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

                                   FORM 10-KSB

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

                  For the fiscal year ended December 31, 1996
                                       OR
[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
         For the transition period from                           to
         Commission file number 0-26012


                         NORTHEAST INDIANA BANCORP, INC.
                 (Name of small business issuer in its charter)


              Delaware                                       35-1948594
(State or other jurisdiction of incorporation              (I.R.S. Employer
 or organization)                                          Identification No.)


648 North Jefferson Street, Huntington, Indiana                  46750
(Address of principal executive offices)                       (Zip Code)


Registrant's telephone number, including area code:  (219) 356-3311

           Securities Registered Pursuant to Section 12(b) of the Act:
                                      None
           Securities Registered Pursuant to Section 12(g) of the Act:
                     Common Stock, par value $0.01 per share
                                (Title of class)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports)  and (2) has been subject to such filing  requirements  for the past 90
days. YES [ X ]   NO [  ]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item  405 of  Regulation  S-B  contained  herein,  and  no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]

         State the  issuer's  revenues for its most recent  fiscal  year:  $12.2
million.
<PAGE>

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant, computed by reference to the average of the bid and ask price
of such stock as of March 17, 1997, was $26.9 million.  (The exclusion from such
amount of the market value of the shares owned by any person shall not be deemed
an  admission  by  the  registrant  that  such  person  is an  affiliate  of the
registrant.)

         As  of  March  17,  1997,   there  were  1,762,727  shares  issued  and
outstanding of the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Parts II and IV of Form 10-KSB - Annual Report to Stockholders  for the
fiscal year ended December 31, 1996.  Part III of Form 10-KSB - Proxy  Statement
for Annual Meeting of Stockholders.
<PAGE>
                                     PART I


Item 1.           Description of Business

General

         The  Company.  Northeast  Indiana  Bancorp  (the  "Company") a Delaware
corporation,  was formed in March,  1995 to act as the holding company for First
Federal Savings Bank (the "Bank" or "First  Federal") upon the completion of the
Bank's  conversion  from the  mutual to the stock form (the  "Conversion").  The
Company received  approval from the Office of Thrift  Supervision (the "OTS") to
acquire all of the common stock of the Bank to be outstanding upon completion of
the Conversion. The Conversion was completed on June 27, 1995. All references to
the Company prior to June 27, 1995, except where otherwise indicated, are to the
Bank.

         At December  31,  1996,  the  Company had $169.5  million of assets and
stockholders' equity of $26.5 million (or 15.63% of total assets).

         The executive offices of the Company are located at 648 North Jefferson
Street,  Huntington,  Indiana 46750, and its telephone number at that address is
(219) 356-3311.

         The  activities  of the  Corporation  itself  have been  limited to its
investment in the Bank, investments in a one-year renewable note receivable from
the  Bank,  interest-bearing  deposits  at  financial  institutions  and a  note
receivable  from the Bank's  Employee Stock  Ownership  Plan.  Unless  otherwise
indicated, all activities discussed below are of the Bank.

         The Bank. The Bank is a federally  chartered stock savings  association
headquartered in Huntington,  Indiana. Its deposits are insured up to applicable
limits,  by the Federal Deposit  Insurance  Corporation  (the "FDIC"),  which is
backed by the full  faith and credit of the United  States.  The Bank's  primary
market area is Huntington County,  Indiana,  which is serviced through its three
full-service offices in Huntington, Indiana.

         The  principal  business  of the Bank  has  historically  consisted  of
attracting  retail  deposits from the general  public and investing  those funds
primarily in first mortgage loans on owner-occupied,  single-family  residential
real estate.  The Bank also  originates  commercial  real estate,  construction,
consumer and  commercial  business  loans.  The Bank has in the past purchased a
limited number of multi-family loans. At December 31, 1996, substantially all of
the Bank's real estate mortgage loans,  including  commercial and  multi-family,
were secured by  properties  located in the Bank's  market  area.  The Bank also
invests in  obligations of states and political  subdivisions,  mutual funds and
other permissible investments.

         The  Company's  revenues  are  derived  principally  from  interest  on
mortgage  loans,  interest on investment  and other  securities  and service fee
income. The Company does not originate loans to fund leveraged buyouts,  and has
no loans to foreign  corporations  or governments.  While the Company  generally
solicits  deposits only in its primary  market area,  at December 31, 1996,  the
Company had $2.1 million in brokered deposits.

Lending Activities

         Market Area.  The  Company's  office is located at 648 North  Jefferson
Street in Huntington,  Indiana.  The City of Huntington is located in Huntington
<PAGE>
County,  Indiana,  25  miles  southwest  of Fort  Wayne,  Indiana.  The  City of
Huntington  is the County  Seat of  Huntington  County and has a  population  of
approximately  17,000.  Along with an agricultural  base, the major employers in
Huntington  County are engaged in light industry and include  Wabash  Magnetics,
United Technologies  Electronic Controls,  Hayes Wheels International,  Majestic
Products,  Preferred  Technical Group,  Pyle Industries,  Eagle  Picher/Plastics
Division, Allied Signal Automotive and Wayne Metal Products.

         General.  The Bank's loan portfolio consists primarily of conventional,
first mortgage loans secured by one- to four-family  residences and, to a lesser
extent,  commercial  real estate loans,  construction  or development  loans and
consumer loans, and commercial  business loans. At December 31, 1996, the Bank's
gross loans  outstanding  totalled  $152.6  million,  of which $99.3  million or
65.10%  were  one-to  four-family  residential  mortgage  loans.  Of the one- to
four-family  mortgage  loans  outstanding  at that date,  36.0% were  fixed-rate
loans, and 64.0% were adjustable-rate  loans. At that same date, commercial real
estate and  multi-family  loans  totalled  $15.3  million,  of which  54.2% were
fixed-rate loans and 45.8% were  adjustable-rate  loans.  Also at that date, the
Bank's  construction or development  loans totalled $10.7 million or 7.0% of the
Bank's  total loan  portfolio,  86.8% of which were  adjustable-rate  loans.  At
December 31, 1996,  commercial  business  loans totalled $9.6 million or 6.3% of
the Bank's total loan portfolio,  of which 46.0% were fixed-rate loans and 54.0%
were adjustable-rate loans.

         At  December  31,  1996,  the  balance  of the  Bank's  consumer  loans
consisted of $17.6 million of loans, which represented 11.6% of the Bank's gross
loan portfolio.  Of the consumer loans outstanding,  71.5% were fixed-rate loans
and 28.5% were adjustable-rate loans.

         The Bank and the Company also invests in mutual funds,  obligations  of
states and political subdivisions, and other debt securities and mortgage-backed
securities.  At December 31, 1996,  mutual  funds  totalled  $697,000 or 0.4% of
total  assets and  obligations  of states and  political  subdivisions  totalled
$703,000, or 0.4% of total assets. See "Investment Activities."

         The Bank's  loans-to-one  borrower  limit is  generally  limited to the
greater of 15% of unimpaired capital and surplus or $500,000.  See "Regulation -
Federal  Regulation of Savings  Associations." At December 31, 1996, the maximum
which the Bank could have lent  under  this  limit to any one  borrower  and the
borrower's  related  entities was  approximately  $3.0 million.  At December 31,
1996,  the Bank  had no loans or  groups  of  loans to  related  borrowers  with
outstanding  balances  in excess of this  amount.  The  Bank's  largest  lending
relationship  at  December  31, 1996 was $1.5  million in loans to one  borrower
secured by a fleet of automobiles  registered in the State of Indiana.  The next
largest  lending  relationship at December 31, 1996 was $1.2 million in loans to
one borrower secured by various rental  properties  mostly located in Huntington
County,  Indiana. The next largest lending relationship at December 31, 1996 was
$970,000  secured by real  estate in Allen  County,  Indiana.  The next  largest
lending  relationship  at that date was $899,000 in loans  secured by parcels of
real estate located in Allen County, Indiana.  Finally, the next largest lending
relationship  at December  31,  1996 was a $895,000  in loans  secured by a golf
course located in Huntington County, Indiana.
<PAGE>
         Loan Portfolio Composition. The following is information concerning the
composition  of  the  Company's  loan   portfolios  in  dollar  amounts  and  in
percentages (before deductions for loans in process, deferred fees and discounts
and allowance for loan losses) as of the dates indicated.
<TABLE>
<CAPTION>
                                                                             December 31,
                                            ---------------------------------------------------------------------------
                                                    1996               1995              1994             1993
                                            ------------------ ------------------- ----------------- ------------------
                                              Amount   Percent   Amount   Percent   Amount   Percent   Amount   Percent
                                                                         (Dollars in Thousands)
<S>                                         <C>        <C>     <C>        <C>      <C>        <C>     <C>        <C>
Real Estate Loans:
 One- to four-family........................$ 99,325    65.10% $ 85,533     67.88% $ 76,082    70.04% $ 64,874    71.93%
 Multi-family...............................   2,993     1.96     2,029      1.61     1,621     1.49     1,610     1.79
 Commercial.................................  12,301     8.06    11,742      9.32     8,835     8.13     5,431     6.02
 Construction or development................  10,749     7.04     6,359      5.05     7,033     6.47     4,366     4.84
                                            --------  --------  -------    ------  --------   ------  --------   ------
     Total real estate loans................ 125,368    82.16   105,663     83.86

Other Loans:
 Consumer Loans:
  Deposit account...........................     157      .10       170       .13       264      .24       212      .24
  Student...................................     ---   ---          ---       ---       ---      ---       ---      ---
  Automobile................................   8,820     5.78     7,756      6.16     6,719     6.19     6,947     7.70
  Home equity...............................   4,176     2.74     3,121      2.48     2,895     2.66     2,259     2.50
  Home improvement..........................     291      .19       258       .20       202      .19       184      .20
  Other.....................................   4,204     2.76     3,245      2.58     2,238     2.06     1,633     1.81
                                            --------   -------  -------     -----    ------   ------    ------   -----
     Total consumer loans...................  17,648    11.57    14,550     11.55    12,318    11.34    11,235    12.45
                                            --------   -------  -------     -----    ------   ------    ------    ------
 Commercial business loans..................   9,568     6.27     5,783      4.59     2,745     2.53     2,676     2.97

     Total loans............................ 152,584   100.00%  125,996    100.00%  108,634   100.00%   90,192   100.00%
                                                       ======              ======             ======             ======

Less:
 Undisbursed portion of construction loans..   4,380              2,210               3,333              1,546
 Loans in process...........................     208                169                 124                451
 Deferred fees and discounts................     114                 95                  81                 13
 Allowance for loan losses..................   1,027                881                 694                457
                                            --------           --------             -------            -------
 Total loans receivable, net................$146,855           $122,641            $104,402            $87,725
                                            ========           ========            ========            =======

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                       1992
                                                                  ------------
                                                            Amount          Percent
                                                            ------          -------
<S>                                                        <C>               <C>
Real Estate Loans:
 One- to four-family ...............................       $55,591           74.86%
 Multi-family ......................................         1,886            2.54
 Commercial ........................................         4,044            5.45
 Construction or development .......................         2,299            3.09
                                                           -------          ------
     Total real estate loans

Other Loans:
 Consumer Loans:
  Deposit account ..................................           272             .37
  Student ..........................................            93             .13
  Automobile .......................................         5,461            7.35
  Home equity ......................................         1,445            1.95
  Home improvement .................................            42             .05
  Other ............................................         1,378            1.85
                                                           -------          ------
     Total consumer loans ..........................         8,691           11.70
                                                           -------          ------
 Commercial business loans .........................         1,751            2.36

     Total loans ...................................        74,262          100.00%
                                                                            ======

Less:
 Undisbursed portion of construction loans .........           431
 Loans in process ..................................           138
 Deferred fees and discounts .......................           105
 Allowance for loan losses .........................           270
                                                           -------
 Total loans receivable, net .......................       $73,318
                                                           =======
</TABLE>
<PAGE>
         The  following  table  shows  the  composition  of the  Company's  loan
portfolios by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
                                                                                December 31,
                                                   -----------------------------------------------------------------------
                                                           1996                    1995                    1994
                                                   ---------------------   ---------------------  ------------------------
                                                      Amount     Percent     Amount    Percent     Amount       Percent
<S>                                                 <C>          <C>       <C>          <C>        <C>           <C>
Fixed-Rate Loans:
 Real estate:
  One- to four-family...........................    $ 35,764      23.44%   $ 30,539       24.24%   $ 30,897         28.44%
  Multi-family..................................       2,397       1.57       2,029        1.61       1,621          1.49
  Commercial....................................       5,922       3.88       4,409        3.50       4,770          4.39
  Construction or development...................       1,421        .94       2,881        2.28         387           .36
                                                    --------     ------    --------      ------    --------      --------
     Total real estate loans....................      45,504      29.83      39,858       31.63      37,675         34.68
                                                    --------     ------    --------      ------     -------       -------
 Consumer.......................................      12,619       8.27      11,379        9.03       8,460          7.79
 Commercial business............................       4,399       2.88       1,460        1.16       1,496          1.38
                                                    --------     ------    --------      ------    --------       -------
     Total fixed-rate loans.....................      62,522      40.98      52,697       41.82      47,631         43.85

Adjustable-Rate Loans:
 Real estate:
  One- to four-family...........................      63,561      41.66      54,994       43.65      45,185         41.59
  Multi-family..................................         595       .39          ---        ---          ---         --
  Commercial....................................       6,380       4.17       7,333        5.82       4,065          3.74
  Construction or development...................       9,328       6.11       3,478        2.76       6,646          6.12
                                                    --------     ------    --------      ------    --------      --------
     Total real estate loans....................      79,864      52.33      65,805       52.23      55,896         51.45
                                                   ---------     ------    --------      ------    --------      --------

 Consumer.......................................       5,029       3.30       3,171        2.52       3,858          3.55
 Commercial business............................       5,169       3.39       4,323        3.43       1,249          1.15
                                                    --------     ------     -------      ------    --------       -------
     Total adjustable-rate loans................      90,062      59.02      73,297       58.18      61,003         56.15
                                                    --------     ------     -------      ------    --------       -------
     Total loans................................     152,584     100.00%    125,996      100.00%    108,634        100.00%
                                                                 ======                  ======                    ======

Less:
 Undisbursed portion of construction loans......       4,380                  2,210                   3,333
 Loans in process...............................         208                    169                     124
 Deferred fees and discounts....................         114                     95                      81
 Allowance for loan losses......................       1,027                    881                     694
                                                   ---------               --------               ---------
    Total loans receivable, net.................    $146,855               $122,641                $104,402
                                                    ========               ========                ========

</TABLE>
<PAGE>
         The following schedule illustrates the interest rate sensitivity of the
Company's loan portfolio at December 31, 1996.  Mortgages  which have adjustable
or renegotiable  interest rates are shown as maturing in the period during which
the  contract  is due.  The  schedule  does not  reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
                                                         Real Estate
                                                      Multi-family and       Construction
                              One- to Four-Family       Commercial           or Development        Consumer
                                        Weighted              Weighted              Weighted             Weighted
                                         Average              Average               Average               Average
                              Amount      Rate       Amount    Rate      Amount      Rate       Amount     Rate
                             --------   ------      --------   ------   --------    ------      --------   ------
                                                                       (Dollars in Thousands)
      Due During
    Years Ending
     December 31,
<S>                          <C>           <C>     <C>         <C>     <C>            <C>       <C>         <C>
1997(1)................      $     90      8.84%   $   100     7.66%   $ 6,500        9.47%     $4,022      10.32%
1998 and 1999..........           270      8.37        194     8.68        ---       ---         3,689       9.38
2000 and 2001..........         1,199      8.60        427     8.14        ---       ---         5,888       9.13
2002 to 2006...........        14,934      8.15      7,106     8.79        ---       ---         3,935       8.76
2007 to 2021...........        82,832      7.58      7,467     8.67      4,249        7.46         114       8.75

<CAPTION>
                                 Commercial
                                 Business             Total
                                      Weighted              Weighted
                                      Average               Average
                            Amount     Rate       Amount     Rate
                           --------   ------      --------   -----

      Due During
    Years Ending
     December 31,
<S>                         <C>
1997(1)................     $3,981       9.59%   $14,693       9.72%
1998 and 1999..........      2,280       9.40      6,434       9.32
2000 and 2001..........      2,132       9.07      9,646       9.00
2002 to 2006...........        519      10.72     26,494       8.46
2007 to 2021...........        656       9.47      95,317      7.67



(1) Includes demand loans, loans having no stated maturity and overdraft loans.
</TABLE>
      The  total  amount  of loans  due  after  December  31,  1996  which  have
predetermined  interest rates is $62.5 million,  while the total amount of loans
due after such dates which have floating or adjustable  interest  rates is $90.1
million.
<PAGE>
         All of the  Company's  lending is subject to its  written  underwriting
standards and loan origination  procedures.  Decisions on loan  applications are
made on the basis of detailed  applications and property valuations.  Properties
securing  real estate  loans made by First  Federal are  generally  appraised by
Board-approved  independent  appraisers.  In the loan  approval  process,  First
Federal  assesses the borrower's  ability to repay the loan, the adequacy of the
proposed   security,   the   employment   stability  of  the  borrower  and  the
credit-worthiness of the borrower.

         The Bank  requires  evidence of  marketable  title and lien position or
appropriate title insurance on all loans secured by real property. The Bank also
requires fire and extended coverage casualty insurance in amounts at least equal
to the lesser of the principal  amount of the loan or the value of  improvements
on the  property,  depending  on the  type  of  loan.  As  required  by  federal
regulations,  the Bank also  requires  flood  insurance  to protect the property
securing its interest if such property is located in a designated flood area.

         Management  reserves  the right to change the amount or type of lending
in which it engages to adjust to market or other factors.

         One- to Four-Family  Residential  Mortgage  Lending.  Residential  loan
originations  are  generated  by  the  Bank's  marketing  efforts,  its  present
customers,  walk-in  customers,  referrals  from real estate  brokers and a loan
originator.   The  Bank  has  focused  its  lending  efforts  primarily  on  the
origination of loans secured by first mortgages on owner-occupied, single-family
residences  in its market  area.  At  December  31,  1996,  the  Bank's  one- to
four-family  residential mortgage loans totalled $99.3 million, or 65.1%, of the
Bank's gross loan portfolio.

         The Bank  currently  offers  fixed-rate  and  adjustable-rate  mortgage
loans.  For the year ended December 31, 1996, the Bank originated  $13.7 million
of fixed-rate loans and $27.8 million of adjustable-rate  real estate loans, all
of  which  were  secured  by  one-  to  four-family   residential  real  estate.
Substantially  all  of the  Bank's  one-  to  four-family  residential  mortgage
originations are secured by properties located in its market area.

         The Bank offers  adjustable-rate  mortgage  loans at rates and on terms
determined in accordance with market and competitive factors. The Bank currently
originates  adjustable-rate  mortgage  loans with a term of up to 25 years.  The
Bank  currently  offers  one-year,   three-year  and  five-year  adjustable-rate
mortgage  loans (where the terms are fixed for the first  one-year,  three-years
and  five-years,  respectively,  and thereafter  adjust  annually) with a stated
interest  rate  margin over the  National  Monthly  Median Cost of Funds  Index.
Increases or decreases in the interest rate of the Bank's  adjustable-rate loans
are generally  limited to 1.0% at any  adjustment  date and, for example the one
year ARM  product  has  limits  of 6.0% over the life of a 25 year loan and 5.0%
over the life of a 20 year loan.  As a consequence  of using caps,  the interest
rates on these  loans  may not be as rate  sensitive  as is the  Bank's  cost of
funds. Currently,  all adjustable-rate  mortgage loans originated do not provide
for a minimum  interest rate. The Bank qualifies  borrowers for  adjustable-rate
loans based on a  fully-indexed  interest  rate. At December 31, 1996, the total
balance of one-to four-family  adjustable-rate  loans was $63.6 million or 41.7%
of the Bank's gross loan portfolio.

         The Bank also offers fixed-rate mortgage loans with maturities of up to
20 years.  At  December  31,  1996,  the total  balance  of one- to  four-family
fixed-rate loans was $35.8 million or 23.4% of the Bank's gross loan portfolio.
<PAGE>
         Currently,  with one exception  for  qualified  first time home buyers,
First  Federal will lend up to 95% of the lesser of the sales price or appraised
value of the security  property on owner  occupied  one- to  four-family  loans,
provided  that  private  mortgage  insurance  ("PMI") is  obtained  in an amount
sufficient  to reduce the Bank's  exposure to not more than 80% of the appraised
value or sales price, as applicable. Residential loans do not include prepayment
penalties,  are  non-assumable  (other  than  government-insured  or  guaranteed
loans), and do not produce negative  amortization.  Real estate loans originated
by the Bank  contain a "due on sale"  clause  allowing  the Bank to declare  the
unpaid principal balance due and payable upon the sale of the security property.

         First  Federal has  implemented  a first time home buyers loan program.
This program  provides an additional  opportunity for first time home buyers who
qualify  by  allowing  them to  borrow  98% of the  appraised  value of an owner
occupied  residence  up to $75,000.  These  loans do not require PMI  insurance.
First Federal  developed this program in an effort to help meet a credit need of
our community.

         The  loans   currently   originated  by  the  Bank  are  not  typically
underwritten  and  documented  pursuant to the  guidelines  of the FHLMC.  Under
current policy, the Bank originates these loans for portfolio.

         Commercial  and  Multi-Family  Real Estate  Lending.  The Bank has also
engaged in commercial and  multi-family  real estate lending in its market area.
At December 31, 1996,  the Bank had $12.3 million and $3.0 million of commercial
and multi-family  real estate loans,  respectively,  which  represented 8.1% and
2.0%, respectively, of the Bank's gross loan portfolio.

         The Bank's  commercial and  multi-family  real estate loan portfolio is
secured  primarily by retail  properties,  apartments,  churches and real estate
located in Huntington and Allen Counties,  Indiana.  Commercial and multi-family
real estate loans generally have terms that do not exceed 15 years and a variety
of rate adjustment  features and other terms.  Generally,  the loans are made in
amounts up to 75% of the  lesser of the  appraised  value or sales  price of the
security property. The Bank currently offers one-year,  three-year and five-year
adjustable-rate  commercial and multi-family  real estate loans (where the terms
are fixed for the first one-year, three-years and five-years,  respectively, and
thereafter   adjust  annually)  with  a  margin  over  a  designated  index.  In
underwriting these loans, the Bank currently analyzes the financial condition of
the  borrower,   the  borrower's   credit  history,   and  the  reliability  and
predictability of the cash flow generated by the property securing the loan. The
Bank generally  requires  personal  guaranties of the  borrowers.  Appraisals on
properties  securing  commercial real estate loans originated by the Bank are to
the extent required by federal regulations performed by independent appraisers.

         Multi-family  and  commercial  real estate  loans  generally  present a
higher level of risk than loans secured by one- to four-family residences.  This
greater risk is due to several factors, including the concentration of principal
in a limited  number of loans and  borrowers,  the  effect of  general  economic
conditions  on income  producing  properties  and the  increased  difficulty  of
evaluating and monitoring  these types of loans.  Furthermore,  the repayment of
loans secured by multi-family and commercial real estate is typically  dependent
upon the successful  operation of the related real estate  project.  If the cash
flow from the project is reduced  (for  example,  if leases are not  obtained or
renewed,  or a  bankruptcy  court  modifies a lease term,  or a major  tenant is
unable to fulfill its lease  obligations),  the borrower's  ability to repay the
loan may be impaired.
<PAGE>
         Construction or Development Lending. At December 31, 1996, the Bank had
$10.7 million of construction or development  loans.  First Federal offers loans
to both  builders and  borrowers  for the  construction  of one- to  four-family
residences,  and to a lesser  extent,  commercial  real estate and  multi-family
properties.  Currently, such loans are offered with fixed or adjustable rates of
interest.  At December 31,  1996,  the Bank had $1.4 million and $9.3 million of
fixed-rate and adjustable-rate  construction or development loans, respectively,
which  represented  0.9%  and  6.1%,  respectively,  of the  Bank's  gross  loan
portfolio.  Following the construction  period, these loans may become permanent
loans, with terms for up to 25 years for adjustable-rate  loans and 20 years for
fixed-rate loans.

         Construction  lending is generally considered to involve a higher level
of credit risk than one- to  four-family  residential  lending since the risk of
loss on construction loans is dependent largely upon the accuracy of the initial
estimate of the individual  property's  value upon completion of the project and
the estimated  cost  (including  interest) of the project.  If the cost estimate
proves to be  inaccurate,  the Bank may be required to advance  funds beyond the
amount originally committed to permit completion of the project.

         Consumer  Lending.  First Federal offers a variety of secured  consumer
loans, including automobile,  home equity lines of credit, second mortgage, home
improvement,  and loans  secured  by  savings  deposits.  The Bank  also  offers
unsecured consumer loans. The Bank currently originates substantially all of its
consumer loans in its primary market area. The Bank originates consumer loans on
a direct basis,  where the Bank extends credit directly to the borrower,  and on
an indirect basis through the acquisition of installment  payment contracts from
dealers who extend credit to their  customers for the purchase of an automobile,
both new and used.

         A significant  component of the Bank's consumer loan portfolio consists
of automobile  loans.  These loans  generally have terms that do not exceed five
years  and  carry a  variety  of  rate  adjustment  features  and  other  terms.
Generally,  loans on new  vehicles are made in amounts up to 100% of dealer cost
and loans on used vehicles are made in amounts up to its published  value,  less
certain adjustments.  At December 31, 1996, the Bank's automobile loans totalled
$8.8  million  or  5.8% of the  Bank's  gross  loan  portfolio.  Of this  amount
approximately $2.3 million or 26.1% and $6.5 million or 73.9% were originated on
a direct and indirect basis, respectively.

         First Federal also originates home  improvement and home equity line of
credit  loans.  Home  equity  and  home  improvement  loans  secured  by  second
mortgages, together with loans secured by all prior liens, are generally limited
to 100% or less of the  appraised  value  (where  First  Federal  has the  first
mortgage)  of the property  securing the loan or 80% or less of appraised  value
(where First  Federal does not have the first  mortgage or where the  collateral
property is non-owner occupied). Generally, such loans have a maximum term of up
to 10 years.  As of December 31, 1996, home equity and home  improvement  loans,
most of which are  secured by second  mortgages,  amounted  to $4.2  million and
$291,000,  respectively,  which represented 2.7% and 0.2%, respectively,  of the
Bank's gross loan portfolio.

         At December 31, 1996, the Bank's consumer loan portfolio totalled $17.6
million,  or  11.6%  of  its  gross  loan  portfolio.   At  December  31,  1996,
approximately  71.5%  of  consumer  loans  were  short-  and  intermediate-term,
fixed-rate consumer loans and 28.5% were adjustable rate consumer loans.
<PAGE>
         Consumer loan terms vary according to the type and value of collateral,
length of  contract  and  creditworthiness  of the  borrower.  The  underwriting
standards  employed by the Bank for consumer  loans  include an  application,  a
determination  of  the  applicant's  payment  history  on  other  debts  and  an
assessment of ability to meet existing  obligations and payments on the proposed
loan. Although creditworthiness of the applicant is a primary consideration, the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.

         Consumer  loans may  entail  greater  credit  risk than do  residential
mortgage  loans,  particularly in the case of consumer loans which are unsecured
or are secured by rapidly depreciable assets, such as automobiles.  Further, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the  outstanding  loan balance as a result of the greater
likelihood  of  damage,  loss  or  depreciation.   In  addition,  consumer  loan
collections are dependent on the borrower's continuing financial stability,  and
thus  are  more  likely  to  be  affected  by  adverse  personal  circumstances.
Furthermore,  the  application  of various  federal  and state  laws,  including
bankruptcy and  insolvency  laws, may limit the amount which can be recovered on
such loans.  At December 31,  1996,  $71,000 of the Bank's  consumer  loans were
non-performing  representing  .05% of the gross loan portfolio.  There can be no
assurances, however, that additional delinquencies will not occur in the future.

         Commercial  Business  Lending.  The  Bank  also  originates  commercial
business loans. At December 31, 1996 approximately $9.6 million,  or 6.3% of the
Bank's  gross loan  portfolio  was  commercial  business  lending.  The  largest
commercial  business  loan is a line of credit of $1.5 million to an  automobile
leasing company, of which $1.5 million was outstanding at December 31, 1996.

         Unlike  residential  mortgage  loans,  which  generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income and which are secured by real property whose value tends to be more
easily ascertainable,  commercial business loans typically are made on the basis
of the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business  loans may be  substantially  dependent  on the success of the business
itself  (which,  in turn,  is likely to be dependent  upon the general  economic
environment).  The Bank's commercial business loans are usually, but not always,
secured by business  assets.  However,  the  collateral  securing  the loans may
depreciate  over time,  may be difficult to appraise and may  fluctuate in value
based on the success of the business.

         First Federal's commercial business lending policy includes credit file
documentation  and analysis of the borrower's  character,  capacity to repay the
loan,  the  adequacy  of the  borrower's  capital and  collateral  as well as an
evaluation of conditions  affecting  the  borrower.  Analysis of the  borrower's
past,  present  and  future  cash  flows is also an  important  aspect  of First
Federal's  current credit  analysis.  Nonetheless,  such loans,  are believed to
carry higher credit risk than more traditional thrift investments.

Originations, Purchases and Sales of Loans

         Loan   originations   are  developed  from  continuing   business  with
depositors and borrowers,  soliciting realtors,  builders, walk-in customers and
third-party sources.
<PAGE>
         While the Bank originates both  adjustable-rate  and fixed-rate  loans,
its  ability  to  originate  loans to a  certain  extent is  dependent  upon the
relative  customer  demand for loans in its  market,  which is  affected  by the
interest rate environment,  among other factors. For the year ended December 31,
1996, the Bank originated $27.5 million in fixed-rate loans and $39.9 million in
adjustable rate loans.

         Total commercial business loan originations  increased in 1996 compared
to 1995 with the largest growth in commercial leases.

         In  1996,  although  rates  rose  early  in the  year,  refinancing  of
residential loans increased  contributing to the increase in one- to four-family
originations  for the year of $21.7  million to $41.5 million in 1996 from $19.8
million in 1995.

         During fiscal year 1996,  the Bank purchased $1.2 million of commercial
leases  originated  by other  lenders  all of which were  secured  by  equipment
located in various  states.  At  December  31,  1996,  none of these  loans were
included in the Bank's non-performing assets.
<PAGE>
         The  following  table shows the loan  origination,  purchase,  sale and
repayment activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                            ---------------------------------
                                                             1996         1995         1994
                                                            -------      -------    ---------
                                                                     (In Thousands)
<S>                                                         <C>          <C>          <C>
Originations by type:
 Adjustable rate:
  Real estate - one- to four-family..................       $27,830      $15,345      $18,454
                - multi-family.......................           396          182        2,891
                - commercial.........................         4,044        3,516        5,346
  Non-real estate - consumer.........................         1,961        1,626        1,438
                     - commercial business...........         5,711        5,342          ---
                                                            -------      -------    ---------
         Total adjustable-rate.......................        39,942       26,011       28,129
                                                            -------      -------      -------
 Fixed rate:
  Real estate - one- to four-family..................        13,674        4,469        7,034
                - commercial.........................           153           30           68
  Non-real estate - consumer.........................        10,187       11,365        7,249
                     - commercial business...........         3,531          799        5,556
                                                           --------     --------     --------
         Total fixed-rate............................        27,545       16,663       19,907
                                                           --------     --------      -------
         Total loans originated......................        67,487       42,674       48,036
                                                            -------     --------      -------

Purchases:
  Real estate - one- to four-family..................           250        2,690          ---
                - multi-family.......................         1,189          ---          182
                                                          ---------   ----------     --------
         Total loans purchased.......................         1,439        2,690          182

Sales and Repayments:
  Real estate - multi-family.........................           ---          ---        2,100
                - commercial.........................           ---          ---          650
                                                          ---------   ----------     --------
         Total loans sold............................           ---          ---        2,750
  Principal repayments...............................        42,338       28,002       27,026
                                                            -------      -------      -------
         Total reductions............................        42,338       28,002       29,776
                                                            -------      -------      -------
         Net increase (decrease).....................       $26,588      $17,362      $18,442
                                                            =======      =======      =======

</TABLE>
<PAGE>
Asset Quality

         General.  When a borrower  fails to make a required  payment on a loan,
the Bank  attempts  to cause  the  delinquency  to be  cured by  contacting  the
borrower. In the case of loans secured by real estate, reminder notices are sent
to borrowers.  If payment is late,  appropriate  late charges are assessed and a
notice of late charges is sent to the  borrower.  If the loan is in excess of 90
days  delinquent,  the loan will be  referred  to the Bank's  legal  counsel for
collection.  In all cases,  if the Bank believes that its  collateral is at risk
and added  delay would  place the  collectibility  of the balance of the loan in
further question, management may refer loans for collection even sooner than the
90 days described above.

         When a loan becomes delinquent 90 days or more, the Bank will place the
loan on non-accrual status and previously accrued interest income on the loan is
charged against current income.  The loan will remain on a non-accrual status as
long as the loan is 90 days delinquent.

         Delinquent  consumer  loans are handled in a similar manner as to those
described  above;  however,  shorter  time frames for each step apply due to the
type of collateral  generally  associated  with such types of loans.  The Bank's
procedures  for  repossession  and sale of  consumer  collateral  are subject to
various requirements under Indiana consumer protection laws.

         The following table sets forth the Bank's loan  delinquencies  by type,
by amount and by percentage of type at December 31, 1996. The amounts  presented
in the table  below  represent  the total  remaining  principal  balances of the
loans, rather than the actual payment amounts which are overdue.
<TABLE>
<CAPTION>
                                                  Loans Delinquent For:
                                        60-89 Days                        90 Days and Over        Total Delinquent Loans
                                  ---------------------------   ------------------------------   ---------------------------
                                                      Percent                          Percent                       Percent
                                                      of Loan                          of Loan                      of Loan
                                  Number    Amount   Category   Number     Amount     Category   Number   Amount   Category
                                  ------    ------   --------   ------     ------     --------   ------   ------   --------
                                                                     (Dollars in Thousands)
<S>                                <C>       <C>       <C>      <C>        <C>          <C>      <C>      <C>        <C>
Real Estate:
  One- to four-family......          2       $100       .10%      10       $470          .47%      12     $  570       .57%
  Commercial...............        ---        ---       ---        1        172         1.56        1        172      1.56
  Construction or
   development.............          2        289      2.40      ---        ---          ---        2        289      2.40
Consumer...................          8        100       .57       11         63          .36       19        163       .92
Commercial business........          1         71       .74                 ---          ---        1         71       .74
                                   ---       ----               ----      -----                   ---     ------

     Total.................         13       $560       .37%      22       $705          .46%      35     $1,265       .83%
                                   ===       ====                ===       ====                   ===     ======


</TABLE>
<PAGE>
         Non-Performing  Assets.  The table  below  sets forth the  amounts  and
categories  of  non-performing  assets in the Bank's loan  portfolio.  Loans are
placed on non-accrual  status when the collection of principal  and/or  interest
become  doubtful.  For all years  presented,  the Bank has had no troubled  debt
restructurings  (which  involve  forgiving a portion of interest or principal on
any loans or making loans at a rate  materially less than that of market rates).
Foreclosed assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
                                                                       December 31,
                                                         -----------------------------------------
                                                         1996      1995     1994     1993     1992
                                                        ------    ------   ------   ------   -----
                                                                 (Dollars in Thousands)
<S>                                                       <C>       <C>      <C>      <C>      <C>

Non-accruing loans:
  One- to four-family................................     $470      $  9     $---     $ 26     $ 72
  Multi-family.......................................      ---       ---      ---      ---      ---
  Commercial real estate.............................      172       171       14      ---      ---
  Construction or development........................      ---       ---      289      ---      396
  Consumer...........................................       63        94       30       34       38
  Commercial business................................      ---        10        4        8       11
                                                         -----      ----    -----    -----    -----
     Total...........................................      705       284      337       68      517
                                                          ----      ----     ----    -----     ----

Foreclosed assets:
  One- to four-family................................      ---       ---      ---      ---      ---
                                                        ------     -----    -----    -----   ------
     Total...........................................      ---       ---      ---      ---      ---
                                                        ------     -----    -----    -----   ------

Repossessed assets:
  Consumer...........................................        8       ---      ---      ---      ---
                                                         -----     -----    -----    -----   ------
     Total...........................................        8       ---      ---      ---      ---
                                                         -----     -----    -----    -----   ------

Total non-performing assets..........................     $713      $284     $337     $ 68     $517
                                                          ====      ====     ====     ====     ====
Total as a percentage of total assets................     .42%      .21%     .29%     .07%     .64%
                                                          ===       ===      ===      ===      ===

</TABLE>
<PAGE>
         Classified Assets.  Federal  regulations provide for the classification
of loans and other assets, such as debt and equity securities, considered by the
OTS to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered  "substandard"  if it is  inadequately  protected  by the current net
worth and paying  capacity of the  obligor or the  collateral  pledged,  if any.
"Substandard"  assets include those characterized by the "distinct  possibility"
that the insured  institution  will sustain "some loss" if the  deficiencies are
not  corrected.  Assets  classified  as  "doubtful"  have all of the  weaknesses
inherent in those classified  "substandard" with the added  characteristic  that
the weaknesses  present make "collection or liquidation in full" on the basis of
currently  existing  facts,  conditions  and values,  "highly  questionable  and
improbable."  Assets  classified as "loss" are those considered  "uncollectible"
and  of  such  little  value  that  their  continuance  as  assets  without  the
establishment of a specific loss reserve is not warranted.

         When  an  insured  institution  classifies  problem  assets  as  either
substandard or doubtful,  it may establish  general  allowances for losses in an
amount  deemed  prudent  by  management.   General  allowances   represent  loss
allowances which have been established to recognize the inherent risk associated
with lending activities,  but which, unlike specific  allowances,  have not been
allocated to particular problem assets. When an insured  institution  classifies
problem  assets as  "loss,"  it is  required  either  to  establish  a  specific
allowance for losses equal to 100% of that portion of the asset so classified or
to  charge-off  such  amount.   An   institution's   determination   as  to  the
classification  of its  assets  and the amount of its  valuation  allowances  is
subject to review by the regulatory authorities, who may order the establishment
of additional general or specific loss allowances.

         In connection with the filing of its periodic  reports with the OTS and
in accordance  with its  classification  of assets  policy,  the Bank  regularly
reviews  loans  in its  portfolio  to  determine  whether  such  assets  require
classification  in  accordance  with  applicable  regulations.  On the  basis of
management's review of its assets, at December 31, 1996, the Bank had classified
a total of $837,000 of its assets as substandard, none as doubtful, and $197,000
as loss which is allocated  in specific  reserves.  At December 31, 1996,  total
classified assets comprised $1.0 million, or 4.9% of the Bank's capital, or .61%
of the Bank's total assets.

         Other Loans of Concern.  In  addition to the  non-performing  loans and
foreclosed  real  estate  held for sale set  forth in the  tables  above,  as of
December  31, 1996 there were no loans  classified  by the Bank with  respect to
which known  information  about the possible credit problems of the borrowers or
the cash flows of the security  properties  have caused  management to have some
doubts as to the ability of the borrowers to comply with present loan  repayment
terms  and  which  may  result  in the  future  inclusion  of such  items in the
non-performing asset categories.

         Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan  portfolio and changes in the nature and volume of its loan
activity,  including  those  loans  which are being  specifically  monitored  by
management.  Such  evaluation,  which  includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters, the
loan classifications discussed above, the estimated fair value of the underlying
collateral, economic conditions,  historical loan loss experience, the amount of
loans outstanding and other factors that warrant recognition in providing for an
adequate loan loss allowance.
<PAGE>
         Although management believes that it uses the information  available to
determine  the  allowance,   unforeseen   market   conditions  could  result  in
adjustments and net earnings could be  significantly  affected if  circumstances
differ   substantially   from  the   assumptions   used  in  making   the  final
determination.  Future additions to the Bank's allowance for loan losses will be
the result of periodic loan,  property and collateral reviews and thus cannot be
predicted in advance. In addition,  federal regulatory agencies,  as an integral
part of the examination  process,  periodically  review the Bank's allowance for
loan losses.  Such agencies may require the Bank to increase the allowance based
upon their  judgment of the  information  available to them at the time of their
examination.  At December  31,  1996,  the Bank had a total  allowance  for loan
losses of $1.0 million,  representing 144.0% of total  non-performing  loans and
 .70% of the Bank's loans, net. See Note 3 of the Notes to Consolidated Financial
Statements.
<PAGE>
                  The  distribution  of the Bank's  allowance for loan losses at
the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
                                                                            December 31,
                              ------------------------------------------------------------------------------------------------------
                                           1996                                1995                                   1994
                              ------------------------------------------------------------------------------------------------------
                                                     Percent                              Percent                          Percent
                                                    of Loans                             of Loans                          of Loans
                                              Loan   in Each                       Loan   in Each                 Loan     in Each
                              Amount of    Amounts  Category       Amount of    Amounts  Category    Amount of   Amounts   Category
                              Loan Loss         by  to Total       Loan Loss         by  to Total    Loan Loss     by      to Total
                              Allowance   Category    Loans        Allowance   Category    Loans    Allowance   Category    Loans
                              ---------   --------   -------       ---------   --------   -------   ---------   --------   -------
<S>                           <C>        <C>          <C>           <C>      <C>          <C>          <C>      <C>         <C>
One- to four-family........   $  209     $ 99,325      65.10%       $180     $ 85,533      67.88%      $  145   $ 76,082     70.04%
Multi-family...............       74        2,993       1.96          50        2,029       1.61           45      1,621      1.49
Commercial real estate.....      106       10,996       7.20         100       11,742       9.32           75      8,835      8.13
Construction or
  development..............      311       12,054       7.90         200        6,359       5.05          200      7,033      6.47
Consumer...................       79       17,648      11.57          65       14,550      11.55           50     12,318     11.34
Commercial business........      165        9,568       6.27         100        5,783       4.59           40      2,745      2.53
Unallocated................       83          ---     ---            186          ---       ---           139        ---        --
                              ------     --------     ------        ----     --------     ------        -----   --------
     Total.................   $1,027     $152,584     100.00%       $881     $125,996     100.00%       $ 694   $108,634    100.00%
                              ======     ========     ======        ====     ========     ======        =====   ========     ======



<CAPTION>
                                                                     December 31,
                                      --------------------------------------------------------------------
                                                        1993                                1992
                                     ---------------------------------------------------------------------
                                                              Percent                            Percent
                                                             of Loans                            of Loans
                                                        Loan  in Each                      Loan  in Each
                                        Amount of    Amounts Category      Amount of    Amounts  Category
                                        Loan Loss         by to Total      Loan Loss         by  to Total
                                        Allowance   Category   Loans       Allowance   Category   Loans
                                        ---------   --------  -------      ---------   --------  ------
<S>                                      <C>       <C>         <C>           <C>        <C>         <C>
One- to four-family........              $  76     $ 64,874       71.93%     $   53     $ 55,591    74.86%
Multi-family...............                 40        1,610        1.79          30        1,886     2.54
Commercial real estate.....                 55        5,431        6.02          30        4,044     5.45
Construction or
  development..............                110        4,366        4.84          50        2,299     3.09
Consumer...................                 45       11,235       12.45          30        8,691    11.70
Commercial business........                 40        2,676        2.97          23        1,751     2.36
Unallocated................                 91         ---         ---          54          ---     ----

     Total.................              $ 457     $ 90,192      100.00       $ 270      $74,262   100.00%
                                         =====     ========      ======       =====      =======   ======

</TABLE>
<PAGE>
         The following table sets forth an analysis of the Bank's  allowance for
loan losses.
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                          -------------------------------------------------
                                                           1996      1995      1994        1993       1992
                                                           ----      ----      ----        ----       ----
                                                                       (Dollars in Thousands)
<S>                                                       <C>        <C>       <C>        <C>        <C>

Balance at beginning of period.......................     $  881     $ 694     $ 457      $  270     $  175

Charge-offs:
  One- to four-family................................          3       ---       ---           2        ---
  Commercial.........................................        ---         9       ---         ---        ---
  Consumer...........................................        131        65        33          29         46
                                                          ------      ----     -----     -------    -------
                                                             134        74        33          31        46
                                                          ------      ----     -----     -------   -------

Recoveries:
  Consumer...........................................         45        10         7          21         10
                                                          ------      ----     -----      ------    -------
                                                              45        10         7          21         10
                                                          ------      ----     -----      ------    -------

Net charge-offs......................................         89        64        26          10         36
Additions charged to operations......................        235       251       263         197        131
                                                         -------     -----    ------      ------     ------
Balance at end of period.............................     $1,027     $ 881    $  694      $  457     $  270
                                                          ======     =====    ======      ======     ======

Ratio of net charge-offs during the period to
 average loans outstanding during the period.........       .07%      .06%      .03%        .01%       .05%
                                                          =====      ====     =====       =====      =====

Ratio of net charge-offs during the period to
 average non-performing loans........................     20.23%    16.41%     9.92%       5.32%      6.67%
                                                         ======     =====     =====       =====      =====

</TABLE>
Investment Activities

         General. First Federal must maintain minimum levels of investments that
qualify as liquid  assets  under OTS  regulations.  Liquidity  may  increase  or
decrease  depending upon the  availability  of funds and  comparative  yields on
investments  in  relation  to the  return on loans.  Historically,  the Bank has
generally  maintained  liquid  assets at levels  above the minimum  requirements
imposed  by the OTS  regulations  and at levels  believed  adequate  to meet the
requirements  of normal  operations,  including  repayments of maturing debt and
potential  deposit  outflows.  At December 31, 1996, the Bank's  liquidity ratio
(liquid assets as a percentage of net withdrawable  savings deposits and current
borrowings) was 5.69%.
<PAGE>
         Federally  chartered savings  institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities  of various  federal  agencies,  certain  certificates  of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements  and  federal  funds.  Subject  to  various  restrictions,  federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally  chartered savings  institution is otherwise
authorized to make directly.

         Generally,  the  investment  policy of the Bank, as  established by the
Board of Directors,  is to invest funds among various  categories of investments
and maturities based upon the Bank's liquidity needs, asset/liability management
policies, investment quality, marketability and performance objectives.

         Securities  and Other  Interest-Earning  Assets.  At December 31, 1996,
First  Federal's  interest-earning  deposits with other  financial  institutions
totalled $4.1 million,  or 2.4% of total assets, and its securities,  consisting
of obligations of states and political subdivisions,  money market mutual funds,
and other securities totalled $12.4 million,  or 7.3% of total assets.  Included
in other securities,  as of such date, the Bank had a $2.8 million investment in
FHLB  stock,   satisfying  its   requirement  for  membership  in  the  FHLB  of
Indianapolis.

         OTS guidelines  regarding  investment  portfolio  policy and accounting
require insured  institutions to categorize  securities and certain other assets
as held for "investment,"  "sale," or "trading." In addition,  effective January
1, 1994,  the Bank adopted SFAS 115 which states that  securities  available for
sale are accounted for at fair value and  securities  which  management  has the
intent and the Bank has the ability to hold to maturity are  accounted for on an
amortized cost basis. The Bank's  investment policy has strategies for each type
of security.  At December 31, 1996, the Bank had $892,000 in securities  held to
maturity  consisting of  obligations  of states and political  subdivisions  and
other debt  securities  and  securities  available for sale with a fair value of
$11.5 million. See Note 2 of the Notes to the Consolidated Financial Statements.
<PAGE>
         The following table sets forth the composition of the Bank's securities
portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                      ------------------------------------------------------------------------
                                                                1996                       1995                 1994
                                                      ----------------------     ---------------------   ---------------------
                                                       Carrying      % of         Carrying     % of      Carrying      % of
                                                         Value       Total          Value      Total       Value       Total
                                                                                 (Dollars in Thousands)
<S>                                                   <C>           <C>           <C>         <C>         <C>         <C>
Debt securities:
  Obligations of states and political subdivisions    $   703         5.67%       $   764       11.10       $823       15.26%
  Mortgage-backed securities .....................      6,162        49.73             --           --        --         --
  Federal agency obligations .....................      1,787        14.43          1,104       16.04        --          --
  Corporate bonds ................................        189         1.53            222        3.23        231        4.28
                                                      -------       ------        -------      ------      -----      ------
     Total debt securities .......................      8,841        71.36          2,090       30.37      1,054       19.54

Equity securities:
  Mutual funds ...................................        697         5.63          2,717       39.48      2,566       47.56
 FHLB stock ......................................      2,850        23.01          2,075       30.15      1,775       32.90
                                                      -------       ------        -------      ------    -------      ------
     Total securities ............................    $12,388       100.00%       $ 6,882      100.00    $ 5,395      100.00%
                                                      =======       ======        =======      ======    =======       ======
</TABLE>
Sources of Funds

         General.  The Bank's primary sources of funds are deposits,  payment of
principal and interest on loans, interest earned on securities,  interest earned
on  interest-earning  deposits with other banks, FHLB advances,  and other funds
provided from operations.

         FHLB advances are used to support  lending  activities and to assist in
the Bank's asset/liability management strategy. Typically, the Bank does not use
other  forms of  borrowings.  At  December  31,  1996,  the Bank had total  FHLB
advances of $56.0 million with the capacity to borrow as of December 31, 1996 an
additional  $4.0  million.  See Note 6 of the  Notes to  Consolidated  Financial
Statements.

         Deposits.  First Federal offers a variety of deposit  accounts having a
wide range of interest rates and terms. The Bank's deposits consist of passbook,
savings,  NOW,  checking,  money market deposit and  certificate  accounts.  The
certificate accounts currently range in terms from 90 days to five years.

         The Bank relies primarily on advertising,  competitive pricing policies
and customer  service to attract and retain  these  deposits.  Currently,  First
Federal  solicits  deposits from its market area only,  and does not use brokers
regularly to obtain deposits.  The flow of deposits is influenced  significantly
by general economic conditions,  changes in money market and prevailing interest
rates and competition.
<PAGE>
         The Bank has become more  susceptible  to  short-term  fluctuations  in
deposit flows as customers  have become more interest rate  conscious.  The Bank
endeavors   to  manage  the  pricing  of  its   deposits  in  keeping  with  its
profitability objectives giving consideration to its asset/liability management.
The  ability  of  the  Bank  to  attract  and  maintain   savings  accounts  and
certificates of deposit, and the rates paid on these deposits, has been and will
continue to be significantly affected by market conditions.

         The following table sets forth the savings flows at the Bank during the
periods indicated.
<TABLE>
<CAPTION>


                                                         Year Ended December 31,
                                                  -----------------------------------
                                                   1996          1995         1994
                                                 ---------     ---------    ---------
                                                        (Dollars in Thousands)
<S>                                               <C>           <C>          <C>

Opening balance.............................      $ 68,203      $ 68,533     $ 69,169
Deposits....................................       260,248       246,971      205,551
Withdrawals.................................       246,610       250,038      208,240
Interest credited...........................         3,505         2,737        2,053
                                                 ---------     ---------    ---------

Ending balance..............................      $ 85,346      $ 68,203     $ 68,533
                                                  ========      ========     ========

Net increase (decrease).....................      $ 17,143      $   (330)    $   (636)
                                                  ========      ========     ========

Percent increase (decrease).................         25.14%        (.48)%       (.92)%
                                                    ======         =====        =====

</TABLE>
<PAGE>
         The  following  table sets forth the dollar  amount of  deposits in the
various types of deposit programs offered by the Bank for the periods indicated.
<TABLE>
<CAPTION>


                                                                   December 31,
                                                                   -------------
                                               1996                   1995                  1994
                                      --------------------     ------------------    -------------------
                                                  Percent                Percent                Percent
                                        Amount    of Total      Amount   of Total      Amount   of Total
                                       ------    --------      ------   --------      ------   --------
                                                              (Dollars in Thousands)
<S>                                   <C>         <C>          <C>       <C>          <C>       <C>
Transactions and Savings Deposits:

Passbook Accounts 2.75% ..........    $10,147      11.89%      $10,510     15.41      $13,082     19.09%
Demand and NOW Accounts 1.77% ....     10,295      12.06         9,980     14.63        9,743     14.22
Money Market Accounts 3.46% ......     11,680      13.69         3,408      5.00        5,184      7.56
                                      -------     ------       -------    ------     --------    ------

Total Non-Certificates ...........     32,122      37.64        23,898     35.04       28,009     40.87


Certificates:

 2.00 - 3.99%                           1,286       1.51           919      1.35        7,155     10.44
 4.00 - 5.99%                          39,177      45.90        25,743     37.74       17,415     25.41
 6.00 - 7.99%                          12,761      14.95        17,643     25.87       15,836     23.11
 8.00 - 9.99%                              --         --           --         --          118       .17
                                      -------     ------       -------    ------     --------    ------

Total Certificates ...............     53,224      62.36        44,305     64.96       40,524     59.13
                                      -------     ------       -------    ------     --------    ------


Total Deposits ...................    $85,346     100.00%      $68,203    100.00      $68,533    100.00%
                                      =======     ======       =======    ======      =======    ======


</TABLE>
<PAGE>
         The following table shows rate and maturity  information for the Bank's
certificates of deposit as of December 31, 1996.
<TABLE>
<CAPTION>


                                        2.00-        4.00-         6.00-                 Percent
                                       3.99%        5.99%         7.99%      Total      of Total
                                     --------     --------      --------   ----------   --------
                                                        (Dollars in Thousands)
<S>                                    <C>         <C>          <C>           <C>         <C>
Certificate accounts maturing
   in quarter ending:

March 31, 1997.................        $  614      $ 8,950      $    784      $10,348       19.44%
June 30, 1997..................           652        5,552         2,734        8,938       16.79
September 30, 1997.............            20        8,244         2,436       10,700       20.10
December 31, 1997..............           ---        4,642         4,071        8,713       16.37
March 31, 1998.................           ---        6,481           377        6,858       12.89
June 30, 1998..................           ---        2,862           439        3,301        6.20
September 30, 1998.............           ---          477           770        1,247        2.34
December 31, 1998..............           ---          484           111          595        1.12
March 31, 1999.................           ---          324            10          334         .63
June 30, 1999..................           ---          317           ---          317         .60
September 30, 1999.............           ---           99           350          449         .84
December 31, 1999..............           ---          167           204          371         .70
Thereafter.....................           ---          578           475        1,053        1.98
                                      -------       ------        ------     --------      ------

   Total.......................        $1,286      $39,177       $12,761      $53,224      100.00%
                                       ======      =======       =======      =======      ======

   Percent of total............         2.42%       73.61%        23.98%
                                      ======       ======        ======

</TABLE>
         The following table indicates the amount of the Bank's  certificates of
deposit by time remaining until maturity as of December 31, 1996.
<TABLE>
<CAPTION>
                                                                          Maturity
                                                                    Over        Over
                                                     3 Months      3 to 6     6 to 12          Over
                                                     or Less       Months      Months       12 months      Total
                                                                          (In Thousands)
<S>                                                   <C>           <C>        <C>             <C>        <C>

Certificates of deposit less than $100,000.......     $ 4,989       $5,163     $15,302         $13,065    $38,519
Certificates of deposit of $100,000 or more......       1,144        2,600       3,884           1,460      9,088
Public funds (1).................................       4,215        1,175         227             ---      5,617
                                                      -------      -------     -------       ---------   --------
Total certificates of deposit....................     $10,348       $8,938     $19,413         $14,525    $53,224
                                                      =======       ======     =======         =======    =======
-------------------
(1)  Deposits from governmental and other public entities.

</TABLE>
<PAGE>
         Borrowings.  First Federal's borrowings  historically have consisted of
advances  from the FHLB of  Indianapolis.  Such advances may be made pursuant to
different credit programs,  each of which has its own interest rate and range of
maturities.  Federal law limits an institution's  borrowings from the FHLB to 20
times the amount  paid for  capital  stock in the FHLB,  subject  to  regulatory
collateral requirements. At December 31, 1996, the Bank had $2.8 million of FHLB
of Indianapolis  stock. The Bank has the ability to purchase  additional capital
stock  from the FHLB.  As a policy  matter,  however,  the FHLB of  Indianapolis
typically  limits  the  amount of  borrowings  from the FHLB to 50% of  adjusted
assets (total assets less borrowings).  For additional information regarding the
term to maturity and average rate paid on FHLB advances, see Note 6 of the Notes
to Consolidated Financial Statements and "Business - Lending Activities."

         The  following  table  sets forth the  maximum  month-end  balance  and
average balance of FHLB advances for the periods indicated.
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                ----------------------------------
                                                                 1996          1995         1994
                                                                 ----          ----         ----
                                                                       (In Thousands)
<S>                                                             <C>           <C>         <C>
Maximum Balance:
  FHLB advances...........................................      $57,000       $42,500     $ 35,500

Average Balance:
  FHLB advances...........................................      $46,128       $34,560     $ 27,765

</TABLE>
Service Corporation Activities

         As a federally  chartered  savings bank,  First Federal is permitted by
OTS regulations to invest up to 2% of its assets, or approximately  $3.4 million
at  December  31,  1996,  in the  stock of,  or loans  to,  service  corporation
subsidiaries. First Federal may invest an additional 1% of its assets in service
corporations  where such  additional  funds are used for inner-city or community
development  purposes and up to 50% of its total capital in conforming  loans to
service  corporations  in which it owns more than 10% of the capital  stock.  In
addition  to  investments  in service  corporations,  federal  associations  are
permitted to invest an unlimited amount in operating subsidiaries engaged solely
in activities in which a federal association may engage.
At December 31, 1996, First Federal had no subsidiaries.

                                   REGULATION

General

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

         Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.

Federal Regulation of Savings Associations

         The  OTS  has  extensive  authority  over  the  operations  of  savings
associations.  As part of this authority,  the Bank is required to file periodic
reports with the OTS and is subject to periodic  examinations by the OTS and the
FDIC. The last regular OTS and FDIC examinations of the Bank were as of December
31,  1996  and  February  25,  1992,   respectively.   Under  agency  scheduling
guidelines,  it is likely that another examination will be initiated in the near
future.  When these  examinations  are  conducted  by the OTS and the FDIC,  the
examiners  may require the Bank to provide for higher  general or specific  loan
loss reserves.  The Bank's OTS assessment for the fiscal year ended December 31,
1996, was approximately $38,000.

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

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

         The Bank's general permissible lending limit for  loans-to-one-borrower
is equal to the  greater of $500,000  or 15% of  unimpaired  capital and surplus
(except for loans fully secured by certain  readily  marketable  collateral,  in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 1996,  the Bank's  lending  limit under this  restriction  was $3.0
million. The Bank is in compliance with the loans-to-one-borrower limitation.

         The OTS, as well as the other  federal  banking  agencies,  has adopted
guidelines  establishing  safety and soundness standards on such matters as loan
underwriting and  documentation,  internal controls and audit systems,  interest
rate risk exposure and compensation and other employee benefits. Any institution
<PAGE>
which fails to comply  with these  standards  must  submit a capital  compliance
plan. A failure to submit a plan or to comply with an approved plan will subject
the  institution to further  enforcement  action.  The OTS and the other federal
banking agencies have also proposed  additional  guidelines on asset quality and
earnings  standards.  No  assurance  can be  given as to the  final  form of the
proposed regulations.

Insurance of Accounts and Regulation by the FDIC

         First  Federal is a member of the SAIF,  which is  administered  by the
FDIC.  Deposits  are  insured  up to  applicable  limits  by the  FDIC  and such
insurance  is  backed  by  the  full  faith  and  credit  of the  United  States
Government.  As insurer,  the FDIC  imposes  deposit  insurance  premiums and is
authorized to conduct  examinations of and to require  reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC  determines  by regulation or order to pose a serious risk
to the FDIC.  The FDIC also has the  authority to initiate  enforcement  actions
against savings  associations,  after giving the OTS an opportunity to take such
action,  and may  terminate  the deposit  insurance  if it  determines  that the
institution has engaged or is engaging in unsafe or unsound practices,  or is in
an unsafe or unsound condition.

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

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

         On September 30, 1996,  federal  legislation  was enacted that required
the  SAIF to be  recapitalized  with a  one-time  assessment  on  virtually  all
SAIF-insured  institutions,  such as the  Bank,  equal to 65.7  basis  points on
SAIF-insured deposits maintained by those institutions as of March 31, 1995. The
SAIF special  assessment  applicable to the Bank,  which was paid to the FDIC in
November  1996,  was  approximately  $453,000.  This  amount was  accrued by the
Company at September 30, 1996 by a charge to earnings.
<PAGE>
         As a result  of the SAIF  recapitalization,  the FDIC has  amended  its
regulation   concerning   the  insurance   premiums   payable  by   SAIF-insured
institutions. For the period October 1, 1996 through December 31, 1996, the SAIF
insurance premium for all SAIF-insured institutions that are required to pay the
Financing  Corporation ("FICO")  obligation,  such as the Bank, was reduced to a
range of 18 to 27 basis  points from 23 to 31 basis  points per $100 of domestic
deposits.  The FDIC has also  further  reduced the SAIF  insurance  premium to a
range of 0 to 27 basis points per $100 of domestic  deposits,  effective January
1, 1997. The Bank qualifies for the minimum SAIF assessment.

         Additionally,   the  FDIC  has  imposed  a  FICO  assessment  on  SAIF-
assessable deposits for the first semi-annual period of 1997 equal to 6.48 basis
points per $100 of  domestic  deposits,  as  compared  to a FICO  assessment  on
BIF-assessable deposits for that same period equal to 1.30 basis points per $100
of domestic deposits.

Regulatory Capital Requirements

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

         The capital  regulations  require  tangible capital of at least 1.5% of
adjusted total assets (as defined by  regulation).  Tangible  capital  generally
includes  common   stockholders'   equity  and  retained  income,   and  certain
noncumulative  perpetual  preferred stock and related income.  In addition,  all
intangible  assets,  other than a limited amount of purchased mortgage servicing
rights,  must be deducted from tangible capital.  At December 31, 1996, the Bank
did not have any intangible assets.

         The OTS regulations establish special  capitalization  requirements for
savings  associations  that own subsidiaries.  Under these  regulations  certain
subsidiaries  are consolidated for capital purposes and others are excluded from
assets and capital. In determining compliance with the capital requirements, all
subsidiaries  engaged  solely in activities  permissible  for national  banks or
engaged  in  certain  other  activities  solely as agent for its  customers  are
"includable"   subsidiaries  that  are  consolidated  for  capital  purposes  in
proportion to the association's level of ownership.  For excludable subsidiaries
the debt and equity  investments in such  subsidiaries  are deducted from assets
and capital. The Bank has no subsidiary.

         At December 31, 1996,  the Bank had tangible  capital of $21.2 million,
or 12.5% of adjusted total assets,  which is  approximately  $18.6 million above
the minimum requirement of 1.5% of adjusted total assets in effect on that date.
<PAGE>
         The capital standards also require core capital equal to at least 3% of
adjusted  total  assets  (as  defined by  regulation).  Core  capital  generally
consists  of  tangible  capital  plus  certain  intangible   assets,   including
supervisory goodwill (which is phased-out over a five-year period) and a limited
amount of purchased credit card  relationships and purchased  mortgage servicing
rights. As a result of the prompt corrective action provisions  discussed below,
however, a savings association must maintain a core capital ratio of at least 4%
to be considered adequately capitalized unless its supervisory condition is such
to allow it to  maintain  a 3% ratio.  At  December  31,  1996,  the Bank had no
intangibles which were subject to these tests.

         At December 31, 1996, the Bank had core capital equal to $21.2 million,
or 12.5%of  adjusted  total  assets,  which is $16.1  million  above the minimum
leverage ratio requirement of 3% as in effect on that date.

          The OTS risk-based  requirement  requires savings associations to have
total capital of at least 8% of risk-weighted  assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain  permanent  and  maturing  capital  instruments  that do not
qualify as core capital and general  valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based  requirement  only to the extent of core capital.  The
OTS is  also  authorized  to  require  a  savings  association  to  maintain  an
additional  amount of total capital to account for  concentration of credit risk
and the risk of non-traditional  activities.  At December 31, 1996, the Bank had
$830,000 of general loss  reserves,  which was less than 1.25% of  risk-weighted
assets.

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

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

         The  OTS  has  adopted  a  final  rule  that  requires   every  savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement,  an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets.  This exposure is a measure of the potential decline in the
net  portfolio  value of a savings  association,  greater than 2% of the present
value of its  assets,  based upon a  hypothetical  200 basis  point  increase or
decrease  in  interest  rates  (whichever  results  in a greater  decline).  Net
portfolio  value is the  present  value of  expected  cash  flows  from  assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between  calculating  interest rate risk and  recognizing any deduction from
<PAGE>
capital.  The rule will not become effective until the OTS evaluates the process
by which  savings  associations  may  appeal an  interest  rate  risk  deduction
determination.  It is uncertain as to when this evaluation may be completed. Any
savings  association  with less than $300 million in assets and a total  capital
ratio in excess of 12% is exempt from this requirement unless the OTS determines
otherwise.

         On December 31, 1996,  the Bank had total  risk-based  capital of $22.0
million (including  approximately  $21.2 million in core capital and $830,000 in
qualifying  supplementary  capital) and  risk-weighted  assets of $101.0 million
(with no  converted  off-balance  sheet  assets);  or total  capital of 21.8% of
risk-weighted  assets. This amount was $13.9 million above the 8% requirement in
effect on that date.

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

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

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

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

         The imposition by the OTS or the FDIC of any of these measures on First
Federal  may have a  substantial  adverse  effect on the Bank's  operations  and
profitability and the value of the Company's Common Stock.  Company shareholders
do not have preemptive rights, and therefore,  if the Company is directed by the
OTS or the FDIC to issue  additional  shares of Common Stock,  such issuance may
result in the dilution in the percentage of ownership of the Company.
<PAGE>
Limitations on Dividends and Other Capital Distributions

         OTS  regulations   impose  various   restrictions  or  requirements  on
associations  with  respect  to their  ability  to pay  dividends  or make other
distributions of capital. OTS regulations prohibit an association from declaring
or paying any dividends or from  repurchasing  any of its stock if, as a result,
the  regulatory  capital of the  association  would be reduced  below the amount
required to be maintained for the liquidation  account established in connection
with its mutual to stock conversion.

         The OTS utilizes a three-tiered approach to permit associations,  based
on their capital level and supervisory condition,  to make capital distributions
which include dividends, stock redemptions or repurchases,  cash-out mergers and
other  transactions  charged to the capital account.  See "- Regulatory  Capital
Requirements."

         Generally, Tier 1 associations,  which are associations that before and
after the proposed distribution meet their fully phased-in capital requirements,
may make capital  distributions during any calendar year equal to the greater of
100% of net  income  for the  year-to-date  plus 50% of the  amount by which the
lesser of the  association's  tangible,  core or risk-based  capital exceeds its
fully phased-in capital  requirement for such capital component,  as measured at
the  beginning  of the  calendar  year,  or the amount  authorized  for a Tier 2
association.  However,  a Tier 1  association  deemed to be in need of more than
normal  supervision  by  the  OTS  may  be  downgraded  to a  Tier  2 or  Tier 3
association as a result of such a determination. The Bank meets the requirements
for a Tier 1  association  and has not been  notified  of a need  for more  than
normal supervision. Tier 2 associations,  which are associations that before and
after the proposed distribution meet their current minimum capital requirements,
may make capital  distributions  of up to 75% of net income over the most recent
four quarter period.

         Tier 3 associations  (which are  associations  that do not meet current
minimum capital  requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of the
noted  safe  harbor  level  must  obtain  OTS  approval  prior  to  making  such
distribution.  Tier 2  associations  proposing  to make a  capital  distribution
within the safe harbor provisions and Tier 1 associations  proposing to make any
capital distribution need only submit written notice to the OTS 30 days prior to
such  distribution.  As a  subsidiary  of the  Company,  the Bank  will  also be
required to give the OTS 30 days' notice prior to declaring  any dividend on its
stock. The OTS may object to the distribution during that 30-day period based on
safety and soundness concerns. See "- Regulatory Capital Requirements."

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

Liquidity

         All savings associations,  including the Bank, are required to maintain
an average daily  balance of liquid assets equal to a certain  percentage of the
sum of its  average  daily  balance of net  withdrawable  deposit  accounts  and
borrowings  payable  in one  year or  less.  For a  discussion  of what the Bank
includes  in  liquid  assets,  see  "Management's  Discussion  and  Analysis  of
Financial   Condition   and  Results  of  Operations  -  Liquidity  and  Capital
Resources."  This  liquid  asset  ratio  requirement  may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 5%.

         In  addition,  short-term  liquid  assets  (e.g.,  cash,  certain  time
deposits,  certain  bankers  acceptances  and short-term  United States Treasury
obligations)  currently must constitute at least 1% of the association's average
daily  balance of net  withdrawable  deposit  accounts  and current  borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio  requirement.  At December 31, 1996, the Bank was in compliance  with both
requirements,  with an  overall  liquid  asset  ratio of 5.69% and a  short-term
liquid assets ratio of 4.0%.

Accounting

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

         The OTS has adopted an amendment to its accounting  regulations,  which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying  economic substance and
inherent risk and that financial  reports must  incorporate any other accounting
regulations  or orders  prescribed  by the OTS. The Bank is in  compliance  with
these amended rules.

Qualified Thrift Lender Test

         All savings  associations,  including the Bank,  are required to meet a
qualified  thrift  lender  ("QTL") test to avoid certain  restrictions  on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis.  Such assets
primarily  consist of  residential  housing  related loans and  investments.  At
December 31,  1996,  the Bank met the test and has always met the test since its
effectiveness.
<PAGE>
         Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
the BIF.  If such an  association  has not yet  requalified  or  converted  to a
national  bank,  its  new  investments  and  activities  are  limited  to  those
permissible  for both a  savings  association  and a  national  bank,  and it is
limited to national bank branching  rights in its home state.  In addition,  the
association is immediately  ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such an association
has not requalified or converted to a national bank within three years after the
failure,  it must  divest  of all  investments  and  cease  all  activities  not
permissible  for a  national  bank.  In  addition,  it must repay  promptly  any
outstanding FHLB borrowings,  which may result in prepayment  penalties.  If any
association that fails the QTL test is controlled by a Company,  then within one
year after the failure,  the Company must  register as a bank company and become
subject  to  all  restrictions  on  bank  holding  companies.   See  "-  Company
Regulation."

Community Reinvestment Act

         Under the  Community  Reinvestment  Act  ("CRA"),  every  FDIC  insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking  practices to help meet the credit needs of its entire  community,
including  low and moderate  income  neighborhoods.  The CRA does not  establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's  discretion to develop the types of products and services
that it believes are best suited to its particular  community,  consistent  with
the CRA. The CRA requires the OTS, in  connection  with the  examination  of the
Bank,  to assess the  institution's  record of meeting  the credit  needs of its
community  and to take such record  into  account in its  evaluation  of certain
applications, such as a merger or the establishment of a branch, by the Bank. An
unsatisfactory  rating may be used as the basis for the denial of an application
by the OTS.

         The federal banking agencies,  including the OTS, have recently revised
the CRA  regulations  and  the  methodology  for  determining  an  institution's
compliance with the CRA. Due to the heightened  attention being given to the CRA
in the past few years,  the Bank may be required to devote  additional funds for
investment  and lending in its local  community.  The Bank was  examined for CRA
compliance in September 1996 and received a rating of outstanding.

Transactions with Affiliates

         Generally,   transactions   between  a  savings   association   or  its
subsidiaries  and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates.  In addition,  certain of these
transactions,  such as loans to an affiliate,  are restricted to a percentage of
the  association's  capital.  Affiliates of the Bank include the Company and any
company  which is under  common  control with the Bank.  In addition,  a savings
association may not lend to any affiliate  engaged in activities not permissible
for a bank company or acquire the securities of most affiliates.

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

         The Company is a unitary savings and loan Company subject to regulatory
oversight  by the OTS. As such,  the  Company is  required to register  and file
reports with the OTS and is subject to regulation and examination by the OTS. In
addition, the OTS has enforcement authority over the Company and its non-savings
association  subsidiaries  which also  permits  the OTS to  restrict or prohibit
activities  that are determined to be a serious risk to the  subsidiary  savings
association.

         As a unitary  savings and loan  company,  the Company  generally is not
subject to activity  restrictions.  If the Company  acquires  control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan company,  and the activities of the Company and any of its subsidiaries
(other than the Bank or any other SAIF-insured savings association) would become
subject to such  restrictions  unless such other  associations each qualify as a
QTL and were acquired in a supervisory acquisition.

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

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

Federal Securities Law

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

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

Federal Reserve System

         The Federal  Reserve  Board  requires all  depository  institutions  to
maintain  non-interest  bearing  reserves  at  specified  levels  against  their
transaction accounts (primarily checking,  NOW and Super NOW checking accounts).
At  December  31,  1996,   the  Bank  was  in  compliance   with  these  reserve
requirements.  The balances maintained to meet the reserve  requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity  requirements that
may be imposed by the OTS.
<PAGE>
         Savings  associations are authorized to borrow from the Federal Reserve
Bank  "discount   window,"  but  Federal  Reserve  Board   regulations   require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.

Federal Home Loan Bank System

         The Bank is a member  of the FHLB of  Indianapolis,  which is one of 12
regional FHLBs,  that  administers the home financing credit function of savings
associations.  Each FHLB  serves as a reserve  or central  bank for its  members
within its assigned  region.  It is funded  primarily from proceeds derived from
the sale of  consolidated  obligations  of the FHLB  System.  It makes  loans to
members (i.e.,  advances) in accordance with policies and procedures established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal  Housing  Finance  Board.  All advances from the FHLB are required to be
fully secured by  sufficient  collateral as determined by the FHLB. In addition,
all  long-term  advances  are  required to provide  funds for  residential  home
financing.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of  Indianapolis.  At December 31, 1996,  the Bank had $2.8 million of FHLB
stock,  which was in compliance with this  requirement.  In past years, the Bank
has  received  substantial  dividends  on its FHLB  stock.  Over  the past  five
calendar  years such  dividends  have averaged 8.22% and were 7.84% for calendar
1996.

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

         For the year ended  December  31, 1996,  dividends  paid by the FHLB of
Indianapolis to the Bank totalled $189,000,  which constitute a $31,000 increase
from the  amount of  dividends  received  in  calendar  year 1995.  The  $55,000
dividend received for the quarter ended December 31, 1996 reflects an annualized
rate of 7.85%, or 0.15% below the rate for the same period in 1995.

Federal and State Taxation

         Federal  Taxation.  Savings  associations  such as the Bank  that  meet
certain  definitional  tests  relating  to the  composition  of assets and other
conditions  prescribed  by the Internal  Revenue  Code of 1986,  as amended (the
"Code"),  are  permitted to establish  reserves for bad debts and to make annual
additions  thereto which may, within  specified  formula  limits,  be taken as a
deduction in  computing  taxable  income for federal  income tax  purposes.  The
amount of the bad debt reserve deduction for "non-qualifying  loans" is computed
under the experience  method.  The amount of the bad debt reserve  deduction for
"qualifying  real  property  loans"  (generally  loans  secured by improved real
estate) may be computed under either the experience  method or the percentage of
taxable income method (based on an annual election).

         Under the  experience  method,  the bad debt  reserve  deduction  is an
amount  determined  under a formula based  generally upon the bad debts actually
sustained by the savings association over a period of years.
<PAGE>
         Since 1987,  the percentage of  specially-computed  taxable income that
was used to compute a savings association's bad debt reserve deduction under the
percentage of taxable income method (the  "percentage  bad debt  deduction") was
8%. The  percentage  bad debt  deduction thus computed was reduced by the amount
permitted as a deduction for  non-qualifying  loans under the experience method.
The availability of the percentage of taxable income method permitted qualifying
savings  associations to be taxed at a lower  effective  federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction). Under changes in federal tax law enacted
in August 1996, the  percentage  bad debt deduction has been  eliminated for tax
years  beginning after December 31, 1995.  Accordingly,  this method will not be
available to the Bank for its tax years ending December 31, 1996 and thereafter.

         Under the percentage of taxable income method,  the percentage bad debt
deduction  could not exceed the amount  necessary to increase the balance in the
reserve for  qualifying  real  property  loans to an amount  equal to 6% of such
loans  outstanding  at the end of the  taxable  year or the  greater  of (i) the
amount  deductible  under the  experience  method or (ii) the amount  which when
added to the bad debt  deduction for  non-qualifying  loans equals the amount by
which 12% of the amount comprising  savings accounts at year-end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year. Through
December 31, 1995,  the 6% and 12%  limitations  did not restrict the percentage
bad debt deduction available to the Bank.

         The  federal  tax  legislation  enacted in August  1996 also  imposes a
requirement  to recapture  into taxable income the portion of the qualifying and
non-qualifying  loan  reserves  in excess of the  "base-year"  balances  of such
reserves.  For the Bank, the base-year  reserves are the balances as of December
31, 1988.  Recapture of the excess  reserves  will occur over a six-year  period
which could begin for the  Association as early as the tax year ending  December
31, 1996 commencement of the recapture period may be delayed, however, for up to
two years provided the Bank meets certain residential lending requirements). The
Bank  previously  established,  and will  continue to  maintain,  a deferred tax
liability  with  respect to its federal  tax bad debt  reserves in excess of the
base-year balances;  accordingly, the legislative changes will have no effect on
total income tax expense for financial reporting purposes.

         Also, under the August 1996  legislation,  the Bank's base-year federal
tax bad debt reserves are "frozen" and subject to current recapture only in very
limited circumstances. Generally, recapture of all or a portion of the base-year
reserves  will be required if the  Association  pays a dividend in excess of the
greater of its current or accumulated  earnings and profits,  redeems any of its
stock,  or is liquidated.  The Bank has not  established a deferred  federal tax
liability under SFAS No. 109 for its base-year federal tax bad debt reserves, as
it does not anticipate engaging in any of the transactions that would cause such
reserves to be recaptured.

         In addition to the regular income tax, corporations,  including savings
associations  such as the Bank,  generally  are  subject  to a minimum  tax.  An
alternative  minimum tax is imposed at a minimum tax rate of 20% on  alternative
minimum  taxable  income,  which is the sum of a  corporation's  regular taxable
income (with certain  adjustments) and tax preference  items, less any available
exemption.  The alternative  minimum tax is imposed to the extent it exceeds the
corporation's  regular  income tax and net  operating  losses can offset no more
than 90% of alternative  minimum  taxable  income.  For taxable years  beginning
<PAGE>
after 1986 and before 1996, corporations, including savings associations such as
the Bank, are also subject to an environmental  tax equal to 0.12% of the excess
of alternative  minimum taxable income for the taxable year (determined  without
regard to net operating losses and the deduction for the environmental tax) over
$2 million.

         The Bank  files  federal  income tax  returns on a calendar  year basis
using the accrual  method of  accounting.  The Company files federal  income tax
returns separately from the Bank.

         The Bank has not been  audited  by the IRS  recently  with  respect  to
federal  income tax returns.  In the opinion of management,  any  examination of
still open returns would not result in a deficiency  which could have a material
adverse effect on the financial condition of the Bank.

         Indiana Taxation. The State of Indiana imposes an 8.5% franchise tax on
the net income of financial (including thrift) institutions, exempting them from
the current gross income,  supplemental  net income and  intangible  taxes.  Net
income for franchise tax purposes will constitute  federal taxable income before
net  operating  loss  deductions  and special  deductions,  adjusted for certain
items,  including Indiana income taxes, tax exempt interest and bad debts. Other
applicable Indiana taxes include sales, use and property taxes.

         Delaware Taxation.  As a Delaware Company, the Company is exempted from
Delaware  corporate income tax but is required to file an annual report with and
pay an annual fee to the State of  Delaware.  The Company is also  subject to an
annual franchise tax imposed by the State of Delaware.

Competition

         First Federal faces strong competition, both in originating real estate
loans and in attracting  deposits.  Competition in originating real estate loans
comes primarily from commercial  banks,  credit unions and savings  institutions
located in the Bank's market area.  Commercial banks,  savings  institutions and
credit  unions  provide  vigorous  competition  in  consumer  lending.  The Bank
competes for real estate and other loans principally on the basis of the quality
of  services  it  provides to  borrowers,  the  interest  rates and loan fees it
charges, and the types of loans it originates. See "- Lending Activities."

         The Bank  attracts  all of its  deposits  through  its  retail  banking
offices,  primarily from the  communities in which those retail banking  offices
are located.  Therefore,  competition  for those  deposits is  principally  from
retail brokerage  offices,  commercial  banks,  savings  institutions and credit
unions  located in these  communities.  The Bank competes for these  deposits by
offering a variety of account alternatives at competitive rates and by providing
convenient   business  hours,  branch  locations  and  interbranch  deposit  and
withdrawal privileges.

         The Bank primarily serves Huntington  County,  Indiana.  There are five
commercial  banks, one savings  institution,  other than First Federal,  and six
credit  unions which compete for deposits and loans in  Huntington  County.  The
Bank  estimates  that its share of the savings  market in  Huntington  County is
approximately  16.0%  and  its  share  of the  residential  mortgage  market  is
approximately 30.0%.
<PAGE>
Employees

         At December 31, 1996, the Bank had a total of 35 full-time, 6 part-time
and 0  seasonal  employees.  The Bank's  employees  are not  represented  by any
collective  bargaining group.  Management considers its employee relations to be
good.

Item 2.           Description of Properties

         The Bank conducts its business through three offices,  all of which are
located in Huntington,  Indiana and are owned by the Bank.  The following  table
sets forth information relating to each of the Bank's offices as of December 31,
1996. The total net book value of the Bank's  premises and equipment  (including
land,  buildings  and  leasehold   improvements  and  furniture,   fixtures  and
equipment) at December 31, 1996 was  approximately  $2.0 million.  See Note 4 in
the Notes to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
                                                                Total
                                                            Approximate
                                                Date           Square         Net Book Value at
           Location                           Acquired         Footage        December 31, 1996
           --------                           --------         -------        -----------------
<S>                                            <C>             <C>              <C>
Main Office:
    648 North Jefferson Street                 1974            5,200            $  754,000
    Huntington, Indiana  46750

Branch Offices:
    1240 South Jefferson Street                1981            1,700               241,000
    Huntington, Indiana  46750

    100 Frontage Road                          1995            3,000             1,014,000
    Huntington, Indiana  46750

</TABLE>
         First  Federal  believes  that its current and planned  facilities  are
adequate to meet the present and foreseeable needs of the Bank and the Company.

         The Bank  maintains  an on-line data base with an  independent  service
bureau servicing financial institutions.

Item 3.           Legal Proceedings

         The  Company  and First  Federal are  involved,  from time to time,  as
plaintiff or defendant in various legal actions  arising in the normal course of
their  businesses.  While the ultimate  outcome of these  proceedings  cannot be
predicted with certainty,  it is the opinion of management,  after  consultation
with counsel representing First Federal and the Company in the proceedings, that
the  resolution  of these  proceedings  should  not have a  material  effect  on
Company's results of operations on a consolidated basis.
<PAGE>
Item 4.           Submission of Matters to a Vote of Security Holders

         On January 15, 1996,  Northeast  Indiana  Bancorp,  Inc. held a Special
Meeting of  Stockholders.  At the meeting,  stockholders  voted on the following
matters:

    (i) The approval of the Company's 1995 Stock Option and Incentive Plan; and


         VOTES:                         FOR          AGAINST      ABSTAIN
         ------                         ---          -------      -------

                                     1,561,499       104,539           9,570

    (iii) The approval of the Company's Recognition and Retention Plan

         VOTES:                         FOR          AGAINST      ABSTAIN
         ------                         ---          -------      -------

                                     1,464,194       201,589           9,825


                                     PART II


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

Page 38 of the attached Annual Report to Stockholders is herein  incorporated by
reference.

Item 6.           Management's Discussion and Analysis of Financial
                  Condition and Results of Operation

         Pages 3 through 14 of the attached  Annual Report to  Stockholders  are
herein incorporated by reference.
<PAGE>
Item 7.           Financial Statements

         The following  information  appearing in the Company's Annual Report to
Stockholders  for the year ended December 31, 1996, is incorporated by reference
in this Annual Report on Form 10-KSB as Exhibit 13.




Annual Report Section

Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended December 31,
 1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity for
 Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for Years Ended December 31,
 1996, 1995 and 1994
Notes to Consolidated Financial Statements

         With the  exception of the  aforementioned  information,  the Company's
Annual  Report to  Stockholders  for the year ended  December 31,  1996,  is not
deemed filed as part of this Annual Report on Form 10-KSB.

Item 8.           Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure

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

                                    PART III


Item 9.           Directors, Executive Officers, Promoters and
                  Control Persons; Compliance with Section 16(a)
                  of the Exchange Act

Directors

         Information  concerning Directors of the Company is incorporated herein
by reference  from the  definitive  Proxy  Statement  for the Annual  Meeting of
Stockholders  to be held in 1997,  a copy of which  will be filed not later than
120 days after the close of the fiscal year.

Executive Officers of the Company and the Bank

         The  following  table  sets forth  certain  information  regarding  the
executive officers of the Company or the Bank who are not also a director.
<TABLE>
<CAPTION>
                                                     Position Held with the
         Name                        Age(1)             Bank and Company
         ----                        ------             ----------------
<S>                                    <C>           <C>
    Darrell E. Blocker                 43            Senior Vice President,
                                                     Treasurer and  Chief
                                                     Financial Officer

    Dee Ann Hammel                     44            Senior Vice President
                                                     and Chief Operating Officer

(1) At December 31, 1996
</TABLE>

         The  business  experience  of the  executive  officers who are not also
directors is set forth below.

         Darrell  E.  Blocker  is Senior  Vice  President,  Treasurer  and Chief
Financial Officer of the Bank and the Company, positions he has held since March
1995. Mr. Blocker first joined the Bank in 1988 as an accountant. Mr. Blocker is
responsible for the overall financial functions of the Bank.

         Dee Ann Hammel is Senior Vice President and Chief Operations Officer of
the Bank and the Company,  positions  she has held since March 1995.  Ms. Hammel
first  joined  the Bank in 1975 as a  teller.  Ms.  Hammel  is  responsible  for
directing and controlling the Bank's daily activities.

Compliance with Section 16(a)

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Bank's equity securities, to file with the SEC initial
reports of  ownership  and reports of changes in  ownership  of Common Stock and
other equity securities of the Company. Officers, directors and greater than 10%
stockholders  are required by SEC  regulation to furnish the Company with copies
of all Section 16(a) forms they file.
<PAGE>
         To the Company's  knowledge,  based solely on a review of the copies of
such reports furnished to the Company and written  representations that no other
reports were  required,  during the fiscal year ended  December  31,  1996,  all
Section 16(a) filing  requirements  applicable  to its  officers,  directors and
greater than 10 percent beneficial owners were complied with.

Item 10.          Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference  from  the  definitive  Proxy  Statement  for the  Annual  Meeting  of
Stockholders  to be held in 1997,  a copy of which  will be filed not later than
120 days after the close of the fiscal year.

Item 11.          Security Ownership of Certain Beneficial
                  Owners and Management

         Information  concerning security ownership of certain beneficial owners
and management is  incorporated  herein by reference  from the definitive  Proxy
Statement for the Annual Meeting of  Stockholders  to be held in 1997, a copy of
which will be filed not later than 120 days after the close of the fiscal year.

Item 12.  Certain Relationships and Related Transactions

         Information  concerning certain  relationships and related transactions
is incorporated  herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1997, a copy of which will be filed
not later than 120 days after the close of the fiscal year.
<PAGE>
Item 13.          Exhibits and Reports on Form 8-K

                  (a)  Exhibits

<TABLE>
<CAPTION>
                                                                                     Reference            Sequential
                                                                                        to               Page Number
                                                                                       Prior            Where Attached
                                                                                      Filing             Exhibits Are
Regulation                                                                          or Exhibit            Located in
  S-B                                                                                 Number                 This
Exhibit                                                                              Attached            Form 10-KSB
Number                                    Document                                    Hereto                Report
------                                    --------                                    ------                ------
<S>                 <C>                                                           <C>                   <C>
      3(i)          Articles of Incorporation, including amendments thereto              *              Not applicable
      3(ii)         By-Laws                                                              *              Not applicable
      4             Instruments defining the rights of security holders,                 *              Not applicable
                    including debentures
      9             Voting Trust Agreement                                             None             Not applicable
     10             Executive Compensation Plans and Arrangements
                    (a)  Employment Contract between Stephen E. Zahn                     *              Not applicable
                         and the Bank
                    (b)  Employment Contract between Darrell Blocker                     *              Not applicable
                         and the Bank
                    (c)  Employment Contract between Dee Ann Hammel                      *              Not applicable
                          and the Bank
                    (d)  1995 Stock Option and Incentive Plan                            *              Not applicable
                    (e)  Recognition and Retention Plan                                  *              Not applicable
     11             Statement re:  computation of per share earnings                   None             Not applicable
     13             Annual Report to Security Holders                                   13
     16             Letter re:  change in certifying accountants                       None             Not applicable
     18             Letter re:  change in accounting principles                        None             Not applicable
     21             Subsidiaries of Registrant                                          21
     22             Published report regarding matters submitted to vote of            None             Not applicable
                    security holders
     23             Consents of Experts and Counsel                                     23              Not applicable
     24             Power of Attorney                                              Not required         Not applicable
     27             Financial Data Schedule                                             27
     28             Information from reports furnished to state insurance              None             Not applicable
                    regulatory authorities
     99             Additional Exhibits                                                None             Not applicable
----------------
*    Filed as exhibits to the Company's Form S-1 registration statement filed on
     March 23, 1995 (File No.  33-90558) of the  Securities  Act of 1933. All of
     such previously filed documents are hereby incorporated herein by reference
     in accordance with Item 601 of Regulation S-B.
</TABLE>
<PAGE>

         (b)  Reports on Form 8-K

         For the year ended December 31, 1996, the Company filed the following:

         (i)    Form 8-K  dated  January  29,  1996,  regarding  Fourth  Quarter
                Earnings for 1995 and Cash Dividend.

         (ii)   Form 8-K dated  February 12, 1996,  regarding  Stock  Repurchase
                Program.

         (iii)  Form 8-K dated  February 16, 1996,  regarding  Additional  Stock
                Repurchase Program.

         (iv)   Form 8-K dated March 27,  1996,  regarding  Completion  of Stock
                Repurchase Program.

         (v)    Form 8-K dated April 17,  1996,  regarding  First  Quarter  1996
                Earnings.

         (vi)   Form 8-K dated April 25,  1996,  regarding  Declaration  of Cash
                Dividend.

         (vii)  Form 8-K  dated  July 3,  1996,  regarding  Declaration  of Cash
                Dividend.

         (viii) Form 8-K dated July 8, 1996, regarding Stock Repurchase Program.

         (ix)   Form 8-K dated July 19,  1996,  regarding  Second  Quarter  1996
                Earnings.

         (x)    Form 8-K dated August 16, 1996,  regarding  Completion  of Stock
                Repurchase Program.

         (xi)   Form 8-K dated September 16, 1996,  regarding  Stock  Repurchase
                Program.

         (xii)  Form 8-K dated  October 16, 1996,  regarding  Third Quarter 1996
                Earnings -- Impact of One-time FDIC Assessment.

         (xiii) Form 8-K dated October 18, 1996,  regarding  Declaration of Cash
                Dividend.
<PAGE>


                                   SIGNATURES


         In accordance  with Section 13 of 15(d) of the Exchange Act, the Issuer
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                                NORTHEAST INDIANA BANCORP, INC.


Date:  March 27, 1997                       By: /s/ Stephen E. Zahn
       --------------                           -------------------
                                                Stephen E. Zahn
                                                (Duly Authorized Representative)


         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the Issuer and in the  capacities  and on
the dates indicated.

<TABLE>
<CAPTION>
<S>                                                 <C>

By:      /s/ Stephen E. Zahn                        By:      /s/ Darrell E. Blocker
----------------------------                                 ----------------------
         Stephen E. Zahn, Chairman of the                    Darrell E. Blocker, Senior Vice
           Board, President and Chief                          President, Treasurer and Chief
           Executive Officer                                   Financial Officer
          (Principal Executive and Operating                 (Chief Financial and Accounting
          Officer)                                           Officer)

Date:     March 27, 1997                            Date:     March 27, 1997
          --------------                                      --------------


By:      /s/ Dan L. Stephan                         By:      /s/ Richard G. Carnes
---------------------------                                  ----------------------
         Dan L. Stephan, Director                            Richard G. Carnes, Director

Date:     March 27, 1997                            Date:     March 27, 1997
          --------------                                      ---------------


By:      /s/ J. David Carnes                        By:      /s/ Samuel Preston, Jr.
----------------------------                                 -----------------------------
         J. David Carnes, Director                           Samuel Preston, Jr., Director

Date:     March 27, 1997                            Date:     March 27, 1997
          --------------                                      --------------


By:      /s/ Randall C. Rider
         --------------------
         Randall C. Rider, Director

Date:     March 27, 1997


</TABLE>