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

                  For the fiscal year ended December 31, 1998

                                       OR

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

         For the transition period from                  to
         Commission file number 0-26012

                         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:  $16.9
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 15, 1999, was $20.60 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  15,  1999,   there  were  1,652,917  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, 1998.

         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,  is the holding  company for First Federal Savings Bank (the "Bank"
or "First  Federal").  All references to the Company prior to June 27, 1995, the
date of the Bank's  conversion from mutual to stock form, except where otherwise
indicated, are to the Bank.

         Northeast  Indiana  Financial,  Inc. was established as a subsidiary of
First Federal Savings Bank to provide brokerage  services through an affiliation
with VESTAX Securities Corporation  (broker/dealer).  The new subsidiary has two
financial professionals with series seven licenses.

         At December  31,  1998,  the Company had $212.42  million of assets and
stockholders' equity of $25.00 million (or 11.77% 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  Company  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,  municipal bonds
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  loans  and  equipment   leases.   At  December  31,  1998,
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.

         First Federal Savings Bank offers traditional Trust services, including
but not limited to, Revocable  Living Trusts,  Testamentary  Trusts,  Investment
Agency  relationships,  Estate  administration,   Guardianships,  and  Custodial
accounts.  The  professionals in the Trust Department have  collectively over 30
years of banking and investments experience.
<PAGE>
         The Company's revenues are derived  principally from interest on 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, 1998,  the Company had $100,000 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
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 Lemmerz, CFM Majestic,  Preferred
Technical Group, Pyle Mfg, LLC, Good Humor-Breyer,  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, 1998, the Bank's
gross loans  outstanding  totaled $190.96  million,  of which $113.92 million or
59.66%  were  one-to  four-family  residential  mortgage  loans.  Of the one- to
four-family  mortgage  loans  outstanding at that date,  43.88% were  fixed-rate
loans, and 56.12% were adjustable-rate loans. At that same date, commercial real
estate and  multi-family  loans  totaled  $19.42  million,  of which 69.06% were
fixed-rate loans and 30.94% were  adjustable-rate  loans. Also at that date, the
Bank's  construction or development loans totaled $11.37 million or 5.95% of the
Bank's total loan  portfolio,  65.38% of which were  adjustable-rate  loans.  At
December 31, 1998, commercial business loans totaled $21.39 million or 11.20% of
the Bank's  total loan  portfolio,  of which  68.63% were  fixed-rate  loans and
31.37% were adjustable-rate loans.

         At  December  31,  1998,  the  balance  of the  Bank's  consumer  loans
consisted of $24.86  million of loans,  which  represented  13.02% of the Bank's
gross loan portfolio. Of the consumer loans outstanding,  72.03% were fixed-rate
loans and 27.97% were adjustable-rate loans.

         The Bank and the Company also invest in mutual  funds,  obligations  of
states and political subdivisions, and other debt securities and mortgage-backed
securities.  At December 31, 1998,  mutual  funds  totaled  $775,000 or 0.37% of
total assets, mortgage-backed securities totaled $5.35 million or 2.52% of total
assets,  Government agencies totaled $4.08 million or 1.92% of total assets, and
obligations of states and political  subdivisions  totaled  $612,000 or 0.29% of
total assets. See "Investment Activities."
<PAGE>
         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, 1998, the maximum
which the Bank could have lent  under  this  limit to any one  borrower  and the
borrower's  related entities was  approximately  $3.44 million.  At December 31,
1998,  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, 1998 was $2.96  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, 1998 was $2.03 million in loans to
one  borrower  secured by  equipment  inventory,  accounts  receivable  and real
estate.  The next largest  lending  relationship  at December 31, 1998 was $1.93
million in loans to one borrower secured by real estate  development and various
spec homes in Allen County,  Indiana.  The next largest lending  relationship at
December 31, 1998 was $1.71 million secured by a manufacturing  facility located
in Huntington County, Indiana. Finally, the next largest lending relationship at
December 31, 1998 was $1.36  million in loans  secured by parcels of real estate
located in Steuben 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,
                                                       ------------------------------------------------------------------------
                                                                1998                    1997                       1996   
                                                       ---------------------     ------------------         -------------------  
                                                       Amount        Percent     Amount     Percent         Amount      Percent 
                                                       ------        -------     ------     -------         ------      ------- 
<S>                                                   <C>              <C>     <C>            <C>         <C>            <C>     
Real Estate Loans:                                                                                                               
 One- to four-family                                  $113,919         59.66%  $109,080       60.53%      $ 99,325       65.10%  
 Multi-family                                            2,908          1.52      2,606        1.45          2,993        1.96   
 Commercial                                             16,514          8.65     16,734        9.29         12,301        8.06   
 Construction or development                            11,365          5.95     10,596        5.88         10,749        7.04   
                                                      --------         -----   --------       -----       --------       -----   
     Total real estate loans                           144,706         75.78    139,016       77.15        125,368       82.16   
                                                      --------         -----   --------       -----       --------       -----   
                                                                                                                                 
Other Loans:                                                                                                                     
 Consumer Loans:                                                                                                                 
  Deposit account                                          146           .08         44         .02            157         .10   
  Student                                                  ---           ---        ---       ---              ---       ---     
  Automobile                                            12,248          6.41     11,573        6.42          8,820        5.78   
  Home equity                                            5,206          2.73      5,506        3.06          4,176        2.74   
  Home improvement                                         742           .39        656         .36            291         .19   
  Other                                                  6,521          3.41      5,873        3.26          4,204        2.76   
                                                      --------         -----   --------       -----       --------       -----   
     Total consumer loans                               24,863         13.02     23,652       13.12         17,648       11.57   
                                                      --------         -----   --------       -----       --------       -----   
 Commercial business loans                              21,393         11.20     17,526        9.73          9,568        6.27   
     Total loans                                       190,962        100.00%   180,194      100.00%       152,584      100.00%  
                                                                      ======                 ======                     ======   
                                                                                                                                 
Less:                                                                                                                            
 Undisbursed portion of construction loans               2,800                    3,981                      4,380               
 Loans in process                                          663                      355                        208               
 Deferred fees and discounts                               139                      125                        114               
 Allowance for loan losses                               1,454                    1,194                      1,027               
                                                    ----------              -----------                  ---------               
 Total loans receivable, net                          $185,906                 $174,539                   $146,855               
                                                      ========                 ========                   ========               
</TABLE>
<PAGE>
<TABLE>
<CAPTION>   
                                                                 1995                    1994  
                                                       ----------------------     ----------------------      
                                                        Amount        Percent     Amount        Percent       
                                                        ------        -------     ------        -------       
<S>                                                    <C>            <C>         <C>          <C>            
Real Estate Loans:                                                                                           
 One- to four-family                                   $ 85,533       67.88%      $ 76,082         70.04%     
 Multi-family                                             2,029        1.61          1,621          1.49      
 Commercial                                              11,742        9.32          8,835          8.13      
 Construction or development                              6,359        5.05          7,033          6.47      
                                                       --------       -----       --------         -----      
     Total real estate loans                            105,663       83.86         93,571         86.13      
                                                       --------       -----       --------         -----      
                                                                                                              
Other Loans:                                                                                                  
 Consumer Loans:                                                                                              
  Deposit account                                           170         .13            264           .24      
  Student                                                   ---       ---              ---         ---        
  Automobile                                              7,756        6.16          6,719          6.19      
  Home equity                                             3,121        2.48          2,895          2.66      
  Home improvement                                          258         .20            202           .19      
  Other                                                   3,245        2.58          2,238          2.06      
                                                       --------       -----       --------         -----      
     Total consumer loans                                14,550       11.55         12,318         11.34      
                                                       --------       -----       --------         -----      
 Commercial business loans                                5,783        4.59          2,745          2.53      
     Total loans                                        125,996      100.00%       108,634        100.00%     
                                                                     ======                       ======      
                                                                                                              
Less:                                                                                                         
 Undisbursed portion of construction loans                2,210                      3,333                    
 Loans in process                                           169                        124                    
 Deferred fees and discounts                                 95                         81                    
 Allowance for loan losses                                  881                        694                    
                                                       --------                  ---------                    
 Total loans receivable, net                           $122,641                   $104,402                    
                                                       ========                   ========                    
</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,
                                                      ----------------------------------------------------------------------------- 
                                                                1998                      1997                        1996
                                                      -----------------------      ---------------------      ---------------------
                                                      Amount          Percent      Amount        Percent      Amount        Percent
                                                      ------          -------      ------        -------      ------        -------

                                                                           (Dollars in Thousands)

<S>                                                   <C>              <C>        <C>              <C>        <C>             <C>   
Fixed-Rate Loans:
 Real estate:
  One- to four-family                                 $49,993          26.18%     $44,203          24.53%     $ 35,764        23.44%
  Multi-family                                          2,323           1.22        1,586            .88         2,397         1.57 
  Commercial                                           11,089           5.81        9,916           5.50         5,922         3.88 
  Construction or development                           3,935           2.06        2,163           1.20         1,421          .94 
                                                      -------         ------      -------         ------      --------       ------ 
     Total real estate loans                           67,340          35.26       57,868          32.11        45,504        29.83 
                                                     --------         ------       ------          -----      --------       ------ 
 Consumer                                              17,909           9.38       16,462           9.14        12,619         8.27 
 Commercial business                                   14,683           7.69       11,694           6.49         4,399         2.88 
                                                     --------        -------      -------         ------      --------       ------ 
     Total fixed-rate loans                            99,932          52.33       86,024          47.74        62,522        40.98 
                                                                                                                                    
Adjustable-Rate Loans:                                                                                                              
 Real estate:                                                                                                                       
  One- to four-family                                  63,926          33.48       64,877          36.00        63,561        41.66 
  Multi-family                                            585            .31        1,020            .57           595          .39 
  Commercial                                            5,425           2.84        6,818           3.78         6,380         4.17 
  Construction or development                           7,430           3.89        8,433           4.68         9,328         6.11 
                                                     --------         ------                     ------       --------       ------ 
     Total real estate loans                           77,366          40.52       81,148          45.03        79,864        52.33 
                                                     --------         ------     --------        -------      --------       ------ 
 Consumer                                               6,954           3.64        7,190           3.99         5,029         3.30 
 Commercial business                                    6,710           3.51        5,832           3.24         5,169         3.39 
                                                     --------        -------                                  --------       
     Total adjustable-rate loans                       91,030          47.67       94,170          52.26        90,062        59.02 
                                                     --------        -------      -------         ------      --------       ------ 
     Total loans                                      190,962         100.00%     180,194         100.00%      152,584       100.00%
                                                                      ======                      ======                     ====== 
                                                                                                                                    
Less:                                                                                                                               
 Undisbursed portion of construction loans              2,800                       3,981                        4,380              
 Loans in process                                         663                         355                          208              
 Deferred fees and discounts                              139                         125                          114              
 Allowance for loan losses                              1,454                       1,194                        1,027              
                                                     --------                    --------                     --------              
    Total loans receivable, net                      $185,906                    $174,539                     $146,855              
                                                     ========                    ========                     ========              
                                                                                                                                    
</TABLE>
<PAGE>
         The following schedule illustrates the interest rate sensitivity of the
Company's loan portfolio at December 31, 1998.  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>      
1999(1)                  $      31        9.68%    $      ---          ---%     $ 10,669         8.45% $      5,668        10.44%   
2000 and 2001                  354         8.47           248         8.06           250         9.60         4,127         9.40    
2002 and 2003                2,218         7.80         1,164         8.68           ---          ---         8,611         9.15    
2004 to 2008                21,399         7.84         7,147         8.84           ---          ---         5,915         9.10    
2009 to 2023                89,917         7.44        10,863         8.65           446         6.50           542         9.23    

<CAPTION>
                                Commercial                                     
                                  Business                    Total            
                                                                               
                                                                               
                                         Weighted                   Weighted   
                                         Average                    Average    
                            Amount        Rate         Amount        Rate      
                            ------        ----         ------        ----      
 <S>                       <C>              <C>      <C>               <C>    
1999(1)                    
2000 and 2001             $   6,071         8.83%    $  22,439         9.05%    
2002 and 2003                 4,931         8.66         9,910         8.97     
2004 to 2008                  5,667         8.56        17,660         8.75     
2009 to 2023                  3,917         8.78        38,378         8.32     
                                807         9.17       102,575         7.58     
                         
</TABLE>

(1) Includes demand loans, loans having no stated maturity and overdraft loans.


      The  total  amount  of loans  due  after  December  31,  1999  which  have
predetermined  interest rates is $91.23 million, while the total amount of loans
due after such dates which have floating or adjustable  interest rates is $77.29
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 and referrals from real estate brokers.  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, 1998, the Bank's one- to four-family  residential mortgage loans
totaled $113.92 million, or 59.66%, of the Bank's gross loan portfolio.

         The Bank  currently  offers  fixed-rate  and  adjustable-rate  mortgage
loans. For the year ended December 31, 1998, the Bank originated  $17.33 million
of fixed-rate loans and $20.26 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 5.0% over the life of a 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 provide for a minimum interest rate based on margins and caps over
the life of the  loans.  At  December  31,  1998,  the total  balance  of one-to
four-family  adjustable-rate  loans was  $63.93  million or 33.48% 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,  1998,  the total  balance  of one- to  four-family
fixed-rate  loans  was  $49.99  million  or  26.18%  of the  Bank's  gross  loan
portfolio.

         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
<PAGE>
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 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,  1998,  the Bank had  $16.51  million  and  $2.91  million  of
commercial and multi-family real estate loans,  respectively,  which represented
8.65% and 1.52%, 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
performed  by  independent   appraisers  to  the  extent   required  by  federal
regulations.

         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.

         Construction or Development Lending. At December 31, 1998, the Bank had
$11.37 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, 1998, the Bank had $3.94 million and $7.43 million of
fixed-rate and adjustable-rate  construction or development loans, respectively,
which  represented  2.06% and  3.89%,  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.
<PAGE>
         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, 1998, the Bank's automobile loans totaled
$12.25  million or 6.41% of the  Bank's  gross loan  portfolio.  Of this  amount
approximately  $4.41  million  or  35.98%  and  $7.84  million  or  64.02%  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 70% 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, 1998, home equity and home  improvement  loans,
most of which are secured by second  mortgages,  amounted  to $5.21  million and
$742,000,  respectively, which represented 2.73% and 0.39%, respectively, of the
Bank's gross loan portfolio.

         At December 31, 1998, the Bank's consumer loan portfolio totaled $24.86
million,  or  13.02%  of  its  gross  loan  portfolio.  At  December  31,  1998,
approximately  72.03% of  consumer  loans  were  short-  and  intermediate-term,
fixed-rate consumer loans and 27.97% were adjustable rate consumer loans.

         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
<PAGE>
and insolvency  laws, may limit the amount which can be recovered on such loans.
At December 31, 1998,  $107,000 of the Bank's consumer loans were non-performing
representing 0.06% of the gross loan portfolio.

         Commercial  Business  Lending.  The  Bank  also  originates  commercial
business  loans  and  purchases   commercial   leases.   At  December  31,  1998
approximately  $21.39 million,  or 11.20% of the Bank's gross loan portfolio was
commercial  business lending.  The largest commercial business loan is a line of
credit of $3.3 million to an automobile leasing company,  of which $2.96 million
was outstanding at December 31, 1998.

         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 lending.

Originations, Purchases and Sales of Loans

         Loan   originations   are  developed  from  continuing   business  with
depositors and borrowers,  soliciting realtors,  builders, walk-in customers and
other third-party sources.

         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,
1998, the Bank originated  $44.69 million in fixed-rate loans and $38.94 million
in adjustable rate loans.

         Total commercial business loan originations  decreased in 1998 compared
to 1997.

         In 1998,  refinancing of residential  loans increased,  contributing to
the increase in one- to four-family  originations for the year of $15.59 million
to $37.60 million in 1998 from $22.01 million in 1997.
<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,
                                                      1998        1997        1996
                                                     -------     -------     -------
                                                            (In Thousands)
<S>                                                  <C>         <C>         <C>    
Originations by type:
 Adjustable rate:
  Real estate - one- to four-family                  $20,263     $ 8,983     $17,971
                    - multi-family                      --          --          --
                    - commercial                       1,382       2,632       1,061
                    - construction                     8,122      10,551       8,466
  Non-real estate  - consumer                          2,094       2,414       1,961
                    - commercial business              6,653       7,661       5,711
                                                     -------     -------     -------
         Total adjustable-rate                        38,514      32,241      35,170
                                                     -------     -------     -------
 Fixed rate:
  Real estate - one- to four-family                   17,332      13,024      11,186
                    - multi-family                       347         729        --
                    - commercial                       1,988       3,757       1,461
                    - construction                     4,334       2,962       3,641
  Non-real estate - consumer                          13,482      14,216      10,187
                    - commercial business              4,586       7,658       3,531
                                                     -------     -------     -------
         Total fixed-rate                             42,069      42,346      30,006
                                                     -------     -------     -------
         Total loans originated                       80,583      74,587      65,176
                                                     -------     -------     -------
Purchases:
  Real estate - one- to four-family                     --          --          --
                    - multi-family                      --          --           250
                    - commercial                        --           300        --
   Non real estate - commercial                        3,046       2,962       1,189
                                                     -------     -------     -------
         Total loans purchased                         3,046       3,262       1,439

Sales and Repayments:
  Real estate - multi-family                            --           352        --
                    - commercial                        --          --          --
  Non real estate - commercial                         2,431        --          --
                                                                             -------
         Total loans sold                              2,431         352        --
  Principal repayments                                70,430      49,887      40,027
                                                     -------     -------     -------
         Total reductions                             72,861      50,239      40,027
                                                     -------     -------     -------
         Net increase (decrease)                     $10,768     $27,610     $26,588
                                                     =======     =======     =======
</TABLE>
                                  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
<PAGE>
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 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, 1998. 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>
                                   30 to 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
                             ------   ------     --------  ------   ------     --------    ------    ------     --------

<S>                          <C>     <C>           <C>       <C>     <C>           <C>       <C>     <C>          <C>  
Real Estate:
  One- to four-family         18     $  904        0.79%       8     $  149        0.13%      26     $1,053        0.92%

  Commercial                   2        785        4.75        6        614        3.72        8      1,399        8.47
  Construction or             --     ------        ----       --     ------        ----      ---     ------        ----
    development
Consumer                      65        494        1.99       25        107        0.43       90        601        2.42
Commercial business            4         41        0.19        8        338        1.58       12        379        1.77
                              --     ------        ----      ---     ------        ----      ---     ------        ----

     Total                    89     $2,224        1.16%      47     $1,208        0.63      136     $3,432        1.80%
                             ===     ======        ====      ===     ======        ====      ===     ======        ====
 </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
becomes  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,
                                                              1998        1997         1996        1995         1994
                                                              ----        ----         ----        ----         ----
                                                                                (Dollars in Thousands)
<S>                                                           <C>         <C>          <C>          <C>         <C> 
Non-accruing loans:
  One- to four-family                                         $149        $334         $470         $  9        $---
  Multi-family                                                 ---         ---          ---          ---         ---
  Commercial real estate                                       614         706          172          171          14
  Construction or development                                  ---         ---          ---          ---         289
  Consumer                                                     107          37           63           94          30
  Commercial business                                          338          89          ---           10           4
                                                             -----      -------       ------         ----       -----
     Total                                                   1,208       1,166          705          284         337
                                                             -----      ------         ----         ----        ----
Foreclosed assets:
  One- to four-family                                           58         ---          ---          ---         ---
   Commercial                                                   52         ---          ---          ---         ---
                                                           -------
     Total                                                     110         ---          ---          ---         ---
                                                            ------    --------       ------       ------      ------
Repossessed assets:
  Consumer                                                      10           7            8          ---         ---
                                                            ------    --------       ------        -----       -----
     Total                                                      10           7            8          ---         ---
                                                            ------    --------       ------        -----       -----

Total non-performing assets                                 $1,328      $1,173         $713         $284        $337
                                                            ======      ======         ====         ====        ====
Total as a percentage of total assets                         0.63%       0.58%        0.42%        0.21%       0.29%
                                                            ======        ====         ====         ====        ====
</TABLE>
         For the year ended December 31, 1998, gross interest income which would
have been recorded had the  non-accruing  loans been current in accordance  with
their original terms was $33,000, none of which was included in interest income.

         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.
<PAGE>
         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, 1998, the Bank had classified
a total  of  $720,000  of its  assets  as  special  mention,  $1.59  million  as
substandard,  net of specific reserves,  none as doubtful,  and none as loss. At
December 31, 1998, total classified  assets comprised $2.3 million,  or 9.20% of
the Bank's capital, or 1.08% of the Bank's total assets.

         Other  Loans of  Concern.  Other  than  the  non-performing  loans  and
foreclosed  real  estate  held for sale set forth in the tables  above,  and the
classified  assets,  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.

         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,  1998,  the Bank had a total  allowance  for loan
losses of $1.45 million,  representing 120.40% of total non-performing loans and
0.78%  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,

                                            1998                             1997                              1996                 
                                                     Percent                                                              Percent   
                                                     of Loans                        Percent of                          of Loans   
                                            Loan     in Each                 Loan      Loans                    Loan      in Each   
                              Amount of   Amounts    Category  Amount of   Amounts    in Each     Amount of    Amounts    Category  
                              Loan Loss     by       to Total  Loan Loss      by     Category to  Loan Loss       by      to Total  
                              Allowance   Category     Loans   Allowance   Category Total Loans   Allowance    Category    Loans    
                                                                        (In thousands)
<S>                            <C>        <C>           <C>     <C>        <C>          <C>        <C>        <C>          <C>      
One- to four-family            $   266    $113,919      59.66%  $  240     $109,080     60.53%     $  209     $ 99,325     65.10%   
Multi-family                        27       2,908       1.52       22        2,606      1.45          74        2,993      1.96    
Commercial real estate             204      16,514       8.65      163       16,734      9.29         106       10,996      7.20    
Construction or                                                                                                                     
  development                      278      11,365       5.95      237       10,596      5.88         311       12,054      7.90    
Consumer                           183      24,863      13.02      136       23,652     13.12          79       17,648     11.57    
Commercial business                305      21,393      11.20      244       17,526      9.73         165        9,568      6.27    
Unallocated                        191          --         --      152          ---       ---          83          ---       ---    
                                                                                                                                    
     Total                     $ 1,454    $190,962     100.00   $1,194     $180,194    100.00%     $1,027     $152,584    100.00%   
                               =======    ========     ======   ======     ========    ======      ======     ========    ======    
                                                                                                          
<CAPTION>
                                            1995                            1994                    
                                                    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             $180   $ 85,533       67.88%  $  145   $ 76,082     70.04%      
Multi-family                      50      2,029        1.61       45      1,621      1.49       
Commercial real estate           100     11,742        9.32       75      8,835      8.13       
Construction or                                                                                 
  development                    200      6,359        5.05      200      7,033      6.47       
Consumer                          65     14,550       11.55       50     12,318     11.34       
Commercial business              100      5,783        4.59       40      2,745      2.53       
Unallocated                      186        ---         ---      139        ---       ---       
                                                                                                
     Total                      $881   $125,996      100.00%   $ 694   $108,634    100.00%      
                                ====   ========      ======    =====   ========    ======       
                               
</TABLE>
<PAGE>
         The following table sets forth an analysis of the Bank's  allowance for
loan losses activity.
<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                  1998         1997         1996        1995       1994
                                                                 (Dollars in Thousands)
<S>                                               <C>         <C>         <C>         <C>         <C>  
Balance at beginning of period                    $1,194      $1,027      $  881      $  694      $  457

Charge-offs:
  One- to four-family                                 47           2           3        --          --
  Commercial                                        --             1        --             9        --
  Consumer                                            99         133         131          65          33
                                                  ------      ------      ------      ------      ------
                                                     146         136         134          74          33
                                                  ------      ------      ------      ------      ------

Recoveries:
   One- to four-family                                 3        --          --          --          --
   Consumer                                           42          38          45          10           7
   Commercial                                          1        --          --          --          --
                                                              ------      ------      ------      ------
                                                      46          38          45          10           7
                                                  ------      ------      ------      ------      ------

Net charge-offs                                      100          98          89          64          26
Additions charged to operations                      360         265         235         251         263
                                                  ------      ------      ------      ------      ------
Balance at end of period                          $1,454      $1,194      $1,027      $  881      $  694
                                                  ======      ======      ======      ======      ======

Ratio of net charge-offs during the period to
 average loans outstanding during the period        0.06%       0.06%       0.07%       0.06%       0.03%
                                                  ======      ======      ======      ======      ======

Ratio of net charge-offs during the period to
 average non-performing loans                      12.99%      13.07%      20.23%      16.41%       9.92%
                                                  ======      ======      ======      ======      ======

</TABLE>
                              Investment Activities

         General.   Liquidity  may  increase  or  decrease  depending  upon  the
availability of funds and  comparative  yields on investments in relation to the
return on loans. The Bank has generally maintained liquid assets at levels above
the minimum  requirements that had been imposed by 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,
1998,  the  Bank's  liquidity  ratio  (liquid  assets  as a  percentage  of  net
withdrawable savings deposits and current borrowings) was 8.85%.

         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.
<PAGE>
         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, 1998,
First  Federal's  interest-earning  deposits with other  financial  institutions
totaled $4.18 million, or 1.97% of total assets, and its securities,  consisting
of obligations of states and political subdivisions,  money market mutual funds,
and other securities totaled $14.19 million, or 6.68% of total assets.  Included
in other securities, as of such date, the Bank had a $3.25 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, 1998, the Bank had $528,000 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
$13.66  million.  See  Note  2  of  the  Notes  to  the  Consolidated  Financial
Statements.

         The following table sets forth the composition of the Bank's securities
portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                    1998                          1997                         1996
                                         Carrying          % of       Carrying             %        Carrying           % of
                                                                       (Dollars in Thousands)
<S>                                       <C>            <C>         <C>                <C>         <C>             <C>  
Debt securities:
  Obligations of states and political     $    612          4.31%     $     639           4.15%     $    703           5.67%      
  Mortgage-backed securities                 5,354         37.74          6,599          42.89         6,162          49.73       
  Federal agency obligations                 4,080         28.76          4,044          26.29         1,787          14.43       
  Corporate bonds                              116          0.82            118           0.77           189           1.53       
                                          --------        ------      ---------       --------      --------        -------       
     Total debt securities                  10,162         71.63         11,400          74.10         8,841          71.36       
                                                                                                                                  
Equity securities:                                                                                                                
  Mutual funds                                 775          5.46            735           4.78           697           5.63       
  FHLB stock                                 3,250         22.91          3,250          21.12         2,850          23.01       
                                          --------      --------      ---------        -------      --------        -------       
     Total securities                      $14,187        100.00%       $15,385         100.00%      $12,388         100.00%      
                                           =======        ======        =======         ======       =======         ======       
</TABLE>
<PAGE>
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,  1998,  the Bank had total  FHLB
advances of $62.10  million  with the capacity to borrow as of December 31, 1998
an additional $11.90 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 time deposit accounts. The time
deposit 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.  First  Federal
generally  solicits  deposits  from its  market  area  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.

         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 time
deposit  accounts,  and the  rates  paid on  these  deposits,  has been and will
continue to be significantly affected by market conditions.
<PAGE>
         The following table sets forth the savings flows at the Bank during the
periods indicated.
<TABLE>
<CAPTION>
                                      Year Ended December 31,

                                  1998          1997          1996

                                        (Dollars in Thousands)
<S>                             <C>          <C>           <C>     
Opening balance                 $107,550     $ 85,346      $ 68,203
Deposits                         336,345      303,686       260,248
Withdrawals                      326,471      286,040       246,610
Interest credited                  5,912        4,558         3,505
                                --------     --------      --------

Ending balance                  $123,336     $107,550      $ 85,346
                                ========     ========      ========

Net increase (decrease)         $ 15,786     $ 22,204      $ 17,143
                                ========     ========      ========

Percent increase (decrease)      14.68 %        26.02%        25.14%
                                ========     ========      ========
</TABLE>
         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,
                                                        1998                       1997                          1996
                                                             Percent                     Percent                       Percent
                                                 Amount      of Total      Amount         of Total        Amount       of Total

                                                                    (Dollars in Thousands)
<S>                                          <C>              <C>         <C>               <C>          <C>             <C>

Passbook Accounts 2.75%                      $    9,812          7.96%    $   9,336           8.68%      $10,147         11.89%  
                                                                                                                                 
Demand and NOW Accounts 1.19%                    13,905         11.27        12,037          11.19        10,295         12.06   
Money Market Accounts 5.10%                      20,508         16.63        17,098          15.90        11,680         13.69   
                                             ----------      --------     ---------          -----       -------        ------   
                                                                                                                                 
Total Non-Time Deposits                          44,225         35.86        38,471          35.77        32,122         37.64   
                                             ----------      ---------    ---------          -----       -------        ------   
                                                                                                                                 
Time Deposits:                                                                                                                   
                                                                                                                                 
 2.00 -  3.99%                                      939          0.76         1,045            .97         1,286          1.51   
 4.00 -  5.99%                                   72,690         58.94        38,467          35.77        39,177         45.90   
 6.00 -  7.99%                                    5,482          4.44        29,567          27.49        12,761         14.95   
                                            -----------     ---------     ---------         ------      --------        ------   
                                                                                                                                 
Total Time Deposits                              79,111         64.14        69,079          64.23        53,224         62.36   
                                             ----------     ---------     ---------         ------       -------        ------   
                                                                                                                                 
Total Deposits                                 $123,336        100.00%     $107,550         100.00%      $85,346        100.00%  
                                               ========        ======      ========         ======       =======        ======   
</TABLE>
<PAGE>
         The following table shows rate and maturity  information for the Bank's
time deposit accounts as of December 31, 1998.
<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>   
Time deposit accounts
maturing in quarter ending:
March 31, 1999                    $       410   $   15,950  $        510   $   16,870           21.32%

June 30, 1999                             517        9,004           100        9,621           12.16
September 30, 1999                         12       16,203           522       16,737           21.16
December 31, 1999                         ---       12,567         1,014       13,581           17.17
March 31, 2000                            ---        7,578         1,524        9,102           11.51
June 30, 2000                             ---        4,796           213        5,009            6.33
September 30, 2000                        ---        1,947           168        2,115            2.67
December 31, 2000                         ---        1,241           233        1,474            1.86
March 31, 2001                            ---          319         1,097        1,416            1.79
June 30, 2001                             ---          610           ---          610            0.77
September 30, 2001                        ---          957           100        1,057            1.34
December 31, 2001                         ---          848             1          849            1.07
Thereafter                                ---          670           ---          670            0.85
                                   ----------    ---------    ----------   ----------          ------ 
   Total                           $      939    $  72,690    $    5,482   $   79,111          100.00%
                                   ==========    =========    ==========   ==========          ======

   Percent of total                     1.19%       91.88%         6.93%      100.00%
                                   ==========    =========    ==========   ==========           
 </TABLE>
         The  following  table  indicates  the amount of the Bank's time deposit
accounts by time remaining until maturity as of December 31, 1998.
<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>     
Time deposit accounts less than $100,000            $   6,801   $    6,745   $ 14,286      $14,427    $ 42,259

Time deposit accounts of $100,000 or more               8,894        2,876     14,410        7,875      34,055
Public funds (1)                                        1,175          ---      1,622          ---       2,797
                                                     -------- ------------   -------- ------------    --------
Total time deposit accounts                          $ 16,870   $    9,621    $30,318      $22,302    $ 79,111
                                                     ========   ==========    =======      =======    ========
</TABLE>
------------------

(1)      Deposits from governmental and other public entities.
<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, 1998,  the Bank had $3.25  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,
                                              1998        1997         1996
                                                     (In Thousands)
<S>                                         <C>          <C>         <C>    
Maximum Balance:
  FHLB advances                             $62,100      $63,000     $57,000



Average Balance:
  FHLB advances                             $54,841      $58,859     $46,128

</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 $4.25 million
at  December  31,  1998,  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, 1998,
First Federal had one subsidiary,  Northeast Indiana Financial, Inc., an Indiana
corporation,  but it was still in the formation  stage and First Federal Savings
Bank had not yet capitalized the entity.

                                   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
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
September 30, 1997 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. All savings association are subject to a
<PAGE>
semi-annual  assessment,  based upon the savings  association's total assets, to
fund the  operations of the OTS. The Bank's OTS  assessment  for the fiscal year
ended December 31, 1998, was approximately $56,000.

         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 the Bank is prohibited  from engaging in
any activities not permitted by such laws. For instance,  no savings institution
may invest in non-investment grade corporate debt securities.  In addition,  the
permissible  level of  investment  by federal  associations  in loans secured by
non-residential real property may not exceed 400% of total capital,  except with
approval of the OTS. Federal savings  associations are also generally authorized
to branch nationwide. 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, 1998,  the Bank's  lending limit under this  restriction  was $3.44
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,  asset quality,  earnings  standards,  internal
controls and audit  systems,  interest rate risk exposure and  compensation  and
other  employee  benefits.  Any  institution  which  fails to comply  with these
standards must submit a compliance plan.

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 SAIF or the BIF. The FDIC also has the authority to initiate  enforcement
actions  against  savings  associations,  after giving the OTS an opportunity to
take such action,  and may terminate the deposit insurance if it determines that
the institution has engaged in unsafe or unsound  practices,  or is in an unsafe
or unsound condition.

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

         Effective  January  1,  1997,  the  premium  schedule  for BIF and SAIF
insured  institutions  ranged from 0 to 27 basis points.  However,  SAIF-insured
institutions are required to pay a Financing  Corporation (FICO) assessment,  in
order to fund the  interest on bonds  issued to resolve  thrift  failures in the
1980s,  equal to  approximately  6.48  basis  points  for each $100 in  domestic
deposits,   while   BIF-insured   institutions   pay  an  assessment   equal  to
approximately  1.52  basis  points  for  each  $100 in  domestic  deposits.  The
assessment  is expected to be reduced to 2.43 basis points no later than January
1, 2000,  when BIF insured  institutions  fully  participate in the  assessment.
These  assessments,  which may be  revised  based upon the level of BIF and SAIF
deposits will continue until the bonds mature in the year 2017.

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 for calculating  compliance with
the  requirement.  At December  31, 1998,  the Bank did not have any  intangible
assets.

         The OTS regulations establish special  capitalization  requirements for
savings associations that own subsidiaries.  In determining  compliance with the
capital requirements,  all subsidiaries engaged solely in activities permissible
for national  banks or engaged in certain other  activities  solely as agent for
its customers are  "includable"  subsidiaries  that are consolidated for capital
purposes in proportion to the association's  level of ownership.  For excludable
subsidiaries the debt and equity  investments in such  subsidiaries are deducted
from assets and capital.  The Bank has one subsidiary  established as an Indiana
corporation but not active at December 31, 1998.

         At December 31, 1998,  the Bank had tangible  capital of $21.6 million,
or 10.2% of adjusted total assets,  which is  approximately  $18.4 million above
the minimum requirement of 1.5% of adjusted total assets in effect on that date.

         The capital standards also require core capital equal to at least 3% of
adjusted total assets.  Core capital generally consists of tangible capital plus
certain intangible  assets,  including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions
<PAGE>
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, 1998, the Bank had no intangibles which were subject to these tests.

         At December 31, 1998, the Bank had core capital equal to $21.6 million,
or 10.2% of adjusted  total  assets,  which is $15.2  million  above the minimum
leverage ratio requirement of 3% 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, 1998, the Bank had
$1.34  million  of  general  loss  reserves,   which  was  less  than  0.97%  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, 1998.

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

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

         On December 31, 1998,  the Bank had total  risk-based  capital of $23.0
million (including  approximately $21.6 million in core capital and $1.4 million
in qualifying supplementary capital) and risk-weighted assets of $138.5 million;
or total  capital  of 16.57% of  risk-weighted  assets.  This  amount  was $11.9
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
<PAGE>
capital ratio or an 8% risk-based  capital  ratio).  Any such  association  must
submit a capital restoration plan and until such plan is approved by the OTS may
not  increase its assets,  acquire  another  institution,  establish a branch or
engage in any new activities,  and generally may not make capital distributions.
The OTS is authorized to impose the additional  restrictions that are applicable
to significantly undercapitalized associations.

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

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

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

         The imposition by the OTS or the FDIC of any of these measures on 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.

Limitations on Dividends and Other Capital Distributions

         OTS regulations  impose various  restrictions  on savings  associations
with respect to their  ability to make  distributions  of capital  which include
dividends,  stock  redemptions  or  repurchases,   cash-out  mergers  and  other
transactions  charged to the capital  account.  OTS regulations  also prohibit a
savings  association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result,  the  regulatory  capital  of the  association
would be reduced below the amount  required to be maintained for the liquidation
account established in connection with its mutual to stock conversion.

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

         Savings  associations  proposing to make any capital  distribution need
only  submit  written  notice  to the OTS 30 days  prior  to such  distribution.
Savings  associations  that do not,  or would  not meet  their  current  minimum
capital requirements following a proposed capital distribution, however,
<PAGE>
must obtain OTS approval prior to making such  distribution.  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.  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 of  supervisory
concern,  and would remain adequately  capitalized (as defined in the OTS prompt
corrective  action  regulations)  following the proposed  distribution.  Savings
associations  that would remain  adequately  capitalized  following the proposed
distribution but do not meet the other noted requirements must notify the OTS 30
days prior to declaring a capital distribution. The OTS stated it will generally
regard as permissible  that amount of capital  distributions  that do not exceed
50% of the  institution's  excess  regulatory  capital  plus net  income to date
during  the  calendar  year.  A  savings  association  may  not  make a  capital
distribution  without  prior  approval  of  the  OTS  and  the  FDIC  if  it  is
undercapitalized  before,  or as a result of, such a distribution.  As under the
current  rule,  the  OTS  may  object  to a  capital  distribution  if it  would
constitute  an unsafe  or  unsound  practice.  No  assurance  may be given as to
whether or in what form the regulations may be adopted.

Liquidity

         All savings associations,  including the Bank, are required to maintain
an average daily  balance of liquid assets equal to a certain  percentage of the
average  daily  balance of its  liquidity  base  during the  preceding  calendar
quarter or a percentage  of the amount of its  liquidity  base at the end of the
preceding quarter.  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 4%.

         Penalties may be imposed upon associations for violations of the liquid
asset ratio  requirement.  At December 31, 1998, the Bank was in compliance with
the requirement, with an overall liquid asset ratio of 8.85%.

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.  As an
alternative,  the savings  association  may  maintain 60% of its assets in those
assets  specified in Section  7701(a)(9)  of the Internal  Revenue  Code.  Under
either test, such assets primarily consist of residential  housing related loans
and investments.  At December 31, 1998, the Bank met the test and has always met
the test since its effectiveness.

         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
<PAGE>
and cease all activities not  permissible  for a national bank. In addition,  it
must  repay  promptly  any  outstanding  FHLB  borrowings,  which may  result in
prepayment  penalties.  If any association that fails the QTL test is controlled
by a holding  company,  then  within one year  after the  failure,  the  holding
company  must  register  as a bank  holding  company  and become  subject to all
restrictions on bank holding companies. See "- Holding Company Regulation."

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 Holding 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  holding  company  or  acquire  the  securities  of most
affiliates.  The  OTS  has the  discretion  to  treat  subsidiaries  of  savings
associations as affiliates on a case by case basis.

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

Holding Company Regulation

         The Company is a unitary  savings and loan holding  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 holding 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 holding company, and the activities of the
<PAGE>
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  holding  company
controlling  savings  associations  in  more  than  one  state.   However,  such
interstate  acquisitions are permitted based on specific state  authorization or
in a supervisory acquisition of a failing savings association.

Federal Securities Law

         The  stock  of the  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,  1998,   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.

         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
<PAGE>
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, 1998, the Bank had $3.25 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 7.49% and were 8.01% for calendar
1998.

         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, 1998,  dividends  paid by the FHLB of
Indianapolis to the Bank totaled $260,000,  which constituted a $16,000 increase
from the  amount of  dividends  received  in  calendar  year 1997.  The  $65,500
dividend received for the quarter ended December 31, 1998 reflects an annualized
rate of 8.00%, which was the same rate for the corresponding period in 1997.

Federal and State Taxation

         Federal Taxation.  Savings associations such as the Bank, 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 is computed under the experience method.  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.

         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.

         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 was delayed,  however, until the
tax year ended  December  31,  1998,  because the Bank met  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.
<PAGE>
         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
exemptions.  The alternative minimum tax is imposed to the extent it exceeds the
corporation's  regular  income tax and net  operating  losses can offset no more
than 90% of alternative  minimum  taxable  income.  For taxable years  beginning
after 1986 and before 1996, corporations, including savings associations such as
the Bank, are also subject to an environmental  tax equal to 0.12% of the excess
of alternative  minimum taxable income for the taxable year (determined  without
regard to net operating losses and the deduction for the environmental tax) over
$2 million.

         Beginning with 1998, the Company filed consolidated federal tax returns
including  the Bank on a  calendar  year  basis  using  the  accrual  method  of
accounting.

         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
<PAGE>
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  27%  and  its  share  of  the  residential   mortgage  market  is
approximately 32%.

Employees

         At December 31, 1998, the Bank had a total of 44 full-time, 4 part-time
and 1  seasonal  employees.  The Bank's  employees  are not  represented  by any
collective  bargaining group.  Management considers its employee relations to be
good.
<PAGE>
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,
1998. 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, 1998 was approximately  $2.26 million.  See Note 4 of
the Notes to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
                                                       Total
                                                    Approximate
                                      Date             Square         Net Book Value at
        Location                     Acquired          Footage         December 31, 1998
        --------                     --------          -------         -----------------
<S>                                   <C>                 <C>                 <C>    
Main Office:
    648 North Jefferson Street        1974                5,200               $   846
    Huntington, Indiana  46750

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

    100 Frontage Road                 1995                5,000(1)              1,178
    Huntington, Indiana  46750
</TABLE>

(1)      Includes addition completed in early 1999.

         There was a 2,000  square foot  addition  to the office  located at 100
Frontage Road which was completed  during the first quarter 1999.  This addition
provides space for the financial services  subsidiary,  the Trust Department and
future growth.

         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  database  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 the
Company's results of operations on a consolidated basis.
<PAGE>
Item 4.           Submission of Matters to a Vote of Security Holders
                  ---------------------------------------------------
                  None

                                     PART II


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

         Page  37 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  5  through  15  of  the  attached   Annual   Report  to
         Stockholders are herein incorporated by reference.

Item 7.           Financial Statements
                  --------------------

         The following  information  appearing in the Company's Annual Report to
Stockholders  for the year ended December 31, 1998, is incorporated by reference
in this Annual Report on Form 10- KSB as Exhibit 13.


                                                                        Pages in
                                                                          Annual
Annual Report Section                                                     Report
---------------------                                                     ------

Report of Independent Auditors                                               16
Consolidated Balance Sheets as of December 31, 1998 and 1997                 17
Consolidated Statements of Income for the Years Ended December 31,           18
 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders' Equity for the           19
 Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,       20
 1998, 1997 and 1996
Notes to Consolidated Financial Statements                                   21

         With the  exception of the  aforementioned  information,  the Company's
Annual  Report to  Stockholders  for the year ended  December 31,  1998,  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 1999,  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 directors.

                                              Position held with the
     Name                 Age(1)                 Bank and Company
     ----                 ------                 ----------------
 

Darrell E. Blocker         45         Senior Vice President, Treasurer and
                                      Chief Financial Officer
Dee Ann Hammel             46         Senior Vice President and Chief Operating
                                      Officer
Joseph A. Byers            46         Vice President and Senior Trust Officer

(1) At December 31, 1998


         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.

         Joseph A. Byers is Vice President and Senior Trust Officer of the Bank,
a position he has held since  August  1998.  Mr.  Byers first joined the Bank in
July 1998 to help  establish  and  manage  the Trust  Department.  Mr.  Byers is
responsible  for management of the Trust  Department and the financial  services
subsidiary. Mr. Byers came to us with 28 years in banking experience,  including
20 years of Trust experience.
<PAGE>
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.

         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,  1999,  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 1999,  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 1999, 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  hereinby  reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1999, 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
                                                                                                         Page Number
                                                                                                        Where Attached
                                                                                                         Exhibits Are
                                                                                                          Located in
                                                                                                             This
                                                                                                         Form 10-KSB
                                                                                                            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                  [___]
     24             Power of Attorney                                              Not required         Not applicable
     27             Financial Data Schedule                                             27                  [___]
     99             Additional Exhibits                                                None             Not applicable
</TABLE>
----------------
*        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.
<PAGE>
         (b)  Reports on Form 8-K

         For the year ended December 31, 1998, the Company filed the following:

         (i)      Form 8-K dated  January,  30, 1998,  regarding  Fourth Quarter
                  Earnings for 1997 and Cash Dividend.

         (ii)     Form  8-K  dated  April  15,  1998,  regarding  First  Quarter
                  earnings.

         (iii)    Form 8-K dated April 24,  1998,  regarding  Cash  Dividend and
                  results of Shareholder Meeting.

         (iv)     Form  8-K  dated  July 8,  1998,  regarding  Stock  Repurchase
                  Program.

         (v)      Form  8-K  dated  July  20,  1998,  regarding  Second  Quarter
                  Earnings.

         (vi)     Form 8-K dated July 30, 1998,  regarding  Declaration  of Cash
                  Dividend.

         (vii)    Form 8-K dated  October  20,  1998,  regarding  Third  Quarter
                  Earnings.

         (viii)   Form 8-K dated October 28, 1998, regarding a Stock 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 31, 1999                      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 31, 1999                             Date:     March 31, 1999
                       

By:      /s/ Dan L. Stephan                           By:     /s/ Samuel Preston, Jr.        
         ------------------                                   -----------------------        
         Dan L. Stephan, Director                             Samuel Preston, Jr., Director  
                                                                                             
Date:    March 31, 1999                             Date:     March 31, 1999                 
                                                                                             
                                                   
By:      /s/ J. David Carnes                       
         -------------------                       
         J. David Carnes, Director                 

Date:    March 31, 1999                            
                       

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

Date:    March 31, 1999

</TABLE>


                                       43