            0.72
Dividend yield .......................                 3.67%           4.05%           4.43%
Book value per share at end of year ..             $  14.97        $  14.98        $  13.81
Stock price per share at end of year .               22.375           21.25           16.25
Stock price/book value per share .....                  149%            142%            118%
Stock price/earnings per share .......                 23.3x           14.1x           10.8x

</TABLE>









                 [GRAPHIC-GRAPHS OF FINANCIAL HIGHLIGHTS ABOVE]
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
                                                                                            December 31,
                                                                  -------------------------------------------------------------
(Dollars in thousands, except per share data)                          1996         1995         1994         1993         1992
<S>                                                               <C>          <C>          <C>          <C>          <C>
Selected Financial Condition Data:
    Total assets ..............................................   $ 836,825    $ 721,333    $ 717,574    $ 639,148    $ 602,377
    Real estate loans (1-4 Family) ............................     308,431      292,049      282,137      225,821      205,509
    Agricultural loans ........................................      11,511       12,940       10,323         --           --
    Income-producing property loans ...........................     108,197       89,538      119,789      126,263      131,129
    Consumer loans ............................................     120,126       82,762       78,494       62,659       63,911
    Commercial loans ..........................................      87,322       55,124       37,409       13,136        5,627
    Mortgage-backed securities ................................      43,281       26,737       29,241       40,956       93,252
    Due from brokers for unsettled securities transactions ....        --           --           --         80,634         --
    Investment & trading securities, interest-earning
      deposits and federal funds ..............................      86,499       78,226      108,659       51,627       64,211
    Deposits ..................................................     569,078      532,896      510,475      430,829      416,081
    FHLB advances and other borrowings ........................     192,800      114,105      138,243      140,159      121,299
    Shareholders' equity ......................................      71,366       70,730       64,315       63,090       59,816
Selected Operations Data:
    Total interest income .....................................   $  56,859    $  55,170    $  43,573    $  46,744    $  47,533
    Total interest expense ....................................     (31,859)     (29,855)     (22,365)     (25,888)     (27,588)
                                                                  ---------    ---------    ---------    ---------    ---------
    Net interest income .......................................      25,000       25,315       21,208       20,856       19,945
    Provision for loan losses .................................      (1,115)        (177)        (179)      (1,097)      (1,395)
    Other income ..............................................       4,350        4,679        4,471        4,579        3,710
    Other expense .............................................     (22,451)     (20,195)     (15,172)     (13,678)     (12,388)
      Income tax expense ......................................      (1,161)      (2,318)      (3,066)      (3,076)      (3,891)
                                                                  ---------    ---------    ---------    ---------    ---------
    Net income before early extinguishment of debt and
      the cumulative effect of a change in accounting principle       4,623        7,304        7,262        7,584        5,981
    Early extinguishment of debt, net of income tax effect ....        --           --           --           (429)        --
    Cumulative effect on prior years (to December 31, 1991)
      of changing to a different method of accounting for
      income taxes ............................................        --           --           --           --            250
                                                                  ---------    ---------    ---------    ---------    ---------
    Net income ................................................   $   4,623    $   7,304    $   7,262    $   7,155    $   6,231
                                                                  =========    =========    =========    =========    =========
Other Data:
    Interest rate spread during period (1)                             3.54%        3.69%        3.47%        3.25%        3.26%
    Net interest margin (2)                                            3.61         3.78         3.70         3.48         3.65
    Return on average assets (3)                                       0.84         1.00         1.19         1.13         1.08
    Return on average equity (3)                                       8.91        10.74        11.28        11.57        10.78
    Operating expenses to average assets (4)                           2.59         2.77         2.49         2.15         2.16
    Efficiency ratio (5)                                              65.88        67.31        60.26        55.19        53.50
    Equity to assets                                                   8.53         9.81         8.96         9.87         9.93
    Non-performing assets to total assets                              1.21         1.53         1.49         1.16         2.38
    Reserve to non-performing loans                                  111.75       101.98       105.86        89.64        40.67
    Net charge-off to loans receivable, net                            0.05         0.06         0.02         0.03         0.05
    Dividend payout ratio                                             85.42        56.95        48.00        36.55        31.50
    Shares outstanding                                            4,768,531    4,720,946    4,656,935    4,658,832    4,727,600
    Book value per share                                          $   14.97    $   14.98    $   13.81    $   13.54    $   12.65
    Earnings per share                                            $    0.96    $    1.51    $    1.50    $    1.45    $    1.27
    Dividends per share                                           $    0.82    $    0.86    $    0.72    $    0.53    $    0.40
    Number of full-service offices                                       16           15           13            9            9
<PAGE>
(1) The difference between the weighted-average yield earned on interest-earning
assets and the weighted-average rate paid on all interest-bearing liabilities.
(2) Net interest income divided by average interest-earning assets.
(3) Calculations for 1996 are before the one-time special SAIF assessment. After
the SAIF  assessment of $1.7 million,  net of tax,  return on average assets was
0.61% and return on average equity was 6.51%.
(4) Calculation  for 1996 excludes the one-time  special SAIF assessment of $2.8
million.
(5) Other expenses  divided by the sum of net interest  income and other income,
net of non-recurring charges and securities gains and losses. Other expenses for
1996 excludes the one-time special SAIF assessment.
</TABLE>
<PAGE>
                    Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

General

     On November 30, 1988, Indiana Federal  Corporation (the  "Corporation") was
formed as the holding company for Indiana Federal Savings and Loan  Association.
On September 28, 1992, Indiana Federal Savings and Loan Association  changed its
name to Indiana Federal Bank for Savings ("Indiana  Federal" or the "Bank").  On
December 12, 1994, the Corporation completed its acquisition of American Bancorp
Inc.  ("ABI"),  the parent  company  of  American  State  Bank,  with  assets of
approximately  $65.0 million and offices in North  Judson,  San Pierre and Knox,
Indiana. The Corporation completed its acquisition of NCB Corporation ("NCB") on
January 31, 1995. The  acquisition of NCB added  approximately  $45.0 million in
assets and offices in Culver and Granger, Indiana. On November 14, 1996, Indiana
Federal  Corporation  announced  a merger  of  equals  with  Pinnacle  Financial
Services, Inc. ("PNFI") of St. Joseph, Michigan. The merger, which is subject to
regulatory  and  shareholder  approval,  is expected to be completed by mid-year
1997.  This  merger of equals will  create a new bank  franchise  with 47 branch
locations  in  southwest   Michigan  and   northwest   Indiana  with  assets  of
approximately  $2.0 billion.  The results of the Corporation are primarily those
of the Bank, IndFed Mortgage Company and IFB Investment  Services,  Inc., as its
principal wholly-owned subsidiaries.

     Indiana  Federal's  net income is  primarily  dependent on its net interest
margin, which is the difference,  or spread, between the average yield earned on
loans and  investments,  and the interest  paid on deposits  and other  borrowed
money, and the relative  amounts of such assets and  liabilities.  The provision
for loan losses,  commissions and fee income, gains on sale of loans,  operating
expenses and income taxes also have a significant impact on earnings.

     Critical  to  the  Bank's  performance  is the  business  of  managing  and
controlling  the inherent  credit,  prepayment,  interest  rate,  liquidity  and
capital risks  associated  with its  operations,  through an effective asset and
liability  management  program in order to maximize both its net interest margin
and return to shareholders.

Earnings Performance

     Indiana  Federal  Corporation  reported net income of $4.6 million or $0.96
per share for the year ended  December  31,  1996,  compared to $7.3  million or
$1.51 per share for the same  period a year ago.  Net  income for the year ended
December 31, 1994 was $7.3  million or $1.50 per share.  Net income for the year
ended December 31, 1996 was  substantially  impacted by a non-recurring  pre-tax
charge of $2.8 million  resulting from legislation  signed into law on September
30, 1996 to recapitalize the Federal Deposit  Insurance  Corporation's  ("FDIC")
Savings  Association  Insurance Fund ("SAIF").  This one-time special assessment
reduced 1996 after tax  earnings by $1.7  million or $0.36 per share.  Provision
for loan losses  increased  by $938,000  due to the  significant  loan growth of
$99.7 million during 1996. Also impacting 1996 earnings were write-downs on real
estate owned  totaling  $495,000 in order to  facilitate  the sale of the Bank's
only two real estate owned properties.  Return on average assets was .84 percent
for 1996, compared to 1.00 percent for 1995 and 1.19 percent for 1994. Return on
average shareholders' equity was 8.91 percent for 1996 compared to 10.74 percent
for 1995 and 11.28 percent for 1994.
<PAGE>
     Return on average  assets and  return on average  shareholders'  equity for
1996 were calculated prior to the one-time SAIF  assessment.  After the one-time
special SAIF assessment for 1996, return on average assets and return on average
shareholders'  equity  were .61  percent  and 6.51  percent,  respectively.  The
Corporation  paid cash  dividends in 1996 totaling  $0.82 per share  compared to
$0.86 per share in 1995 and $0.72 per share in 1994.

Net Interest Income

     Net interest income is determined by the amounts of interest-earning assets
and  interest-bearing  liabilities,  and by the spread  between rates earned and
paid on those amounts.  Net interest income for 1996 declined  slightly to $25.0
million from $25.3 million for the same period last year. In 1994,  net interest
income was $21.2 million.  The $315,000  decrease in net interest  income during
1996 resulted from a decline of 3 basis points in the yield on  interest-earning
assets and an increase in the cost of average interest-bearing liabilities of 12
basis points.  This 15 basis point decline in interest rate spread resulted in a
$1.1 million decrease in net interest  income,  which was partially offset by an
increase of $806,000 in net interest  income,  due to the $23.0 million increase
in average  interest-earning  assets and the $26.0  million  increase in average
interest-bearing  liabilities.  The increase in net  interest  income in 1995 of
$4.1 million when compared to 1994, was primarily attributable to higher volumes
of interest-earning  assets and interest-bearing  liabilities that resulted from
the acquisition of ABI and NCB. The average balance of  interest-earning  assets
increased by $96.8 million during 1995 when compared to 1994,  while the average
balance of  interest-bearing  liabilities  increased by $114.9 million. In 1994,
management  chose to  purchase  $50.0  million of two-year  and $4.0  million of
ten-year  U.S.  Treasury  Notes,  which  were  funded  with  short-term  reverse
repurchase  agreements.  During the first quarter of 1995,  the $50.0 million of
two-year  U.S.  Treasury  Notes were sold,  which  resulted in a loss on sale of
investment securities of $384,000.

     The Bank's net  interest  margin (net  interest  income  divided by average
interest-earning  assets)  decreased to 3.61 percent  during 1996 as compared to
3.78 percent in 1995 and 3.70 percent in 1994.  The decrease in the net interest
margin was  primarily  due to the 15 basis point  decline in the  interest  rate
spread for 1996 as compared to 1995,  which was partially  offset by an increase
in interest-earning  assets of $23 million.  The increase in the Bank's interest
rate spread for 1995 was in part the result of the  acquisition  of ABI and NCB,
which  added  higher  yielding  commercial  loans  and  lower  costing  checking
accounts.

     During   1996,   1995   and   1994,    interest-earning   assets   exceeded
interest-bearing  liabilities by $10.7 million, $13.6 million and $31.6 million,
respectively.  The decline in 1996 of the Bank's excess of net  interest-earning
assets to  interest-bearing  liabilities  was primarily the result of funding an
additional $1.8 million investment in single premium life insurance policies and
a $2.5  million  investment  in Forrest  Holdings,  Inc. The decline in 1995 was
primarily the result of funding the acquisitions of ABI and NCB.

     The following table provides average  balances,  net interest  income,  the
yields on  interest-earning  assets and costs of  interest-bearing  liabilities,
interest  rate  spreads and net interest  margin for the last three  years.  The
average  balances are based on historic costs while the yield  information  does
not give effect to fair value changes.
<PAGE>
<TABLE>
<CAPTION>

                                       Average Balances - Net Interest Income - Average Rates

                                             1996                           1995                            1994
                                           Interest                       Interest                        Interest
                                 Average    Income/   Average   Average    Income/   Average    Average    Income/   Average
(Dollars in thousands)           Balance    Expense Yield/Rate  Balance    Expense Yield/Rate   Balance    Expense Yield/Rate
----------------------           -------    ------------------  -------    ------------------   -------    ------------------
<S>                             <C>        <C>        <C>      <C>        <C>         <C>      <C>        <C>          <C>
Interest-earning assets:
   Loans receivable             $ 573,795  $ 48,913   8.52%    $549,033   $46,895     8.54%    $435,281   $ 35,298     8.11%
   Mortgage-backed securities      33,796     2,381   7.05%      27,314     1,918     7.02%      36,934      2,414     6.54%
   Investment securities           85,351     5,565   6.52%      93,574     6,357     6.79%     100,883      5,861     5.81%
                                -------------------------------------------------------------------------------------------
   Total earning assets           692,942    56,859   8.21%     669,921    55,170     8.24%     573,098     43,573     7.60%
   Other assets                    63,987                        60,108                          36,758
                                -------------------------------------------------------------------------------------------
Total assets                    $ 756,929                      $730,029                        $609,856
                                ===========================================================================================
Interest-bearing liabilities:
   Deposits                     $ 553,739    24,438   4.41%    $532,884    22,423     4.21%    $433,906     16,479     3.80%
   FHLB advances and
     other borrowings             128,551     7,421   5.77%     123,431     7,432     6.02%     107,552      5,886     5.47%
                                -------------------------------------------------------------------------------------------
Total interest-bearing
     liabilities                  682,290    31,859   4.67%     656,315    29,855     4.55%     541,458     22,365     4.13%
   Other liabilities                3,591                         5,696                           4,041
                                -------------------------------------------------------------------------------------------
Total liabilities                 685,881                       662,011                         545,499
Shareholders' equity               71,048                        68,018                          64,357
                                -------------------------------------------------------------------------------------------
Total liabilities and
     shareholders' equity       $ 756,929                      $730,029                        $609,856
                                ===========================================================================================
Interest rate spread                                  3.54%                           3.69%                            3.47%
Excess interest-earning assets  $  10,652                      $ 13,606                        $ 31,640
Net interest income/margin                 $ 25,000   3.61%               $25,315     3.78%               $ 21,208     3.70%
                                ===========================================================================================

</TABLE>
<PAGE>
                             Rate / Volume Analysis

         The following table presents for the periods indicated,  the changes in
interest income, and the changes in interest expense attributable to the changes
in interest rates and the changes in the volume of  interest-earning  assets and
interest-bearing  liabilities.  The change  attributable to both volume and rate
has been allocated proportionately to the changes due to volume and rate.
<TABLE>
<CAPTION>
                                                                                Year ended December 31,
                                                              1996 vs. 1995                               1995 vs. 1994
                                                ------------------------------------------------------------------------------------
                                                 Increase        Increase                     Increase       Increase
                                                (Decrease)      (Decrease)       Total       (Decrease)     (Decrease)      Total
                                                  Due To          Due To       Increase        Due To         Due To       Increase
(Dollars in thousands)                            Volume           Rate       (Decrease)       Volume          Rate       (Decrease)
                                                 ---------      ----------     ---------      ---------     ----------    ----------
<S>                                              <C>            <C>            <C>            <C>            <C>           <C>
Interest Income
Attributable to:
   Loans receivable .......................      $  2,111       $    (93)      $  2,018       $  9,636       $  1,961      $ 11,597
   Mortgage-backed securities .............           455              8            463           (664)           168          (496)
      Investment securities ...............          (546)          (246)          (792)           (16)           512           496
                                                 ----------------------------------------------------------------------------------
   Total interest-earning assets ..........      $  2,020       $   (331)      $  1,689       $  8,956       $  2,641      $ 11,597
                                                 ==================================================================================
Interest Expense
Attributable to:
   Deposits ...............................      $    911       $  1,104       $  2,015       $  4,042       $  1,902      $  5,944
   FHLB advances
     and other borrowings .................           303           (314)           (11)           919            627         1,546
                                                 -----------------------------------------------------------------------------------
       Total interest-bearing
         liabilities ......................      $  1,214       $    790       $  2,004       $  4,961       $  2,529      $  7,490
                                                 ==================================================================================
Increase (decrease) in net
   interest income ........................                                    $   (315)                                   $  4,107
                                                 ==================================================================================

</TABLE>
Provision for Loan Losses

     The provision  for loan losses,  which is charged to current  earnings,  is
based on  management's  ongoing review of the loan  portfolio.  Factors that are
considered in determining the provision for loan losses include:  past loan loss
experience,  the ability of the borrower to repay the loan, the estimated  value
of the loan collateral,  economic conditions, changes in the loan mix, growth in
the loan  portfolio and other factors and estimates  that are subject to changes
over time.

     The provision for loan losses was $1.1 million in 1996 compared to $177,000
in 1995. In 1994, the provision for loan losses totaled $179,000.  Provision for
loan losses  increased in 1996 when compared to 1995 and 1994,  primarily due to
the  significant  increase in loans  receivable  of $99.7  million  during 1996.
Provision  for loan losses in 1995 and 1994 were  approximately  the same due to
slower growth in net loans  receivable  and  management's  decision that reserve
levels were  adequate.  The  allowance  for loan losses was $7.5 million or 1.20
percent of net loans receivable at December 31, 1996 compared to $6.7 million or
1.27 percent at year end 1995.  At December 31, 1994,  allowance for loan losses
was $6.1 million or 1.19 percent of net loans receivable. The allowance for loan
losses increased $803,000 in 1996 due to the $99.7 million increase in net loans
receivable  during the year.  Included in allowance  for loan losses at December
31, 1995 was  $757,000 of reserves  that the Bank  assumed  with the purchase of
NCB. Net loan  charge-offs for 1996 decreased to $312,000 from $379,000 in 1995.
In 1994, net loan charge-offs were $89,000. The increase in net loan charge-offs
in 1995 was  primarily in consumer  loans,  which had net  charge-offs  totaling
$405,000 in 1995 compared to $152,000 in 1994.
<PAGE>
     Based on available information,  management believes that the allowance for
loan losses is adequate to absorb  potential  losses in the portfolio,  however,
future  additions to the allowance may be necessary based on changes in economic
conditions.  In addition,  various regulatory  agencies  periodically review the
allowance for loan losses.  These agencies may require that additions be made to
the allowance for loan losses based upon their judgment of information available
to them at the time of their examinations.

     Non-performing  assets (which  include  non-accrual  loans,  accruing loans
delinquent 90 days or more,  restructured loans and real estate owned) decreased
to $10.1 million or 1.21 percent of total assets at December 31, 1996 from $11.0
million or 1.53 percent of total  assets at December  31,  1995.  Non-performing
assets were $10.7  million or 1.49 percent of total assets at December 31, 1994.
Included in  non-performing  assets at December  31, 1996 was a student  housing
complex in  Gainesville,  Florida  with a book value of $2.3  million.  The Bank
acquired the property in June of 1994. During 1996, an additional  write-down of
$325,000  was  necessary in order to  facilitate  the sale of the  property.  In
February  1997,  the Bank sold the property for $2.3 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  percent.  In  addition,  in February
1995,  the Bank  acquired a shopping  center in  Sturgis,  Michigan  with a book
balance of $1.0  million at  December  31,  1996.  During  1996,  an  additional
write-down  of $173,000  was  necessary in order to  facilitate  the sale of the
property.  In February 1997, the Bank sold the property for $1.0 million and did
not provide the purchaser with the financing for the sale.  Also included in the
non-performing   asset  portfolio  at  December  31,  1996  were  two  apartment
properties that were classified as non-accruing loans. These properties are both
located in Indianapolis, Indiana with a combined book balance of $2.4 million at
December 31, 1996. During 1996, the Bank increased the allowance for loan losses
on these  two  properties  by  $175,000.  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.  Management  continuously
reviews these properties to determine their appropriate carrying value.

Other Income

     Other  income  consists  primarily  of  commissions  earned  on the sale of
insurance and securities products to retail customers, trust and private banking
fees, loan servicing fees, deposit products service fees and gains and losses on
the sale of assets.

     Other income decreased to $4.4 million for the year ended December 31, 1996
from  $4.7  million  in 1995  and  $4.5  million  in 1994.  When  excluding  the
non-recurring gains and losses on the sale of assets,  other income increased in
1996 to $5.3  million  from $4.7  million  for 1995 and $4.0  million  for 1994.
Non-recurring items in 1996 included a net loss of $918,000, including a loss on
the sale of real estate  owned of $495,000  and the loss on the sale of mortgage
loans of $478,000  compared to a net loss of $71,000 in 1995 which resulted from
a loss on the  sale of real  estate  owned  of  $450,000,  a loss on the sale of
mortgage  loans  of  $61,000  offset  by a gain  on the  sale of  securities  of
$440,000.  Non-recurring  items in 1994 totaled a net gain of $479,000 primarily
from a gain of $400,000 on the sale of mortgage servicing.

     At December 31, 1996,  the Bank had $2.0  million in  conventional  one- to
four-family  fixed-rate mortgage loans held for sale, which were recorded at the
lower of cost or market.  At December  31,  1996,  the market value of the loans
held for sale exceeded the book value.  In 1996, the Bank recorded net losses on
the sale of mortgage loans totaling  $478,000  compared to a net loss of $61,000
recorded for 1995 and a net loss of $25,000 in 1994.
<PAGE>
Other Expenses

     Other  expenses in 1996  increased to $22.5  million from $20.2  million in
1995.  Included in the 1996 other expenses was the $2.8 million one-time special
SAIF assessment.  When excluding this non-recurring item, other expenses in 1996
decreased  to $19.6  million from $20.2  million in 1995.  The decrease in other
expenses  in 1996,  after the  non-recurring  item,  resulted  primarily  from a
$131,000 decrease in salaries and employee benefits and a $263,000  reduction in
FDIC expenses.

     Other  expenses in 1995  increased to $20.2  million from $15.2  million in
1994. This 33 percent  increase in expenses was due primarily to the acquisition
of ABI and NCB which added four  full-service  banking centers and approximately
50 full-time employees.  As a result of the added banking centers and employees,
salaries and employee benefits and other expenses related to banking  operations
increased.  In  addition,  amortization  related  to  the  acquisitions  totaled
$608,000 for the year ended December 31, 1995.

Income Taxes

     In 1996,  the total  provision for state and federal  income taxes was $1.2
million, for an effective tax rate of 20.1 percent,  compared to $2.3 million in
1995, for an effective tax rate of 24.1 percent.  In 1994,  the total  provision
for state and federal income tax was $3.1 million,  for an effective tax rate of
29.7 percent. The relatively low effective tax rate for the last three years was
the  result of  increasing  tax  credits  received  for  investments  in low and
moderate  income  housing  by  the  Corporation's  subsidiary,  IndFed  Mortgage
Company. These tax credits totaled $1.2 million in 1996 compared to $1.2 million
in 1995 and $829,000 in 1994. The effective tax rate in 1996 was impacted by the
effect of  credits  on  pre-tax  income  that had been  reduced  due to the $2.8
million  one-time  special SAIF  assessment.  The equity  investment  in low and
moderate  income  housing  totaled $6.5 million at December 31, 1996 compared to
$6.7 million at December 31, 1995 and $5.2 million at December 31, 1994.

Asset/Liability Management

     Financial  institutions  are subject to  interest  rate risks to the degree
that  interest-bearing  liabilities  reprice or mature more  frequently  or on a
different basis than interest-earning assets. The Bank's main objective in asset
and liability  management is to closely match the interest rate  sensitivity  of
its assets and  liabilities in order to maintain  stable  interest  income in an
environment of changing interest rates.

     Management  has  established  an interest rate risk  management  program to
increase its  investment in loans and  securities  that tend to be more interest
rate  sensitive and to lengthen the effective  maturity of its  liabilities.  As
part of this program, the Bank seeks to: (i) consistently  originate residential
adjustable-rate  mortgage loans for portfolio;  (ii)  originate,  for portfolio,
adjustable-rate  income-producing  property loans;  (iii) sell a majority of its
current  originations  of fixed-rate  long-term  mortgage loans in the secondary
market while retaining the servicing on these loans; (iv) originate  prime-based
floating-rate  commercial  loans; (v) originate higher yielding and shorter term
consumer loans;  (vi) purchase shorter term  mortgage-backed  securities;  (vii)
maintain  significant  early  withdrawal  penalties  on  deposits to protect the
deposit  maturity and cost structure;  and (viii) utilize Federal Home Loan Bank
advances to fund loans of equivalent  terms and  maturities  and to lengthen the
maturities of the Bank's liabilities.
<PAGE>
     The Bank's  interest rate risk  decreased  during 1996.  Indiana  Federal's
one-year gap (a measure of exposure to interest rate risk,  defined as the ratio
of the difference between  interest-sensitive assets and liabilities maturing or
repricing  within the next year to total  assets)  was -8.0  percent at year end
1996.  This one year gap compares  with gaps of -12.4  percent and -21.3 percent
for the years ended 1995 and 1994,  respectively.  The decrease in interest rate
risk during 1996  resulted  from an increase in short term and  adjustable  rate
commercial  loans,  and an  increase  in longer  term  certificates  of deposit.
Management  also reduced the  percentage  of  non-maturity  deposits  assumed to
reprice within one year.  Excluding  this change in assumption,  the gap at year
end 1996 would have been -11.0  percent.  Other factors that affected the Bank's
gap in 1996 include the purchase of $30.0 million of  fixed-rate,  ten-year home
equity  loans,  and the  purchase  of $25.0  million  in  fixed-rate  investment
securities. These assets were funded primarily with short-term borrowings.

     Because of the Bank's  negative  interest rate gap position,  an increasing
interest rate  environment may have an adverse effect on the Bank's net interest
income.  Conversely,  a declining  interest rate environment may have a positive
effect on the Bank's net interest income.
<PAGE>
                     Maturity and Rate Sensitivity Analysis

     The following  table sets forth,  at December 31, 1996, the Bank's interest
rate  sensitive  asset and liability  position and  associated  weighted-average
yields and costs. Mortgage loans,  mortgage-backed securities,  commercial loans
and consumer  loans are shown on the basis of contractual  amortization  and are
assumed to prepay based on forecasts made by major Wall Street mortgage security
dealer firms,  and also based on the Bank's  historical  information.  Loans and
investments are determined to reprice at the earlier of maturity, the first date
on which a security may be put at par or the next  contractual  repricing  date.
The volumes of savings,  NOW and MMDA  accounts  which  management  assumes will
reprice  within  the  first  year at 15  percent,  39  percent  and 78  percent,
respectively.  While the estimated  prepayment  rates  utilized are based on the
best  information  available  to the Bank,  there can be no  assurance  that the
assets and  liabilities  will have the projected  maturities  used in developing
this table.  The table does not include  redeployment of funds from  contractual
amortization.
<TABLE>
<CAPTION>
                                                                     One Year       Three
                              Three         Three      Six Months        To         Years       Greater
                             Months       Months To       To           Three         To          Than
(Dollars in Thousands)       or Less     Six Months    One Year        Years     Five Years    Five Years            Total
                            -------------------------------------------------------------------------------------------------------
                             Amount        Amount       Amount        Amount       Amount       Amount         Amount        Rate
                            -------------------------------------------------------------------------------------------------------
<S>                          <C>           <C>           <C>           <C>           <C>          <C>           <C>            <C>
Mortgage loans .............  74,264     $  58,371     $  92,153     $  99,158     $  62,052    $  42,140     $ 428,138       8.03%
Mortgage-backed
   securities ..............   9,696         3,928         6,989        11,939         5,580        5,149        43,281       7.02%
Commercial loans ...........  39,907        11,838        11,725        15,070         4,179        4,603        87,322       9.22%
Consumer loans .............  26,531        11,554        19,089        41,532        15,785        5,635       120,126      10.07%
Investments ................  30,595         2,197         5,395         9,711        12,545       25,990        86,433       6.51%
Loans held for sale ........   1,970          --            --            --            --           --           1,970       7.97%
                             -------     ---------     ---------     ---------     ---------    ---------     ---------      -----
Interest-sensitive assets .. 182,963     $  87,888     $ 135,351     $ 177,410     $ 100,141    $  83,517     $ 767,270       8.26%
                             =======     =========     =========     =========     =========    =========     =========       ====

Deposits ................... 129,409     $  72,233     $ 106,583     $ 135,954     $   8,051    $ 116,848     $ 569,078       4.47%
Borrowings ................. 145,879         8,309        10,447        27,771           127          267       192,800       6.08%
                             -------     ---------     ---------     ---------     ---------    ---------     ---------      -----
Interest-sensitive
   liabilities ............. 275,288     $  80,542     $ 117,030     $ 163,725     $   8,178    $ 117,115     $ 761,878       4.88%
                             =======     =========     =========     =========     =========    =========     =========       ====
Interest-sensitive
   gap ..................... (92,325)    $   7,346     $  18,321     $  13,685     $  91,963    $ (33,598)    $   5,392       3.38%
                             =======     =========     =========     =========     =========    =========     =========       ====
Cumulative gap ............. (92,325)    $ (84,979)    $ (66,658)    $ (52,973)    $  38,990    $   5,392
                             =======     =========     =========     =========     =========    =========     =========       ====
Assets/liabilities .........    0.66          1.09          1.16          1.08        12.25          0.71          1.01
                             =======     =========     =========     =========     =========    =========     =========       ====
% Cumulative gap to
   total assets ............  (11.03)%      (10.15)%       (7.97)%       (6.33)%        4.66%        0.64%
                             =======     =========     =========     =========     =========    =========     =========       ====

</TABLE>
<PAGE>
Financial Condition

Capital Resources

     At December 31, 1996, shareholders' equity was $71.4 million or 8.5 percent
of total assets.  Shareholders' equity was $70.7 million or 9.8 percent of total
assets at year end 1995,  and $64.3  million or 9.0  percent of total  assets at
year end 1994.  At December 31, 1996,  the  Corporation  had acquired a total of
1,109,999 shares of its outstanding common shares from its previously  announced
share  repurchase  plans. Of that total,  6,999 shares were  repurchased  during
1996. Indiana Federal's regulatory capital has significantly  exceeded all three
of the  regulatory  capital  requirements  for each of the last five years.  The
Bank's  capital also exceeds the fully  phased-in  capital  requirements  of the
Financial Institutions Reform,  Recovery and Enforcement Act of 1989. See Note I
of Notes to Consolidated Financial Statements.

Liquidity

     The standard  measure of liquidity for the thrift  industry is the ratio of
cash  and  eligible  investments  to the  sum of net  withdrawable  savings  and
borrowings  due  within one year.  The  liquidity  requirement  is  currently  5
percent,  but it may vary from time to time depending on economic conditions and
deposit  flows.  At December 31,  1996,  the Bank's  liquidity  was 6.59 percent
compared  to 6.88  percent  at year end 1995 and 6.52  percent at year end 1994.
Changes in the liquidity  position result from the Bank's  operating,  investing
and financing activities.

     The Bank's primary investment  activities include loan disbursements,  loan
repayments and purchases and sales of loans and marketable securities.  In 1996,
investing  activities used $124.4 million of cash,  compared to 1995 where $67.2
million was provided.  In 1994, investing activities used $13.3 million of cash.
Loans originated and purchased totaled $292.7 million in 1996 compared to $199.2
million in 1995 and $204.4 million in 1994.  Principal repayments totaled $155.2
million in 1996 compared to $185.9  million in 1995 and $126.2  million in 1994.
During 1996,  the Bank sold $41.3 million of loans  compared to $32.4 million in
1995 and  $30.1  million  in 1994.  The loans  sold,  pursuant  to  management's
asset/liability  strategy,  were one- to  four-family,  fifteen  and thirty year
fixed-rate mortgages.

     The Bank's  primary  financing  activity  is the sale of  certificates  and
non-certificate  of deposit products to consumers in its local market.  In 1996,
deposit  accounts  experienced a net increase of $35.9 million compared to a net
decrease of $19.0  million in 1995 and a net increase of $16.0  million in 1994.
Deposit  account  sales  in  1996  increased  significantly  due to  the  Bank's
aggressive  pricing for one and two year  certificate  of deposits,  in order to
lengthen the maturities of the Bank's liabilities. Deposit account sales in 1995
and 1994 were adversely affected by depositors seeking  alternative  investments
with higher yields.  The Bank also utilized  advances from the Federal Home Loan
Bank ("FHLB") to match fund income  property  loans,  loan growth and investment
leveraging strategies. The Bank increased FHLB advances by $59.1 million in 1996
compared  to $24.3  million in 1995 and a  reduction  of $55.8  million in 1994.
During 1996, the Bank used FHLB advances to purchase $30.0 million in fixed-rate
home equity loans and to fund a $25.0 million leveraging  strategy in fixed-rate
<PAGE>
investment securities.  From time to time, the Bank also uses short-term reverse
repurchase agreements to fund growth in its loan and investment  portfolios.  At
December 31, 1996,  the Bank had $9.1 million of short-term  reverse  repurchase
agreements  compared to $9.4 million at year end 1995 and $51.8  million at year
end 1994.  The Bank will also purchase  federal funds from time to time in order
to meet  short-term cash needs. At December 31, 1996, the Bank had $20.0 million
in federal funds  purchased  compared to no federal funds  purchased at year end
1995.

     At  December  31,  1996,  the  Bank had  normal  recurring  commitments  to
originate and purchase loans of approximately $28.9 million,  which are expected
to be funded during the first  quarter of 1997.  Loan  repayments,  deposits and
borrowings are considered to be sufficient to fund all  outstanding  commitments
and to provide desired levels of liquidity.

     The  Corporation  conducts its  business  through its  subsidiary,  Indiana
Federal Bank for Savings.  Dividends from this subsidiary are the  Corporation's
main source of funds. The OTS capital distribution regulations enacted in August
1990 restrict the Bank's cash dividend  payments or other capital  distributions
of the Bank's shares.  Indiana Federal is permitted by these regulations to make
capital  distributions  during the  calendar  year up to 100  percent of its net
income to date during the  calendar  year,  plus the amount that would reduce by
one-half the Bank's surplus capital ratio at the beginning of the year. The term
"surplus   capital   ratio"   means  the   percentage   by  which   the   Bank's
capital-to-assets  ratio  exceeds  the  ratio  of its  fully  phased-in  capital
requirements to assets.

     Indiana  Federal's  current  dividend  policy  is  well  below  the  limits
established by these regulations.  The capital  distribution limits could become
more restrictive if the Bank suffered  substantial  losses or failed to meet its
fully phased-in  capital  requirements.  In 1996, the Corporation  received $9.5
million in  dividends  from the Bank  compared to $14.8  million in 1995,  which
included $8.1 million related to the purchase of NCB.

Impact of Inflation and Changing Prices

     The  Consolidated  Financial  Statements  of  the  Corporation,  the  Notes
thereto,  and related  data have been  prepared  in  accordance  with  generally
accepted accounting principles,  which require measurement of financial position
and operating results in terms of historical dollars without considering changes
in the relative  purchasing  power of money over time due to  inflation.  Unlike
most  industrial  companies,  virtually all of the assets and  liabilities  of a
financial institution are monetary in nature. As a result, interest rates have a
more  significant  impact on the financial  institution's  performance  than the
effects of general levels of inflation.  Interest rates do not necessarily  move
in the same direction or magnitude as the prices of goods and services.
<PAGE>
Stock Data

     The Corporation's  common stock is traded on the  over-the-counter  ("OTC")
market and is listed on the Nasdaq National Market System under the symbol IFSL.
At December 31, 1996, the Corporation had  approximately  1,600  shareholders of
record  (not  including  the  number of  persons or  entities  holding  stock in
nominees  or  street  name  through  various   brokerage  firms)  and  4,768,531
outstanding shares of common stock.

     The following table sets forth the range of the high and low closing prices
per share of the  common  stock  reported  by Nasdaq  System.  Such  information
reflects inter-dealer prices,  without retail mark-up,  mark-down or commission,
and may not represent  actual  transactions.  See  "Management's  Discussion and
Analysis of Financial Condition and Results of Operations -- Financial Condition
-- Liquidity" and Note I of the Notes to Consolidated  Financial  Statements for
restrictions  on  dividend  payments.  See Note L of the  Notes to  Consolidated
Financial  Statements  for the  Corporation's  quarterly  dividend  payments  to
shareholders.
<TABLE>
<CAPTION>

                       1996            1995            1994
---------------------------------------------------------------
                   High    Low     High    Low     High    Low
<S>              <C>     <C>     <C>     <C>     <C>     <C>
First Quarter    $21.50  $18.50  $18.00  $15.50  $17.17  $14.17

Second Quarter    21.50   16.25   17.75   16.00  17.00    14.67
Third Quarter     21.00   18.25   18.75   16.50  17.50    15.00
Fourth Quarter    23.00   19.50   21.25   17.75  17.00    14.88
</TABLE>
Forward-Looking Statements

     Certain  statements  in this Annual Report to  Stockholders  that relate to
Indiana Federal  Corporation's  plans,  objectives or future  performance may be
deemed to be  forward-looking  statements  within  the  meaning  of the  Private
Securities  Litigation  Reform  Act  of  1995.  Such  statements  are  based  on
Management's  current  expectations.  Actual  strategies  and  results in future
periods may differ  materially from those currently  expected because of various
risks and  uncertainties.  Additional  discussion of factors  affecting  Indiana
Federal's  business and  prospects is  contained in the  Corporation's  periodic
filings with the Securities and Exchange Commission.
<PAGE>
               Report of Ernst & Young LLP, Independent Auditors


Shareholders and Board of Directors
Indiana Federal Corporation


We have audited the accompanying consolidated statements of condition of Indiana
Federal  Corporation and  subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income,  shareholders' equity, and cash flows
for each of the  three  years in the  period  ended  December  31,  1996.  These
financial statements are the responsibility of the Corporation's management. Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of Indiana Federal
Corporation and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1996,  in  conformity  with  generally  accepted
accounting principles.

As discussed in Note A to the consolidated  financial  statements,  in 1994, the
Corporation changed its method of accounting for investments and mortgage-backed
securities.



/s/Ernst & Young LLP
--------------------
Ernst & Young LLP


Chicago, Illinois
February 28, 1997

<PAGE>
<TABLE>
<CAPTION>
                           Consolidated Statements of Condition
                       Indiana Federal Corporation and Subsidiaries

                                                                    December 31,
                                                          ------------------------------
Assets                                                          1996             1995
                                                          -------------    -------------
<S>                                                       <C>              <C>
Cash and cash equivalents:
   Cash ...............................................   $  25,820,066    $  22,894,745
   Interest-bearing deposits in other institutions ....          66,473          178,207
   Federal funds loaned ...............................            --          5,375,000
                                                          -------------    -------------
     Total cash and cash equivalents ..................      25,886,539       28,447,952
Investment securities available-for-sale  (Note C) ....      86,432,613       72,672,893
Mortgage-backed securities available-for-sale  (Note C)      43,281,163       26,737,343
Loans receivable, net  (Note D) .......................     621,583,734      522,692,957
Loans held for sale ...................................       1,969,697       16,044,609
Real estate held for sale, acquired through foreclosure       3,308,412        4,413,617
Office properties and equipment  (Note E) .............      10,476,611       10,919,615
Federal Home Loan Bank stock  (Note G) ................       8,173,300        7,739,700
Accrued interest receivable ...........................       5,558,283        5,005,115
Other assets ..........................................      30,154,326       26,659,289
                                                          -------------    -------------
     Total assets .....................................   $ 836,824,678    $ 721,333,090
                                                          =============    =============
Liabilities and Shareholders' Equity

Deposits  (Note F) ....................................   $ 569,077,995    $ 532,895,925
Federal Home Loan Bank advances and other
   borrowings  (Note G) ...............................     192,799,821      114,105,475
Advance payments by borrowers for taxes and
   insurance ..........................................       1,175,407        1,409,051
Other liabilities .....................................       2,405,175        2,192,463
                                                          -------------    -------------
     Total liabilities ................................     765,458,398      650,602,914
Shareholders' equity:  (Note I)
   Serial Preferred Stock, par value $.01 per share;
     authorized:  5,000,000 shares; issued: none ......            --               --
   Common Stock, par value $.01 per share;
     authorized:  10,000,000 shares; issued:
     1996-- 5,878,530 shares; 1995-- 5,823,946 shares .          58,785           58,239
   Additional paid-in capital .........................      27,729,839       27,428,077
   Retained earnings ..................................      52,174,772       51,443,400
   Treasury Stock, at cost:
     1996-- 1,109,999 shares; 1995-- 1,103,000 shares .      (8,754,075)      (8,628,949)
   Unrealized gains on available-for-sale
     securities, net of tax ...........................         360,055          779,343
   Guaranteed ESOP obligation  (Note K) ...............        (203,096)        (349,934)
                                                          -------------    -------------
     Total shareholders' equity .......................      71,366,280       70,730,176
                                                          -------------    -------------
     Total liabilities and shareholders' equity .......   $ 836,824,678    $ 721,333,090
                                                          =============    =============

                     See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                    Consolidated Statements of Income
                               Indiana Federal Corporation and Subsidiaries


                                                                      Year Ended December 31,
                                                        ------------------------------------------------
                                                             1996              1995             1994
                                                        ------------------------------------------------
<S>                                                     <C>               <C>               <C>
Interest Income
   Interest on loans ..............................     $ 48,912,728      $ 35,298,055      $ 46,895,003
   Interest and dividends on investment securities         5,565,122         6,356,988         5,861,053
   Interest on mortgage-backed securities .........        2,381,331         1,918,224         2,414,080
                                                        ------------      ------------      ------------
     Total interest income ........................       56,859,181        55,170,215        43,573,188

Interest Expense
   Interest on deposits  (Note F) .................       24,438,454        22,423,077        16,479,561
   Interest on FHLB advances and other borrowings .        7,421,227         7,432,380         5,885,818
                                                        ------------      ------------      ------------
     Total interest expense .......................       31,859,681        29,855,457        22,365,379
                                                        ------------      ------------      ------------
     Net interest income ..........................       24,999,500        25,314,758        21,207,809

Provision for Loan Losses .........................        1,115,000           176,967           178,822
                                                        ------------      ------------      ------------
     Net interest income after
     provision for loan losses ....................       23,884,500        25,137,791        21,028,987

Other Income
   Commissions on sales of insurance and securities        1,654,691         1,137,694         1,099,411
   Net gains (losses) on real estate owned ........         (495,244)         (449,920)           33,789
   Loss on sale of mortgage loans .................         (477,510)          (60,673)          (25,012)
   Net gain on sale of securities .................           55,059           439,715            69,991
   Gain on sale of mortgage loan servicing ........             --                --             400,378
   Customer service fees ..........................        1,690,532         1,612,093         1,073,594
   Other ..........................................        1,922,560         2,000,253         1,819,131
                                                        ------------      ------------      ------------
     Total other income ...........................        4,350,088         4,679,162         4,471,282
<PAGE>
<CAPTION>
                                    Consolidated Statements of Income
                               Indiana Federal Corporation and Subsidiaries
                                               (continued)


                                                                      Year Ended December 31,
                                                        ------------------------------------------------
                                                             1996              1995             1994
                                                        ------------------------------------------------
<S>                                                     <C>               <C>               <C>
Other Expenses
   Salaries and employee benefits .................        8,823,947         8,955,214         7,407,078
   Net occupancy expense ..........................        1,798,254         1,790,539         1,414,343
   Furniture and equipment expense ................        1,637,560         1,659,723         1,090,438
   Federal insurance premiums .....................          886,931         1,149,561           995,013
   SAIF special assessment ........................        2,825,551              --                --
   Marketing ......................................          638,036           691,695           648,695
   Other general and administrative expenses ......        5,841,084         5,948,070         3,616,070
                                                        ------------      ------------      ------------
       Total other expenses .......................       22,451,363        20,194,802        15,171,637
     Income before income taxes ...................        5,783,225         9,622,151        10,328,632
                                                        ------------      ------------      ------------
Income tax expense (Note H) .......................        1,160,700         2,317,861         3,066,357
                                                        ------------      ------------      ------------
       Net income .................................     $  4,622,525      $  7,304,290      $  7,262,275
                                                        ============      ============      ============
Earnings per share ................................     $       0.96      $       1.51      $       1.50
                                                        ============      ============      ============

                             See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             Consolidated Statements of Shareholders' Equity
                               Indiana Federal Corporation and Subsidiaries

                                                                                                            Unrealized
                                                                                                         Gains (Losses) on
                                                          Additional                          Guaranteed     Available-
                                                Common      Paid-in      Retained   Treasury     ESOP         For-Sale
                                                Stock       Capital      Earnings     Stock    Obligation     Securities     Total
                                                -----       -------      --------     -----    ----------     ----------     -----
<S>                                             <C>       <C>          <C>         <C>          <C>        <C>          <C>
Balance at December 31, 1993                    $56,400   $25,956,460  $44,297,680 ($6,694,344) ($526,418) $     --     $63,089,778
                                                ------------------------------------------------------------------------------------
Adjustment at January 1, 1994 for unrealized
   gains (losses) on available-for-sale
   securities, net of taxes                                                                                    363,216      363,216
Change in unrealized gains (losses) on
   available-for-sale securities, net of taxes                                                              (2,434,855)  (2,434,855)
Issuance of 95,456 shares of common
   stock upon exercise of stock options             955       842,101                                                       843,056
Cash paid in lieu of fractional shares               (4)       (5,876)                                                       (5,880)
Net income for 1994                                                      7,262,275                                        7,262,275
Payments made on guaranteed ESOP
   obligation                                                                                     116,484                   116,484
Purchase of 97,000 shares of outstanding
   common stock                                                                     (1,534,421)                          (1,534,421)
Common stock dividends-- $.72 per share                                 (3,384,815)                                      (3,384,815)
                                                ------------------------------------------------------------------------------------
Balance at December 31, 1994                    $57,351   $26,792,685  $48,175,140 ($8,228,765) ($409,934) ($2,071,639) $64,314,838
                                                ------------------------------------------------------------------------------------
Change in unrealized gains (losses) on
   available-for-sale securities, net of taxes                                                               2,850,982    2,850,982
Issuance of 88,810 shares of common
   stock upon exercise of stock options             888       635,392                                                       636,280
Net income for 1995                                                      7,304,290                                        7,304,290
Payments made on guaranteed ESOP
   obligation                                                                                      60,000                    60,000
Purchase of 24,799 shares of outstanding
   common stock                                                                       (400,184)                            (400,184)
Common stock dividends-- $.86 per share                                 (4,036,030)                                      (4,036,030)
                                                ------------------------------------------------------------------------------------
Balance at December 31, 1995                    $58,239    $27,428,077 $51,443,400 ($8,628,949) ($349,934)    $779,343  $70,730,176
                                                ------------------------------------------------------------------------------------
Change in unrealized gains (losses) on
   available-for-sale securities, net of taxes                                                                (419,288)    (419,288)
Issuance of 54,584 shares of common
   stock upon exercise of stock options             546        301,762                                                      302,308
Net income for 1996                                                      4,622,525                                        4,622,525
Payments made on guaranteed ESOP
   obligation                                                                                     146,838                   146,838
Purchase of 6,999 shares of outstanding
   common stock                                                                        (125,126)                           (125,126)
Common stock dividends-- $.82 per share                                 (3,891,153)                                      (3,891,153)
                                                ------------------------------------------------------------------------------------
Balance at December 31, 1996                    $58,785    $27,729,839 $52,174,772  ($8,754,075)($203,096)    $360,055  $71,366,280
                                                ===================================================================================
                                          See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                               Consolidated Statements of Cash Flows
                                            Indiana Federal Corporation and Subsidiaries
                                                                                             Year Ended December 31,
                                                                            -------------------------------------------------------
                                                                                  1996                 1995                 1994
                                                                            -------------------------------------------------------
<S>                                                                         <C>                  <C>                  <C>
Operating Activities
   Net income .......................................................       $   4,622,525        $   7,304,290        $   7,262,275
   Adjustments to reconcile net income to net cash
     provided  (used) by operating activities:
     Provision for loan losses ......................................           1,115,000              176,967              178,822
     Originations of loans held for sale ............................         (37,525,140)         (47,354,734)         (24,227,376)
     Proceeds from loans sold .......................................          41,342,511           32,407,338           30,121,564
     Provision for depreciation and amortization ....................           2,150,799            2,261,164            1,140,591
     Amortization of premiums and discounts, net ....................              10,602             (181,030)             186,461
     Proceeds from sales of trading securities ......................          10,154,220            1,974,760           13,610,921
     Purchases of trading securities ................................         (10,170,626)          (1,975,624)         (13,553,200)
     Deferred federal income taxes ..................................            (944,813)             (66,155)             689,204
     (Increase) decrease in interest receivable on loans ............            (553,168)             405,905             (211,451)
     Increase (decrease) in interest payable ........................             358,092              330,711             (154,410)
     Net gain on sale of securities .................................             (55,059)            (439,715)             (69,991)

     Net losses (gains) on real estate owned ........................             495,244              449,920              (33,789)
     Net losses on sale of mortgage loans ...........................             477,510               60,673               25,012
     Net change in other assets and liabilities .....................            (413,276)          (4,979,302)          (2,386,942)
                                                                            -------------        -------------        -------------
       Net cash provided (used) by operating activities .............          11,064,421           (9,624,832)          12,577,691
                                                                            -------------        -------------        -------------
Investing Activities
   Available-for-sale investment securities:
     Purchases ......................................................         (42,858,328)         (28,542,626)        (140,912,453)
Proceeds from settlement of sales ...................................           6,571,875           71,283,634            6,825,156
Proceeds from maturities ............................................           8,928,946            2,500,000           80,470,222
Proceeds from principal payments ....................................          12,929,767            2,323,710                 --
   Held-to-maturity investment securities:
     Principal payments .............................................                --              1,879,652                 --
Proceeds from maturities ............................................                --              4,435,000            3,668,076
   Available-for-sale mortgage-backed securities:
     Purchases ......................................................         (11,792,294)                --                   --
     Proceeds from settlement of sales ..............................                --                   --              2,040,223
     Principal payments .............................................           5,081,239            3,500,000            8,826,291
   Held-to-maturity mortgage-backed securities:
     Proceeds from settlement of sales ..............................                --                   --             80,633,683
     Principal payments .............................................                --              1,095,517            1,923,432
   Purchase of Forrest Holdings Inc. preferred stock ................          (2,500,000)                --                   --
   Purchases of Federal Home Loan Bank stock ........................            (433,600)                --                   --
   Loan originations and principal payments on loans ................         (58,692,430)          18,643,745          (56,005,487)
   Purchases of loans ...............................................         (41,331,499)          (2,877,000)          (4,525,810)
   Purchases of office properties and equipment .....................            (857,483)          (1,437,963)          (1,588,332)
   Proceeds from sales of real estate ...............................             513,361            1,271,401              160,364
   Payment for purchase of American Bancorp Inc.,
     net of cash acquired ...........................................                --                   --              5,170,054
   Payment for purchase of NCB Corp., net of cash acquired ..........                --             (6,841,388)                --
                                                                            -------------        -------------        -------------
     Net cash (used) provided by investing activities ...............        (124,440,446)          67,233,682          (13,314,581)
                                                                            -------------        -------------        -------------
<PAGE>
<CAPTION>
                                               Consolidated Statements of Cash Flows
                                            Indiana Federal Corporation and Subsidiaries
                                                            (continued)

                                                                                             Year Ended December 31,
                                                                            -------------------------------------------------------
                                                                                  1996                 1995                 1994
                                                                            -------------------------------------------------------
<S>                                                                         <C>                  <C>                  <C>
Financing Activities
   Net increase (decrease) in non-certificate accounts ..............          14,912,356          (33,488,989)         (14,745,352)
   Net increase (decrease) in certificates of deposit ...............          21,008,687           14,455,311           30,756,131
   Proceeds from Federal Home Loan Bank advances ....................         279,100,000          359,000,000           61,000,000
   Repayments on Federal Home Loan Bank advances ....................        (219,982,566)        (334,747,809)        (116,780,479)
   Net increase (decrease) in other borrowings ......................          19,723,750          (48,730,000)          53,112,500
   Net increase (decrease) in advance payments by borrowers
     for taxes and insurance ........................................            (233,644)            (317,747)              53,440
   Cash dividends ...................................................          (3,891,153)          (4,036,030)          (3,384,815)
   Cash paid in lieu of fractional shares from stock dividend .......                --                   --                 (5,880)
   Purchases of treasury stock ......................................            (125,126)            (400,184)          (1,534,421)
   Exercise of stock options ........................................             302,308              569,280              557,066
                                                                            -------------        -------------        -------------
     Net cash provided (used) by financing activities ...............         110,814,612          (47,696,168)           9,028,190
                                                                            -------------        -------------        -------------
   Increase (decrease) in cash and cash equivalents .................          (2,561,413)           9,912,682            8,291,300
                                                                            -------------        -------------        -------------
   Cash and cash equivalents at beginning of year ...................          28,447,952           18,535,270           10,243,970
                                                                            -------------        -------------        -------------
   Cash and cash equivalents at end of year .........................       $  25,886,539        $  28,447,952        $  18,535,270
                                                                            =============        =============        =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             Consolidated Statements of Cash Flows, continued


                                                                        Year Ended December 31,
                                                                -----------------------------------------
                                                                    1996           1995           1994
                                                                -----------------------------------------
<S>                                                             <C>            <C>            <C>
Supplemental  Disclosures of Cash Flow
   Information -- Cash paid during the year for:
     Interest:
       Deposits ............................................    $24,177,426    $22,144,979    $16,570,589
       Federal Home Loan Bank advances and other borrowings       7,324,163      7,379,767      5,949,266
                                                                -----------    -----------    -----------
                                                                $31,501,589    $29,524,746    $22,519,855
     Income taxes ..........................................    $ 1,270,536    $ 2,705,000    $ 2,809,158
Supplemental Disclosures of Non-Cash
Investing Activity:
   Loans transferred to real estate owned ..................    $      --      $ 1,500,922    $ 3,367,619
   Loans transferred to held for sale category due to
     borrower conversion of adjustable-rate mortgage loans
     to fixed-rate mortgage loans ..........................    $   262,016    $   251,505    $   682,664
   Loans transferred to mortgage-backed securities .........    $ 9,780,031    $      --      $      --
   Loans originated to finance the sale of real estate owned    $      --      $   962,500    $      --
                                                                ===========    ===========    ===========


                              See notes to consolidated financial statements
</TABLE>
                  Indiana Federal Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements


              Note A -- Summary of Significant Accounting Policies

Organization

     Indiana Federal  Corporation is a financial  services holding company.  The
Corporation's  principal  operating  subsidiary  is  Indiana  Federal  Bank  for
Savings.  The Bank is principally  engaged in the business of attracting savings
deposits  from the general  public and  investing  these  funds,  together  with
borrowings and other funds,  to originate one- to four-family  residential  real
estate loans, consumer loans,  income-producing  property real estate loans, and
commercial business loans. The Bank conducts its activities from a network of 16
full-service  banking centers and 3 loan production offices located in Northwest
Indiana.

Principles of Consolidation

     The  consolidated  financial  statements  are  comprised of the accounts of
Indiana  Federal   Corporation  (the   "Corporation")   and  its  principal  and
wholly-owned subsidiaries, Indiana Federal Bank for Savings (the "Bank"), IndFed
Mortgage   Company,   and  IFB  Investment   Services,   Inc.  All   significant
inter-company  balances and transactions  have been eliminated in consolidation.
Certain  reclassifications  have  been  made  to the  1995  and  1994  financial
statements to conform to the 1996 presentation.
<PAGE>
Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

Cash Equivalents

     Cash equivalents represent highly liquid investments with a maturity of
three  months  or  less  when  purchased.

Trading Account Assets, Investment
Securities, and Mortgage-Backed Securities

     On  January  1,  1994,  the  Corporation  adopted  Statement  of  Financial
Accounting  Standards ("SFAS") No. 115,  "Accounting for Certain  Investments in
Debt and Equity  Securities."  In accordance  with the  Statement,  prior period
financial  statements have not been restated to reflect the change in accounting
principle.  Application  of SFAS No. 115 resulted in the increase of $363,216 in
shareholders'  equity as of January 1, 1994,  representing  the  recognition  in
shareholders' equity of unrealized appreciation, net of deferred income taxes of
$143,900,  for the  Corporation's  investment  in  debt  and  equity  securities
determined to be  available-for-sale,  previously  carried at amortized  cost or
lower of cost or market (LOCOM).
<PAGE>
     The carrying amount of securities is dependent upon their classification as
held-to-maturity,  trading,  or  available-for-sale.  Management  determines the
appropriate  classification  of debt  securities  at the time of  purchase.  The
accounting for securities in each of the three categories is as follows:

     Trading  account  assets:  Trading  account  assets  are held for resale in
anticipation of short-term market  movements.  Trading account assets are stated
at fair value with  unrealized  holding  gain  (loss)  recognized  in the income
statement as trading account income.

     Securities  held-to-maturity  and  available-for-sale:  Debt securities are
classified as held-to-maturity  when the Corporation has the positive intent and
ability to hold the  securities  to maturity.  Held-to-maturity  securities  are
stated at amortized cost.

     Debt  securities  not  classified  as   held-to-maturity   or  trading  are
classified as  available-for-sale.  Available-for-sale  securities are stated at
fair value,  with the  unrealized  gains and losses,  net of tax,  reported in a
separate component of shareholders' equity.

     The amortized cost of debt  securities  classified as  held-to-maturity  or
available-for-sale  is adjusted for  amortization  of premiums and  accretion of
discounts to maturity,  or in the case of mortgage-backed  securities,  over the
life of the  security.  Such  amortization  is included in interest  income from
investments.  Interest  and  dividends  are  included  in  interest  income from
investments.  Realized  gains and losses,  and  declines  in value  judged to be
other-than-temporary  are included in net securities  gains (losses).  Gains and
losses on sales of securities are  determined by  specifically  identifying  the
carrying amount of the securities sold.

     On November 15, 1995, the FASB staff issued a Special  Report,  "A Guide to
Implementation of SFAS No. 115 on Accounting for Certain Investments in Debt and
Equity  Securities." In accordance  with provisions in that Special Report,  the
Corporation   chose  to   reclassify   securities   from   held-to-maturity   to
available-for-sale.  At the  date of  transfer,  the  amortized  cost  of  those
securities  was  $34,357,508  and the  unrealized  gain on those  securities was
$696,873, which is included in shareholders' equity.

Non-Accrual Loans

     A loan is  classified  as  non-accrual  and the accrual of interest on such
loan is discontinued  when the contractual  payment of principal or interest has
become 90 days past due or when  management  has serious  doubts  about  further
collectibility  of  principal  or  interest,  even though the loan  currently is
performing.  A loan may  remain on  accrual  status if it is in the  process  of
collection  and is either  guaranteed or well secured.  When a loan is placed on
non-accrual  status,  unpaid interest  credited to income in the current year is
reversed  and unpaid  interest  accrued in prior  years is charged  against  the
allowance  for  interest  on  loans.  Interest  received  on  non-accrual  loans
generally is either applied  against  principal or reported as interest  income,
according  to  management's  judgment  as to the  collectibility  of  principal.
Generally,  loans are restored to accrual  status when the obligation is brought
current, has performed in accordance with the contractual terms for a reasonable
period  of  time,  and the  ultimate  collectibility  of the  total  contractual
principal and interest is no longer in doubt.
<PAGE>
Interest on Loans

     Interest  on loans is  credited to income when  earned.  An  allowance  for
interest on loans is provided when management  considers the collection of these
accounts doubtful.

Loan Fees

     Loan  origination and commitment  fees and certain direct loan  origination
costs related to loans or commitments originated are deferred and the net amount
amortized as an  adjustment  of the related  loan's yield.  The  Corporation  is
amortizing deferred amounts over the contractual life of the related loans.

Loans Held for Sale

     Loans held for sale are  carried at the lower of  aggregate  cost or market
value.

Real Estate Held for Sale Acquired Through
Foreclosure

     Foreclosed  assets are comprised of property acquired through a foreclosure
proceeding or acceptance of a deed-in-lieu of foreclosure.  A loan is classified
as in-substance  foreclosure  when the  Corporation has taken  possession of the
collateral regardless of whether formal foreclosure proceedings take place.

     Foreclosed  assets  initially  are  recorded  at fair  value at the date of
foreclosure  establishing a new cost basis.  After  foreclosure,  valuations are
periodically performed by management and the real estate is carried at the lower
of cost or fair value minus estimated costs to sell.


Depreciation and Amortization

     Depreciation  of  office  properties  and  equipment  and  amortization  of
leasehold  improvements are computed on a straight-line basis over the estimated
useful lives of the related assets.

Cost in Excess of the Fair Value of Net Assets
Acquired

     Cost in excess of the fair value of net assets  acquired  less  liabilities
assumed in connection with the purchase of a branch facility is being charged to
operations over its estimated useful life using the  straight-line  method.  The
branch  purchase  premium  included in other  assets  amounted  to $485,000  and
$606,000 at December 31, 1996 and 1995, respectively.
<PAGE>
     In regard to the purchase of NCB  Corporation,  the Bank recorded  goodwill
totaling  $1,493,363  and a deposit  base  intangible  totaling  $1,089,771.  At
December 31, 1996, the amount of goodwill and deposit base  intangible  included
in other  assets is  $1,308,785  and  $791,389,  respectively.  In regard to the
purchase of American Bancorp, Inc., the Bank recorded goodwill totaling $906,588
and a deposit base  intangible  totaling  $1,600,000.  At December 31, 1996, the
amount of goodwill  and deposit  base  intangible  included in other  assets was
$785,700 and $1,142,872,  respectively. The goodwill is being amortized straight
line over 15 years,  while the deposit base intangible is being amortized over 7
years.

Provision for Loan Losses

     Provisions for loan losses are charged to income based on a periodic review
and  evaluation  of various  factors  affecting  the value of loans  receivable,
including the borrower's financial ability to pay, value of collateral,  current
economic conditions, and the overall quality of the loan portfolio. In 1995, the
Corporation  adopted SFAS No. 114,  "Accounting by Creditors for Impairment of a
Loan." Under the new standard,  the  allowance for losses  related to loans that
are  identified  for  evaluation  in  accordance  with SFAS No.  114 is based on
discounted  cash flows using the loan's initial  effective  interest rate or the
fair value for certain  collateral-dependent loans. Prior to 1995, the allowance
for loan losses related to these loans was based on  undiscounted  cash flows or
the fair value of the collateral for collateral-dependent loans. At December 31,
1996 and 1995,  the recorded  investment in loans that are  considered  impaired
under Statement 114 was $6.5 and $6.3 million,  respectively,  of which $4.2 and
$4.5 million were on a non-accrual  basis.  Loans are considered  non-accrual if
the  most  likely  corrective  action  taken  by the  Bank  will  either  be the
repossession  of the collateral or the charge-off of the loan. The impaired loan
balances  at December  31,  1996 and 1995 are net of  specific  reserve for loan
losses totaling $845,000 and $530,000, respectively.  Management has determined,
based on anticipated discounted cash flows, that impaired loans with balances of
$2.6 million and $2.1 million,  respectively, at December 31, 1996 and 1995 will
be repaid in full  with no loss  incurred  by the  Bank.  The  average  recorded
investment in impaired  loans during the year ended  December 31, 1996 and 1995,
was $6.3 and $5.9 million,  respectively. The Bank recognized interest income on
those  impaired  loans of $298,000 in 1996 and  $425,000 in 1995 which  included
$197,000 and $322,000 of interest income  recognized using the cash basis method
of income recognition. Management believes that the allowance for loan losses is
adequate to absorb potential losses in the portfolio,  however, future additions
to the allowance may be necessary  based on changes in economic  conditions.  In
addition, various regulatory agencies periodically review the provision for loan
losses.  These agencies may require that additions be made to allowance for loan
losses based upon their judgment of information available to them at the time of
their  examination.  This  evaluation  is  inherently  subjective as it requires
material estimates including the amount and timing of future cash flows expected
to be received on impaired loans that may be susceptible to significant change.

Earnings Per Share

     Earnings  per share are  determined  by dividing net income for the year by
the  weighted-average  number  of  shares  of  common  stock  and  common  stock
equivalents  outstanding.  Common  stock  equivalents  assume  exercise of stock
options,  and the  calculation  assumes  purchase  of  treasury  stock  with the
proceeds at the  average  market  price for the period  (when  dilutive).  Fully
diluted  earnings per share equals the primary  amount.
<PAGE>
Accounting for Mortgage Servicing Rights

     In 1996, the  Corporation  adopted SFAS No. 122,  "Accounting  for Mortgage
Servicing  Rights,"  which  requires  that a  separate  asset  right to  service
mortgage  loans for  others be  recognized,  regardless  of how those  servicing
rights  are  acquired.  The  effect of the  adoption  of this  standard  was not
material.

Accounting for Stock-Based Compensation

     The  Corporation  accounts for its Stock Option Plan in accordance with APB
Opinion No. 25,  "Accounting  for Stock Issued to Employees."  Under APB Opinion
No. 25, because the exercise price of the  Corporation's  employee stock options
equals  the  market  price of the  underlying  stock on the  date of  grant,  no
compensation expense is recognized.

SFAS No. 125

     In June 1996, the Financial  Accounting  Standards Board (FASB) issued SFAS
No. 125,  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
Extinguishments  of  Liabilities,"  which addresses the accounting for transfers
and  servicing of  financial  assets and  extinguishments  of  liabilities.  The
Corporation  will apply SFAS No. 125 to  transfers  and  servicing  of financial
assets and extinguishments of liabilities occurring after December 31, 1996 and,
based on current circumstances,  does not believe the effect of adoption will be
material.

Stock Split

     On April 21, 1994, the  Corporation's  Board of Directors  declared a stock
split in the form of a three-for-two stock dividend to shareholders of record as
of May 17, 1994. All references to number of shares,  except shares  authorized,
and to per share information in the consolidated financial statements, have been
adjusted to reflect  the stock  split on a  retroactive  basis.
<PAGE>
Employee Stock Ownership Plan

     The  Corporation  has established an Employee Stock Ownership Plan ("ESOP")
for its  employees.  Beginning  January 1, 1994, the  Corporation  prospectively
adopted  the  American  Institute  of  Certified  Public  Accountants  ("AICPA")
Statement of Position 93-6,  "Employers' Accounting for Employee Stock Ownership
Plans." SOP 93-6  requires  the  recognition  of  compensation  expense for ESOP
shares acquired after 1992 and not committed to be released before the beginning
of 1994, be measured  based on the fair value of those shares when  committed to
be released to employees, rather than based on their original cost.

     As of December 31, 1996, the ESOP had 29,706 shares  acquired after January
1, 1993 that are committed to be released beginning in 1997. The adoption of SOP
93-6 had no impact on net income for the year ended  December 31, 1995 and 1996.
The  effect  of SOP 93-6 on net  income in 1997 and  beyond is not  determinable
because it is based on future prices of the Corporation's stock. Under SOP 93-6,
dividends on the unallocated ESOP shares were reported as a reduction of accrued
interest on the ESOP borrowings rather than as a reduction of retained earnings.

Loan Servicing Fees

     The  Corporation  services  mortgage  loans for permanent  investors  under
servicing  contracts.  Fees earned for  servicing  loans owned by investors  are
based on the outstanding principal balances of the loans being serviced, and are
recognized  as income when the related  mortgage  payments  are  received.  Loan
servicing costs are charged to expense as incurred.

Note B -- Mergers & Acquisitions

     On November 14, 1996, the Corporation entered into an Agreement and Plan of
Merger ("Merger Agreement") with Pinnacle Financial Services, Inc. ("Pinnacle"),
a bank and savings and loan holding company located in St. Joseph, Michigan. The
Merger Agreement provides for a "merger of equals" with Pinnacle to be accounted
for  as a  pooling  of  interests.  Upon  completion  of  the  Merger,  (a)  the
Corporation  will be merged  with and into  Pinnacle,  with  Pinnacle  being the
surviving corporation, and (b) each issued and outstanding share of common stock
of the Corporation will be converted into one share of common stock of Pinnacle.
Conditions  to the  consummation  of the merger  include,  among  other  things,
requisite and satisfactory  stockholder and regulatory approvals and the receipt
of certain opinion and certificates.  It is anticipated the merger will occur in
the second quarter of 1997.

     With the  execution of the Merger  Agreement,  Pinnacle (as issuer) and the
Corporation  (as  grantee)  entered into the  Pinnacle  Stock  Option  Agreement
pursuant to which Pinnacle  granted to the Corporation the Pinnacle  Option.  At
the same time,  the  Corporation  (as issuer) and Pinnacle (as grantee)  entered
into the IFC Stock Option Agreement,  pursuant to which the Corporation  granted
to Pinnacle the IFC Option. The Pinnacle Stock Option Agreement provides for the
purchase by the  Corporation  of 591,678  shares of Pinnacle  Common Stock at an
exercise price of $24.625 per share. The IFC Stock Option Agreement provides for
the purchase by Pinnacle of 470,361 shares of the Corporation Common Stock at an
exercise price of $19.875 per share. The Stock Option Agreements are intended to
increase the likelihood that the Merger will be  consummated.  The options would
be eligible for exercise only upon the  occurrence of specific  "Events"  deemed
detrimental to the merger process.
<PAGE>
     On January 31,  1995,  the  Corporation  acquired,  for $8.2  million,  NCB
Corporation  ("NCB"),  a bank holding company with total assets of approximately
$45.0 million with offices in Culver and Granger, Indiana. The operations of NCB
are included in the  Corporation's  Consolidated  Statements  of Income from the
acquisition  date  and  reflect  the  application  of  the  purchase  method  of
accounting.  Under  this  method  of  accounting,  the  aggregate  cost  to  the
Corporation  of the  acquisition  was  allocated  to  the  assets  acquired  and
liabilities  assumed,  based on their  estimated  fair  values as of January 31,
1995.

     On December 12, 1994, the Corporation acquired, for $7.1 million,  American
Bancorp, Inc. ("ABI"), a bank holding company with total assets of approximately
$65.0 million with offices in North Judson,  Knox, and San Pierre,  Indiana. The
operations of ABI are included in the Corporation's  Consolidated  Statements of
Income from the  acquisition  date and reflect the  application  of the purchase
method of accounting. Under this method of accounting, the aggregate cost to the
Corporation  of the  acquisition  was  allocated  to  the  assets  acquired  and
liabilities  assumed,  based on their  estimated  fair values as of December 12,
1994.

     Pro forma results of operations  assuming the NCB  acquisition had occurred
on January 1, 1995 would not differ materially from historical results.
<PAGE>
                              Note C -- Securities



The amortized  cost and fair values of  investments  in debt  securities  are as
follows:
<TABLE>
<CAPTION>
                                                                       Available-For-Sale Securities
                                                                              December 31, 1996
                                                  ---------------------------------------------------------------------
                                                                          Gross             Gross
                                                    Amortized          Unrealized        Unrealized             Fair
                                                      Cost                Gains            Losses               Value
                                                  ------------        -----------        -----------       ------------
<S>                                               <C>                 <C>                <C>               <C>
U.S. Government and agency securities             $ 35,128,056        $  410,074         ($ 190,859)       $ 35,347,271
Collateralized mortgage obligations                 23,974,110             6,090           (146,119)         23,834,081
Corporate debt securities                           12,000,000                --            (33,390)         11,966,610
Asset-backed securities                             14,472,949            64,347           (227,644)         14,309,652
Municipal securities                                   937,061            43,238             (5,300)            974,999
                                                  ------------        ----------         ----------        ------------
Total investment securities                         86,512,176           523,749           (603,312)         86,432,613

Mortgage-backed securities                          42,605,384           803,360           (127,581)         43,281,163
                                                  ------------        ----------         ----------        ------------
Total available-for-sale securities               $129,117,560        $1,327,109         ($ 730,893)       $129,713,776
                                                  ============        ==========         ==========        ============
<CAPTION>
                                                                        Available-For-Sale Securities
                                                                              December 31, 1995
                                                  ---------------------------------------------------------------------
                                                                          Gross             Gross
                                                    Amortized          Unrealized        Unrealized             Fair
                                                      Cost                Gains            Losses               Value
                                                  ------------        ------------       -----------        -----------
<S>                                               <C>                 <C>                <C>               <C>

U.S. Government and agency securities              $23,041,022        $  747,625          $    --           $23,788,647
Collateralized mortgage obligations                 33,039,197           118,469           (215,244)         32,942,422
Corporate debt securities                           12,458,758             4,806           (103,691)         12,359,873
Asset-backed securities                              1,998,129            81,871              --              2,080,000
Municipal securities                                 1,444,488            58,725             (1,262)          1,501,951
Total investment securities                         71,981,594         1,011,496          ( 320,197)         72,672,893
                                                  ------------        ----------         ----------        ------------
Mortgage-backed securities                          26,138,126           600,797             (1,580)         26,737,343
                                                  ------------        ----------         ----------        ------------
Total available-for-sale securities                $98,119,720        $1,612,293          ($321,777)        $99,410,236
                                                   ===========        ==========          =========         ===========
</TABLE>
The amortized cost and estimated market value of debt securities at December 31,
1996, by contractual maturity,  are shown below. Expected maturities will differ
from  contractual  maturities  because  borrowers  may have the right to call or
prepay obligations with or without call or prepayment penalties.
<PAGE>
<TABLE>
<CAPTION>

                                   Securities
                               available-for-sale
                                                                      Estimated
                                                    Amortized          Market
                                                      Cost              Value
                                                      ----              -----
<S>                                               <C>               <C>
Due in one year or less                           $  8,740,858      $  8,778,472
Due after one year through five years               15,589,959        15,565,808
Due after five years through ten years              26,816,621        26,969,418
Due after ten years                                 35,364,738        35,118,915
                                                  ------------      ------------
   Total investment securities                      86,512,176        86,432,613
Mortgage-backed securities                          42,605,384        43,281,163
                                                  ------------      ------------
   Total securities                               $129,117,560      $129,713,776
                                                  ============      ============
</TABLE>

Proceeds from the sale of  investments  in debt  securities  (excluding  trading
securities)  for the  years  ended  December  31,  1996,  1995,  and  1994  were
$6,571,875,  $71,283,634, and $8,865,379,  respectively. Gross gains realized on
these sales were  $82,908,  $1,024,109  and $12,270  for 1996,  1995,  and 1994,
respectively,  and gross losses realized on these sales were $11,442,  $583,530,
and $0 for 1996, 1995, and 1994,  respectively,  resulting in a tax liability of
$28,000, $175,000, and $5,000, respectively.
<PAGE>
                           Note D -- Loans Receivable

Loans receivable at December 31, 1996
and 1995 consist of the following:
<TABLE>
<CAPTION>
                                                                                December 31,
                                                    --------------------------------------------------------------------
                                                       Carrying             Fair            Carrying            Fair
                                                        Amount              Value            Amount             Value
                                                         1996               1996              1995              1995
                                                    -------------      -------------     -------------     -------------
<S>                                                 <C>                <C>               <C>               <C>
Real estate loans:
   One- to four-family residential .............    $ 287,655,315      $ 288,006,203     $ 278,679,552     $ 283,482,597
   Agricultural ................................       11,510,639         11,364,076        12,939,809        12,939,809
   Income-producing property ...................       99,444,077         99,061,503        83,452,762        80,230,440
   Construction, one- to four-family residential       20,775,389         20,779,754        13,369,811        13,386,421
   Construction, income-producing property .....        8,752,580          8,725,587         6,085,230         6,085,240
                                                    --------------------------------------------------------------------
     Total real estate loans ...................      428,138,000        427,937,123       394,527,164       396,124,507
Consumer loans .................................      120,125,790        120,641,042        82,762,062        82,893,129
Commercial loans ...............................       87,322,444         87,232,056        55,124,442        54,701,144
                                                    --------------------------------------------------------------------
                                                      635,586,234        635,810,221       532,413,668       533,718,780
Less:
   Unearned discounts ..........................           59,339               --             197,669              --
   Undisbursed portion of loan proceeds ........        7,829,987          7,829,987         3,932,784         3,932,784
   Net deferred loan fees and costs ............       (1,344,617)              --          (1,064,813)             --
                                                    --------------------------------------------------------------------
     Loans receivable ..........................      629,041,525        627,980,234       529,348,028       529,785,996
   Allowance for loan losses ...................        7,457,791               --           6,655,071              --
                                                    --------------------------------------------------------------------
     Loans receivable, net .....................    $ 621,583,734      $ 627,980,234     $ 522,692,957     $ 529,785,996
                                                    ====================================================================
Weighted-average interest rate .................             8.45%                                8.56%
                                                    ====================================================================
</TABLE>

Credit is extended based on an evaluation of the borrower's financial condition,
the value of the collateral,  and in the case of income-producing  property, the
sufficiency  of net cash flows from the  property's  operation to service  debt.
When loans are made to businesses,  personal  guarantees may also be required of
major shareholders or partners.

<PAGE>
Loans collateralized by income-producing
property are used in the following industries:
<TABLE>
<CAPTION>
                                                                               December 31,
                                             -----------------------------------------------------------------------------
                                                             1996                                        1995
                                             -----------------------------------------------------------------------------
Dollars in thousands (000s)                  Recourse    Non-recourse      Total        Recourse     Non-recourse    Total
                                             --------    ------------   --------        --------     ------------    -----
<S>                                          <C>           <C>          <C>             <C>           <C>          <C>
Land development                             $ 5,139           --       $  5,139        $ 3,662       $   --       $ 3,662
Hotels/motels                                 16,906          3,117       20,023         11,750         4,130       15,880
Multi-family apartments                       23,858         10,606       34,464         13,264         9,617       22,881
Shopping centers                               2,920          6,644        9,564          2,090         7,952       10,042
Nursing homes                                  7,902           --          7,902          6,237           --         6,237
Office/warehouse                              17,260            236       17,496          9,246         2,138       11,384
Mobile home parks                              9,666           --          9,666         15,180            --       15,180
Medical/professional                           3,922             21        3,943          4,189            83        4,272
                                             -------       --------     --------        -------       -------      -------
                                             $87,573       $ 20,624     $108,197        $65,618       $23,920      $89,538
                                             =======       ========     ========        =======       =======      =======

</TABLE>
Loans collateralized by income-producing property
categorized by state consist of the following:

<TABLE>
<CAPTION>
                                                                               December 31,
                                             -----------------------------------------------------------------------------
                                                             1996                                        1995
Dollars in thousands (000s)                  Recourse    Non-recourse      Total        Recourse     Non-recourse    Total
                                             --------    ------------   --------        --------     ------------    -----
<S>                                          <C>           <C>          <C>             <C>           <C>          <C>
Indiana                                     $65,357        $ 11,651     $ 77,008        $47,570      $12,954       $60,524
Illinois                                      6,782             682        7,464          4,525          692         5,217
Michigan                                      9,325           3,434       12,759          7,865        3,464        11,329
Kentucky                                        860            --            860            887           --           887
Georgia                                         952           2,769        3,721          2,300        2,749         5,049
Florida                                       1,339           1,630        2,969            143        2,896         3,039
Ohio                                            970             458        1,428            301        1,165         1,466
Others                                        1,988            --          1,988          2,027          --          2,027
                                             -------       --------     --------        -------       -------      -------
                                            $87,573        $ 20,624     $108,197        $65,618      $23,920       $89,538
                                            =======        ========     ========        =======      =======       =======
</TABLE>
<PAGE>
                     Note D -- Loans Receivable, continued

Changes in the allowance for loan losses
are as follows:
<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                        -------------------------------------------
                                            1996            1995            1994
                                        -----------     -----------     -----------
<S>                                     <C>             <C>             <C>
Balance at beginning of year .......    $ 6,655,071     $ 6,100,951     $ 5,355,599

Acquired from NCB Corporation ......           --           756,611            --
Acquired from American Bancorp, Inc.           --              --           655,159
Provision for losses ...............      1,115,000         176,967         178,822
Charge-offs ........................       (443,822)       (455,499)       (180,386)
Recoveries .........................        131,542          76,041          91,757
                                        -----------     -----------     -----------
   Balance at end of year ..........    $ 7,457,791     $ 6,655,071     $ 6,100,951
                                        ===========     ===========     ===========
</TABLE>
Charge-offs  include  allowances for losses at the time loans are foreclosed and
transferred to real estate owned.  At December 31, 1996,  1995, and 1994,  loans
serviced for others were $146.0  million,  $125.0  million,  and $144.2 million,
respectively.  At December 31, 1996,  the Bank had  commitments to originate and
purchase loans of approximately  $28.9 million,  of which $4.7 million had fixed
interest  rates  and  available,  but  unfunded  lines of credit  totaled  $19.9
million.  At December 31, 1995,  commitments  to  originate  and purchase  loans
approximated  $27.1 million of which $3.9 million had fixed  interest  rates and
available, but unfunded lines of credit totaled $27.6 million. The Bank uses the
same  credit  policies in making  commitments  as it does for  on-balance  sheet
instruments.  The  Corporation  had loans  outstanding  of $6.6 million and $4.8
million at December 31, 1996 and 1995, respectively,  to developments in which a
subsidiary of the Corporation is a limited  partner.  These loans are secured by
multi-family housing projects.

                   Note E -- Office Properties and Equipment

The following is a summary of office
properties and equipment accounts:
<TABLE>
<CAPTION>
                                Estimated Useful                 December 31,
                                  (in years)            1996                    1995
                                  ----------            ----                    ----
<S>                                  <C>            <C>                     <C>
Cost:
   Land                                --           $ 2,253,318             $ 2,223,864
   Building                          29.0            10,559,205              10,103,183
   Parking lot improvements          10.0               194,172                 194,172
   Furniture and fixtures             6.4             9,462,394              10,691,293
                                     ----           -----------             -----------
                                                     22,469,089              23,212,512
Less allowances for depreciation                     11,992,478              12,292,897
                                                    -----------             -----------
                                                    $10,476,611             $10,919,615
                                                    ===========             ===========
</TABLE>
<PAGE>
Depreciation expense was $1,300,487, $1,268,510, and $867,168 for 1996, 1995 and
1994, respectively.

                               Note F -- Deposits
<TABLE>
<CAPTION>
                                                                                   December 31,
                                                   -------------------------------------------------------------------------------
                                                   Weighted-Average   Carrying        Fair           Carrying            Fair
Deposits at December 31, 1996                       Interest Rate      Amount         Value           Amount             Value
and 1995 consist of the following:                  1996    1995        1996          1996             1995               1995
                                                   -------------------------------------------------------------------------------
<S>                                                <C>     <C>     <C>            <C>               <C>               <C>
Negotiable order of withdrawal (NOW accounts)       2.13%  2.11%   $ 53,459,320   $ 53,459,320      $ 55,148,995      $ 55,148,995
Non-interest bearing ........................         --     --      31,685,860     31,685,860        28,260,577        28,260,577
Passbook savings ............................       3.13   2.93      55,966,713     55,966,713        43,914,645        43,914,645
Money market accounts
   Demand ...................................       4.96   2.86      24,011,992     24,011,992         3,658,104         3,658,104
   Prestige/Savers Edge statement accounts ..       2.86   2.87      58,798,241     58,798,241        78,027,449        78,027,449
                                                    ----   ----    ------------   ------------      ------------      ------------
     Total non-certificate accounts .........                       223,922,126    223,922,126       209,009,770       209,009,770
Certificates ................................       5.71   5.69     251,703,615    251,805,927       237,425,096       238,809,995
Individual retirement accounts ..............       5.87   5.89      52,192,693     52,225,283        53,299,470        53,649,676
Negotiated interest rate certificates .......       5.42   5.48      38,639,494     38,656,921        30,802,550        30,824,850
                                                    ----   ----    ------------   ------------      ------------      ------------
     Total certificate accounts .............                       342,535,802    342,688,131       321,527,116       323,284,521
Accrued interest payable ....................                         2,620,067      2,620,067         2,359,039         2,359,039
                                                    ----   ----    ------------   ------------      ------------      ------------
                                                    4.47%  4.36%   $569,077,995   $569,077,995      $532,895,925      $534,653,330
                                                    ====   ====    ============   ============      ============      ============
</TABLE>

The scheduled maturities of
certificate accounts are as follows:
<TABLE>
<CAPTION>

                                                       December 31,
                                                       ------------
                                                           1996
                                                       ------------
<S>                                                    <C>
Within one year                                        $268,291,963
From one to two years                                    51,656,917
From two to three years                                   9,825,020
From three to four years                                  4,774,069
From four to five years                                   3,497,894
After five years                                          4,489,939
                                                       ------------
                                                       $342,535,802
                                                       ============
</TABLE>
<PAGE>
                         Note F -- Deposits, continued


Interest expense on deposits
consists of the following:
<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                 -----------------------------------------------
                                     1996              1995              1994
                                 -----------       -----------       -----------
<S>                              <C>               <C>               <C>
NOW accounts .............       $ 1,086,625       $ 1,079,320       $   765,244
Passbooks ................         1,620,929         1,331,900           736,295
Money market accounts ....         2,396,920         2,618,860         3,486,369
Certificate accounts .....        19,333,980        17,392,997        11,491,653
                                 -----------       -----------       -----------
                                 $24,438,454       $22,423,077       $16,479,561
                                 ===========       ===========       ===========
</TABLE>

At December 31, 1996, the Bank had 512 deposit accounts, or approximately $115.9
million, with balances greater than $100,000. At December 31, 1995, the Bank had
440 deposit accounts, or approximately $94.4 million, with balances greater than
$100,000.

         Note G -- Federal Home Loan Bank Advances and Other Borrowings

Borrowings at December 31, 1996
and 1995, consist of the following:
<TABLE>
<CAPTION>
                                                      Weighted-
                                                       Average
                                         Year of       Interest         Carrying         Fair         Carrying          Fair
                                        Maturity         Rate            Amount          Value         Amount           Value
                                        ---------------------------------------------------------------------------------------
                                                    1996     1995         1996           1996           1995            1995
                                        ----------  ----     ----     ------------   ------------   ------------   ------------
<S>                                      <C>        <C>      <C>      <C>            <C>            <C>            <C>
Federal Home Loan Bank
of Indianapolis:
                                         1996        --      5.88%    $     --       $      --      $ 75,182,530   $ 75,242,460
                                         1997       5.92%    5.96%     135,246,158    135,259,683     14,246,158     14,292,069
                                         1998       5.92%    5.71%      22,750,963     22,684,985     14,450,999     14,450,049
                                         1999       6.74%    6.73%       5,074,913      5,129,722         74,913         78,254
                                         2000/2003  6.73%    6.73%         393,441        395,448        393,441        410,988
                                         --------------------------------------------------------------------------------------
                                                                       163,465,475    163,469,838    104,348,041    104,473,820

Reverse repurchase agreements            1996        --      5.39%          --              --         9,407,500      9,407,500
                                         1997       5.60%     --         9,131,250      9,131,250          --             --

Guaranteed ESOP obligation-- Note J                                        203,096        203,096        349,934        349,934

Federal funds purchased                  1997       7.31%    --         20,000,000     20,000,000          --             --
                                         --------------------------------------------------------------------------------------
Total Advances and Other Borrowings                 6.08%    5.83%    $192,799,821   $192,804,184   $114,105,475   $114,231,254
                                        =======================================================================================
</TABLE>
<PAGE>
The Bank is required to maintain  qualifying  loans in its portfolio of at least
170% of  outstanding  advances as collateral  for advances from the Federal Home
Loan  Bank of  Indianapolis.  The  required  amount at  December  31,  1996,  is
approximately  $278,000,000.  In  addition,  Federal  Home  Loan  Bank  stock is
assigned  as  collateral  on such  advances.  The  Bank  enters  into  sales  of
securities with agreements to repurchase  (reverse  repurchase  agreements) that
are treated as financings. Outstanding reverse repurchase agreements at December
31, 1996, totaled $9.1 million.  The collateral for these borrowings at December
31, 1996, was U.S.  Government  securities  with an aggregate  amortized cost of
$9.2 million and market value of $9.1 million.  The  securities  underlying  the
agreements  are  delivered  to the dealers that  arrange the  transactions.  The
dealers  agree to resell to the Bank the same  securities at the maturity of the
agreements. All agreements are transacted with dealers considered to be "primary
dealers." The highest month-end balances of reverse  repurchase  agreements were
$27.8  million,  $53.0  million  and  $52.3  million  for  1996,  1995 and 1994,
respectively.  The average outstanding balances of reverse repurchase agreements
were $11.4  million,  $18.0 million and $25.6  million for 1996,  1995 and 1994,
respectively.


                             Note H -- Income Taxes

The Bank has qualified under provisions of the Internal Revenue Code that permit
it to deduct from taxable  income an  allowance  for bad debts that differs from
the provision for such losses charged to income. Accordingly,  the Bank has base
year tax reserves of approximately $9,210,000 for which no provision for federal
income taxes has been made. If, in the future, this portion of retained earnings
is used for any  purpose  other than to absorb bad debt  losses,  or if the Bank
fails to meet the tax requirements to qualify as a savings and loan institution,
federal  income taxes may be imposed at the then  applicable  rates.  If federal
income  taxes had been  provided,  the deferred  tax  liability  would have been
approximately $3,223,500.
<PAGE>
                        Note H -- Income Taxes, continued

The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
                                  1996                1995               1994
                             -----------         -----------         -----------
<S>                          <C>                 <C>                 <C>
Current:
Federal .............        $ 1,465,572         $ 1,601,897         $ 1,595,725
State ...............            639,941             782,119             781,428
Deferred ............           (944,813)            (66,155)            689,204
                             -----------         -----------         -----------
                             $ 1,160,700         $ 2,317,861         $ 3,066,357
                             ===========         ===========         ===========

</TABLE>
A  reconciliation  of the  statutory  federal  income tax rate to the  effective
income tax rate is as follows:

<TABLE>
<CAPTION>
                                         1996            1995         1994
                                        -----           ------       -----
<S>                                      <C>             <C>         <C>
Statutory rate .....................     35.0%           35.0%        35.0%
Increase (decrease) in income
   tax resulting from:
Low income housing credit ..........    (19.7)           (8.0)
Tax exempt interest on
   earning assets ..................     (1.5)           (1.0)        (1.0)
State taxes ........................      6.2             5.4          5.8
Other ..............................      0.1            (3.3)        (2.1)
                                       ------           -----         ----
Effective rate .....................     20.1%           24.1%        29.7%
                                       ======           =====        =====

</TABLE>
<PAGE>
Significant  components of the deferred tax  liabilities  and assets at December
31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
                                                            1996            1995
                                                       -----------     -----------
<S>                                                    <C>             <C>
Deferred tax liabilities:
   Loan fees deferred for income tax
     purposes .....................................    $ 1,104,268     $ 1,161,191
   Depreciation ...................................        600,077         563,568
   Stock dividends on FHLB stock ..................        255,850         238,452
   Available-for-sale securities adjustment .......        236,161         511,173
   Accrued interest on mortgage loans .............         93,849         106,930
   Excess of tax accumulated provision
     for losses over base year ....................        131,015          41,762
   Deposit base intangible ........................        822,061         918,355
   Other ..........................................        580,938         492,432
                                                       -----------     -----------
                                                       $ 3,824,219     $ 4,033,863
Deferred tax assets:
   General valuation reserves .....................      2,769,478       2,275,529
   Net operating loss carry forward and tax credits        825,795         440,316
   Other, net .....................................      1,398,989       1,268,236
                                                       -----------     -----------
                                                         4,994,262       3,984,081
                                                       -----------     -----------
Net deferred (asset) liability ....................    ($1,170,043)    $    49,782
                                                       ===========     ===========
</TABLE>
Current and deferred income taxes consists of the following:
<TABLE>
<CAPTION>
                                                       1996              1995
                                                  -----------       -----------
<S>                                               <C>               <C>
Income taxes currently
   (receivable) payable ....................      $    57,981       ($  521,712)
Deferred income tax (asset) liability ......       (1,170,043)           49,782
                                                   ==========            ======
</TABLE>
Deferred  income taxes result from temporary  differences in the basis of assets
and liabilities for financial reporting and income taxes.
<PAGE>
The source of these temporary  differences and their resulting  effect on income
tax expense are as follows:
<TABLE>
<CAPTION>
                                             1996          1995          1994
                                          ---------     ---------     ---------
<S>                                       <C>           <C>           <C>

General valuation allowance ..........    ($493,949)    ($433,119     $   3,456
Excess of tax accumulated
   provision for losses
   over base year ....................       89,253      (394,863)      123,864
Purchase accounting adjustments ......         --         585,953          --
Loan fees deferred for income
   tax purposes ......................      (56,923)     (158,448)      331,377
Depreciation .........................       36,509        87,081       281,306
Other, net ...........................     (519,703)      247,241       (50,799)
                                          ---------     ---------     ---------
                                          ($944,813)    ($ 66,155)    $ 689,204
                                          =========     =========     =========
</TABLE>

             Note I -- Shareholders' Equity and Regulatory Capital

     The Bank is subject to various regulatory capital requirements administered
by the federal regulatory agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly  additional--discretionary  actions
by regulators  that, if undertaken,  could have a direct  material effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital guidelines that involve  quantitative  measures of assets,  liabilities,
and certain  off-balance  sheet items as calculated under regulatory  accounting
practices.  The Bank's capital  amounts and  classification  are also subject to
qualitative judgments by the regulators about components,  risk weightings,  and
other factors.
<PAGE>
                   Note I -- Shareholders' Equity, continued

     Quantitative  measures established by regulation to ensure capital adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below) of core, tangible,  and risk-based capital.  Management believes that, as
of December 31, 1996, the Bank meets all capital adequacy  requirements to which
it is subject.

     As of December 31, 1996,  the most recent  notification  from the Office of
Thrift  Supervision  categorized  the Bank as adequately  capitalized  under the
regulatory  framework  for  prompt  corrective  action.  To  be  categorized  as
adequately  capitalized,  the Bank must  maintain  minimum  core,  tangible  and
risk-based  capital  ratios as set forth in the table.  No  conditions or events
have occured since that notification  that management  believes have changed the
institution's category.

     The Bank's  actual  capital  amounts and ratios are also  presented  in the
table.  No amount was  required to be deducted  from  capital for  interest-rate
risk.

Shareholders' Rights Plan

On February 26, 1992,  the  Corporation  declared a  distribution  of one common
stock  purchase  right  for  each  share  of  the  Corporation's   common  stock
outstanding on March 6, 1992. Each right would initially entitle the shareholder
to purchase one share of the Corporation's  common stock at an exercise price of
$30.00  per  share,  subject  to  adjustment.   The  rights  are  not  currently
exercisable,  but would become exercisable if certain events occurred related to
a person or group ("Acquiring Person") acquiring or attempting to acquire 10% or
more of the  outstanding  shares of common  stock.  In the event that the rights
become  exercisable,  each right  (except for rights  beneficially  owned by the
Acquiring  Person,  which  become  null and void)  would  entitle  the holder to
purchase,  for the exercise  price then in effect,  shares of the  Corporation's
common  stock  having a value of twice the  exercise  price.  The  rights may be
redeemed by the Board of Directors in whole, but not in part, at a price of $.01
per right. The rights have no voting or dividend privileges and are attached to,
and do not trade  separately  from,  the common stock.  In  connection  with the
proposed merger with Pinnacle, the Corporation intends to redeem the rights at a
price of $.01 per right or approximately $50,000.
<TABLE>
<CAPTION>
                                                                                 To Be Well-Capitalized
                                                                                      Under Prompt
                                                    For Capital Adequacy           Corrective Action
                              Actual                             Purposes              Provisions
                       ---------------------------------------------------------------------------------
                         Amount     Percent         Amount       Percent           Amount       Percent
                       -----------  -------       -----------    -------         -----------    -------
<S>                    <C>          <C>           <C>             <C>            <C>              <C>
At Dec. 31, 1996:
   Risk-based          $55,594,427   9.78%        $45,464,897     8.00%          $56,816,121      10.00%
   Core                $49,443,445   6.01%        $24,665,142     3.00%          $41,108,570       5.00%
   Tangible            $49,443,445   6.01%        $12,232,571     1.50%          $20,554,285       2.50%

At. Dec. 31, 1995
   Risk-based          $58,849,581  12.97%        $36,322,960     8.00%          $45,403,700      10.00%
   Core                $53,416,120   7.48%        $21,414,630     3.00%          $35,691,050       5.00%
   Tangible            $48,255,481   6.81%        $10,617,705     1.50%          $17,696,175       2.50%
</TABLE>
<PAGE>
                           Note J -- Stock Option Plan


     The Corporation has elected to follow  Accounting  Principles Board Opinion
No.  25,  "Accounting  for Stock  Issued  to  Employees,"  (APB 25) and  related
interpretations  in  accounting  for its  employee  stock  options  because,  as
discussed below,  the alternative fair value accounting  provided for under SFAS
No. 123,  "Accounting  for  Stock-Based  Compensation,"  requires  use of option
valuation  models  that were not  developed  for use in valuing  employee  stock
options.  Under APB 25, because the exercise price of the Corporation's employee
stock  options  equals the market price of the  underlying  stock on the date of
grant, no compensation expense is recognized.

     The  Corporation's  stock option plan has authorized the grant of incentive
and  non-qualified  stock  options  to  certain  directors,  officers,  and  key
employees.  At December  31,  1996,  there were  275,946  shares of common stock
available for future grant or award.  All options granted have 10 year terms and
vest and become fully  exercisable over a 5 year period from the grant date.
<PAGE>
     Pro forma  information  regarding  net  income  and  earnings  per share is
required by SFAS 123, which also requires that the  information be determined as
if the  Corporation  has  accounted  for  its  employee  stock  options  granted
subsequent  to December 31, 1994 under the fair value method of that  Statement.
The fair value for these  options  was  estimated  at the date of grant  using a
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions for 1995 and 1996, respectively:  risk-free interest rate of 6.5%; a
dividend yield of 3.75%;  volatility factors of the expected market price of the
Corporation's common stock of .216%; and a weighted-average expected life of the
option of 7 years.

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating  the fair value of traded  options that have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  the  Corporation's  stock  options  have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
options  is  amortized  to  expense  over  the  options'  vesting  period.   The
Corporation's  pro forma  information  follows (in thousands except for earnings
per share information):
<TABLE>
<CAPTION>
                              1996              1995
                          ----------         ----------
<S>                       <C>                <C>
  Pro forma net income    $4,573,879         $7,303,890
  Pro forma earnings
   per share              $     0.95         $     1.51
</TABLE>
   Because  Statement 123 is applicable  only to options  granted  subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 2000.
<PAGE>
A summary of the Corporation's  stock options activity,  and related information
for the years ended December 31, follows:
<TABLE>
<CAPTION>
                                                1996                         1995                         1994
                                        ------------------------------------------------------------------------------------
                                                  Weighted-Average             Weighted-Average             Weighted-Average
                                        Options    Exercise Price     Options   Exercise Price    Options    Exercise Price
                                        -------   ----------------    -------  ---------------   --------   ----------------
<S>                                     <C>           <C>             <C>          <C>            <C>          <C>
Outstanding--beginning of
     year                               257,014       $12.20          303,316      $15.35         332,463      $ 6.80
Granted                                  50,500        20.54           82,025       16.66          76,248       16.49
Exercised                                54,584         5.52           88,810        6.41          95,456        5.84
Forfeited                                11,441        14.33           39,517       12.43           9,939       13.20
                                        ------------------------------------------------------------------------------------
Outstanding--end of year                241,489       $15.35          257,014      $12.20         303,316      $ 9.33
                                        ------------------------------------------------------------------------------------

Exercisable at end of year              147,740       $13.62          160,661      $10.52         147,740      $13.62

Weighted-average fair value
     of options granted during
     the year                                         $ 4.83                       $ 3.92
                                        ====================================================================================
</TABLE>



Exercise  prices for options  outstanding  as of December 31, 1996,  ranged from
$4.625 to  $21.00.  The  weighted-average  remaining  contractual  life of those
options is 7.1 years.
<PAGE>
                           Note K -- Retirement Plans


     The Corporation  has established a leveraged  Employee Stock Ownership Plan
("ESOP") in which all employees who attain minimum age and service  requirements
are eligible to participate.  The Corporation is to make contributions on behalf
of each  participant  at the  rate of 1  percent  of  such  participant's  total
compensation.  The Board of Directors may authorize additional  contributions at
its discretion.  The  Corporation  recorded  expenses  related to these plans of
$278,000,  $407,000,  and $402,000 for the years ended December 31, 1996,  1995,
1994, respectively. The Corporation's 1996 contribution to the ESOP was $350,350
compared to $382,628 in 1995 and $362,093 in 1994.  The ESOP entered into a loan
agreement to borrow up to $1,200,000 from an unrelated financial  institution to
purchase shares of common stock in the open market.  The loan is unconditionally
guaranteed by the Corporation and an equivalent  amount,  which is comparable to
unearned compensation, is shown as a deduction of shareholders' equity. Both the
liability  and the  amount of  shareholders'  equity  will be  reduced  in equal
amounts as the ESOP  repays the  borrowing.  The ESOP will repay the loan,  plus
interest, over a ten-year period using Corporation contributions.

     At  December  31,  1996 and 1995,  the  outstanding  ESOP loan  balance was
$203,096 and  $349,934,  respectively.  The  interest  incurred on the ESOP loan
amounted to $18,950 in 1996,  $31,250 in 1995,  and  $29,848 in 1994.  Dividends
earned on unallocated shares are used to purchase additional shares of stock for
the ESOP. Dividends paid on the unallocated ESOP shares totaled $45,519 in 1996,
$50,023 in 1995,  and  $53,780 in 1994.  The table  below  summarizes  shares of
Corporation Stock held by the ESOP.
<TABLE>
<CAPTION>
                                                               December 31,
                                                        ------------------------
                                                          1996           1995
                                                        -------        ---------
<S>                                                     <C>             <C>
Shares allocated to participants ...............         185,171         168,396
Unallocated shares:
   Grandfathered under SOP 93-6 ................          10,672          31,507
   Unearned ESOP shares ........................          29,706          24,004
                                                        --------        --------
     Total .....................................         225,549         223,907
                                                        ========        ========
   Fair value of unearned ESOP shares ..........        $664,671        $510,085
                                                        ========        ========
</TABLE>
     The  Corporation  sponsors a  stock-based  deferred  compensation  plan for
directors,  in which directors can defer fees and purchase  phantom units on the
Corporation's  common stock at $11.63.  The amount charged to expense related to
this  plan was  $156,839,  $162,199,  and  $54,198  in  1996,  1995,  and  1994,
respectively.  At December 31, 1996, the directors had purchased  31,894 phantom
units of which 8,903 were  purchased  in 1996.  The  Corporation  has  purchased
corporate-owned life insurance to partially fund its obligation under this plan.
The Corporation has a supplemental  executive retirement plan for certain senior
executives. The plan provides for a retirement benefit based on years of service
and  compensation  levels.  The Corporation has purchased  corporate-owned  life
insurance  to  partially  fund its  obligation  under  this  plan.  The  expense
recognized in 1996 totaled $230,000  compared to $25,000 in 1995 and $105,000 in
1994.
<PAGE>
                   Note L -- Quarterly Results of Operations

<TABLE>
<CAPTION>
                                                1996                                                      1995
                       -------------------------------------------------------------------------------------------------------------
                                         Three Months Ended                                       Three Months Ended
(unaudited)               Dec. 31      Sept. 30        June 30       March 31       Dec. 31     Sept. 30      June 30      March 31
                       ------------------------------------------------------   ----------------------------------------------------
<S>                    <C>           <C>            <C>           <C>           <C>           <C>          <C>           <C>
Interest income .......$15,458,198   $14,545,647    $13,498,320   $13,357,016   $13,961,413   $13,649,808  $13,840,792   $13,718,202
Interest expense ......  8,919,750     8,134,904      7,494,116     7,310,911     7,590,639     7,445,388    7,518,574     7,385,932
                       -------------------------------------------------------------------------------------------------------------
Net interest income ...  6,538,448     6,410,743      6,004,204     6,046,105     6,370,774     6,204,420    6,322,218     6,332,270
Provision for
 loan losses...........     650,000       265,000        150,000        50,000          --           2,357       30,459      144,151
Other income ..........  1,404,681     1,069,504        826,369     1,049,534     1,365,746       942,407    1,716,444       654,565
Other expense .........  5,298,292     7,405,268      4,884,901     4,862,902     5,697,768     4,895,189    4,767,007     4,749,762
                       -------------------------------------------------------------------------------------------------------------
Income (loss) before
 income taxes..........  1,994,837      (190,021)     1,795,672     2,182,737     2,038,752     2,249,281    3,241,196     2,092,922
Income taxes ..........    573,700      (384,700)       425,600       546,100       182,216       571,260    1,012,315       552,070
                       -------------------------------------------------------------------------------------------------------------
Net income ............$ 1,421,137   $   194,679    $ 1,370,072   $ 1,636,637   $ 1,856,536   $ 1,678,021   $2,228,881   $ 1,540,852
                       =============================================================================================================
Net earnings per share $      0.29   $      0.04    $      0.29   $      0.34   $      0.39   $      0.34   $     0.46   $      0.32
Dividends per share ...$      0.18   $      0.18    $      0.18   $      0.28   $     0.165   $     0.165   $    0.165   $     0.365
                       =============================================================================================================
</TABLE>

During the third quarter of 1996,  the  Corporation  recognized  $2.8 million of
other  expense (.36 per share after tax effect) due to the  recapitalization  of
the SAIF.  During the fourth quarter of 1995, the provision for income taxes was
reduced by $309,000  ($.07 per share) due to additional  low-to-moderate  income
housing credits.
<PAGE>
                   Note M -- Condensed Financial Information


(Parent company only):
<TABLE>
<CAPTION>
                                                                  December 31,
                                                        ----------------------------
                                                             1996             1995
                                                        ------------    ------------
<S>                                                     <C>             <C>
Statements of Condition
Assets:
Cash and cash equivalents ...........................   $  4,489,118    $  1,911,553
Dividend receivable from Indiana Federal Bank .......           --         3,727,205
Note receivable from IndFed Mortgage Company ........        950,000         950,000
Investment in Forrest Holdings, Inc. ................      2,500,000            --
Equity in net assets of Indiana Federal Bank ........     54,375,624      54,195,463
Equity in net assets of IndFed Mortgage Company .....      8,091,757       9,738,074
Equity in net assets of IFB Investment Services, Inc.        323,999         100,000
Other assets ........................................      1,280,783         548,418
                                                        ------------    ------------
                                                        $ 72,011,281    $ 71,170,713
                                                        ============    ============

Liabilities and Shareholders' Equity:
Other liabilities ...................................   $    645,001    $    440,537
Common stock ........................................         58,785          58,239
Additional paid-in capital ..........................     27,729,839      27,428,077
Unrealized gains on available-for-sale securities ...        360,055         779,343
Retained earnings ...................................     52,174,772      51,443,400
Treasury stock at cost ..............................     (8,754,075)     (8,628,949)
Guaranteed ESOP obligation ..........................       (203,096)       (349,934)
                                                        ------------    ------------
                                                        $ 72,011,281    $ 71,170,713
                                                        ============    ============
<PAGE>
<CAPTION>
                                                                                  Years ended December 31,
                                                                      --------------------------------------------
                                                                           1996            1995            1994
                                                                      --------------------------------------------
<S>                                                                   <C>             <C>             <C>
Statements of Income
Equity in earnings of subsidiaries ................................   $  4,819,850    $  7,638,468    $  7,646,392
Other income ......................................................        300,843         134,510          55,451
                                                                      ------------    ------------    ------------
Total income ......................................................      5,120,693       7,772,978       7,701,843
Miscellaneous operating expenses ..................................        611,368         684,938         634,226
Federal income tax benefit ........................................       (113,200)       (216,250)       (194,658)
                                                                      ------------    ------------    ------------
Total expense .....................................................        498,168         468,688         439,568
                                                                      ------------    ------------    ------------
Net income ........................................................   $  4,622,525    $  7,304,290    $  7,262,275
                                                                      ============    ============    ============
Earnings per share ................................................   $       0.96    $       1.51    $       1.50
                                                                      ============    ============    ============

Statements of Cash Flow
Operating activities:
Net income ........................................................   $  4,622,525    $  7,304,290    $  7,262,275
Adjustments to reconcile net income to net cash used
   by operating activities:
   Equity in earnings of subsidiaries .............................     (4,819,850)     (7,638,468)     (7,646,392)
   Net change in other assets and liabilities .....................       (381,063)       (230,616)        (65,169)
                                                                      ------------    ------------    ------------
Net cash used by operating activities .............................       (578,388)       (564,794)       (449,286)
Investing activities:
Contribution of cash of Norcen Bank to Indiana Federal Bank .......           --        (1,312,904)           --
Payment for purchase of Norcen Bank, net of cash acquired .........           --        (6,440,229)           --
Payment for purchase of American Bancorp, Inc., net
   of cash acquired ...............................................           --              --         5,170,054
Contribution of cash of American State Bank to Indiana Federal Bank           --              --
                                                                                                       (11,905,055)
Purchases of treasury shares at cost ..............................       (125,126)       (400,184)     (1,534,421)
Dividends received ................................................      9,469,924      14,839,785      11,927,699
                                                                      ------------    ------------    ------------
Net cash provided by investing activities .........................      9,344,798       6,686,468       3,658,277
Financing activities:
Borrow funds to IndFed Mortgage Company ...........................           --          (950,000)           --
Purchase preferred stock of Forrest Holdings, Inc. ................     (2,500,000)           --              --
Purchase common stock of IFB Investment Services, Inc. ............           --          (100,000)           --
Capital contribution to IFB Investment Services, Inc. .............       (100,000)           --              --
Purchase common stock of IndFed Mortgage Company ..................           --        (1,000,000)           --
Net proceeds from sale of stock ...................................        302,308         569,280         551,186
Cash dividends and other financing activities .....................     (3,891,153)     (4,036,030)     (3,384,815)
                                                                      ------------    ------------    ------------
Net cash used by financing activities .............................     (6,188,845)     (5,516,750)     (2,833,629)
                                                                      ------------    ------------    ------------
Increase in cash and cash equivalents .............................      2,577,565         604,924         375,362
Cash and cash equivalents at beginning of year ....................      1,911,553       1,306,629         931,267
                                                                      ------------    ------------    ------------
Cash and cash equivalents at end of year ..........................   $  4,489,118    $  1,911,553    $  1,306,629
                                                                      ============    ============    ============
</TABLE>
<PAGE>
                 Note N -- Fair Value of Financial Instruments


     SFAS No. 107,  "Disclosures  about Fair Values of  Financial  Instruments,"
requires disclosure of information about the fair value of financial instruments
for which it is  practicable  to estimate a value,  whether or not recognized in
the Statement of Condition. Whenever possible, quoted market prices were used to
develop fair values. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly  affected by the assumptions used,  including
the discount rate and estimates of future cash flows.  Therefore,  in many cases
the  estimated  fair  values may not be  realized  in an  immediate  sale of the
instruments.

     SFAS No. 107 excludes  certain  financial  instruments and all nonfinancial
instruments from its disclosure requirements.  Accordingly, the aggregate of the
estimated fair value amounts is not intended to represent the  underlying  value
of the Corporation.

     The carrying amounts and the estimated fair values are as follows:


<TABLE>
<CAPTION>
                                                    December 31, 1996                 December 31, 1995
                                            -------------------------------    -------------------------------
                                              Carrying          Estimated        Carrying           Estimated
                                               Amount          Fair Value         Amount           Fair Value
                                            ------------       ------------    ------------       ------------
<S>                                         <C>                <C>             <C>                <C>
Assets:
   Cash and cash equivalents                $ 25,886,539       $ 25,886,539    $ 28,447,952       $ 28,447,952
   Investment and mortgage-
     backed securities (Note C)              129,713,776        129,713,776      99,410,236         99,410,236
   Loans held for sale                         1,969,697          1,976,175      16,044,609         16,319,939
   Accrued interest receivable                 5,558,283          5,558,283       5,005,115          5,005,115
   FHLB Stock                                  8,173,300          8,173,300       7,739,700          7,739,700
   Loans receivable                          621,583,734        627,980,234     522,692,957        529,785,995
                                            ------------       ------------    ------------       ------------
Total asset financial instruments           $792,885,329       $799,288,307    $679,340,569       $686,708,937
                                            ============       ============    ============       ============
Liabilities:
   Deposits (Note F)                        $569,077,995       $569,230,324    $532,895,925       $534,653,329
   Federal Home Loan Bank advances
     and other borrowings (Note G)           192,799,821        192,804,184     114,105,475        114,231,254
   Advanced payments (escrows)                 1,175,407          1,175,407       1,409,051          1,409,051
   Interest Payable                              412,983            412,983         315,918            315,918
                                            ------------       ------------    ------------       ------------
Total liability financial instruments       $763,466,206       $763,622,898    $648,726,369       $650,609,552
                                            ============       ============    ============       ============

</TABLE>
The following  methods and  assumptions  were used by the Bank in estimating its
fair value disclosures for financial instruments:

Cash and Cash Equivalents

The  carrying  amounts  reported  in the  statement  of  condition  for cash and
short-term instruments approximate those assets' fair values.
<PAGE>
            Note N -- Fair Value of Financial Instruments, CONTINUED

Investment and Mortgage-Backed Securities

     Fair values for investment  securities and  mortgage-backed  securities are
based on quoted market prices, where available.  If quoted market prices are not
available,  fair  values  are  based  on  quoted  market  prices  of  comparable
instruments.

Loans Receivable

        For variable-rate  loans that reprice frequently and with no significant
change in credit  risk,  fair  values are based on  carrying  amounts.  The fair
values of conventional one- to four-family  fixed-rate  mortgage loans are based
on quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics.  The fair values
for consumer loans,  income-producing  property loans,  and commercial loans are
estimated using  discounted  cash flow analyses,  using interest rates currently
being  offered  for loans with  similar  terms to  borrowers  of similar  credit
quality. The carrying amount of accrued interest approximates its fair value.

Off-Balance-Sheet Instruments

        The  Bank's  off-balance-sheet  instruments  consist  primarily  of loan
commitments. The fair value for such commitments is nominal.


Deposits

        The fair value disclosed for interest-bearing  and  non-interest-bearing
checking accounts are, by definition,  equal to the carrying amount. Fair values
for fixed-rate  certificates  of deposit are estimated  using a discounted  cash
flow  calculation  that  applies  interest  rates  currently  being  offered  on
certificates  to a schedule of aggregated  expected  monthly  maturities on time
deposits.

Short-Term Borrowings

        The  carrying  amounts  of federal  funds  purchased,  borrowings  under
repurchase  agreements,  and other short-term borrowings  approximate their fair
values.

Long-Term Borrowings

        The fair values of the Bank's advances from the FHLB are estimated using
discounted cash flow analyses, based on the Bank's current incremental borrowing
rates for similar types of borrowing arrangements.
<PAGE>
                             Community Involvement


        Indiana Federal officers, directors, and employees are active at
        many levels of community service and charity. They are presently
          serving as directors, officers, or members of the following:


American Cancer Society
Boy Scouts of America
Boys & Girls Clubs
Building   Industries   Association  of  NW  Indiana
Catholic Family Services
Chesterton  Adult  Learning  Center
Chesterton High School Business Council Advisory Board
Christmas In April
Commitment to Career Success Champions
Community Homebuyers  Corporation Board
Consumer Credit Counseling Service of NW Indiana
CROPWALK -- Porter County
Crown Point Chamber of Commerce
Culver Chamber of Commerce
Culver City Club
Culver Community High School Board
Culver Community Schools Building Trades Program
Culver Union Township Volunteer Fire Department
DECA
Dollars for Scholars
Downtown Valparaiso Business Association
Ducks Unlimited
Duneland Area Chamber of Commerce
Duneland School Corporation Board President
Duneland School Foundation Executive Board
Duneland  YMCA  Board
Entrepreneur  Academy Board
Episcopal  Community  Services of Gary Board
Greater Highland Chamber of Commerce
Greater Knox Area Chamber of Commerce
Greater Merrillville Chamber of Commerce
Greater Munster  Chamber of Commerce
Greater Portage Chamber of Commerce
Greater Valparaiso Chamber of Commerce
Greater Valparaiso Economic Development Commission
Habitat for Humanity
Indiana Builders Association
Indiana School Board Association
Indiana State Veterans Home
Indiana University  National  Public  Affairs  Council
Indiana University NW School of Business Advisory Board
Jay Mints 4-H Club
Junior  Achievement
Kiwanis Club of Chesterton
Kiwanis Club of Culver
Kiwanis Club of Knox
Kiwanis Club of Merrillville
Kiwanis Club of Portage
Kiwanis Club of Valparaiso
Komen Breast Cancer Foundation
<PAGE>
Lake Central High School Band Boosters
Lake County Agricultural Advisory Committee
Lake County Community Development Committee
March of Dimes
Meals On Wheels of Northwest  Indiana,  Inc.,  Board of  Directors
Merrillville Exchange Club
Midwest Bankers Association
Mortgage Bankers Association
Muscular Dystrophy  Association
National Association of Home Builders
National School Boards Association
North Judson Chamber of Commerce
Northern Indiana Board of Realtors
Northwest Indiana Easter Seals
Northwest Indiana Forum
Northwest Indiana Symphony
Opportunity   Enterprises,   Inc.
Pines Village Retirement Community Board
Plymouth Board of Public Works and Safety
Plymouth  Building Trades  Corporation
Plymouth City Council President
Plymouth  Optimist  Club
Portage  Exchange  Club
Portage High School Band Boosters
Portage Township Building Trades
Porter County  Builders  Association
Porter County Community Foundation, Inc., Board
Porter County Special Education Cooperative Board
Pulaski County Farm Bureau Board
Pulaski County Jail Building Corporation Board
Pulaski  Memorial  Hospital Board of Trustees
Purdue University North Central Advisory Board
SACQ, Liberty Middle School Advisory Council
Rotary International
Salvation  Army
South Bend Home  Improvement  Program
South Lake Optimist Club
Starke County Development  Foundation
Starke County 4-H
Starke United, Inc.
The Gary Accord Tradewinds  Rehabilitation  Center, Inc.
Tri Kappa Associates
United Way of Lake County
United Way of Porter County
Valparaiso Community  Development Corporation
Valparaiso Park Foundation
Valparaiso Community University Campaign
Valparaiso  YMCA  Board
V.F.W. Post 988
Visiting  Nurse  Association
Wanatah Conservation Club
West Central High School Athletics
WYIN Channel 56
<PAGE>
                           Indiana Federal Corporation

                               Board Of Directors

                                 Donald A. Lesch
                           Chairman of the Board / CEO
                           Indiana Federal Corporation

                                Peter R. Candela
                        President/Chief Operating Officer
                           Indiana Federal Corporation

                                 James E. Hutton
                          Vice President -- Operations
                         Burrell Professional Labs, Inc.

                                Philip A. Maxwell
                              Self-Employed Farmer

                              John R. Poncher, M.D.
                                  Pediatrician

                                 Byron Smith III
                                    President
                              Smith Ready Mix, Inc.

                               Fred A. Wittlinger
                        President/Chief Executive Officer
                           United Consumers Club, Inc.

                                Barbara A. Young
                                    President
                                 Benchmark Ltd.

                                Joseph C. Durand
                                Chairman Emeritus

<PAGE>

                                    Officers

                                 Donald A. Lesch
                           Chairman of the Board / CEO

                                Peter R. Candela
                        President/Chief Operating Officer

                               George J. Eberhardt
                            Executive Vice President

                                Gary T. Brownlee
                              Senior Vice President

                               Michael J. Griffin
                              Senior Vice President

                                 Terry D. Kimmel
                              Senior Vice President
                               Timothy M. Scannell
                              Senior Vice President

                                Richard C. Simaga
                              Senior Vice President

                              Steven T. Casterline
                            Vice President/Treasurer

                                Dominic M. Fejer
                            Vice President/Controller

                                Brenda A. Sheetz
                               Corporate Secretary

<PAGE>

                IndFed Mortgage Company -- Directors and Officers


                                 Donald A. Lesch
                              Chairman of the Board

                                Richard C. Simaga
                                    President


                                Patrick M. Riley
                                 Vice President

                                 Terry D. Kimmel
                                    Secretary

                               George J. Eberhardt
                                    Treasurer
                                Peter R. Candela
                                    Director

                                 Byron Smith III
                                    Director

<PAGE>

                  Indiana Federal Bank for Savings -- Officers

                                 Donald A. Lesch
                           Chairman of the Board / CEO

                                Peter R. Candela
                        President/Chief Operating Officer

                             Senior Vice Presidents

                                Gary T. Brownlee
                                Mortgage Banking

                               George J. Eberhardt
                             Chief Financial Officer

                               Michael J. Griffin
                             Chief Marketing Officer

                                 Terry D. Kimmel
                        Community Relations / CRA Officer

                               Timothy M. Scannell
                             Trust & Private Banking

                                Richard C. Simaga
                               Commercial Banking

<PAGE>

                                 Vice Presidents

                              Steven T. Casterline

                                 David A. Dodge

                                Dominic M. Fejer

                                Thomas P. Kabrich

                                Kenneth J. Krapf

                               Christian H. Madsen

                                 Kent J. Mishler

                                Eugene R. Novello

                               Terry L. Richardson

                                Patrick M. Riley

                                 Donna E. Scott

                               Jeffrey K. Spencer

                                 Peggy L. Voigt

                                 Janet E. Wilde

                                Kenneth Zagrocki

                                Mark R. Zimmerman


                                Brenda A. Sheetz
                                    Secretary

<PAGE>

                                 IFB Investment
                                 Services, Inc.
                             Directors and Officers

                                 Donald A. Lesch
                              Chairman of the Board

                               Timothy M. Scannell
                                 President / CEO

                                 David M. Kover
                                 Vice President

                               M. Thaddeus Murphy
                                    Secretary

                                 James E. Hutton
                                    Director

                               Fred A. Wittlinger
                                    Director

                              Steven T. Casterline
                                    Director

                                Gary T. Brownlee
                                    Director

                               Michael J. Griffin
                                    Director