<PAGE>   1

                                                                   EXHIBIT 13.1


April, 1998

Dear Fellow Shareholders:

Unlike last year, when we could report only on activities relating to the
formation of St. Joseph Capital Corporation (the bank holding company), this
year we have an abundance of activities on which to report relating to the
performance and ongoing operation of the Bank.  We are delighted to announce
that total assets of the Company on December 31, 1997, reached $50.8 million.
These results were achieved in a little more than 10 months since opening St.
Joseph Capital Bank on February 13, 1997.  The level of total assets is
important because it serves as an indicator of how rapidly the Bank has grown
and how well our concept has been accepted by our target clients. Significantly,
the Bank is already approaching the asset size necessary to support its overhead
structure.

Total loans were $22.4 million at year-end, which exceeded our initial
projections. Loan volume built steadily throughout the year.  We generated $6.2
million in new loans in the 4th quarter of 1997, which is a 38.5% increase over
the prior quarter-end.  We believe that this trend will continue into 1998.

Total deposits also exceeded our internal forecast.  The deposit-gathering
function continues to build momentum due to the variety and sophistication of
our deposit products.  Deposits increased by $4.8 million in the 4th quarter,
which brought total deposits to $34.9 million at year-end.  Deposits drive our
growth, and we are grateful to all our clients who have established deposit
relationships with us.  Each deposit account is important to us and is a product
of our commitment to provide our clients with truly superior personalized
service.

The net loss for the year was $762,120.  It is important to note that
approximately half of the net loss is a result of provisioning expense of
$360,000 to build the Allowance for Loan Loss ("Allowance").  There have been
no loan losses since our inception.  This provision for the Allowance is
simply an accounting convention that banks use in their financial reporting and
it does not represent a cash loss. Additionally, the Allowance, which
represents 1.61% of total loans, is substantially in excess of the peer-group
average and reflects a very conservative approach to managing the financial
affairs of the Bank.  This is especially true given the current quality of the
loan portfolio.  As of December 31, 1997, the Bank did not have any
non-performing loans or any past-due loans.  We encourage you to read the
Management Discussion & Analysis section of this report for more details on the
overall financial


<PAGE>   2

performance of the Company.

In December, we conducted our first "Client Satisfaction Survey."  More than
one-third of our clients provided us with important feedback.  We are proud of
the results we achieved.  On a scale of 1-5 (with 5 being the best) we scored
the following composite ratings:

Client Service                     4.822
Products                           4.432
Problem Resolution                 4.751
Overall Satisfaction               4.755

Everyone responding answered affirmatively when asked whether he or she would
recommend the Bank to a friend.  While we are encouraged by the many positive
comments, we have no intention of resting on our laurels.  We believe we must
continue to provide superior service in order for our clients to continue their
enthusiastic endorsement of St. Joseph Capital Bank to friends and business
associates.

Each year we intend to focus on a particular theme.  Many of you will recall
that our theme for 1997 was "Building Loyalty."  Our theme for 1998, "NO
BARRIERS - ONLY BRIDGES," further defines our attitude about how we conduct
business.  We invite you to explore some of our "bridges," which are highlighted
on the pages that follow.  We hope that during the course of 1998 we will have
the opportunity to build more "bridges" with each of you.

We would be remiss if we didn't acknowledge our dedicated colleagues and their
enormous contribution to our successful start.  Sound business plans and
strategies are important; but we must always remember that it takes superior
execution of these plans every day to make a company great.  The staff members
of St. Joseph Capital Bank have executed at the highest level this past year.
Given their character, you can expect nothing less in the years to come.

We must also single out another group - our Board of Directors.  This group came
together more than two years ago and has invested countless hours to ensure that
real value for shareholders would be created.  Through both the timely delivery
of advice based upon years of experience and the all-important role of being
ambassadors for our Company in the community, this group has excelled.

One of our founding holding company directors, Arthur J. Decio, will change
status  to Director Emeritus, effective at the 1998 Annual Meeting.  Art has
brought tremendous enthusiasm, support, and credibility to this venture.  He
helped us get started and gain critical momentum.  Fortunately for us, we will
still be able to receive his counsel as a Director Emeritus.

We strongly encourage you to attend our Annual Shareholders'



<PAGE>   3


Meeting, which will be conducted on Thursday, May 21, 1998, at 7 p.m. (EST) at
the Center for Continuing Education, Notre Dame, Indiana.  It gives us a chance
to showcase the Company, to answer any questions you might have, and to
celebrate our accomplishments, as well as rededicate ourselves to similar
efforts for the remainder of 1998.  We plan to make it as lively and informative
as possible.  A reception will follow the meeting.

In closing, each of us extends our heartfelt thanks to you for the tremendous
support and assistance you have provided in turning a dream into the reality
that is St. Joseph Capital Bank.


Sincerely,



John W. Rosenthal

<PAGE>   4

                     SELECTED CONSOLIDATED FINANCIAL DATA


The following selected consolidated financial data of St. Joseph Capital
Corporation and its subsidiary is qualified in its entirety by, and should be
read in conjunction with, the consolidated financial statements, including
notes thereto, included elsewhere in this Annual Report.



<TABLE>
<CAPTION>
                                                                                                     At December 31,
                                                                                                  --------------------
                                                                                                     (In thousands)
                                                                                                     1997      1996
                                                                                                     ----      ----
<S>                                                                                               <C>         <C>
SUMMARY OF FINANCIAL CONDITION:
Total assets                                                                                      $50,839     $ 11,841
Total cash and cash equivalents                                                                     4,535        1,410
Interest-bearing time deposits in other financial institutions                                        500            -
Securities available for sale                                                                      22,351       10,128
Loans receivable, net of allowance for loan losses                                                 21,991            -
Total deposits                                                                                     34,916            -
Total shareholders' equity                                                                         11,204       11,793
Average shareholders' equity                                                                       11,628        4,754
Average total assets                                                                               31,283        4,892
</TABLE>

<TABLE>
<CAPTION>
                                                                                                 Year Ended December 31,
                                                                                                  1997 and Period From
                                                                                                    February 29, 1996
                                                                                                  to December 31, 1996
                                                                                                  --------------------
                                                                                                     (In thousands)
                                                                                                     1997      1996
                                                                                                     ----      ----
<S>                                                                                               <C>         <C>
SUMMARY OF OPERATING RESULTS:
Total interest and dividend income                                                                $ 2,022     $    197
Total interest expense                                                                                942            8
                                                                                                  -------     --------
   Net interest income                                                                              1,080          189
Provision for loan losses                                                                             360            -
Total noninterest income                                                                                4            -
Total noninterest expense                                                                           1,486          479
                                                                                                  -------     --------
Income (loss) before income taxes                                                                    (762)        (290)
Income tax expense                                                                                      -            -
                                                                                                  -------     --------
   Net loss                                                                                       $  (762)    $   (290)
                                                                                                  =======     ========

SUPPLEMENTAL DATA:
Return on average total assets                                                                      (2.44)%      (5.93)%
Return on average shareholders' equity                                                              (6.55)       (6.10)
Net interest rate spread (1)                                                                         1.61        (1.25)
Net yield on average interest-earning assets (2)                                                     3.72         4.58
Dividend pay-out ratio (3)                                                                              -            -
Net interest income to operating expenses (4)                                                       72.65        39.49
Average shareholders' equity to average total assets                                                37.17        97.18
Average interest-earning assets to average interest-bearing liabilities                            165.02     3,103.01
Nonperforming assets to total assets                                                                    -            -
Nonperforming loans to total loan receivable                                                            -            -
Allowance for loan losses to total loans receivable                                                  1.61            -
Allowance for loan losses to non-performing loans receivable                                            -            -
Basic and diluted loss per common share (5)                                                       $  (.60)    $   (.23)
Dividends declared per share                                                                      $     -     $      -
Book value per share                                                                              $  8.83     $   9.32
Number of offices                                                                                       1            -
</TABLE>


-------------------------------------------------------------------------------
(1)  Interest rate spread is calculated by subtracting average interest rate
     cost from average interest rate earned.
(2)  Net Interest income divided by average interest-earning assets.
(3)  Dividends declared per share divided by basic earnings (loss) per common
     share.
(4)  Operating expenses consist of other expenses less taxes.
(5)  Restated to reflect adoption of SFAS No. 128 on December 31, 1997.


                                                                             6.



<PAGE>   5


                        ST. JOSEPH CAPITAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               Of Financial Condition and Results of Operations



INTRODUCTION

St. Joseph Capital Corporation (the Company) was incorporated under the laws of
the state of Delaware on February 29, 1996.  During 1996 and the first part of
1997, the Company's activities were limited to the organization of St. Joseph
Capital Bank (the Bank), as well as preparation for and completion of a
$12,650,000 common stock offering (the Offering).  The Company sold 1,265,000
shares of common stock at a price of $10 per share in the Offering resulting in
net proceeds of $12,114,000.  A substantial portion of the proceeds of the
Offering were used by the Company to provide the initial capitalization of the
Bank which occurred on February 13, 1997, at which time the Bank began
operations.  Management believes that the Company's financial condition and
results of operations are as expected for a newly formed financial institution.


EARNINGS SUMMARY

CONSOLIDATED NET LOSS for the Company for 1997 was $(762,000), compared to
$(290,000) in 1996.  Basic and diluted loss per common share was $(.60) in
1997, compared to $(.23) in 1996.  No cash dividends were paid in 1997 or 1996.


RESULTS OF OPERATIONS

1997 COMPARED WITH 1996

NET INTEREST INCOME for 1997 was $1.1 million, an increase of $.9 million over
1996.  This was due primarily to an increase in securities available for sale
and loans receivable, funded by deposit growth.  The average rate on
interest-earning assets in 1997 was 6.96% which included an average rate on
securities available for sale of 5.97% and loans receivable of 8.93%.  The
average rate on interest-bearing  liabilities was 5.35%.  The net interest
margin for the Bank was 3.72% in 1997.  The Bank began operations in February
of 1997 and primarily all of the changes from 1996 to 1997 were a result of a
growth in volume of interest-earning assets and interest-bearing liabilities.

AT DECEMBER 31, 1997, total loans receivable, net of deferred loan fees,
increased to $22.4 million compared to $0 at December 31, 1996.  The increase
was funded by growth in deposits.  The mix of total loans receivable at
December 31, 1997 was $14.7 million or 65.9% in commercial loans, $6.4 million
or 28.5% in residential real estate mortgage loans and $1.3 million or 5.6% in
installment loans to individuals.

SECURITIES AVAILABLE FOR SALE totaled $22.4 million at December 31, 1997 which
represented an increase of $12.3 million or 120.69% from $10.1 million at
December 31, 1996.  The increase was funded by growth in deposits.  The
December 31, 1996 balance was funded by the capital generated from the Offering
to capitalize the startup of the Bank.  All securities have been classified as
available for sale.  Available for sale securities represent those securities
which the

                                 (Continued)


                                                                             7.
<PAGE>   6

                        ST. JOSEPH CAPITAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               Of Financial Condition and Results of Operations


Bank may decide to sell if needed for liquidity, asset/liability management or
other reasons.  Such securities are reported at fair value with unrealized
gains and losses included as a separate component of shareholders' equity, net
of tax. The unrealized gain on the securities portfolio, net of taxes was
$79,421 at December 31, 1997.

TOTAL DEPOSITS AT December 31, 1997 amounted to $34.9 million and funds
received from the sale of securities sold under agreements to repurchase were
$4.5 million compared to $0 total deposits and securities sold under agreements
to repurchase at December 31, 1996.  These funds were invested in loans
receivable and securities available for sale, as discussed above, and in
federal funds sold and interest-bearing time deposits in other financial
institutions with the balance held as cash and due from banks.

THE PROVISION FOR LOAN LOSSES charged to operations was based partially on
management's estimation of future losses and on an evaluation of portfolio risk
and economic factors.  The provision for loan losses and the allowance for loan
losses were both $360,000 in 1997 compared to $0 in 1996.  The increase in the
provision and the increase in the allowance during 1997 were due to estimated
future loan losses.  At December 31, 1997 the allowance for loan losses was
1.61% of total loans receivable.

IN 1997 the Bank did not experience any charge-offs from loans receivable.  At
December 31, 1997 no portion of the allowance for loan losses was allocated to
impaired loan balances as there were no loans considered impaired. Loan
impairment is reported when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer and credit card loans, and on an
individual loan basis for other loans.  If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate, or at the fair
value of collateral if repayment is expected solely from the collateral.  Loans
receivable are evaluated for impairment when payments are delayed, typically 90
days or more, or when it is probable that all principal and interest amounts
will not be collected according to the original terms of the loan.

MANAGEMENT ALLOCATED approximately 41.9% of the allowance for loan losses to
commercial loans; 13.6% to residential real estate mortgage loans; and 3.9% to
installment loans to individuals at December 31, 1997, leaving 40.6%
unallocated.  There were no nonperforming loans at December 31, 1997.
Management believes the allowance for loan losses balance at December 31, 1997
is adequate to absorb potential losses in the loan portfolio.

TOTAL NONINTEREST INCOME was $4,000 in 1997 compared to $0 in 1996.
Noninterest income resulted from net gains on sales of securities available for
sale and other income.

TOTAL NONINTEREST EXPENSE increased $1.0 million or 209.9% in 1997 primarily
due to the following factors.  Salaries and employee benefits increased
$484,000 or 178.0% to $756,000 in 1997 from $272,000 in 1996.  This increase
was due primarily to the hiring of additional employees needed to operate the
Bank.  Occupancy and equipment expense increased by $272,000 primarily due to
the opening of the Bank facility for its operation.  Other expense

                                 (Continued)


                                                                             8.
<PAGE>   7

                        ST. JOSEPH CAPITAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               Of Financial Condition and Results of Operations


increased $251,000 primarily due to the following increases: $25,000 increase
in advertising and promotions; $49,000 increase in client courier costs;
$61,000 increase in data processing; $23,000 increase in liability insurance;
$29,000 increase in professional fees; and $15,000 increase in telephone
expense.

THE POTENTIAL FUTURE INCOME TAX BENEFIT from the net operating losses in 1997
and 1996 has not been reflected in the consolidated financial statements.  A
valuation allowance has been recorded to offset the excess of deferred tax
assets over deferred tax liabilities.  At such time when management believes
that it is more likely than not that the income tax benefit will be used by the
Company to off-set future income tax expense, the valuation allowance will be
reduced and a tax benefit will be realized.  The income tax benefit from the
losses in 1997 and 1996 can be carried forward for fifteen years from the time
of the loss before they expire.  Accordingly, the Company's net operating loss
carryforward for 1997 will expire in 2012 and the net operating loss
carryforward for 1996 will expire in 2011 if they remain unused at that time.

A NEW ACCOUNTING STANDARD has been issued which will require future reporting
in 1998 of comprehensive income (loss).  Comprehensive income (loss) is net
income (loss), plus changes in unrealized appreciation (depreciation) on
securities available for sale, net of tax.


LIQUIDITY

LIQUIDITY RELATES PRIMARILY to the Company's ability to fund loan demand, meet
deposit customers' withdrawal requirements and provide for operating expenses.
Assets used to satisfy these needs consist of cash and due from banks, federal
funds sold, interest-bearing deposits in other financial institutions and
securities available for sale.  These assets are commonly referred to as liquid
assets.  Liquid assets were $27.4 million at December 31, 1997 compared to
$11.5 million at December 31, 1996.  Liquidity levels improved $15.9 million
from 1996 to 1997 primarily due to increased investments in liquid assets
funded by growth in deposits which exceeded the growth in loans receivable.
Management recognizes that securities may need to be sold in the future to help
fund loan demand and accordingly, as of December 31, 1997, the entire
securities portfolio of $22.4 million was classified as available for sale.
Management believes its current liquidity level is sufficient to meet
anticipated future growth.

THE COMPANY has plans to secure a line of credit with the Federal Home Loan
Bank using its $6.4 million in residential first real estate mortgage loans to
collateralize borrowings that could readily be used as an additional source of
liquidity in the future.

THE STATEMENTS OF CASH FLOWS for the periods presented provide an indication of
the Company's sources and uses of cash as well as an indication of the ability
of the Company to maintain an adequate level of liquidity.  A discussion of the
statements of cash flows for 1997 and 1996 follows.



                                 (Continued)


                                                                             9.
<PAGE>   8

                        ST. JOSEPH CAPITAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               Of Financial Condition and Results of Operations


FOR BOTH PERIODS presented, the Company experienced a net decrease in cash from
operating activities.  Net cash from operating activities was $(765,000) and
$(434,000) for the periods ended December 31, 1997 and 1996.  The additional
decrease in cash from operating activities of $(331,000) for 1997 as compared
to 1996 was primarily due to the increased net loss from the operations of the
Bank during 1997.

FOR BOTH PERIODS presented, the Company also experienced a net decrease in net
cash from investing activities.  Net cash from investing activities was $(35.6
million) and $(10.3 million) for the periods ended December 31, 1997 and 1996.
The changes in net cash from investing activities include growth in loans
receivable, as well as purchases and normal maturities and reinvestments of
interest-bearing deposits in other financial institutions and securities
available for sale and purchases of premises and equipment.  In 1997 the
Company received $4.0 million from sales of securities available for sale.

NET CASH FLOW FROM FINANCING ACTIVITIES was $39.5 million and $12.1 million for
the periods ended December 31, 1997 and 1996.  In 1997 the increase was
primarily attributable to growth in total deposits and securities sold under
agreements to repurchase of $34.9 million and $4.5 million.  In 1996 the
increase was primarily due to net proceeds from the issuance of common stock of
$12.1 million from the Offering.

MANAGEMENT OF INTEREST SENSITIVITY is accomplished by matching the maturities
of interest-earning assets and interest-bearing liabilities.  An institution's
level of interest rate risk is generally dependent on the relative sensitivity
to changes in interest rates of its interest-earning assets and its
interest-bearing liabilities.  The Bank measures and monitors its interest rate
risk by forecasting change in net interest income under a variety of interest
rate environments and through the use of Interest Sensitivity GAP Analysis such
as the following analysis.  The Interest Sensitivity GAP Analysis table shown
below was prepared based on the contractual maturities/repricing dates of loans
receivable, securities available for sale, deposits and securities sold under
agreements to repurchase.  As shown in the table, the Bank has a negative
asset/liability cumulative GAP of $(15,637) resulting in a cumulative GAP ratio
of 55.69% during the one year time frame.  A one year GAP ratio below 100%
indicates that a change in interest rates will affect more interest-bearing
liabilities than interest-earning assets over the course of the year.
Therefore, in the absence of countermanding strategies or circumstances, net
interest income could be expected to decline in a period of rising rates and
rise in a period of declining interest rates.  The Simulation method is used
extensively by management to monitor the Bank's interest rate risk.  The
Simulation uses a base-line analysis with no change in the current interest
rate environment as well as alternative interest rate possibilities that
include rising and falling interest rates with no change and with changes in
the anticipated balances to generate the estimate of the impact on net interest
income over a 12-month time horizon.  In addition, the Simulation takes into
account equity capital and the effects it has on net interest income where the
GAP analysis doesn't account for equity capital.




                                 (Continued)


                                                                            10.
<PAGE>   9

                        ST. JOSEPH CAPITAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               Of Financial Condition and Results of Operations



                      INTEREST SENSITIVITY GAP ANALYSIS
                            (Dollars in thousands)


<TABLE>
<CAPTION>
                                                                       Repricable or Maturing Within
                                                                       -----------------------------
                                             0-3 Months      4-12 Months     1-5 Years      After 5 Years          Total
                                             ----------      -----------     ---------      -------------     ----------
<S>                                          <C>             <C>             <C>            <C>               <C>
INTEREST-EARNING ASSETS

Federal funds sold                           $    3,550       $       -      $       -        $       -       $    3,550
Interest-bearing deposits in
  other financial institutions                      500               -              -                -              500
Securities available for sale                     1,003           3,998         17,350                -           22,351
Loans receivable                                 10,265               -         12,029               59           22,353
                                             ----------       ---------      ---------        ---------       ----------
  Total interest-earning
    assets                                   $   15,318       $   3,998      $  29,379        $      59       $   48,754
                                             ==========       =========      =========        =========       ==========


INTEREST-BEARING LIABILITIES

Savings, NOW and money
  markets                                    $   13,509       $       -      $     104        $       -       $   13,613
Certificates of deposits                          7,152           9,518            682                -           17,352
Securities sold under
  agreements to repurchase                        4,504               -              -                -            4,504
                                             ----------       ---------      ---------        ---------       ----------
  Total interest-bearing
    liabilities                              $   25,165       $   9,518      $     786        $       -       $   35,469
                                             ==========       =========      =========        =========       ==========

Assets (liability) GAP                       $   (9,847)      $  (5,520)     $  28,593        $      59       $   13,285
                                             ==========       =========      =========        =========       ==========

Cumulative assets
  (liability) GAP                            $   (9,847)      $ (15,367)     $  13,226        $  13,285
                                             ==========       =========      =========        =========

Cumulative GAP ratio
  (assets/liabilities)                            60.87%          55.69%        137.29%          137.46%
</TABLE>


The Bank manages interest rate risk by the employment of strategies to assure
that desired levels of both interest-earning assets and interest-bearing
liabilities mature or reprice within similar time frames.  Such strategies
include; 1) loans receivable which are renewed (and repriced) annually, 2)
variable rate loans, 3) securities available for sale which mature at various
times from one through five years, 4) certificates of deposits with terms from
one month to three years and 5) possible Federal Home Loan Bank borrowing for
terms of one day to ten years.




                                 (Continued)


                                                                            11.
<PAGE>   10

                        ST. JOSEPH CAPITAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               Of Financial Condition and Results of Operations


CAPITAL RESOURCES

TOTAL SHAREHOLDERS' EQUITY was $11.2 million as of  December 31, 1997, a
decrease of $ .6 million from $11.8 million as of December 31, 1996.  The
decrease was primarily due to the net loss during 1997 of $(762,000).

THE COMPONENTS OF total risk-based capital are Tier 1 capital and Tier 2
capital.  Tier 1 capital is total shareholders' equity less intangible assets.
Tier 2 capital is Tier 1 capital plus a portion of the allowance for loan
losses.  The allowance for loan losses is includable in Tier 2 capital up to a
maximum of 1.25% of risk weighted assets.  The net unrealized appreciation
(depreciation) on securities available for sale, net of tax, is not considered
in meeting regulatory capital requirements.  The following table provides the
minimum regulatory capital requirements and the Company's and the Bank's actual
capital ratios at December 31, 1997:


CAPITAL RATIOS


<TABLE>
<CAPTION>

                            Minimum     Minimum Required
                          Required For     To Be Well
                            Capital     Capitalized Under   Company's   Bank's
                            Adequacy    Prompt Corrective    Capital    Capital
December 31, 1997           Purposes    Action Regulations    Ratio      Ratio
-----------------           --------    ------------------    -----      -----
<S>                         <C>               <C>             <C>        <C>
Ratio of Total Capital
 to Risk Weighted Assets      8.0%            10.00%          47.5%      40.2%
Ratio of Tier 1 Capital
 to Risk Weighted Assets      4.0%             6.0%           46.3%      38.9%
Ratio of Tier 1 Capital
 to Average Assets            4.0%             5.0%           23.8%      20.0%
</TABLE>


THE COMPANY AND BANK exceed the applicable minimum regulatory capital
requirements at December 31, 1997.

RESTRICTIONS EXIST REGARDING the ability of the Bank to transfer funds to the
Company in the form of cash dividends, loans or advances.  (See Note 1 to
consolidated financial statements).  No cash or other dividends were declared
or paid during the fiscal year ended December 31, 1997 or 1996.  (See Market
For St. Joseph Capital Corporation Common Stock and Related Shareholder Matters
for discussion of the Company's dividend policy).

AS OF DECEMBER 31, 1997, management is not aware of any current recommendations
by the banking regulatory authorities which, if they were to be implemented,
would have, or are




                                 (Continued)

                                                                            12.

<PAGE>   11

                        ST. JOSEPH CAPITAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               Of Financial Condition and Results of Operations



reasonably likely to have, a material adverse effect on the Company's
liquidity, capital resources or operations.
































                                 (Continued)


                                                                            13.

<PAGE>   12

                        ST. JOSEPH CAPITAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               Of Financial Condition and Results of Operations



IMPACT OF INFLATION AND CHANGING PRICES

THE MAJORITY OF ASSETS AND LIABILITIES of the Company are monetary in nature
and therefore the Company differs greatly from most commercial and industrial
companies that have significant investments in fixed assets or inventories.
However, inflation does have an important impact on the growth of total assets
in the banking industry and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity to assets
ratio.  Inflation significantly affects noninterest expense, which tends to
rise during periods of general inflation.

MANAGEMENT BELIEVES the most significant impact on financial results is the
Company's ability to react to changes in interest rates.  Management seeks to
maintain an essentially balanced position between interest rate sensitive
assets and liabilities and actively manages the amount of securities available
for sale in order to protect against the effects of wide interest rate
fluctuations on net income and shareholders' equity.


IMPACT OF YEAR 2000 COMPLIANCE

The Company is in the process of receiving Year 2000 vendor certifications on
its primary computer operating systems.  Testing will be performed over the
next year to identify any applications that are not Year 2000 compliant.  In
the event an application is deemed to be non-compliant, corrective action will
be taken.  The implementation of the Company's Year 2000 plan is currently on
schedule.  Costs associated with the Year 2000 issue currently are undetermined
and are expected to have some impact on the subsequent years' results of
operations.














                                                                           14.

<PAGE>   13

                        ST. JOSEPH CAPITAL CORPORATION
               MARKET FOR ST. JOSEPH CAPITAL CORPORATION COMMON
                    STOCK AND RELATED SHAREHOLDER MATTERS



The Company's Common Stock was held by approximately 67 holders of record as of
March 5, 1998, and is quoted on the OTC Bulletin Board under the symbol "SJOE."
To date there has been no regular and liquid market for the common stock, and
there can be no assurance that a regular and liquid trading market will develop
in the foreseeable future.

The following table shows, for the periods indicated, the high and low bid
quotations per share of transactions in the Company's common stock as quoted on
the OTC Bulletin Board.  Certain other private transactions may have occurred
during the periods indicated of which the Company has no knowledge.  The
following prices represent inter-dealer prices without retail markups,
markdowns or commissions.

<TABLE>
<CAPTION>
                                      Per Share           Per Share
                                      Bid Prices          Dividends
          1996                     High        Low        Declared
          ----                     ----        ---        --------
    <S>                         <C>         <C>           <C>
    March 31, 1996                 N/A         N/A           N/A
    June 30, 1996                  N/A         N/A           N/A
    September 30, 1996          $ 10.625    $ 10.000 *        -
    December 31, 1996             10.750      10.625          -

          1997
          ----
    March 31, 1997              $ 12.125    $ 10.750          -
    June 30, 1997                 13.375      12.125          -
    September 30, 1997            16.000      13.000          -
    December 31, 1997             17.250      16.000          -
</TABLE>


    *Represents initial public offering price on September 4, 1996.

No cash or other dividends were declared or paid during the fiscal year ended
December 31, 1997 or 1996.   The Company expects that all Company and Bank
earnings, if any, will be retained to finance the growth of the Company and the
Bank and that no cash dividends will be paid for the foreseeable future. If and
when dividends are declared, the Company will probably be largely dependent
upon dividends paid by the Bank for funds to pay dividends on the Common Stock.
It is also possible, however, that the Company will pay dividends in the
future generated from investment income and other activities of the Company.


FORM 10-KSB

The Company will provide without charge to each shareholder, upon written
request to St. Joseph Capital Corporation, 3820 Edison Lakes Parkway,
Mishawaka, Indiana 46545, Attention Edward R. Pooley, Senior Vice President and
Chief Financial Officer, a copy of the Company's Annual Report on Form 10-KSB,
including the Financial Statements and Schedules thereto required to be filed
with the Securities and Exchange Commission, for the Company's most recent
fiscal year.




                                                                            15.

<PAGE>   14




                        REPORT OF INDEPENDENT AUDITORS


Board of Directors and Shareholders
St. Joseph Capital Corporation
Mishawaka, Indiana


We have audited the accompanying consolidated balance sheets of St. Joseph
Capital Corporation (the Company) as of December 31, 1997 and 1996 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the year ended December 31, 1997 and for the period from
February 29, 1996 (date of inception) to December 31, 1996.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for the year ended December 31, 1997 and for the period from February 29,
1996 (date of inception) to December 31, 1996 in conformity with generally
accepted accounting principles.




                                             Crowe, Chizek and Company LLP

South Bend, Indiana
February 20, 1998







                                                                           16.

<PAGE>   15
                        ST. JOSEPH CAPITAL CORPORATION
                         CONSOLIDATED BALANCE SHEETS
                          December 31, 1997 and 1996

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

<TABLE>
<CAPTION>
                                                                      1997             1996
                                                                      ----             ----
<S>                                                              <C>                <C>
ASSETS
Cash and due from banks                                           $    985,464      $     3,103
Interest-bearing deposits in other financial institutions -                                   -
 short-term                                                                  -        1,307,009
Federal funds sold                                                   3,550,000          100,000
                                                                  ------------      -----------
   Total cash and cash equivalents                                   4,535,464        1,410,112
Interest-bearing deposits in other financial institutions
 (cost approximates fair value)                                        500,000                -
Securities available for sale                                       22,351,254       10,127,902
Loans receivable, net of allowance for loan losses
 of $360,000 in 1997                                                21,991,115                -
Accrued interest receivable                                            526,339                -
Premises and equipment, net                                            881,840          274,720
Other assets                                                            53,322           28,671
                                                                  ------------      -----------

       Total assets                                               $ 50,839,334      $11,841,405
                                                                  ============      ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
   Deposits
     Noninterest-bearing demand                                   $  3,951,366      $         -
     Savings, NOW and money markets                                 13,612,678                -
     Certificates of deposits                                       17,351,837                -
                                                                  ------------      -----------
       Total deposits                                               34,915,881                -
     Securities sold under agreements to repurchase                  4,503,760                -
     Accrued interest payable                                          120,890                -
     Other liabilities                                                  94,378           48,519
                                                                  ------------      -----------
       Total liabilities                                            39,634,909           48,519


Shareholders' equity
   Preferred stock, $.01 par value, 100,000 shares
    authorized; -0- shares issued and outstanding                            -                -
   Common stock, $.01 par value, 1,500,000 shares
    authorized; 1,269,486 and 1,265,160 shares issued
    and outstanding in 1997 and 1996                                    12,695           12,652
   Additional paid-in capital                                       12,164,648       12,103,000
   Retained deficit                                                 (1,052,339)        (290,219)
   Net unrealized appreciation (depreciation) on
    securities available for sale, net of tax of $52,947
    in 1997 and $0 in 1996                                              79,421          (32,547)
                                                                  ------------      -----------
       Total shareholders' equity                                   11,204,425       11,792,886
                                                                  ------------      -----------

           Total liabilities and shareholders' equity             $ 50,839,334      $11,841,405
                                                                  ============      ===========
</TABLE>

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

         See acompanying notes to consolidated financial statements.


                                                                             17.
<PAGE>   16

                        ST. JOSEPH CAPITAL CORPORATION
                      CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31, 1997 and period from February 29, 1996 to December 31,
1996

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

<TABLE>
<CAPTION>
                                                                          1997                   1996
                                                                          ----                   ----
<S>                                                                  <C>                    <C>
Interest and dividend income
   Loans receivable, including fees                                  $     883,629          $          -
   Securities available for sale - taxable                                 920,425               197,057
   Federal funds sold                                                      176,944
   Other interest earning assets                                            41,181                     -
                                                                     -------------          ------------
     Total interest and dividend income                                  2,022,179               197,057

Interest expense
   Deposits                                                                834,759                     -
   Securities sold under agreements to repurchase                          107,393                     -
   Other borrowings                                                            172                 7,656
                                                                     -------------          ------------
     Total interest expense                                                942,324                 7,656
                                                                     -------------          ------------

NET INTEREST INCOME                                                      1,079,855               189,401

Provision for loan losses                                                  360,000                     -
                                                                     -------------          ------------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                        719,855               189,401

Noninterest income
   Gain on sales of securities available for sale, net                       2,139                     -
   Other income                                                              2,247                     -
                                                                     -------------          ------------
     Total noninterest income                                                4,386                     -

Noninterest expense
   Salaries and employee benefits                                          756,388               272,088
   Occupancy and equipment expense                                         301,478                29,588
   Other expense                                                           428,495               177,944
                                                                     -------------          ------------
     Total noninterest expense                                           1,486,361               479,620
                                                                     -------------          ------------

INCOME (LOSS) BEFORE INCOME TAXES                                         (762,120)             (290,219)

Income tax expense                                                               -                     -
                                                                     -------------          ------------

NET LOSS                                                             $    (762,120)         $   (290,219)
                                                                     =============          ============

Basic and diluted loss per common share                              $        (.60)         $       (.23)
                                                                     =============          ============
</TABLE>

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

         See accompanying notes to consolidated financial statements.


                                                                            18.
<PAGE>   17


                        ST. JOSEPH CAPITAL CORPORATION
          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 Year ended December 31, 1997 and period from
                    February 29, 1996 to December 31, 1996

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

<TABLE>
<CAPTION>

                                                                                  Net Unrealized
                                                                                   Appreciation
                                                                                  (Depreciation)
                                                                                   on Securities
                                                      Additional                     Available            Total
                                         Common         Paid-In       Retained        For Sale,        Shareholders'
                                          Stock         Capital        Deficit       Net of Tax           Equity
                                          -----         -------        -------       ----------           ------
<S>                                    <C>            <C>            <C>             <C>               <C>
BALANCE AT FEBRUARY 29, 1996           $      -       $         -    $         -     $        -        $          -

Proceeds from issuance of common
 Stock for initial capitalization         1,000                 -              -              -               1,000

Proceeds from the issuance of
 1,265,160 shares of common stock,
 net of stock offering costs             12,652        12,103,000              -              -          12,115,652

Redemption of common stock
 from initial capitalization             (1,000)                -              -              -              (1,000)

Net loss                                      -                 -       (290,219)             -            (290,219)

Net change in unrealized
 appreciation (depreciation)
 on securities available for sale,
 net of tax of $-0-                           -                 -              -        (32,547)            (32,547)
                                       --------       -----------    -----------     ----------        ------------
BALANCE AT DECEMBER 31, 1996             12,652        12,103,000       (290,219)       (32,547)         11,792,886

Proceeds from the issuance
 of 4,326 shares of common stock             43            61,648              -              -              61,691

Net loss                                      -                 -       (762,120)             -            (762,120)

Net change in unrealized
 appreciation (depreciation) on
 securities available for sale, net
 of tax of $52,947                            -                 -              -        111,968             111,968
                                       --------       -----------    -----------     ----------        ------------
BALANCE AT DECEMBER 31, 1997           $ 12,695       $12,164,648    $(1,052,339)    $   79,421        $ 11,204,425
                                       ========       ===========    ===========     ==========        =============
</TABLE>

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

         See accompanying notes to consolidated financial statements.

                                                                            19.

<PAGE>   18

                        ST. JOSEPH CAPITAL CORPORATION
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Year ended December 31, 1997 and period from
                    February 29, 1996 to December 31, 1996

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

<TABLE>
<CAPTION>
                                                                1997          1996
                                                                ----          ----
<S>                                                        <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                 $  (762,120)   $  (290,219)
  Adjustments to reconcile net loss to net cash
   from operating activities
     Depreciation                                              138,215          4,176
     Provision for loan losses                                 360,000              -
     Net amortization (accretion) on securities
      available for sale                                       (61,395)      (167,621)
     Gain on sales of securities available for sale, net        (2,139)             -
     Net change in
        Accrued interest receivable                           (526,339)             -
        Other assets                                           (24,651)       (28,671)
        Accrued interest payable                               120,890              -
        Other liabilities                                       (7,088)        48,519
                                                           -----------    -----------
          Net cash from operating activities                  (764,627)      (433,816)

CASH FLOWS FROM INVESTING ACTIVITIES
  Net change in interest-bearing deposits in
   other financial institutions                               (500,000)             -
  Purchase of securities available for sale                (32,281,778)   (17,054,828)
  Proceeds from sales of securities available for sale       4,001,875              -
  Proceeds from maturities and calls of securities
   available for sale                                       16,285,000      7,062,000
  Net change in loans receivable                           (22,351,115)             -
  Purchase of premises and equipment, net                     (745,335)      (278,896)
                                                           -----------    -----------
     Net cash from investing activities                    (35,591,353)   (10,271,724)

CASH FLOWS FROM FINANCING ACTIVITIES
  Net change in deposits                                    34,915,881              -
  Net change in securities sold under agreements
   to repurchase                                             4,503,760              -
  Proceeds from other borrowings                                     -        275,000
  Repayment of other borrowings                                      -       (275,000)
  Proceeds from issuance of common stock, net                   61,691     12,115,652
                                                           -----------    -----------
     Net cash from financing activities                     39,481,332     12,115,652
                                                           -----------    -----------
Net change in cash and cash equivalents                      3,125,352      1,410,112

Cash and cash equivalents at beginning of period             1,410,112              -
                                                           -----------    -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                 $ 4,535,464    $ 1,410,112
                                                           ===========    ===========
Supplemental disclosures of cash flow information
  Cash paid during the year for
     Interest                                              $   821,434    $     7,656
     Income taxes                                                    -              -
</TABLE>


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

         See accompanying notes to consolidated financial statements.


                                                                            20.

<PAGE>   19

                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of St. Joseph Capital Corporation conform
to generally accepted accounting principles and to general practices within the
banking industry.  The following describes the significant accounting and
reporting policies which are employed in the preparation of the financial
statements.

Principles of Consolidation:  The consolidated financial statements include the
accounts of St. Joseph Capital Corporation, a bank holding company located in
Mishawaka, Indiana, (the Company) and its wholly-owned subsidiary St. Joseph
Capital Bank (the Bank).  All significant intercompany balances and
transactions have been eliminated.

Nature of Business and Concentration of Credit Risk:  The Company accepts
deposits and grants commercial, real estate, and installment loans to customers
primarily in Northern Indiana.  Substantially all loans are secured by specific
items of collateral including business assets, consumer assets and real estate.
Commercial loans are expected to be repaid from cash flow from operations of
businesses.  Real estate loans are secured by both residential and commercial
real estate.

Use of Estimates in Preparing Financial Statements:  The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period.  Actual results
could differ from those estimates.  The allowance for loan losses, fair values
of securities and other financial instruments, the realization of deferred tax
assets and fair value of stock options involve certain significant estimates
made by management.  These estimates are reviewed by management routinely and
it is reasonably possible that circumstances that exist at December 31, 1997
may change in the near-term future and that the effect could be material to the
financial statements.

Restrictions on Cash and Due From Banks:  To satisfy legal cash reserve and
clearing balance requirements, noninterest-bearing balances are required to be
maintained as deposits with the Federal Reserve or as cash on hand.  The total
required cash reserve and clearing balance requirement was $107,000 at year end
1997.

Securities:  Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity.  Securities are classified as available for sale when they might
be sold before maturity.  Securities available for sale are carried at fair
value, with unrealized holding gains and losses reported separately in
shareholders' equity, net of tax.  Securities are classified as trading when
held for short term periods in anticipation of market gains, and are carried at
fair value.  Securities are written down to fair value when a decline in fair
value is not temporary.




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

                                 (Continued)


                                                                            21.

<PAGE>   20

                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The estimated fair value of securities is based on quoted market values for the
individual securities or for equivalent securities.  Gains and losses on the
sale of securities are determined using the specific identification method
based on amortized cost and are reflected in results of operations at the time
of sale.  Interest income includes amortization of purchase premiums and
discounts over the estimated life of the security using the level yield method.

Loans Receivable:  Loans are reported at the principal balance outstanding, net
of unearned interest, deferred loan fees and costs, and an allowance for loan
losses.  Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term.

Interest income is not reported when full loan repayment is in doubt, typically
when payments are past due over 90 days (180 days for residential mortgages).
Payments received on such loans are reported as principal reductions.

Allowance for Loan Losses:  The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries.  Management estimates the allowance balance
required based on past loan loss experience, known and inherent risks in the
portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors.  Allocations of the
allowance may be made for specific loans, but the entire allowance is available
for any loan that, in management's judgment, should be charged-off.

Loan impairment is reported when full payment under the loan terms is not
expected.  Impairment is evaluated in total for smaller-balance loans of
similar nature such as residential mortgage, consumer, and credit card loans,
and on an individual loan basis for other loans.  If a loan is impaired, a
portion of the allowance is allocated so that the loan is reported, net, at the
present value of estimated future cash flows using the loan's existing rate or
at the fair value of collateral if repayment is expected solely from the
collateral.  Loans are evaluated for impairment when payments are delayed,
typically 90 days or more, or when it is probable that all principal and
interest amounts will not be collected according to the original terms of the
loan.

Foreclosed Real Estate:  Real estate properties acquired through, or in lieu
of, loan foreclosure are initially recorded at fair value at the date of
acquisition, establishing a new cost basis.  Any reduction to fair value from
the carrying value of the related loan at the time of acquisition is accounted
for as a loan loss and charged against the allowance for loan losses.
Valuations are periodically performed by management and valuation allowances
are adjusted through a charge to income for changes in fair value or estimated
selling costs.  There were no foreclosed real estate properties held at
December 31, 1997 or 1996.




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

                                 (Continued)


                                                                            22.

<PAGE>   21

                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Premises and Equipment:  Premises and equipment are stated at cost less
accumulated depreciation.  Leasehold improvements are depreciated using the
straight-line method over the lease term.  Furniture, fixtures and equipment
are depreciated using the straight-line method over the estimated useful life
of the assets.  Maintenance and repairs are expensed, and major improvements
are capitalized.  Assets are reviewed for impairment under Statement of
Financial Accounting Standards (SFAS) No. 121 when events indicate that the
reported carrying amount may not be fully recoverable.

Profit Sharing Plan:  The Company maintains a 401(k) profit sharing plan
covering substantially all employees.  For details concerning the plan, see
Note 8.

Income Taxes:  Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities.  Deferred
tax assets and liabilities are the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates.  A valuation allowance, if
needed, reduces deferred tax assets to the amount expected to be realized.

Financial Instruments With Off-Balance-Sheet Risk:  The Company, in the normal
course of business, makes commitments to make loans which are not reflected in
the consolidated financial statements.  A summary of these commitments is
disclosed in Note 12.

Dividend Restriction:  Banking regulations require the maintenance of certain
capital levels which limit the amount of dividends which may be paid.  For
regulatory capital requirements, see Note 13.

Loss Per Common Share:  Basic and diluted loss per common share is computed
under a new accounting standard effective beginning with the quarter ended
December 31, 1997.  All prior loss per common share amounts have been restated
to be comparable.  Basic loss per common share is based on the net loss divided
by the weighted average number of common shares outstanding during the period.
Diluted loss per common share shows the dilutive effect of additional potential
common shares issuable under stock options.

Stock Option Plan:  Expense for employee compensation under stock option plans
is based on Accounting Principles Board (APB) Opinion 25, with expense reported
only if options are granted below market price at grant date.  If applicable,
disclosures of net income and earnings or loss per common share are provided as
if the fair value method of SFAS No. 123 were used for stock-based
compensation.





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

                                 (Continued)


                                                                            23.

<PAGE>   22

                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Statement of Cash Flows:  For purposes of the statement of cash flows, cash and
cash equivalents are defined to include the Company's cash on hand and due from
other banks, its short-term interest-bearing deposits in other financial
institutions and federal funds sold with a maturity of 90 days or less.  The
Company reports net cash flows for customer loan and deposit transactions,
interest-bearing deposits in other financial institutions and short-term
borrowings with original maturities of 90 days or less.

Fair Values of Financial Instruments:  Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more
fully disclosed in Note 15.  Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments and other factors, especially in the absence of broad markets for
particular items.  Changes in assumptions or in market conditions could
significantly affect the estimates.

Future Accounting Change:  A new accounting standard has been issued which will
require future reporting of comprehensive income.  Comprehensive income is net
income, plus changes in unrealized appreciation (depreciation) on securities
available for sale, net of tax.

Reclassifications:  Certain amounts in the 1996 consolidated financial
statements were reclassified to conform with the 1997 presentation.


NOTE 2 - ORGANIZATION

St. Joseph Capital Corporation was incorporated under the laws of the state of
Delaware on February 29, 1996, with an initial capitalization of $1,000.
During 1996 and the first part of 1997, the Company's activities were limited
to the organization of St. Joseph Capital Bank (the Bank), as well as
preparation for and completion of a $12,650,000 common stock offering (the
Offering).  The Company sold 1,265,000 shares of common stock at a price of $10
per share in the Offering resulting in net proceeds of $12,114,000.  A
substantial portion of the proceeds of the Offering was used by the Company to
provide the initial capitalization of the Bank which occurred on February 13,
1997, at which time the Bank began operations.





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

                                 (Continued)


                                                                            24.

<PAGE>   23

                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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

NOTE 3 - SECURITIES AVAILABLE FOR SALE

Year end securities available for sale were as follows:


<TABLE>
<CAPTION>
                                                 Gross     Gross
                                   Amortized  Unrealized Unrealized    Fair
1997                                 Cost        Gains     Losses      Value
----                                 ----        -----     ------      -----
<S>                              <C>           <C>       <C>      <C>
Debt securities
      U.S. Government and
       federal agencies          $ 22,059,046  $ 136,756 $ (5,507) $ 22,190,295
      Obligations of states and
       political subdivisions         159,840      1,119        -       160,959
                                 ------------  --------- --------  ------------
                                 $ 22,218,886  $ 137,875 $ (5,507) $ 22,351,254
                                 ============  ========= ========  ============
1996
----
Debt securities
     U.S. Government
     and federal agencies        $ 10,160,449  $       - $(32,547) $ 10,127,902
                                 ============  ========= ========  ============
</TABLE>


The amortized cost and fair value of debt securities available for sale by
contractual maturity are shown below.  Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.


<TABLE>
<CAPTION>
                                             ---------December 31, 1997------
                                                      -----------------
                                                Amortized            Fair
                                                   Cost              Value
                                                   ----              -----
    <S>                                      <C>                <C>
    Due in one year or less                  $     2,002,200    $   2,003,900
    Due after one year through five years         20,216,686       20,347,354
                                             ---------------    -------------
                                             $    22,218,886    $  22,351,254
                                             ===============    =============
</TABLE>

Activities related to sales of securities available for sale are summarized as
follows:


<TABLE>
<CAPTION>
                                                    1997             1996
                                                    ----             ----
    <S>                                     <C>                 <C>
    Proceeds from sales                      $     4,001,875    $           -
    Gross gains on sales                               2,802                -
    Gross losses on sales                                663                -
</TABLE>


At December 31, 1997 and 1996, securities with a book value of approximately
$7,119,000 and  $-0-, respectively, were pledged to secure certain deposits and
securities sold under agreements to repurchase.

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

                                 (Continued)

                                                                            25.
<PAGE>   24
                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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

NOTE 4 - LOANS RECEIVABLE, NET

Year end loans receivable were as follows:

<TABLE>
<CAPTION>
                                                                  1997

  <S>                                                           <C>
  One to four family residential mortgage loans                $ 5,909,708
  Construction loans - residential                                 468,094
  Construction loans - commercial                                3,400,709
  Commercial and multi-family real estate loans                  6,251,140
  Commercial business loans                                      5,081,563
  Consumer loans                                                 1,241,508
                                                               -----------
                                                                22,352,722

  Allowance for loan losses                                       (360,000)
  Net deferred loan origination fees                                (1,607)
                                                               -----------

                                                               $21,991,115
                                                               ===========
</TABLE>


Activity in the allowance for loan losses at year end was as follows:

<TABLE>
<CAPTION>
                                                                  1997
                                                                  ----
  <S>                                                          <C>
  Beginning balance                                            $         -
  Provision for loan losses                                        360,000
  Recoveries                                                             -
  Charge-offs                                                            -
                                                               -----------
  Ending balance                                               $   360,000
                                                               ===========
</TABLE>


At December 31, 1997 no portion of the allowance for loan losses was allocated
to impaired loan balances as there were no loans considered impaired as of or
for the year ended December 31, 1997.

Certain directors and executive officers of the Company and its subsidiary,
including associates of such persons, are loan customers.  A summary of the
related party loan activity, for loans aggregating $60,000 or more to any one
related party, is as follows:

<TABLE>
<CAPTION>
                                                                  1997
                                                                  ----
  <S>                                                          <C>
  Balance - beginning of year                                  $         -
  New loans                                                      1,330,000
  Repayments                                                       (58,000)
                                                               -----------
  Balance - end of year                                        $ 1,272,000
                                                               ===========
</TABLE>


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

                                 (Continued)

                                                                            26.
<PAGE>   25
                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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

NOTE 5 - PREMISES AND EQUIPMENT, NET


Year end premises and equipment were as follows:

<TABLE>
<CAPTION>
                                                     1997            1996
                                                     ----            ----
  <S>                                             <C>              <C>
  Leasehold improvements, furniture, fixtures
   and equipment                                  $ 1,024,231      $ 278,896
  Accumulated depreciation                           (142,391)        (4,176)
                                                  -----------      ---------

                                                  $   881,840      $ 274,720
                                                  ===========      =========
</TABLE>



NOTE 6 - DEPOSITS

Certificates of deposit in denominations of $100,000 or more was approximately
$15,250,000 and $-0- at year end 1997 and 1996.

At December 31, 1997, the scheduled maturities of certificates of deposit were
as follows for the years ended December 31:


<TABLE>
        <S>                                       <C>
        1998                                      $16,670,136
        1999                                          365,000
        2000                                          316,701
                                                  -----------

                                                  $17,351,837
                                                  ===========
</TABLE>


NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase consist of obligations of the
Company to other parties.  These arrangements are all short-term retail
repurchase agreements and are secured by securities available for sale.  Such
collateral is held by safekeeping agents of the Company.  Information
concerning securities sold under agreements to repurchase as of December 31,
1997, is summarized as follows:


<TABLE>
  <S>                                                           <C>
  Amount outstanding at year end                                 $ 4,503,760
  Weighted average interest rate at year end                            4.97%
  Maximum month end balance during the year                      $ 4,588,163
  Average daily balance during the year                          $ 2,152,651
  Weighted average interest rate during the year                        4.99%
</TABLE>

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

                                 (Continued)

                                                                            27.
<PAGE>   26
                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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

NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Continued)

Securities underlying these agreements at year end were as follows:


<TABLE>
  <S>                                                      <C>
  Carrying value of securities                              $  6,010,000
  Fair value                                                $  6,042,000
</TABLE>


NOTE 8 - BENEFIT PLANS

The Company's Board of Directors has adopted a stock option plan.  Under the
terms of this plan, options for up to 100,000 shares of the Company's common
stock may be granted to key management employees and directors of the Company
and its subsidiaries.  The exercise price of the options is determined at the
time of grant by an administrative committee appointed by the Board of
Directors.

SFAS No. 123, which became effective for 1996, requires proforma disclosures
for companies that do not adopt its fair value accounting method for
stock-based employee compensation.  Accordingly, the following proforma
information presents net loss and loss per common share had the fair value
method been used to measure compensation cost for stock option plans.
Compensation cost actually recognized for stock options was $-0- for 1997 and
1996.

The fair value of options granted during 1997 and 1996 is estimated using the
following weighted average information:  risk-free interest rate of 6.5% and
6.5%, expected life of 10 and 10 years, expected volatility of stock price of
 .13 and .15, and expected dividends of 0% and 0% per year.

<TABLE>
<CAPTION>
                                                           1997         1996
                                                           ----         ----
  <S>                                                  <C>           <C>
  Net loss as reported                                 $ (762,120)   $(290,219)
  Proforma net loss                                    (1,181,415)    (476,453)

  Basic and diluted loss per common share as reported  $     (.60)   $    (.23)
  Proforma basic and diluted loss per common share           (.93)        (.38)
</TABLE>


In future years, the proforma effect of not applying this standard is expected
to increase as additional options are granted.


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

                                 (Continued)

                                                                            28.
<PAGE>   27
                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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

NOTE 8 - BENEFIT PLANS (Continued)

Stock option plans are used to reward employees and provide them with an
additional equity interest.  Options are issued for 10 year periods with
varying vesting periods.  Information about option grants follows:


<TABLE>
<CAPTION>
                                                                              Weighted
                                  Number of                  Weighted          Average
                                Outstanding   Exercise       Average         Fair Value
                                   Options       Price     Exercise Price     of Grants

  <S>                               <C>     <C>               <C>              <C>
  Outstanding, beginning of 1996         -
  Granted                           56,030  $10.00 - $10.62   $  10.03         $  4.92
                                    ------
  Outstanding, end of 1996          56,030   10.00 -  10.62      10.03
  Granted                           35,765   10.62 -  17.25      14.45         $  9.71
                                    ------
  Outstanding, end of 1997          91,795   10.00 -  17.25      11.75
</TABLE>


The weighted average remaining contractual life of options outstanding at
December 31, 1997 was approximately nine years.  Stock options exercisable at
December 31, 1997 and 1996 totaled 77,795 and 28,030 at a weighted average
exercise price of $12.06 and $10.05.

The Company maintains a 401(k) plan covering substantially all employees.  The
plan provides for voluntary employee contributions and discretionary employer
contributions.  Employee voluntary contributions are vested at all times and
the Company's discretionary contributions are fully vested after three years.
Annual expense related to the plan is based on a discretionary matching of 50%
of voluntary employee contributions on the first 6% of the participants
compensation.  The plan also allows for an additional discretionary
contribution on the employee's behalf for any eligible employee irrespective of
the employee's voluntary participation in the plan during the year.  The
discretionary matching percentage and the additional discretionary contribution
are to be determined by the Board of Directors at the end of each year.  The
expense recorded related to this plan was $14,000 for 1997 and $-0- for 1996.


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

                                  (Continued)

                                                                            29.
<PAGE>   28
                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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


NOTE 9 - OTHER EXPENSE


Year end other expense amounts were as follows:

<TABLE>
<CAPTION>
                                                   1997        1996
                                                   ----        ----
    <S>                                         <C>         <C>
    Advertising and promotion                   $  48,403   $   23,487
    Client courier                                 49,317            -
    Data processing                                64,107        2,650
    Incorporation expense                           6,156       30,819
    Liability insurance                            25,200        2,158
    Printing, postage, stationery and supplies     44,221       31,639
    Professional dues and memberships              16,082        8,238
    Professional fees                              84,921       55,805
    Telephone                                      22,951        8,148
      Other                                        67,137       15,000
                                                ---------   ----------

                                                $ 428,495   $  177,944
                                                =========   ==========
</TABLE>


NOTE 10 - INCOME TAXES

There was no income tax expense for the years ended December 31, 1997 or 1996
as the Company has experienced a tax net operating loss since its inception.

Total income tax expense differed from the amounts computed by applying the
federal income tax rate of 34% in all periods presented to income (loss) before
income taxes as a result of the following for the years ended December 31:

<TABLE>
<CAPTION>
                                                   1997        1996
                                                   ----        ----
<S>                                            <C>          <C>
Income taxes (benefit) at statutory rate        $(259,121)  $  (98,674)
Tax effect of:
   State tax, net of federal income
     tax effect                                   (42,230)     (15,814)
   Effect of deferred tax valuation allowance     296,592      111,658
   Other, net                                       4,759        2,830
                                                ---------   ----------

      Total income tax expense                  $       -   $        -
                                                =========   ==========
</TABLE>



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


                                  (Continued)

                                                                            30.
<PAGE>   29
                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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


NOTE 10 - INCOME TAXES (Continued)

The components of the net deferred tax asset (liability) recorded in the
consolidated balance sheets as of December 31 are as follows:


<TABLE>
<CAPTION>
                                                    1997           1996
                                                    ----           ----
 <S>                                            <C>             <C>
 Deferred tax assets
   Net operating loss carryforward              $   273,711     $  173,625
   Bad debt deduction                               142,596
   Donation carryforward                              4,315              -
   Net unrealized depreciation
    on securities available for sale                      -         13,019
   Other                                              1,007              -
                                                -----------     ----------
                                                    421,629        186,644

 Deferred tax liabilities
   Accretion                                        (13,379)       (61,359)
   Net unrealized appreciation on
    securities available for sale                   (52,947)             -
   Other                                                  -           (608)
                                                -----------     ----------
                                                    (66,326)       (61,967)
 Valuation allowance                               (408,250)      (124,677)
                                                -----------     ----------

   Net deferred tax asset (liability)           $   (52,947)    $        -
                                                ===========     ==========
</TABLE>


A valuation allowance has been recorded to offset the excess of deferred tax
assets over deferred tax liabilities, excluding the deferred tax liability for
net unrealized appreciation on securities available for sale, as the Company
has not yet paid any income taxes which would be refundable if these temporary
differences reversed.


NOTE 11 - BASIC AND DILUTED LOSS PER COMMON SHARE

Loss per common and common equivalent share are based on the combined weighted
average number of common shares and common equivalent shares outstanding which
include, where appropriate, the assumed exercise or conversion of outstanding
stock options.  In computing loss per common and common equivalent share, the
Company has utilized the treasury stock method.


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

                                 (Continued)


                                                                             31.
<PAGE>   30
                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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

NOTE 11 - BASIC AND DILUTED LOSS PER COMMON SHARE (Continued)

The computation of loss per common share, weighted average common and common
equivalent shares used in the calculation of basic and diluted loss per common
share is as follows:

<TABLE>
<CAPTION>
                                                     Year End December 31
                                                     --------------------
                                                      1997           1996
                                                      ----           ----

<S>                                               <C>            <C>
BASIC LOSS PER COMMON SHARE
   Net loss                                       $   (762,120)  $    (290,219)
   Weighted average common shares
   outstanding                                       1,266,830       1,265,024
                                                  ============   =============

     BASIC LOSS PER COMMON SHARE                  $       (.60)  $        (.23)
                                                  ============   =============

DILUTED LOSS PER COMMON SHARE
   Net loss                                       $   (762,120)  $    (290,219)

   Weighted average common shares
    outstanding                                      1,266,830       1,265,024
   Add: dilutive effects of assumed stock
    option exercises                                         -               -
                                                  ------------   -------------

   Weighted average common and dilutive additional
    potential common shares outstanding              1,266,830       1,265,024
                                                  ============   =============

     DILUTED LOSS PER COMMON SHARE                $       (.60)  $        (.23)
                                                  ============   =============
</TABLE>


Outstanding stock options for 91,795 and 56,030 shares of common stock at
December 31, 1997 and 1996, were not considered in computing diluted loss per
common share for 1997 and 1996 because they were antidilutive.  Additionally,
in January 1998 the Company granted stock options for 5,500 shares of common
stock which may affect the computation of diluted earnings per common share in
future periods.


NOTE 12- COMMITMENTS AND CONTINGENCIES

Some financial instruments are used to meet customer financing needs and to
reduce exposure to interest rate changes.  These financial instruments include
commitments to extend credit, unused open end revolving lines of credit and
standby letters of credit.  These involve, to varying degrees, credit and
interest-rate risk in excess of the amount reported in the balance sheet.


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

                                 (Continued)


                                                                             32.
<PAGE>   31
                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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


NOTE 12- COMMITMENTS AND CONTINGENCIES (Continued)

Commitments at year-end were as follows:

<TABLE>
<CAPTION>
                                                        1997            1996
                                                        ----            ----

   <S>                                               <C>            <C>
   Commitments to extend credit                      $ 5,105,000     $      -
   Unused open end revolving lines of credit          11,924,000            -
   Standby letters of credit                           1,043,000            -
</TABLE>


Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment, and
generally have fixed expiration dates.  Standby letters of credit are
conditional commitments to guarantee a customer's performance to a third party.
Exposure to credit loss if the other party does not perform is represented by
the contractual amount of these items.  Collateral or other security is
normally not obtained for these financial instruments prior to their use, and
many of the commitments are expected to expire without being used.

Under an employment agreement with an executive officer, certain events leading
to separation from the Company could result in cash payments totaling
approximately $294,000 at December 31, 1997.

The Company has leased a building for its main office location.  The lease has
a term of five years with the option for one five year extension.  In addition,
the lease agreement allows the Company to purchase the building for $800,000 at
any time during the term of the lease.  The aggregate annual lease payments are
$67,500 beginning in 1997 for the first year of the lease and increase by
$14,500 in 1998, $4,500 in 1999 and $9,500 in each succeeding year during the
initial five year term.  Future minimum lease commitments are:


<TABLE>
      <S>                                           <C>
      1998                                      $    82,000
      1999                                           86,500
      2000                                           96,000
      2001                                          105,500
                                                -----------

      Total                                          $   370,000
                                                     ===========
</TABLE>


-----------------------------------------------------------------------=--------


                                 (Continued)


                                                                           33.
<PAGE>   32
                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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


NOTE 13 - REGULATORY MATTERS

At year end, the Bank was considered well capitalized and all regulatory
capital requirements were met.  The Bank's actual capital levels (in millions)
and minimum required levels were:


<TABLE>
<CAPTION>
                                                                                            Minimum Required
                                                                                                To Be Well
                                                                      Minimum Required       Capitalized Under
                                                                         For Capital         Prompt Corrective
                                                   Actual             Adequacy Purposes      Action Regulations
                                                   ------             -----------------      ------------------
1997                                         Amount      Ratio        Amount       Ratio       Amount     Ratio
----                                         ------     ------        ------       -----       ------     -----
<S>                                          <C>        <C>            <C>        <C>           <C>       <C>
Total capital (to risk weighted assets)      $ 9.6       40.2%         $ 1.9       8.0%         $ 2.4     10.0%
Tier 1 capital (to risk weighted assets)       9.3       38.9            1.0       4.0            1.4      6.0
Tier 1 capital (to average assets)             9.3       20.0            1.9       4.0            2.3      5.0
</TABLE>

NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS

Presented below are the condensed financial statements for the parent company,
St. Joseph Capital Corporation.

                           CONDENSED BALANCE SHEETS
                          December 31, 1997 and 1996


<TABLE>
<CAPTION>
                                                              1997                1996
                                                              ----                ----
<S>                                                     <C>                 <C>
ASSETS
Cash and cash equivalents                               $    1,773,792      $     1,410,112
Securities available for sale                                        -           10,127,902
Investment in Bank subsidiary                                9,423,983                    -
Premises and equipment, net                                          -              274,720
Other assets                                                    12,092               28,671
                                                        --------------      ---------------
    Total assets                                        $   11,209,867      $    11,841,405
                                                        ==============      ===============

LIABILITIES
Other liabilities                                       $        5,442      $        48,519

SHAREHOLDERS' EQUITY                                        11,204,425           11,792,886
                                                        --------------      ---------------
    Total liabilities and shareholders' equity          $   11,209,867      $    11,841,405
                                                        ==============      ===============
</TABLE>



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


                                  (Continued)


                                                                             34.
<PAGE>   33
                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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


NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                        CONDENSED STATEMENTS OF INCOME

Year ended December 31, 1997 and period from February 29, 1996 to December 31,
1996


<TABLE>
<CAPTION>
                                                      1997         1996
                                                      ----         ----

<S>                                               <C>           <C>
Interest income                                   $   66,545    $  197,057
Interest expense                                           -         7,656
Other expenses                                       172,327       479,620
                                                  ----------    ----------
LOSS BEFORE INCOME TAXES AND EQUITY
 IN UNDISTRIBUTED NET LOSS OF BANK SUBSIDIARY       (105,782)     (290,219)

Income tax benefit                                         -             -
                                                  ----------    ----------
LOSS BEFORE EQUITY IN UNDISTRIBUTED
 NET LOSS OF bANK SUBSIDIARY                        (105,782)     (290,219)

Equity in undistributed net loss
 of Bank subsidiary                                 (656,338)            -
                                                  ----------    ----------
NET LOSS                                          $ (762,120)   $ (290,219)
                                                  ==========    ==========
</TABLE>



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


                                 (Continued)

                                                                            35.
<PAGE>   34
                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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


NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                      CONDENSED STATEMENTS OF CASH FLOWS
Year ended December 31, 1997 and period from February 29, 1996 to December 31,
1996

<TABLE>
<CAPTION>
                                                               1997              1996
                                                               ----              ----
<S>                                                       <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                               $   (762,120)     $   (290,219)
   Adjustments to reconcile net loss to
    net cash  from operating activities
     Equity in undistributed net loss of
      bank subsidiary                                          656,338                 -
     Depreciation                                                1,528             4,176
     Discount accretion                                        (45,542)         (167,621)
     Net change in other assets                                  6,224           (28,671)
     Net change in other liabilities                           (43,077)           48,519
                                                          ------------      ------------
      Net cash from operating activities                      (186,649)         (433,816)

CASH FLOWS FROM INVESTING ACTIVITIES
   Investment in Bank subsidiary                              (346,382)                -
   Purchase of securities available for sale                (3,056,000)      (17,054,828)
   Proceeds from maturities and calls of securities
    available for sale                                       3,930,061         7,062,000
   Purchase of premises and equipment, net                     (39,041)         (278,896)
                                                          ------------      ------------
      Net cash from investing activities                       488,638       (10,271,724)

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from other borrowings                                    -           275,000
   Repayment of other borrowings                                     -          (275,000)
   Proceeds from issuance of common stock, net                  61,691        12,115,652
                                                          ------------      ------------
      Net cash from financing activities                        61,691        12,115,652
                                                          ------------      ------------

Net change in cash and cash equivalents                        363,680         1,410,112

Cash and cash equivalents at beginning of period             1,410,112                 -
                                                          ------------      ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                $  1,773,792      $  1,410,112
                                                          ============      ============

Non-cash transfers to investment in bank subsidiary
   Securities available for sale                          $  9,331,930      $          -
   Premise and equipment, net                                  312,233                 -
   Other assets                                                 10,355                 -
</TABLE>


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

                                 (Continued)

                                                                             36.
<PAGE>   35
                        ST. JOSEPH CAPITAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1997 and 1996

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


NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS

Financial instruments at year-end are as follows, in thousands:


<TABLE>
<CAPTION>
                                                ----------1997---------  -------1996------------
                                                          ----                  ----
                                                 Carrying    Estimated   Carrying    Estimated
                                                  Amount    Fair Value    Amount     Fair Value
                                                  ------    ----------    ------     ----------
<S>                                             <C>         <C>         <C>          <C>
Financial assets
  Cash and cash equivalents                     $    4,535  $    4,535  $    1,410   $    1,410
  Interest-bearing deposits in other
   financial institutions                              500         500           -            -
  Securities available for sale                     22,351      22,351      10,128       10,128
  Loans receivable, net of allowance
   for loan losses                                  21,991      22,039           -            -
  Accrued interest receivable                          526         526           -            -

Financial liabilities
  Noninterest-bearing demand,
   savings, NOW and money
   markets                                         (17,564)    (17,564)          -            -
  Certificates of deposits                         (17,352)    (17,352)          -            -
  Securities sold under agreements to
   repurchase                                       (4,504)     (4,504)          -            -
  Accrued interest payable                            (121)       (121)          -            -
</TABLE>


The estimated fair value approximates carrying amount for all items except
those described below.  Estimated fair value for securities available for sale
is based on quoted market values for the individual securities or for
equivalent securities.  Estimated fair value for loans is based on the rates
charged at year end for new loans with similar maturities, applied until the
loans are assumed to reprice or be paid.  Estimated fair value for other
financial instruments and off-balance-sheet loan commitments is considered
nominal.

While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Company to have
disposed of such items at year end 1997 or 1996, the estimated fair values
would necessarily have been achieved at that date, since the market values may
differ depending on various circumstances.  Also, the use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.  The estimated fair values at year end 1997 and
1996 should not necessarily be considered to apply at subsequent dates.



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

                                                                             37.