1997









                                    [COVER]












                                                                     1ST BANCORP
                                                                          ANNUAL
                                                                          REPORT
<PAGE>

                                Table of Contents


                          1ST BANCORP AND SUBSIDIARIES



Message to the Shareholders................................................    2

Selected Financial Highlights..............................................    3

Board of Directors.........................................................    4

Business Discussion........................................................    5

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

Independent Auditors' Report...............................................   16

Consolidated Statements of Financial Condition.............................   17

Consolidated Statements of Earnings........................................   18

Consolidated Statements of Stockholders' Equity............................   19

Consolidated Statements of Cash Flows......................................   20

Notes to Consolidated Financial Statements.................................   20

Management and Office Locations............................................   38

Senior Management..........................................................   39

Corporate Information......................................................   40

<PAGE>
                                                    [PHOTO OF C. JAMES MCCORMICK
                                                             AND FRANK BARACANI]


Message to the Shareholders:

During each of the past two fiscal  years,  the  occurrence  of one-time  events
conversely affected the Corporation's  earnings.  1ST BANCORP's earnings dropped
to $821,000 during fiscal 1997 because of a special industry-wide  assessment to
recapitalize the Savings  Association  Insurance Fund (SAIF) which resulted in a
$1,330,000  charge to Bank  earnings.  This  compares to record net  earnings of
$5,762,000 during fiscal 1996 when two branch banking offices were sold, thereby
greatly  enhancing  earnings for the year.  Earnings per share were $1.17 during
1997 as compared to $8.22 during 1996.

Although  the  recapitalization  of the SAIF  negatively  impacted  fiscal  1997
earnings,  it was a  positive  event for the  future of the  industry.  The SAIF
recapitalization  will positively  impact the future earnings of the Corporation
when the ongoing annual deposit insurance assessments will be greatly reduced.

In addition to dealing  with the SAIF  assessment,  it was a busy year for First
Federal Bank, A Federal  Savings Bank.  All loan  administrative  functions were
relocated to Vincennes in June, 1997, affording more standardized procedures and
control,  as  well  as  substantially  decreased  overhead  expenses.  Only  one
nonconforming mortgage loan production office, in Evansville,  Indiana,  remains
in operation. Overhead for the three loan production offices that were closed in
the consolidation process exceeded $2.0 million annually. Therefore,  operations
in fiscal 1998 should reflect this cost savings. On the retail side, we opened a
branch office in Vincennes  during the fiscal year,  thereby  affording  greater
customer service in our primary market area.

First Financial  Insurance  Agency,  Inc. had a busy year as well. An office was
opened in Princeton,  Indiana,  which has already proven to be  successful.  The
size of the agency  doubled with the purchase of the book of insurance  business
of a local  insurance  agency.  This purchase also expanded the Agency's  market
share  of  business  and  provided  additional   insurance  products  to  Agency
customers. Currently, First Financial represents 26 insurance companies.

In addition to the restructuring of the loan offices which will reduce operating
expenses,  we also  accomplished the goal of increasing the net interest margin.
The margin  increased  to 2.52%  during  fiscal 1997 as compared to 2.36% during
fiscal  1996.  This  is the  highest  net  interest  margin  experienced  by the
Corporation  since fiscal year 1994. We have chosen to increase the margin in an
orderly  manner and  therefore  this  process is ongoing.  A major factor in the
increased  interest  rate  margin has been  placing  higher  rate  nonconforming
mortgage  loan product in  portfolio  thereby  increasing  the yield on loans to
8.47% in 1997 from 8.36% in 1996, during a time of decreasing  interest rates in
the market as a whole.

Although collection efforts are strong,  nonperforming  assets increased to $2.5
million, or .9% of assets at June 30, 1997 as compared to $.8 million, or .3% of
assets at June 30, 1996. This increase was due to an increase in both conforming
and   nonconforming   loan   delinquencies,   mostly   attributed   to  customer
bankruptcies.  Acknowledging  this  increase  in  substandard  assets,  we  have
increased  our  general  valuation  allowance  to $650,000 at June 30, 1997 from
$392,000 at June 30, 1996,  an increase of over 65%.  Total  allowance  for loan
losses at June 30, 1997 aggregated $1.2 million, or .8% of net loans receivable.
This compares to $.9 million,  or .6% of net loans  receivable at June 30, 1996.
We also  have  discontinued  some  high  risk  programs,  such as the 100%  loan
program, after evaluation indicated the reward did not offset the risk.

We wish to  acknowledge  the  contributions  of R.  William  "Bill"  Ballard and
Carroll  C.  Hamner  who  retired  from the  Bank  with  over 75 years  combined
experience  in the  financial  industry,  including a combined 53 years at First
Federal.  We are  pleased  that Bill will remain on the Board of  Directors  and
Carroll will continue  employment  with the Bank on a part-time basis so we will
have the benefit of their counsel and experience.

1ST BANCORP continues to focus on maximizing  earnings and shareholder value. We
feel the  strategies  put in place in regard  to  overhead  reduction  and yield
enhancement, coupled with the reduction in the SAIF premium, have positioned the
Corporation for a successful fiscal 1998.

As always,  we wish to thank our  shareholders,  associates,  and  customers for
their continued loyalty and support.

Sincerely,

/s/ C. James McCormick                            /s/ Frank Baracani
C. James McCormick                                Frank Baracani
CEO and Chairman of the Board                     President
<PAGE>

                          Selected Financial Highlights
<TABLE>
<CAPTION>


                                             1997        1996         1995        1994        1993
                                           --------     --------    --------    --------    --------
<S>                                          <C>          <C>         <C>         <C>         <C>   
Summary of Earnings                             (Dollars in thousands except per share amounts)
  (For the year ended June 30):
  Interest Income                            19,694       20,875      19,903      15,506      16,149
  Interest Expense                           13,292       14,520      13,419       8,955       9,405
  Provision for Loan Losses                     373           83         100          75         115
  Non-Interest Income                         3,098       10,391       5,384       3,434       3,705
  Non-Interest Expense                        8,555        7,528       7,898       7,459       6,836
  Income Taxes                                 (249)       3,373       1,440         808       1,222
  Net Earnings                                  821        5,762       2,430       1,643       2,276
----------------------------------------------------------------------------------------------------
  Earnings Per Share (1)                   $   1.17     $   8.22    $   3.54    $   2.31    $   3.42
====================================================================================================
Financial Condition
  (As of June 30):
  Total Assets                              270,490      263,483     312,759     253,560     230,293
  Securities Available for Sale              11,588       10,499          --       5,758       1,307
  Securities Held to Maturity                44,065       43,624      72,005      51,119      25,990
  Loans                                     174,609      169,339     206,923     176,181     178,004
  Deposits                                  144,316      137,148     209,805     172,791     172,413
  Borrowings                                100,296      100,885      79,387      59,520      37,200
  Stockholders' Equity                       22,333       21,729      16,333      13,520      12,854
----------------------------------------------------------------------------------------------------
  Stockholders' Equity Per Share (1)(2)    $  32.00     $  31.05    $  23.36    $  21.71    $  20.17
====================================================================================================
Supplemental Data
  (At or for the year ended June 30):
  Yield on Interest-Earning Assets             7.77%        7.75%       7.22%       6.87%       7.78%
  Cost of Interest-Earning Liabilities         5.54%        5.67%       5.02%       4.18%       4.76%
  Net Interest-Rate Spread                     2.23%        2.08%       2.20%       2.69%       3.02%
  Net Interest-Rate Margin                     2.52%        2.36%       2.35%       2.89%       3.25%

  Return on Average Total Assets               0.31%        2.05%       0.84%       0.70%       1.03%
  Return on Average Shareholders' Equity       3.79%       29.45%      16.62%      12.24%      20.10%
  Equity to Assets Ratio                       8.26%        8.25%       5.22%       5.33%       5.58%

  Cash Dividends Per Share (1)             $   0.39     $   0.37    $   0.18    $   0.18    $   0.13
  Dividend Payout Ratio                       33.37%        4.52%       5.13%       7.81%       3.99%
====================================================================================================
</TABLE>

(1)  All per share  calculations  have been adjusted for the 5-for-4 stock split
     effective July 15, 1992 and the 5% stock dividends  issued February 9, 1996
     and January 10, 1997.

(2)  Calculated  by dividing  total  equity by number of shares of common  stock
     outstanding at year end.

<PAGE>
                               BOARD OF DIRECTORS

                         [PHOTO OF BOARD OF DIRECTORS]

Front row, left to right:

John J. Summers, Vice Chairman
      Retired President
      Hamilton Glass Products, Inc.

C. James McCormick, Chairman & CEO*
      Chairman of the Board -
      McCormick, Inc., Bestway Express, Inc.,
      and President of JAMAC Corp.

Frank Baracani, President*
      President and Chief Executive Officer,
      First Federal Bank,
      A Federal Savings Bank

Lynn Stenftenagel, Secretary/Treasurer*
      Executive Vice President, Secretary,
      Chief Financial Officer,
      First Federal Bank,
      A Federal Savings Bank

Back row, left to right:

James W. Bobe
      Farmer and County Commissioner

Rahmi Soyugenc
      Chairman of the Board and President -
      Evansville Metal Products, Inc.,
      President - National Anodizing &
      Plating, Keller Street Corporation

Ruth Mix Carnahan
      Secretary-Treasurer, Carnahan Grain, Inc.

Donald G. Bell, Vice President
      Retired Senior Partner - Hart, Bell, Cummings,
      Ewing & Stuckey, Attorneys-at-Law

R. William Ballard
      Retired Senior Vice President,
      First Federal Bank,
      A Federal Savings Bank


All of the above directors of 1ST BANCORP are also
directors of First Federal Bank, A Federal Savings Bank

*Also director and officer of First Financial Insurance
Agency, Inc. and First Title Company


<PAGE>

BUSINESS DISCUSSION


1ST BANCORP,  an Indiana  corporation formed in 1988 (the  "Corporation"),  is a
nondiversified,  unitary  savings  and  loan  holding  company  whose  principal
subsidiary is First Federal Bank, A Federal Savings Bank ("First Federal" or the
"Bank"). The Bank operates two retail banking offices in Vincennes,  Indiana and
a loan production office in Evansville, Indiana.

Other Corporation  subsidiaries  include First Financial  Insurance Agency, Inc.
("First Financial" or the "Agency"),  a full service insurance agency, and First
Title Company, a currently inactive corporation.

                                     Lending

First Federal continues its commitment to residential  mortgage lending,  but at
the same time, offers ancillary types of lending for customer convenience and to
diversify the loan  portfolio.  The Bank has always put mortgage  lending in the
forefront of its  business  opportunities  and has a successful  track record in
efficiently satisfying the housing needs of targeted communities.

First Federal  funded $117.0  million in loans during fiscal 1997 as compared to
$172.4 million in loans during fiscal 1996.  The decreased loan volume  resulted
from  reduced  conforming  retail loan  volume  during 1997 as compared to 1996.
Nonconforming loan volume increased slightly during the year.

Conventional  conforming  mortgage and consumer loan fundings  aggregated  $46.8
million  during fiscal 1997 as compared to $106.5  million during 1996. The Bank
maintained  its market share of mortgage  loans in its  designated  lending area
during 1997 as compared to 1996.  This decrease in fundings is attributed to the
sales  of  the  Tipton  and  Kokomo  branch  offices  in  December,   1995,  the
discontinuance  of the  wholesale  correspondent  mortgage  program in the first
quarter of fiscal year 1997, and the general economic  conditions which resulted
in  decreased  mortgage and consumer  loan  activity in the Bank's  lending area
during 1997.

First  Federal is committed  to  efficiently  providing  the credit needs of the
Vincennes and surrounding  communities.  However,  with the decreased  volume in
conventional  mortgage  lending  and the  decreasing  profits  provided  by such
lending, the Bank continues its focus on the nonconforming mortgage market. This
market provides loans to a wider range of qualifying mortgage customers.

During fiscal 1997, $70.2 million of nonconforming loans were funded as compared
to $65.9  million of  nonconforming  mortgage  loans in 1996.  These  loans were
generated during the year by loan production  offices located in Indiana,  Ohio,
and Kentucky.  Toward the end of fiscal 1997,  nonconforming loan production had
decreased  substantially  because of the influx of new  mortgage  companies  and
mortgage brokers into the nonconforming loan business,  so the decision was made
to restructure  the Bank's  nonconforming  loan division.  Only the  Evansville,
Indiana loan production  office remains open, and all  administrative  functions
are conducted from the home office. This restructuring resulted in a substantial
decrease in overhead and operating expenses.

A portion of the high quality  nonconforming  mortgage loans are retained in the
portfolio  for  yield.  The  remainder  of the  nonconforming  loans  are  sold,
servicing released,  to other companies,  in order to preserve asset quality and
to  generate  non-interest  income.  During  the  year,  most of the  conforming
mortgage loans were sold in the secondary market with servicing  retained by the
Bank;  however,  a  portion  of the new  conforming  lending  was  placed in the
portfolio.  Retaining  conforming  mortgage loans in portfolio served to balance
the loan  portfolio and also enhanced yield since the rates were higher than for
alternative  investments.  During the year,  First Federal sold $76.2 million of
residential  mortgage  loans  as  compared  to the  sale of  $161.4  million  of
residential mortgage loans during fiscal 1996.

<PAGE>

At June 30, 1997,  the Bank  maintained a high  quality  loan  portfolio  with a
concentration in residential real estate as shown in the following table:

Real Estate Loans:

     Construction Loans on:

         1-4 family dwelling units   $  2,038,000       1.4%

     Permanent Mortgages on:

        1-4 family dwelling units     126,039,000      84.0%
        5 or more dwelling units        2,969,000       2.0%
        Nonresidential property         3,619,000       2.4%
        Land                            2,562,000       1.7%

Consumer Loans                         12,748,000       8.5%
------------------------------------------------------------
Total Loans                          $149,975,000     100.0%
============================================================

Over 94% of the total loan  portfolio at June 30, 1997  consisted of residential
real estate or consumer  loans.  Of the total  $117.0  million  loans  processed
during fiscal year 1997, over 99% was for residential or consumer purposes.

At June 30, 1997,  nonperforming  assets  totaled $2.5 million,  or .9% of total
assets.  This compares to $.8 million,  or .3% of assets at June 30, 1996.  This
increase is attributed to several factors, including general economic conditions
and the abundance of consumer  bankruptcies  being  experienced  throughout  the
country and in our primary lending area.  Loan quality  continues to be of major
importance  and  strong  effort is being  made to  ensure a  quality  portfolio.
General valuation allowances have been increased to prepare for potential future
losses in the portfolio.

Total allowance for loan losses at June 30, 1997 aggregated $1.2 million, or .8%
of net loans  receivable.  This  compares  to $.9  million,  or .6% of net loans
receivable at June 30, 1996.  The provision for loan losses was $373,000  during
fiscal 1997 as compared to $83,000 during fiscal 1996.  Management  believes the
allowance is adequate to absorb potential future losses.

                                 Retail Banking

The Bank  operates  two  banking  offices in  Vincennes,  Indiana.  A variety of
savings  products  and  conveniences  are  offered  by First  Federal.  Checking
accounts, money market deposit accounts, and savings certificates are offered at
competitive  interest rates.  Wire services,  travelers'  checks,  money orders,
savings bonds, ATM services,  bank by mail, and automatic  transfers are offered
for customer convenience.

An extensive  array of loan  products is also  offered.  Fixed rate,  adjustable
rate, and balloon  mortgages,  as well as consumer loan products,  credit cards,
and  overdraft  and home  equity  lines of credit are  available.  Nonconforming
mortgage  loans  are also  offered,  thus  providing  mortgage  service  for all
segments of the communities being served.

                                    Insurance

First Financial  Insurance Agency,  Inc. has offices in Vincennes and Princeton,
Indiana.  The Agency  continues to grow in insurance volume and in the number of
companies  represented.  During  fiscal 1997,  the Agency  purchased the book of
business of a local insurance agency, thereby doubling the premium base. At June
30, 1997, the Agency represented 18 property and casualty  insurance  companies.
First  Financial  provides a full line of insurance  products,  including  home,
auto, farm and commercial coverages.  The Agency also markets various health and
life insurance products through its affiliation with 8 additional companies.



<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS


This report contains certain forward looking  statements that inherently involve
a number of risks and  uncertainties.  Among the factors that could cause actual
results to differ materially are the following:  general economic  conditions in
the Corporation's  market area, the  deterioration in the financial  strength of
the Corporation's loan customers, and increased competition in the nonconforming
lending arena.

                  Results of Operations and Financial Condition

1ST BANCORP's net earnings  during fiscal year 1997 were $821,000 as compared to
$5,762,000  during fiscal 1996 and  $2,430,000  during 1995.  Earnings per share
were $1.17 during 1997, $8.22 during 1996, and $3.54 during 1995.  Dividends per
common share were $.39 in 1997, $.37 in 1996, and $.18 in 1995.

1ST BANCORP's  assets  increased to $270,490,000 at June 30, 1997 as compared to
$263,483,000  at June  30,  1996.  Stockholders'  equity  at June  30,  1997 was
$22,333,000, an increase of $604,000 from stockholders' equity of $21,729,000 at
June 30, 1996.




           Interest Rate Environment and Corporate Strategic Planning

The interest rate environment plays an important role in the strategic planning,
new  business,  and  earnings  of the  Corporation.  This year,  interest  rates
fluctuated  less  than in  previous  years  and the  trend  was one of  slightly
declining rates overall.

With the increased volume in nonconforming mortgage originations,  the effect of
interest rate  fluctuations  to the  Corporation is somewhat  mitigated  because
rates do not move as  quickly  in the  nonconforming  mortgage  market as in the
conforming mortgage market.

<PAGE>
                               Net Interest Income
<TABLE>
<CAPTION>
                                                    1997                           1996                          1995
                                       -----------------------------    -------------------------     ------------------------  
                                       Average                 Yield    Average            Yield      Average            Yield
                                       Balance     Interest    Rate     Balance  Interest   Rate      Balance  Interest   Rate
                                       -------     --------    ----     -------  --------   ----      -------  --------   ----
<S>                                     <C>            <C>      <C>     <C>         <C>      <C>      <C>         <C>     <C>  
ASSETS
  Interest Earning Assets:
    Short-Term Investments and
      Interest Bearing Deposits         $12,579        $677     5.38%   $17,825     $955     5.36%    $12,332     $666    5.40%
    Investment and Trading                                                                           
      Account Securities                 62,237       3,870     6.22%    59,777    3,893     6.51%     70,067    4,144    5.91%
    Loans                               178,746      15,147     8.47%   191,735   16,027     8.36%    193,020   15,093    7.82%
                                        ----------------------------    -------------------------     ------------------------  
  Total Interest Earning Assets         253,562      19,694     7.77%   269,337   20,875     7.75%    275,419   19,903    7.22%
  Allowance for Loan Losses                (979)                           (886)                         (855)
  Other Assets                           12,764                          13,221                        15,383
                                        -------                         -------                       -------
Total Assets                            265,347                         281,672                       289,947
                                        =======                         =======                       =======
                                                                                                     
LIABILITIES AND                                                                                      
  STOCKHOLDERS' EQUITY                                                                               
  Interest Bearing Liabilities:                                                                      
    Deposits                            139,674       7,678     5.50%   163,793    9,073     5.54%    191,350    8,977    4.69%
    Short-Term Borrowings                   964          53     5.50%     3,368      154     4.57%      6,186      379    6.13%
    Federal Home Loan Bank Advances                                                                  
        and Other Borrowings             99,218       5,561     5.60%    89,103    5,293     5.94%     69,645    4,063    5.83%
                                        ----------------------------    -------------------------     ------------------------  
  Total Interest Bearing Liabilities    239,856      13,292     5.54%   256,264   14,520     5.67%    267,181   13,419    5.02%
  Other Liabilities                       3,821                           5,842                         8,149
  Stockholders' Equity                   21,670                          19,566                        14,617
                                        -------                         -------                       -------
Total Liabilities and                                                                                
  Stockholders' Equity                  265,347                         281,672                       289,947
                                        =======                         =======                       =======
                                                                                                     
Net Interest Income / Spread                          6,402     2.23%              6,355     2.08%               6,484    2.20%
                                                      ==============               ==============                =============
Net Interest Margin                                             2.52%                        2.36%                        2.35%
                                                                ====                         ====                         ====
</TABLE>                           
Net  interest  income is  affected  by both the  volume  and  rates of  interest
earnings  assets and interest  bearing  liabilities.  Net interest income before
provision  for loan losses was  $6,402,000  in 1997 as compared to $6,355,000 in
1996 and  $6,484,000 in 1995. The increase in 1997 from the level in 1996 is due
to the increase in the net interest spread and net interest margin during a time
in which the volume of interest earning assets and interest bearing  liabilities
decreased.  The decrease in 1996 from the level in 1995 is due to a lower volume
of interest earning assets and interest bearing liabilities which was not offset
by a substantially increased net interest margin as was the case during 1997.

Interest  income was  $19,694,000 in 1997 as compared to $20,875,000 in 1996 and
$19,903,000  in 1995.  Interest  expense was  $13,292,000 in 1997 as compared to
$14,520,000 in 1996 and $13,419,000 in 1995.  These levels are reflective of the
interest rate  fluctuations  and the various  operating  strategies  implemented
during the three year period as discussed below.

The annualized average yield on interest earning assets has increased during the
past three years because of changes in the economic  environment  and because of
the increased volume of high yielding  nonconforming mortgage loans being placed
in the  portfolio.  The average yield on interest  earning  assets  increased to
7.77% during 1997 from 7.75% during 1996 and 7.22% during 1995.  The  annualized
average cost of interest bearing  liabilities has fluctuated  during the period,
decreasing  to 5.54% during 1997 from 5.67% during 1996 and as compared to 5.02%
during 1995. The net interest  spread has increased to 2.23% in 1997 as compared
to 2.08% during 1996 and 2.20% in 1995.

<PAGE>
Fiscal 1997 vs. Fiscal 1996

The average levels of interest earning assets and interest  bearing  liabilities
decreased  substantially during 1997 as compared to 1996. This was caused by the
branch  sales which took place in  December,  1995.  Yet,  net  interest  income
actually increased during the period.

Cash management was challenging  during 1997 because of the fluctuating level of
loan  fundings  on a monthly  basis and the timing of loan  sales.  The  average
balance of short-term  investments and interest  bearing  deposits  decreased to
$12,579,000  during  1997 as  compared to  $17,825,000  in 1996  because of less
necessity  to keep cash on hand  during a time of  decreased  loan  volume.  The
average yield stayed relatively stable at 5.38% during 1997 as compared to 5.36%
in 1996.

Average  investment  and trading  account  securities  increased  during 1997 to
$62,237,000  from  $59,777,000 in 1996.  The average  interest rate decreased to
6.22% during 1997 from 6.51% during 1996. This occurred because  reinvestment of
excess cash and proceeds from called investment securities was at lower interest
rates due to the decline in interest rates during the year.

Average loans decreased to  $178,746,000  during 1997 from  $191,735,000  during
1996.  Offsetting  this decline was an increase in the average yield on loans to
8.47% during 1997 from 8.36% during 1996. The decline in the average loan volume
resulted from the branch sales,  and the increased  yield  resulted from placing
higher yielding nonconforming loans in portfolio during the year.

With the increased loan yield,  offset by the decline in the yield on investment
and trading  account  securities,  the overall yield on total  interest  earning
assets  increased to 7.77%  during 1997 as compared to 7.75%  during 1996.  More
importantly,  however, for net interest income purposes, was the decrease in the
average cost of interest bearing liabilities during the year.

With the  declining  interest  rate  environment,  the cost of average  deposits
decreased to 5.50%  during 1997 as compared to 5.54%  during  1996.  The average
balance of deposits also declined  during the year to  $139,674,000  during 1997
from $163,793,000  during 1996, because of the branch sales in December 1995 and
the use of borrowings in lieu of higher cost brokered deposits.

Likewise,  the cost of Federal Home Loan Bank advances and other  borrowed money
decreased  to 5.60%  during the year as compared to 5.94% during 1996 because of
the  declining  interest  rate  environment.  The  level of  average  borrowings
increased  to  $99,218,000  during 1997 as compared to  $89,103,000  during 1996
because  the  price of such  borrowings  was less  than  the  price of  brokered
deposits with similar terms.

Fiscal 1996 vs. Fiscal 1995

Because of the branch sales in December 1995,  cash  management was an increased
strategic   concern   during  fiscal  1996.  The  average  yield  on  short-term
investments and interest bearing deposits  remained  relatively  stable at 5.36%
during 1996 as  compared  to 5.40%  during  1995,  however  the average  balance
increased to $17,825,000 during 1996 from $12,332,000  during 1995.  Alternative
cash sources were  necessary to fund the cash outflow  resulting from the branch
sales.  Funds were obtained  through  increased  borrowing and brokered funds as
well as through the sale of loans and securities.  However, these funds were not
immediately  reinvested  because strategic planning called for investing in high
yield nonconforming loans as such loans became available.  Therefore,  this cash
was generating income at overnight funds rates until invested in loans.

Because of the opportunity  allowed by the FASB Special Report on implementation
of Statement 115, the investment  portfolio was  restructured  in December 1995.
This resulted in the sale of securities  which  decreased the average balance in
investment and trading account  securities to $59,777,000 in 1996 as compared to
$70,067,000 in 1995.  These investment  securities had a substantially  improved
yield of 6.51% during 1996 as compared to 5.91% during 1995.


<PAGE>

The   Corporation's   average  loan  balance  stayed   relatively   constant  at
$191,735,000  during 1996 compared to  $193,020,000  during 1995.  However,  the
yield  increased by 54 basis points to 8.36% during 1996 from 7.82% during 1995.
This increase in yield resulted from the sale of lower yielding loans during the
year and the  replacement  of these loans in  portfolio  by the higher  yielding
nonconforming loans.

While all the  restructuring on the asset side resulted in an increased yield on
earning  assets,  the  restructuring  of  the  liability  side  resulted  in  an
offsetting larger increase in the cost of interest bearing liabilities. With the
outflow of savings  occurring as a result of the branch sales, cash was obtained
through brokered savings and through increased borrowings.

The average  deposits  during 1996 decreased to $163,793,000  from  $191,350,000
during 1995 because of the deposit  outflow  associated  with the branch  sales,
offset somewhat by an increase in brokered  deposits.  Because the deposits that
were sold included  transaction accounts and passbook funds, the average cost of
these  transferred  deposits  was  relatively  low.  Thus,  the average  cost of
interest  bearing  deposits  rose to 5.54% in 1996 as compared  to 4.69%  during
1995.  Although not reflected in net interest  income,  the decrease in deposits
resulted in a decreased  federal  deposit  insurance  premium  expense.  This is
reflected in non-interest expense.

To supplement cash flow, additional funds were borrowed during 1996. The average
balance of Federal  Home Loan Bank  advances and other  borrowings  increased to
$89,103,000 in 1996 from  $69,645,000  in 1995.  Even though the average cost of
such borrowings remained relatively constant at 5.94% during 1996 as compared to
5.83% during 1995,  the increased  volume  contributed  to the increased cost of
interest bearing liabilities.

Net interest margin

Another  factor that must be  considered  is the  contribution  of interest free
funds on the  interest  rate  spread,  which is the basis of the  interest  rate
margin.  Average  interest  earning assets  exceeded  average  interest  bearing
liabilities by $13,706,000 in 1997, by $13,073,000 in 1996, and by $8,238,000 in
1995. An excess of interest earning assets effectively contributes interest free
funds as an integral part of the interest rate margin.  Thus, the  Corporation's
net interest  margin exceeded the spread by 29 basis points in 1997, by 28 basis
points in 1996, and by 15 basis points in 1995.

                               Non-Interest Income

Non-interest  income  decreased in 1997 to $3,098,000 from  $10,391,000 in 1996,
and as compared  to  $5,384,000  in 1995.  The major  reason for the  $7,293,000
decrease  during  1997 was the  $7,274,000  gain on sale of the  branch  offices
during 1996.

Net gain on sales of loans stayed relatively  constant at $2,124,000 during 1997
as compared to $2,026,000  during 1996.  Net gains on sales of loans during 1995
was  $582,000.  The  increases  in 1996 and  1997  were  because  of the sale of
nonconforming  loans  which  generate a strong  gain on sale and are not as rate
sensitive as conforming mortgage loans. The adoption of FAS 122 for fiscal years
1996  and  later,  resulted  in  increased  gain  on sale  of  loans  due to the
capitalization of originated mortgage servicing rights ($366,000 during 1997 and
$454,000  during  1996.)  Total  loan  sales  aggregated  $76,202,000  in  1997,
$161,422,000 in 1996, and $32,835,000 in 1995. Included in the loan sales during
1997 and 1996,  respectively,  were $37,709,000 and $27,910,000 in nonconforming
loans.

A $29,000 net loss on sales of securities was recognized during 1997 as compared
to a net loss of $111,000 during 1996 and net gains of $16,000 in 1995. The loss
in 1996 was incurred because of the opportunity  afforded by the issuance of the
FASB Special Report,  "A Guide to  Implementation of Statement 115 on Accounting
for Certain  Investments  in Debt and Equity  Securities,"  to  restructure  the
investment portfolio.  Lower yielding securities were sold to improve investment
yield on the remaining portfolio.


<PAGE>

Income  from fees and service  charges  increased  to $341,000  during 1997 from
$296,000 in 1996,  and as  compared  to  $981,000 in 1995.  The level of fees is
significantly  affected  by  servicing  fee income on loans  serviced  for other
owners.  The Bank  retains  .25%  servicing  fee on fixed  rate  loans and .375%
servicing  fee on  adjustable  rate loans  that have been sold in the  secondary
market.  Loans sold to others,  with  servicing  retained  by the Bank,  totaled
$112,642,000 at June 30, 1997, $81,353,000 at June 30, 1996, and $193,058,000 at
June 30, 1995.

Other  non-interest  income  decreased to $662,000 in 1997 from $906,000 in 1996
and from $3,805,000 in 1995. Of this income, $237,000 during 1996 and $2,980,000
during 1995 resulted  from the sale of FHLMC and FNMA  servicing  rights.  These
servicing  rights  were sold to minimize  prepayment  risk  associated  with the
projected  lowering  long term interest rate  scenario.  Additionally,  in years
prior to 1996, these servicing rights were sold to recognize currently the value
in net income; with the adoption of FAS 122, this is no longer necessary, as the
value of the servicing rights is recognized currently. Accordingly, no servicing
rights were sold during 1997.

                              Non-Interest Expense

Non-interest expense increased to $8,555,000 in 1997 from $7,528,000 in 1996, as
compared  to  $7,898,000  in 1995.  The  increase in 1997 is  attributed  to the
one-time  pre-tax  charge of  $1,330,000  to federal  insurance  premiums for an
industry-wide  special  assessment  by the FDIC to  recapitalize  the SAIF. As a
result of this one-time  assessment,  the Bank's deposit insurance premiums will
be reduced in the future.

Compensation and employee benefits, the major component of non-interest expense,
decreased to $4,195,000 in 1997 from  $4,273,000 in 1996 and from  $4,442,000 in
1995.  The  decreases  during 1997 and 1996 were from the  decrease in employees
resulting from the branch sales in December 1995.

Net  occupancy  decreased  to  $719,000  in 1997 from  $746,000 in 1996 and from
$815,000 during 1995. This is also due to the sale of the branch offices.

                                  Income Taxes

The Corporation  generated an income tax expense of ($249,000) in fiscal 1997 as
compared  to  $3,373,000  in fiscal  1996 and  $1,440,000  in fiscal  1995.  The
negative tax expense in fiscal 1997 resulted from the  Corporation's  investment
in an  affordable  housing  senior  citizen  project that  produces tax credits.
Because of the SAIF assessment which lowered  earnings,  the total amount of tax
credits  could not be used as related to fiscal 1997 income,  however,  tax laws
allowed  the  credits  to be  carried  back to the prior  year when  income  was
sufficient for the Corporation to use the full fiscal 1997 allocated credit.
<PAGE>

                               Financial Condition

The  Corporation's  total assets increased to $270,490,000 at June 30, 1997 from
$263,483,000  at June 30,  1996.  Total cash and cash  equivalents  decreased by
$4,805,000 to  $20,294,000  at June 30, 1997 from  $25,099,000 at June 30, 1996.
This decrease was due to less  necessity for cash to fund a decreasing  pipeline
of mortgage loans.

Net  loans   receivable   decreased  to  $146,840,000  at  June  30,  1997  from
$150,749,000  at June 30,  1996.  This  decrease  resulted  from  the  decreased
mortgage volume, the continued decision to sell lower grade  nonconforming loans
to mitigate credit risk, and the continued  decision to sell conforming loans to
mitigate  interest rate risk.  The loans held for sale  increased to $27,769,000
from  $18,590,000 at June 30, 1996 because  adjustable  rate loans are currently
being placed in the held for sale portfolio for liquidity purposes.

Prepaid expenses and other assets increased by $4,475,000 during the year mainly
because of the pending  settlement  of a $4,111,000  loan sale.  Total  deposits
increased to $144,316,000  at June 30, 1997 from  $137,148,000 at June 30, 1996.
Brokered  deposits  are used to  supplement  savings  deposits  obtained  in the
Vincennes area. Total brokered savings increased to $45,100,000 at June 30, 1997
from $34,058,000 at June 30, 1996.

                                Capital Resources

At June 30, 1997, stockholders' equity was $22,333,000,  an increase of $604,000
over total stockholders' equity of $21,729,000 at June 30, 1996.

The  Corporation is subject to regulation as a savings and loan holding  company
by the Office of Thrift Supervision.  The Bank, as a subsidiary of a savings and
loan holding  company,  is subject to certain  restrictions in its dealings with
the  Corporation.  The  Bank  is also  subject  to the  regulatory  requirements
applicable to a federal savings bank.

Current  capital  regulations  require  savings  institutions  to  have  minimum
tangible  capital  equal to 1.5% of total  assets and a minimum 3% core  capital
ratio.  Additionally,  savings  institutions  are  required to meet a risk-based
capital ratio equal to 8% of  risk-weighted  assets.  At June 30, 1997, the Bank
exceeded all capital requirements.

Minimum  capital   standards  place  savings   institutions  into  one  of  five
categories, from "critically  undercapitalized" to "well-capitalized," depending
on levels of three  measures  of capital.  A  well-capitalized  institution,  as
defined by the regulations,  would have a total  risk-based  capital ratio of at
least  10%,  a Tier 1 (core)  risk-based  capital  ratio of at least  6%,  and a
leverage (core) risk-based capital ratio of at least 5%. At June 30, 1997, First
Federal was classified as "well-capitalized."


<PAGE>

The  following  is a  summary  of the  Bank's  regulatory  capital  and  capital
requirements at June 30, 1997:

<TABLE>
<CAPTION>

                                                                                              Core/      Tier 1        Total
                                                  GAAP          Tangible     Tangible       Leverage    Risk-Based    Risk-Based
                                                Capital         Capital       Equity        Capital      Capital       Capital
---------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>           <C>           <C>          <C>           <C>        
1ST BANCORP GAAP Capital                       $22,333,000
First Federal GAAP Capital                     $22,367,000    $22,367,000   $22,367,000   $22,367,000  $22,367,000   $22,367,000

Capital Adjustments:
  Unrealized Loss on Investment Securities                        109,000       109,000       109,000      109,000       109,000
  General Valuation Allowance                                                                                            650,000
  Disallowed                                                      (40,000)      (40,000)      (40,000)     (40,000)      (40,000)
                                                           ----------------------------------------------------------------------
Regulatory Computed Capital                                    22,436,000    22,436,000    22,436,000   22,436,000    23,086,000
                                                           ======================================================================

Total Assets:
  Adjusted Total Assets                                       270,568,000   270,568,000   270,568,000  -             -
  Risk-Weighted Assets                                        -             -             -            144,438,000   144,438,000
                                                           ----------------------------------------------------------------------
Regulatory Computed Assets                                    270,568,000   270,568,000   270,568,000  144,438,000   144,438,000
                                                           ======================================================================
Regulatory Capital Ratio                                             8.29%         8.29%         8.29%       15.53%        15.98%
                                                                     ====          ====          ====        =====         ===== 
Regulatory Capital Category:
  OTS Minimum Requirements                                           1.50%                       3.00%                      8.00%
                                                                     ====                        ====                       ==== 
Prompt Corrective Action Requirements:
  Not Critically Undercapitalized Equal to                                         2.00%
                                                                                   ==== 
  Well Capitalized Equal to or Greater Than                                                      5.00%        6.00%        10.00%
                                                                                                 ====         ====         ===== 
</TABLE>


                         Asset and Liability Management

Thrift  institutions  are  subject  to  interest  rate risk to the  degree  that
interest-bearing liabilities,  primarily deposits and borrowings with relatively
short-term maturities,  mature or reprice more rapidly, or on a different basis,
than  interest-earning  assets.  While having liabilities that mature or reprice
more  frequently on average than assets will be beneficial in times of declining
interest  rates,  such an  asset/liability  structure  will  result in lower net
income or net losses during periods of rising interest  rates,  unless offset by
other factors such as non-interest  income.  Thus, the  Corporation's  operating
results are affected by changes in the level of market rates of interest.

An  asset/liability  management  program has been  designed and  implemented  to
stabilize and improve earnings by managing  interest rate risk without adversely
affecting asset quality.  This program  involves the coordination of sources and
uses of funds and the evaluation of changing market rate relationships.  In this
process, the Corporation's interest rate risk is analyzed using gap analysis and
simulation analysis produced in-house and by the OTS.

Management  closely  monitors the  asset/liability  mix and adjusts policies and
strategies  to manage  the impact of  fluctuating  interest  rates on  operating
results.  The  following  table sets forth the  repricing  of the  Corporation's
interest  earning  assets and  interest  bearing  liabilities  at June 30, 1997.
Prepayment  assumptions  and decay  rates have been  applied to more  accurately
reflect the asset/liability gap.

<PAGE>

<TABLE>
<CAPTION>
                                                            At June 30, 1997
                                                       Maturing or Repricing Within
                                   -----------------------------------------------------------------

                                     Average                  1 Year   1 to 3     3 to 5   More than
                                       Rate        Total     Or Less    Years      Years    5 Years
                                   ------------------------------------------------------------------
                                           (Dollars in Thousands)
Rate Sensitive Assets
-----------------------------------------------------------------------------------------------------
<S>                                    <C>         <C>        <C>        <C>        <C>       <C>   
Loans Receivable (1)
   Adjustable Rate Mortgage loans      8.34%       $88,757    $67,391    $8,658     $8,767    $3,941
   Fixed Rate Mortgage loans           8.55%        76,239     30,399    25,914      9,930     9,996
   Nonmortgage Loans                   9.73%        12,748      6,514     3,540      1,691     1,003
Investments                            6.36%        80,365     24,712    12,407     12,803    30,443
                                   ------------------------------------------------------------------

Total Rate Sensitive Assets            7.86%      $258,109   $129,016   $50,519    $33,191   $45,383
=====================================================================================================

Rate Sensitive Liabilities
-----------------------------------------------------------------------------------------------------
Deposits
  Fixed Maturity Deposits              5.81%      $121,108    $91,623   $24,123     $3,123    $2,239
  Other Deposits (2)                   3.85%        23,208     16,545     2,501      1,475     2,687
FHLB Advances and Other Borrowings     5.67%       100,296     43,198    46,013     10,396       689
                                   ------------------------------------------------------------------

Total Rate Sensitive Liabilities       5.57%      $244,612   $151,366   $72,637    $14,994    $5,615
=====================================================================================================

Total Asset/Liability Gap                          $13,497   ($22,350) ($22,118)   $18,197   $39,768
Cumulative Asset/Liability Gap                     $13,497   ($22,350) ($44,468)  ($26,271)  $13,497
Cumulative Gap as a Percentage of
 Total Assets - 1997                                            -8.26%   -16.44%     -9.71%     4.99%
Cumulative Gap as a Percentage of
Total Assets - 1996                                             -4.05%   -21.35%     -9.47%     6.56%

</TABLE>
-----------------------------------
(1)  The distribution of fixed rate loans is based upon contractual maturity and
     scheduled contractual  repayments adjusted for estimated  prepayments.  For
     adjustable  rate loans,  interest rates adjust at intervals of one month to
     seven years.

(2)  A portion of these  transaction  account  balances has been included in the
     More Than 5 Years category to reflect  management's  assumption  that these
     accounts are not rate sensitive.


                                    Liquidity

The  Corporation  conducts  substantially  all its  business  through its thrift
subsidiary. The main source of funds for 1ST BANCORP is dividends from the Bank.

The  Corporation's  primary  sources  of funds are the  Bank's  deposits,  which
totaled   $144,316,000  at  June  30,  1997,  and   borrowings,   which  totaled
$100,296,000  at June 30,  1997.  During  the year,  cash flow  needs  were also
supplied by loan  payments,  proceeds  from sales of loans and  securities,  and
securities sold under agreement to repurchase.

Scheduled  loan  payments  are a  relatively  stable  source of funds,  but loan
payoffs,  the  sale  of  loans,  and  deposit  inflows  and  outflows  fluctuate
significantly,  depending  on market  interest  rates and  economic  conditions.
Management  does not  expect any of these  items to occur in amounts  that would
exert  pressure  on the  Corporation's  ability  to  meet  consumer  demand  for
liquidity or the regulatory liquidity requirements.

Historically,  the Bank has  maintained  its  liquid  assets  above the  minimum
requirements  imposed by OTS  regulations  and at a level believed by management
adequate to meet  requirements of normal daily activities.  Regulations  require
thrift institutions to maintain minimum levels of certain liquid investments, as
defined in the regulations,  of at least 5% of net withdrawable  assets. At June
30, 1997, First Federal's regulatory liquidity ratio was 10.44%.

<PAGE>

[KPMG Peat Marwick LLP Letterhead]


Independent Auditors' Report


The Board of Directors
1ST BANCORP:

We have audited the accompanying  consolidated statements of financial condition
of 1ST  BANCORP  and  subsidiaries  as of June 30, 1997 and 1996 and the related
consolidated  statements  of earnings,  stockholders'  equity and cash flows for
each  of the  years  in the  three  year  period  ended  June  30,  1997.  These
consolidated  financial  statements are the  responsibility of the Corporation's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audit.

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 1ST BANCORP and
subsidiaries  as of June 30, 1997 and 1996, and the results of their  operations
and their cash flows for each of the years in the three year  period  ended June
30, 1997 in conformity with generally accepted accounting principles.



/s/ KPMG Peat Marwaick LLP

Indianapolis, Indiana
July 17, 1997

<PAGE>

                          1ST BANCORP AND SUBSIDIARIES

                 Consolidated Statements of Financial Condition

                             June 30, 1997 and 1996

<TABLE>
<CAPTION>
               Assets                                                1997              1996
               ------                                                ----              ----
<S>                                                            <C>                  <C>       
Cash and cash equivalents:
   Interest bearing deposits                                   $   19,771,000       24,689,000
   Non-interest bearing deposits                                      523,000          410,000
                                                                 ------------     ------------
       Cash and cash equivalents                                   20,294,000       25,099,000
                                                                 ------------     ------------
Securities available for sale (note 2)                             11,588,000       10,499,000
Securities held to maturity (market value of $43,556,000
   and $42,184,000) (note 3)                                       44,065,000       43,624,000
Loans receivable, net (notes 4 and 8)                             146,840,000      150,749,000
Loans held for sale                                                27,769,000       18,590,000
Accrued interest receivable:
   Securities                                                       1,081,000        1,036,000
   Loans                                                            1,099,000        1,179,000
Stock in FHLB of Indianapolis, at cost                              4,941,000        4,864,000
Office premises and equipment (note 6)                              3,225,000        2,950,000
Real estate owned                                                     397,000          177,000
Prepaid expenses and other assets                                   9,191,000        4,716,000
                                                                 ------------     ------------
                                                                $ 270,490,000      263,483,000
                                                                  ===========      ===========

   Liabilities and Stockholders' Equity
Liabilities:
   Deposits (note 7)                                              144,316,000      137,148,000
   Advances from FHLB and other borrowings (note 8)               100,296,000      100,885,000
   Advance payments by borrowers for taxes and insurance              304,000          492,000
   Accrued interest payable on deposits                             1,194,000          816,000
   Accrued expenses and other liabilities                           2,047,000        2,413,000
                                                                 ------------     ------------
                                                                  248,157,000      241,754,000

Stockholders' equity (note 9):
   Preferred stock, no par value; shares authorized
     of 2,000,000, none outstanding                                  -                -
   Common stock, $1 par value; shares authorized of 5,000,000;
     shares issued and outstanding of 697,897 and 699,889             698,000          667,000
   Paid-in capital                                                  2,642,000        2,747,000
   Retained earnings, substantially restricted                     19,102,000       18,560,000
   Unrealized depreciation on securities available for sale
     (note 2)                                                        (109,000)        (245,000)
                                                                 ------------     ------------
                                                                   22,333,000       21,729,000
Commitments (note 14)
                                                                $ 270,490,000      263,483,000
                                                                  ===========      ===========
</TABLE>


See accompanying notes to consolidated financial statements.


<PAGE>
                          1ST BANCORP AND SUBSIDIARIES

                       Consolidated Statements of Earnings

                    Years ended June 30, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                          1997          1996            1995
                                                                          ----          ----            ----
<S>                                                                   <C>              <C>            <C>       
Interest income:
    Loans                                                             $ 15,147,000     16,027,000     15,093,000
    Securities                                                           3,852,000      3,890,000      4,136,000
    Trading account securities                                              18,000          3,000          8,000
    Other short-term investments and
       interest bearing deposits                                           677,000        955,000        666,000
                                                                      ------------   ------------   ------------
          Total interest income                                         19,694,000     20,875,000     19,903,000
                                                                        ----------     ----------     ----------

Interest expense:
    Deposits (note 7)                                                    7,678,000      9,073,000      8,977,000
    Short-term borrowings                                                   53,000        154,000        379,000
    FHLB advances and other borrowings                                   5,561,000      5,293,000      4,063,000
                                                                       -----------    -----------    -----------
          Total interest expense                                        13,292,000     14,520,000     13,419,000
                                                                        ----------     ----------     ----------

          Net interest income before
              provision for loan losses                                  6,402,000      6,355,000      6,484,000

Provision for loan losses (note 4)                                         373,000         83,000        100,000
                                                                      ------------  -------------   ------------

          Net interest income after
              provision for loan losses                                  6,029,000      6,272,000      6,384,000
                                                                       -----------    -----------    -----------

Non-interest income:
    Fees and service charges                                               341,000        296,000        981,000
    Net gain (loss) on sales of securities available
       for sale and trading account securities (note 2)                    (29,000)      (111,000)        16,000
    Net gain on sales of loans                                           2,124,000      2,026,000        582,000
    Net gain on sale of branch offices (note 13)                          -             7,274,000       -
    Other (note 5)                                                         662,000        906,000      3,805,000
                                                                      ------------   ------------    -----------
          Total non-interest income                                      3,098,000     10,391,000      5,384,000
                                                                       -----------     ----------    -----------

Non-interest expense:
    Compensation and employee benefits                                   4,195,000      4,273,000      4,442,000
    Net occupancy                                                          719,000        746,000        815,000
    Federal insurance premiums (note 7)                                  1,589,000        469,000        494,000
    Other                                                                2,052,000      2,040,000      2,147,000
                                                                       -----------    -----------    -----------
          Total non-interest expense                                     8,555,000      7,528,000      7,898,000
                                                                       -----------    -----------    -----------

          Earnings before income taxes                                     572,000      9,135,000      3,870,000

Income taxes (note 12)                                                    (249,000)     3,373,000      1,440,000
                                                                      ------------    -----------    -----------

          Net earnings                                              $      821,000      5,762,000      2,430,000
                                                                      ============    ===========    ===========

Earnings per share (note 10)                                                  1.17           8.22           3.54
                                                                              ====           ====           ====

</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>

                          1ST BANCORP AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

                    Years ended June 30, 1997, 1996 and 1995


<TABLE>
<CAPTION>
                                                                                                   Unrealized        Total
                                                                                                 depreciation on    stock-
                                                            Common       Paid-in     Retained   securities avail-  holders'
                                                             stock       capital     earnings     able for sale     equity

<S>                                                     <C>            <C>          <C>           <C>          <C>       
Balance at June 30, 1994                                  $ 565,000      2,429,000    10,749,000    (223,000)    13,520,000
    Issuance of common stock through employee
       stock purchase plan (note 9)                           2,000         37,000      -             -              39,000
    Exercise of options for common stock (note 9)            66,000        338,000      -             -             404,000
    Issuance of common stock through dividend re-
       investment and shareholder stock purchase plan         1,000         21,000      -             -              22,000
    Dividends ($.18 per share)                               -            -             (115,000)     -            (115,000)
    Change in net unrealized depreciation on securities
       available for sale (note 2)                           -            -             -             33,000         33,000
    Net earnings                                             -            -            2,430,000      -           2,430,000
                                                       ---------------------------   -----------------------    -----------
Balance at June 30, 1995                                    634,000      2,825,000    13,064,000    (190,000)    16,333,000
    Issuance of common stock through employee stock
       purchase plan (note 9)                                 5,000         77,000      -             -              82,000
    Issuance of common stock through dividend re-
       investment and shareholder stock purchase plan         2,000         53,000      -             -              55,000
    Purchase and retirement of common stock (note 9)         (6,000)      (176,000)     -             -            (182,000)
    Issuance of 33,111 shares of common stock at par 
       value for 5% stock dividend
       plus cash in lieu of
       fractional shares                                     32,000        (32,000)       (5,000)     -              (5,000)
    Dividends ($.37 per share)                               -            -             (261,000)     -            (261,000)
    Change in net unrealized depreciation on securities
       available for sale (note 2)                           -            -             -            (55,000)       (55,000)
    Net earnings                                             -            -            5,762,000      -           5,762,000
                                                       ---------------------------   -----------------------    -----------
Balance at June 30, 1996                                    667,000      2,747,000    18,560,000    (245,000)    21,729,000
    Issuance of common stock through employee stock
       purchase plan (note 9)                                 3,000         76,000      -             -              79,000
    Issuance of common stock through dividend re-
       investment and shareholder stock purchase plan         2,000         52,000      -             -              54,000
    Purchase and retirement of common stock (note 9)         (7,000)      (200,000)     -             -            (207,000)
    Issuance of 33,013 shares of common stock at par 
       value for 5% stock dividend
       plus cash in lieu of
       fractional shares                                     33,000        (33,000)       (5,000)     -              (5,000)
    Dividends ($.39 per share)                               -            -             (274,000)     -            (274,000)
    Change in net unrealized depreciation on securities
       available for sale (note 2)                           -            -             -            136,000        136,000
    Net earnings                                             -            -              821,000      -             821,000
                                                       ---------------------------  ------------------------   ------------

Balance at June 30, 1997                                  $ 698,000      2,642,000    19,102,000    (109,000)    22,333,000
                                                            =======      =========    ==========     =======     ==========

</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>
                          1ST BANCORP AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                    Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                                              1997           1996           1995
                                                                              ----           ----           ----

Net cash flows from operating activities:
<S>                                                                   <C>                 <C>             <C>      
    Net earnings                                                      $      821,000      5,762,000       2,430,000
    Adjustments to reconcile net earnings to net cash provided
       (used) by operating activities:
       Depreciation and amortization                                         348,000        300,000         188,000
       Amortization of mortgage servicing rights                             153,000        107,000         486,000
       Gain on sale of loans                                              (2,124,000)    (2,026,000)       (582,000)
       Loss (gain) on sale of securities                                      29,000        111,000         (16,000)
       Gain on sale of branch                                              -             (7,274,000)       -
       Loss on sale of equipment                                              54,000      -               -
       Net change in loans held for sale                                  (9,179,000)   (13,486,000)     (1,740,000)
       Provision for loan losses                                             373,000         83,000         100,000
       Change in accrued interest receivable                                  35,000        107,000        (702,000)
       Change in prepaid expenses and other assets                          (476,000)       635,000          21,000
       Change in accrued expenses and other liabilities                      (79,000)    (1,646,000)        443,000
       Loss on investment in limited partnership                             122,000        263,000         146,000
                                                                        ------------ ------------------------------
          Net cash provided (used) by operating activities                (9,923,000)   (17,064,000)         774,000
                                                                         -----------   ------------ ----------------

Cash flows from investing activities:
    Purchases of securities held to maturity                              (3,519,000)   (34,262,000)    (15,989,000)
    Proceeds from maturities of securities held to maturity                3,062,000     16,872,000       -
    Purchases of securities available for sale                           (31,913,000)   (46,074,000)      -
    Proceeds from maturity of securities available for sale                1,192,000      5,015,000         693,000
    Proceeds from sale of securities available for sale                   29,826,000     76,159,000       -
    Principal collected on loans, net of originations                      1,379,000    (12,802,000)    (28,227,000)
    Purchase of life insurance policies                                      (35,000)     -               -
    Purchase of stock of FHLB of Indianapolis                                (77,000)      (988,000)     (1,378,000)
    Purchases of office premises and equipment                              (615,000)      (154,000)       (187,000)
    Investment in limited partnership                                      -              -              (2,500,000)
    Proceeds from sale of office premises and equipment-branch sales       -              1,316,000       -
    Proceeds from sale of loans-branch sales                               -             28,875,000       -
    Sale of deposits-branch sales                                          -            (77,406,000)      -
    Proceeds from bulk sale of loans                                       -             37,937,000       -
    Other                                                                   (220,000)       (32,000)        225,000
                                                                        ------------ --------------  --------------
          Net cash used by investing activities                             (920,000)    (5,544,000)    (47,363,000)
                                                                        ------------   ------------    ------------

Cash flows from financing activities:
    Net increase in deposits                                               7,168,000     11,017,000      37,014,000
    Proceeds from FHLB advances and other borrowings                      83,768,000    202,544,000     193,031,000
    Repayment of FHLB advances and other borrowings                      (84,357,000)  (181,046,000)   (173,164,000)
    Proceeds from issuance of common stock                                   133,000        137,000         465,000
    Purchase and retirement of common stock                                 (207,000)      (182,000)              -
    Payment of dividends on common stock                                    (279,000)      (266,000)       (115,000)
    Decrease in advance payments by borrowers for interest and taxes        (188,000)    (1,829,000)       (961,000)
                                                                        ------------  -------------  --------------
          Net cash provided by financing activities                        6,038,000     30,375,000      56,270,000
                                                                         -----------   ------------    ------------
Net increase (decrease) in cash and cash equivalents                      (4,805,000)     7,767,000       9,681,000
Cash and cash equivalents at beginning of year                            25,099,000     17,332,000       7,651,000
                                                                          ----------   ------------   -------------
Cash and cash equivalents at end of year                                $ 20,294,000     25,099,000      17,332,000
                                                                          ==========   ============    ============
Additional disclosures:
    Interest paid                                                       $ 12,917,000     14,170,000      13,028,000
                                                                          ==========   ============    ============
    Income taxes paid                                                   $    287,000      4,700,000         584,000
                                                                        ============   ============    ============
    Transfer of investment securities 
       held to maturity to available
       for sale account                                                 $         -      45,838,000               -
                                                                        ===========    ============    ============
    Transfer of mortgage-backed securities 
       available for sale to held
       to maturity account                                              $         -               -         231,000
                                                                        ===========    ============    ============
    Transfer of investment securities 
       available for sale to held
       to maturity account                                              $         -               -       4,598,000
                                                                        ============   ============    ============
    Transfer of loans receivable to 
     prepaid expenses and other assets                                  $ 4,111,000               -               -
                                                                        ===========  ==============    ============
</TABLE>


See accompanying notes to consolidated financial statements.

<PAGE>


(Continued)

                          1ST BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1997, 1996 and 1995


(1)    Summary of Significant Accounting Policies

       Principles of Consolidation

       The consolidated financial statements include the accounts of 1ST BANCORP
       (the  "Corporation") and its subsidiaries,  First Federal Bank, A Federal
       Savings Bank and  subsidiary  (the  "Bank"),  First  Financial  Insurance
       Agency,  Inc.  and First  Title  Company.  All  significant  intercompany
       transactions and balances have been eliminated in consolidation.

       The accounting  and reporting  policies of the  Corporation  and the Bank
       conform to generally  accepted  accounting  principles.  In preparing the
       financial  statements,  management  is  required  to make  estimates  and
       assumptions that affect the reported amounts of assets and liabilities as
       of the date of the  consolidated  statement  of financial  condition  and
       consolidated statement of earnings for the period.
       Actual results could differ from those estimates.

       The Bank is subject to competition from other financial  institutions and
       is  regulated  by  certain  federal   agencies  and  undergoes   periodic
       examination by those regulatory authorities.

       Cash and Cash Equivalents

       For purposes of reporting cash flows,  cash and cash equivalents  include
       cash on hand and amounts due from banks.

       Securities Held to Maturity and Available for Sale

       Securities  classified  as  available  for sale are  securities  that the
       Corporation  intends to hold for an  indefinite  period of time,  but not
       necessarily until maturity,  and include securities that management might
       use as  part of its  asset-liability  strategy,  or  that  may be sold in
       response to changes in interest  rates,  changes in prepayment  risk, the
       need to increase  regulatory capital or other similar factors,  and which
       are carried at market value.  Unrealized holding gains and losses, net of
       tax, on available for sale  securities  are reported as a net amount in a
       separate  component of  stockholders'  equity until realized.  Securities
       classified as held to maturity are securities  that the  Corporation  has
       both the ability and positive  intent to hold to maturity and are carried
       at cost  adjusted for  amortization  of premium or accretion of discount.
       Gains and losses on securities are computed on a specific  identification
       basis.

       Loans Receivable and Real Estate Owned

       Loans receivable are considered long-term  investments,  and accordingly,
       are carried at historical cost.



<PAGE>
                          1ST BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(Continued)

       The Bank provides specific  valuation  allowances for estimated losses on
       loans and real estate owned when a significant  and permanent  decline in
       value occurs. As of July 1, 1995, the Bank adopted Statement of Financial
       Accounting  Standard No. 114, Accounting by Creditors for Impairment of a
       Loan. Under this standard, loans considered to be impaired are reduced to
       the  present  value of  expected  future  cash  flows or to fair value of
       collateral  by  allocating a portion of the  allowance for loan losses to
       such loans. If these  allocations  cause the allowance for loan losses to
       require an  increase,  allocations  are  considered  in  relation  to the
       overall  adequacy  of  the  allowance  for  loan  losses  and  subsequent
       adjustment to the loss provision.  Adopting this standard did not have an
       impact  on  the  1996  financial   statements.   In  providing  valuation
       allowances,  through a charge to operations, the estimated net realizable
       value of the  underlying  collateral and the costs of holding real estate
       are considered.  Non-specific  valuation  allowances for estimated losses
       are  established  based on  management's  judgment  of  current  economic
       conditions  and the credit  risk of the loan  portfolio  and real  estate
       owned.

       Management  believes the  allowance  for loan losses is  adequate.  While
       management  uses  available  information  to  recognize  losses on loans,
       future  additions to the allowance  may be necessary  based on changes in
       economic  conditions  and borrower  circumstances.  In addition,  various
       regulatory  agencies,  as an integral part of their examination  process,
       periodically  review the Bank's allowance for loan losses.  Such agencies
       may require the Bank to  recognize  additions to the  allowance  based on
       their judgments about information  available to them at the time of their
       examination.

       Real estate properties  acquired through, or in lieu of, loan foreclosure
       are to be sold and are  initially  recorded  at fair value at the date of
       foreclosure establishing a new cost basis. After foreclosure,  valuations
       are  periodically  performed by management and the real estate is carried
       at the lower of carrying amount or fair value less cost to sell.

       Loan Fees and Related Costs

       Loan  origination and commitment fees and certain direct loan origination
       costs are deferred,  and the net amount is amortized over the contractual
       life of the related loan as an  adjustment  of the loan's yield using the
       interest method.

       Mortgage Banking Activities

       The Bank originates and purchases  certain mortgage loans for sale in the
       secondary  market.  During the origination and purchase period,  mortgage
       loans are designated as held either for investment  purposes or for sale.
       Mortgage  loans held for sale are carried at the lower of amortized  cost
       or market value determined on an aggregate basis.

       Gains and losses on the sale of loans are  reflected in operations at the
       time of sale and are  determined  by the  difference  between  net  sales
       proceeds  and the  carrying  value  of the  loans,  adjusted  for  normal
       servicing  fees.  The Bank  recognizes,  as  separate  assets,  rights to
       service  mortgage  loans for others  however those  servicing  rights are
       acquired.


<PAGE>



       The Bank  hedges its  interest  rate risk on fixed rate loan  commitments
       expected  to close and the  inventory  of  mortgage  loans held for sale.
       Related  hedging  gains and  losses are  recognized  at the time gains or
       losses  are  recognized  on the  related  loans  sold.  The Bank does not
       anticipate any loss on open commitments at June 30, 1997.

       As of July 1, 1995,  the Bank  adopted the  provisions  of  Statement  of
       Financial  Accounting  Standards No. 122, Accounting for Servicing Rights
       ("SFAS 122").  For servicing  retained loan sales,  SFAS 122 requires the
       capitalization  of the cost of mortgage  service  rights,  regardless  of
       whether  those  rights were  acquired  through  purchase or  origination.
       Effective  December 31,  1996,  SFAS 122 was  superseded  by Statement of
       Financial  Accounting  Standards  No. 125,  Accounting  for Transfers and
       Servicing of Financial Assets and  Extinguishment  of Liabilities  ("SFAS
       125").  The  Bank's  accounting  for  mortgage  servicing  rights was not
       changed by SFAS 125. Prior to the adoption of SFAS 122 and SFAS 125, only
       purchased servicing rights were capitalized.

       Beginning  with the  adoption  of SFAS 122,  the total  cost of  mortgage
       loans,  whether  originated  or  purchased,  with the  intent  to sell is
       allocated  between the loan servicing right and the mortgage loan without
       servicing  based on their  relative fair values at the date of sale.  The
       capitalized  cost of loan servicing  rights is amortized in proportion to
       and over  the  period  of,  estimated  net  servicing  revenue.  Mortgage
       servicing rights are periodically evaluated for impairment by stratifying
       them based on the  predominant  risk  characteristics  of the  underlying
       serviced loan.

       Office Premises and Equipment

       Office  premises  and  equipment  are  stated at cost,  less  accumulated
       depreciation  provided  on the  straight-line  basis  over the  estimated
       useful lives of the various classes of assets.

       FHLB Stock

       Federal law requires a member  institution  of the Federal Home Loan Bank
       System  to  hold  common  stock  of  its  district  FHLB  according  to a
       predetermined   formula.   This  investment  is  stated  at  cost,  which
       represents redemption value.

       Pension Plan

       Pension  expense for the Bank's defined  benefit pension plan is computed
       on the basis of accepted  actuarial  methods.  It is the Bank's policy to
       fund pension costs accrued.

       Income Taxes

       The  Corporation  and  its  subsidiaries  file  consolidated  income  tax
       returns.  Deferred  tax assets and  liabilities  are  recognized  for the
       estimated future tax consequences attributable to differences between the
       financial  statement  carrying amounts of existing assets and liabilities
       and their  respective tax bases.  Deferred tax assets and liabilities are
       measured  using  enacted  tax rates in effect for the year in which those
       temporary differences are expected to be recovered or settled. The effect
       on  deferred  tax  assets  and  liabilities  of a  change  in tax rate is
       recognized in income in the period that includes the enactment date.


<PAGE>



       Reclassifications

       Certain amounts in the 1996 and 1995  consolidated  financial  statements
       have been reclassified to conform to the 1997 presentation.

(2)    Securities Available for Sale

       Securities available for sale consist of the following at June 30:

<TABLE>
<CAPTION>

                                                                                     1997
                                                            Amortized      Unrealized     Unrealized      Market
                                                              Cost            Gains         Losses         Value
<S>                                                        <C>                             <C>            <C>      
           Mortgage-backed securities:
              FHLMC                                        $   2,206,000       -           (33,000)       2,173,000

           Investments:
              U.S. Treasury and agency obligations             9,563,000       -          (148,000)       9,415,000
                                                             -----------  ----------       -------      -----------

                                                            $ 11,769,000       -          (181,000)      11,588,000
                                                              ==========  ==========       =======       ==========
</TABLE>

<TABLE>
<CAPTION>

                                                                                     1996
                                                            Amortized      Unrealized     Unrealized      Market
                                                              Cost            Gains         Losses         Value
<S>                                                        <C>                             <C>            <C>      
           Mortgage-backed securities:
              FHLMC                                        $   2,402,000       -           (47,000)       2,355,000

           Investments:
              U.S. Treasury and agency obligations             8,505,000       -          (361,000)       8,144,000
                                                             -----------  ----------       -------      -----------

                                                            $ 10,907,000       -          (408,000)      10,499,000
                                                              ==========  ==========       =======       ==========
</TABLE>

       A  reclassification  of investment  securities  from the held to maturity
       portfolio to the available for sale portfolio occurred during the quarter
       ended December 31, 1995, in accordance with the FASB Special  Report,  "A
       Guide to  Implementation  of  Statement  115 on  Accounting  for  Certain
       Investment in Debt and Equity  Securities," which was issued November 15,
       1995. The investment  securities  that were  reclassified  had a carrying
       value of  $45,838,000  and a market value of  $46,061,000  at the time of
       transfer.

       For the year  ended  June 30,  1997,  gross  realized  losses on sales of
       investment securities available for sale were $19,000. For the year ended
       June 30, 1996,  gross realized  gains and gross realized  losses from the
       sales of  investment  securities  available  for sale were  $118,000  and
       $294,000,  respectively, and from the sales of mortgage-backed securities
       available  for sale were $57,000 and $4,000,  respectively.  For the year
       ended June 30, 1995,  gross realized gains and gross realized losses from
       the sales of  mortgage-backed  securities  available for sale were $5,000
       and $7,000, respectively.


<PAGE>



       For the year ended June 30, 1997, gross realized gains and gross realized
       losses on sales of trading  account  securities were $13,000 and $23,000,
       for the year ended June 30, 1996, gross realized gains and gross realized
       losses were $13,000 and $1,000, respectively; and for the year ended June
       30, 1995, gross realized gains were $18,000.

       At June 30, 1997, the  contractual  maturity of securities  available for
       sale follows:

                                                 Amortized          Market
                                                   cost              value

       Due after one year through five years   $   1,005,000           994,000
       Due after five years through ten years      4,560,000         4,491,000
       Due after ten years                         3,998,000         3,930,000
       Mortgage-backed securities                  2,206,000         2,173,000
                                                 -----------       -----------

                                                $ 11,769,000        11,588,000
                                                  ==========        ==========

(3)    Securities Held to Maturity

       Securities held to maturity at June 30 consist of:

<TABLE>
<CAPTION>

                                                                1997
                                      Amortized      Unrealized     Unrealized      Market
                                        Cost            Gains         Losses         Value
<S>                                  <C>               <C>           <C>           <C>       
       U.S. Treasury and agency
          obligations                $ 43,747,000      41,000        (553,000)     43,235,000
       Mortgage-backed securities         318,000       5,000          (2,000)        321,000
                                     ------------     -------       ---------    ------------

                                     $ 44,065,000      46,000        (555,000)     43,556,000
                                       ==========      ======         =======      ==========
</TABLE>


<TABLE>
<CAPTION>

                                                               1996
                                      Amortized      Unrealized     Unrealized      Market
                                        Cost            Gains         Losses         Value
<S>                                  <C>               <C>           <C>           <C>       
       U.S. Treasury and agency
          obligations                $ 43,242,000       -          (1,441,000)     41,801,000
       Mortgage-backed securities         382,000       3,000          (2,000)        383,000
                                     ------------       -----     -----------     -----------

                                     $ 43,624,000       3,000      (1,443,000)     42,184,000
                                       ==========       =====       =========      ==========
</TABLE>




<PAGE>

       At June 30, 1997, the contractual maturity of securities held to maturity
       follows:

                                                      Amortized     Market
                                                        cost         value

           Due after one year through five years     $ 24,209,000   23,905,000
           Due after five years through ten years      11,346,000   11,156,000
           Due after ten years                          8,192,000    8,174,000
           Maturity-backed securities                     318,000      321,000
                                                     ------------ ------------

                                                     $ 44,065,000   43,556,000
                                                       ==========   ==========

(4)    Loans Receivable

       Loans receivable at June 30 consist of:

<TABLE>
<CAPTION>

                                                             1997              1996
                                                             ----              ----
<S>                                                      <C>                 <C>        
       Real estate loans:
          Mortgage                                       $ 135,189,000       141,247,000
          Construction                                       2,038,000         2,171,000
       Consumer and other loans                             12,748,000        10,010,000
                                                          ------------      -----------
                                                           149,975,000       153,428,000
       Less:
          Undisbursed loan funds                            (1,536,000)       (1,297,000)
          Deferred loan fees and unamortized premiums
             and discounts, net                               (441,000)         (486,000)
          Allowance for loan losses                         (1,158,000)         (896,000)
                                                         -------------     -------------
                                                            (3,135,000)       (2,679,000)

                                                         $ 146,840,000       150,749,000
                                                           ===========       ===========
       Weighted average interest rate                        8.53%              8.23%
                                                             ====               ====
</TABLE>


       At June 30,  1997,  the majority of the Bank's  residential  and consumer
       loans receivable are located in central and southern Indiana and southern
       Illinois.

       Activity  in the  allowance  for loan  losses for the years ended June 30
       consists of:

<TABLE>
<CAPTION>
                                                        1997           1996          1995
                                                        ----           ----          ----
<S>                                               <C>                 <C>             <C>    
           Balance at beginning of year           $    896,000        878,000         817,000
           Provision charged to operations             373,000         83,000         100,000
           Loans charged off, net of recoveries       (111,000)       (65,000)        (39,000)
                                                    ----------       --------        --------

           Balance at end of year                  $ 1,158,000        896,000         878,000
                                                     =========        =======         =======
</TABLE>




<PAGE>

       Non accrual loans  amounted to  $2,330,000  and $846,000 at June 30, 1997
       and 1996, respectively.

       The Bank makes loans to its officers and  directors in the normal  course
       of  business.  These  loans  are made on  substantially  the same  terms,
       including  interest rate and collateral,  as those prevailing at the time
       for comparable  transactions with other customers and do not involve more
       than the normal risk of  collectibility.  Activity in these loans for the
       year ended June 30, 1997 consists of:

           Balance at beginning of the year     $ 408,000
           Loans originated                       435,000
           Repayments                            (229,000)
                                                  -------
           Balance at end of year               $ 614,000
                                                  =======

(5)    Mortgage Banking

       The amount of loans  serviced  by the Bank for the  benefit of others was
       $112,642,000,  $81,353,000  and  $193,058,000  at June 30, 1997, 1996 and
       1995, respectively.

       At June 30, 1997 and 1996,  unamortized  loan  servicing  rights  totaled
       $819,000 and $591,000, respectively, and are included in prepaid expenses
       and other assets in the  consolidated  statement of financial  condition.
       For the years ended June 30, 1997 and 1996, the Bank capitalized $366,000
       and  $454,000,  respectively,  of  servicing  rights  on loans  that were
       originated  through  its loan  origination  network  and  retail  banking
       offices.  The Bank had definitive  plans to sell these mortgage loans and
       retain the servicing rights.

       During  the  year  ended  June 30,  1996,  the  Bank  sold  approximately
       $161,082,000  of its  FHLMC  and  FNMA  loan  servicing  portfolio  which
       resulted in a gain of $237,000.  During the year ended June 30, 1995, the
       Bank  sold  approximately   $380,462,000  of  its  FHLMC  loan  servicing
       portfolio  which  resulted  in a gain of  $2,980,000.  All such gains and
       losses are  included  in other  non-interest  income in the  consolidated
       statements of earnings.  No sales of the Bank's loan servicing  portfolio
       occurred in 1997.



<PAGE>



(6)    Office Premises and Equipment

       Office premises and equipment at June 30 consist of:

                                              1997             1996
                                              ----             ----

           Land and improvements         $    345,000           315,000
           Buildings and improvements       2,952,000         2,773,000
           Furniture and equipment          1,986,000         1,756,000
                                            ---------         ---------
                                            5,283,000         4,844,000
           Less accumulated depreciation    2,058,000         1,894,000
                                            ---------         ---------

                                          $ 3,225,000         2,950,000
                                            =========         =========

(7)    Deposits

       Deposits at June 30 consist of:
<TABLE>
<CAPTION>

                                                                    1997              1996
                                                                    ----              ----
<S>                                                          <C>                     <C>      
       Passbook accounts (2.86% and 2.91% at
          June 30, 1997 and 1996)                             $     4,264,000         4,592,000
       Variable rate savings accounts (6.00% and 5.75% at
          June 30, 1997 and 1996)                                   6,766,000         3,015,000
       NOW and Super NOW accounts (0.00%-3.25% and
          0.00%-3.26% at June 30, 1997 and 1996)                    9,163,000         9,563,000
       Money market accounts (weighted average rate of
          4.06% and 3.93% at June 30, 1997 and 1996)                3,015,000         3,089,000
                                                                -------------     -------------
                                                                   23,208,000        20,259,000

       Certificates:
          Less than 4%                                                191,000           269,000
          4% - 4.99%                                                4,435,000         7,235,000
          5% - 5.99%                                               77,581,000        70,495,000
          6% - 6.99%                                               25,478,000        25,612,000
          7% - 7.99%                                               12,228,000        12,030,000
          8% - 9.99%                                                1,055,000         1,081,000
          10% or more                                                 140,000           167,000
                                                               --------------    --------------
                                                                  121,108,000       116,889,000

                                                                $ 144,316,000       137,148,000
                                                                  ===========       ===========

       Weighted average cost of all deposits                         5.49%             5.46%
                                                                     ====              ====
</TABLE>

<PAGE>

       Scheduled  maturities of  certificates at June 30, 1997 are summarized as
       follows:

           Year ending June 30,

           1998                                 $   91,623,000
           1999                                     17,127,000
           2000                                      6,996,000
           2001                                      1,824,000
           2002                                      1,299,000
           Thereafter                                2,239,000
                                                 -------------

                                                 $ 121,108,000

       Included  in  certificates  at June 30,  1997 and 1996 are  approximately
       $8,828,000 and $12,619,000,  respectively,  of certificates  greater than
       $100,000.

       Eligible savings accounts are insured by the full faith and credit of the
       United  States  government  up to  $100,000  under  the  Federal  Deposit
       Insurance Corporation's Savings Association Insurance Fund (SAIF) at June
       30, 1997.

       Interest expense by type of deposit for the years ended June 30 follows:

<TABLE>
<CAPTION>
                                                     1997           1996          1995
                                                     ----           ----          ----
<S>                                             <C>                 <C>            <C>    
           Passbook and variable rate savings
              accounts                          $    316,000        392,000        525,000
           NOW, Super NOW and Money Market           375,000        652,000        947,000
           Certificates                            6,987,000      8,029,000      7,505,000
                                                   ---------      ---------      ---------

                                                 $ 7,678,000      9,073,000      8,977,000
                                                   =========      =========      =========
</TABLE>


       Net earnings for the year ended June 30, 1997 include a one-time  pre-tax
       charge of $1,330,000 to federal  insurance  premiums for an industry-wide
       special  assessment by the FDIC to recapitalize  SAIF,  which insures the
       Bank's customers' deposits. As a result of this one-time assessment,  the
       Bank's deposit insurance premiums will be reduced in the future.



<PAGE>



(8)    Advances From FHLB and Other Borrowings

       Advances from FHLB and other borrowings at June 30 consist of:

<TABLE>
<CAPTION>


                                                                                           1997           1996
                                                                                           ----           ----
<S>                                                                                <C>                  <C>       
          Advances from FHLB collateralized by qualifying
              mortgages, investment securities and mortgage-backed
              securities (as defined) equal to 125% of FHLB advances                $   98,815,000       97,276,000
          Promissory note with interest payable at prime rate
              (as defined) plus 1/2% (9.0% and 8.75% at June 30, 1997
              and 1996) with principal payments of $49,375 due quarterly
              through December 30, 2004.  Collateralized by 100% of the
              common stock of the Bank                                                   1,481,000        1,679,000
          Securities sold under agreement to repurchase with a
              weighted average interest rate of 4.85% at June 30, 1996                    -               1,930,000
                                                                                ------------------    -------------

                                                                                     $ 100,296,000      100,885,000
                                                                                       ===========      ===========
</TABLE>

       The  interest  rates on the  advances  from FHLB at June 30, 1997 were as
       follows:  $5,000,000 at 5.46%,  $5,000,000 at 5.43%, $3,617,000 at 4.96%,
       $10,000,000  at  5.62%,  $13,000,000  at  5.66%,  $10,000,000  at  5.39%,
       $198,000 at 5.91%,  $10,000,000 at 5.50%, $9,000,000 at 5.85%, $3,000,000
       at 5.83%,  and  $30,000,000 of variable rate advances with a rate at June
       30, 1997 of 5.775%.  The interest rates on the advances from FHLB at June
       30, 1996 were as follows:  $10,000,000  at 5.46%,  $10,000,000  at 5.78%,
       $10,000,000  at  5.80%,   $13,000,000  at  5.66%,  $5,000,000  at  5.43%,
       $5,000,000  at  5.71%,   $4,051,000  at  4.96%,   $10,000,000  at  5.62%,
       $10,000,000 at 5.39%, $225,000 at 5.91%, and $20,000,000 of variable rate
       advances  with a rate at June 30,  1996 of 5.48%.  The  weighted  average
       interest rate of all  borrowings was 5.62% and 5.56% at June 30, 1997 and
       1996, respectively.

       Securities sold under  agreements to repurchase  ("Reverse  Repurchases")
       represent an indebtedness of the Bank secured by U.S. treasury and agency
       obligations,   to  be  repurchased  upon  maturity.  Reverse  repurchases
       averaged $964,000, $2,956,000 and $5,299,000 for the years ended June 30,
       1997, 1996 and 1995,  respectively,  with maximum amounts  outstanding at
       any month-end of $4,020,000,  $8,838,000 and $12,186,000 during the years
       ended June 30, 1997, 1996 and 1995, respectively.



<PAGE>



       Advances from FHLB and other borrowings at June 30, 1997 are scheduled to
       mature as follows:

                            FHLB              Other
       Maturity           Advances         Borrowings          Total
       --------           --------         ----------          -----
        1998            $ 43,000,000          198,000       43,198,000
        1999              26,617,000          198,000       26,815,000
        2000              19,000,000          198,000       19,198,000
        2001                -                 198,000          198,000
        2002              10,000,000          198,000       10,198,000
        Thereafter           198,000          491,000          689,000
                        ------------       ----------    -------------
                        $ 98,815,000        1,481,000      100,296,000
                          ==========        =========      ===========

(9)    Stockholders' Equity

       The  Corporation  is subject to  regulation as a savings and loan holding
       company  by the  Office of Thrift  Supervision  ("OTS").  The Bank,  as a
       subsidiary of a savings and loan holding  company,  is subject to certain
       restrictions  in its dealings with the  Corporation.  The Bank is further
       subject to the regulatory  requirements  applicable to a federal  savings
       bank.

       Thrift  institutions are required to maintain  risk-based capital of 8.0%
       of risk-weighted  assets. At June 30, 1997, the Bank's risk-based capital
       ratio of 16.0%  exceeded  the  required  amount.  Risk-based  capital  is
       defined as the Bank's  core  capital  adjusted  by  certain  items.  Risk
       weighting of assets is derived from  assigning one of four  risk-weighted
       categories to an institution's assets, based on the degree of credit risk
       associated  with the asset.  The  categories  range from zero percent for
       low-risk assets (such as United States  Treasury  securities) to 100% for
       high-risk assets (such as real estate owned).  The carrying value of each
       asset is then  multiplied by the risk  weighting  applicable to the asset
       category.  The  sum  of the  products  of the  calculation  equals  total
       risk-weighted assets.

       Savings  institutions  are also  required to maintain a minimum  leverage
       ratio under which core  capital  must equal at least 3% of total  assets,
       but no less than the minimum required by the Office of the Comptroller of
       the Currency  ("OCC") for national banks which minimum  currently  stands
       between  4% and 5% for other than the  highest  rated  institutions.  The
       Bank's primary regulator,  OTS, is expected to adopt the OCC minimum. The
       components  of core  capital  are the  same as  those  set by the OCC for
       national  banks,  and  consist  of  common  equity  plus   non-cumulative
       preferred  stock and  minority  interests in  consolidated  subsidiaries,
       minus  certain  intangible  assets.  At June 30,  1997,  the Bank's  core
       capital  and  leverage  ratio  of 8.3%  were in  excess  of the  required
       amounts.

       The OTS has minimum  capital  standards  that place savings  institutions
       into  one of  five  categories,  from  "critically  undercapitalized"  to
       "well-capitalized,"  depending on levels of three measures of capital.  A
       well-capitalized  institution as defined by the  regulations  has a total
       risk-based  capital  ratio  of at  least  10  percent,  a Tier  1  (core)
       risk-based  capital ratio of at least six percent,  and a leverage (core)
       capital  ratio of at least five percent.  At June 30, 1997,  the Bank was
       classified as well-capitalized with a total risked based capital ratio of
       16.0%, a Tier 1 risked-based capital ratio of 15.5% and a leverage (core)
       capital ratio of 8.3%.


<PAGE>



       The OTS has regulations  governing dividend payments,  stock redemptions,
       and other capital distributions,  including upstreaming of dividends by a
       savings  institution to a holding company.  Under these regulations,  the
       Bank  may,  without  prior  OTS  approval,   make  distributions  to  the
       Corporation  of up to 100% of its net earnings  during the calendar year,
       plus an amount  that  would  reduce by half its excess  capital  over its
       fully  phased-in  capital  requirement  at the  beginning of the calendar
       year.  The  Corporation  is not  subject to any  regulatory  restrictions
       regarding   payments  of  dividends  to  its  shareholders,   other  than
       restrictions under Indiana law.

       At the time of  conversion,  the Bank  established a liquidation  account
       which equaled the Bank's  retained  earnings as of the date of the latest
       statement of financial  condition included in the offering document.  The
       liquidation account will be maintained for the benefit of depositors,  as
       of the  eligibility  record date, who continue to maintain their deposits
       in the Bank after conversion. In the event of a complete liquidation (and
       only in such event),  each eligible depositor will be entitled to receive
       a  liquidation   distribution  from  the  liquidation   account,  in  the
       proportionate  amount to the then current  adjusted  balance for deposits
       then held,  before  liquidation  distribution may be made with respect to
       the  shareholders.  Except  for the  repurchase  of stock and  payment of
       dividends by the Bank, the existence of the liquidation  account does not
       restrict the use or application of such retained earnings.

       On November 22, 1996,  the Board of Directors  approved a 5% common stock
       dividend.  Also, on December 21, 1995, the Board of Directors  approved a
       5%  common  stock  dividend.  All  share  and per  share  data  have been
       retroactively restated to reflect the stock dividends.

       Stock Option Plans

       The  Corporation  has a stock option plan under which 165,375  authorized
       but  unissued  common  stock  were  reserved.   Under  the  plan,  96,469
       non-qualified  stock  options  were granted at $5.44 per share to outside
       directors and 41,344  incentive  stock  options and 10,336  non-qualified
       stock options were granted at $5.44 and $5.58 per share, respectively, to
       certain key employees.  Of the 41,344  incentive stock options granted to
       certain key  employees,  1,654 options were canceled in 1994. All options
       granted had been  exercised  or canceled  as of June 30,  1996.  In 1997,
       17,000  incentive  stock  options  were  granted at $30.03 to certain key
       employees.

       Shares reserved and options outstanding under the plans are as follows:

<TABLE>
<CAPTION>
                                                          Shares reserved          Options            Price per
                                                          for future grant        outstanding            share

<S>                                                           <C>                  <C>            <C>      <C> 
           Balance at June 30, 1994                              17,226               74,834         $ 5.44 - 5.58
              Exercised in 1994                                   -                  (73,180)          5.44 - 5.58
              Canceled in 1994                                    1,654               (1,654)               -
                                                                -------              -------
           Balance at June 30, 1995 and 1996                     18,880               -                     -
              Granted                                           (17,000)              17,000               30.03
                                                                 ------               ------
           Balance at June 30, 1997                               1,880               17,000               30.03
                                                                =======               ======

</TABLE>


<PAGE>



       SFAS No. 123,  Accounting for  Stock-Based  Compensation,  defines a fair
       value  method  of  accounting   for  stock  options  and  similar  equity
       instruments.  Under the fair value method,  compensation cost is measured
       at the grant date based on the fair value of the award and is  recognized
       over the service  period which is usually the vesting  period.  Companies
       are  encouraged,  but not  required  to adopt  the fair  value  method of
       accounting  for employee  stock-based  transactions.  Companies  are also
       permitted to continue to account for such  transactions  under Accounting
       Principles  Board  Opinion (APB) No. 25,  Accounting  for Stock Issued to
       Employees,  but are  required  to  disclose  in a note  to the  financial
       statements  pro-forma  net  earnings  and  earnings  per  share as if the
       company had applied the new method of accounting. The Company applied APB
       No.  25  in  accounting  for  its  stock-based  compensation  plans.  Had
       compensation  cost been determined on the basis of fair value pursuant to
       SFAS No. 123, for options  granted in 1997, net earnings and earnings per
       share would have been as follows:

          Net earnings:
              As reported                            $ 821,000
                                                       =======
              Pro forma                              $ 724,000
                                                       =======

          Earnings per share:
              As reported                         $       1.17
                                                    ==========
              Pro forma                           $       1.04
                                                    ==========

       The  following  weighted  average  assumptions  were  used in 1997 in the
       option  pricing  model:  a risk free interest rate of 6.39%;  an expected
       life of the options of 5 years; an expected  dividend yield of 1.33%; and
       a  volatility  factor of .27.  Due to the  inclusion  of only 1997 option
       grants,  the  effects  of  applying  SFAS  No.  123 in  1997  may  not be
       representative of the pro-forma impact in future years.

       Stock Purchase Plans

       The  Corporation  maintains  an  Employee  Stock  Purchase  Plan  whereby
       full-time  employees of First Federal  Bank, A Federal  Savings Bank (the
       "Bank") and First  Financial  Insurance  Agency,  Inc.  can  purchase the
       Corporation's  common  stock at a  discount.  The  purchase  price of the
       shares  under this plan is 85% of the fair market  value of such stock at
       the beginning or end of the offering period, whichever is lesser. A total
       of 15,750 authorized but unissued shares were reserved for issuance under
       this  plan.  No shares  have been  issued  under this plan as of June 30,
       1997.  Under a former plan,  with identical terms as the existing plan, a
       total of 3,749,  5,474 and 2,636  shares  were  issued and  purchased  by
       employees in 1997,  1996 and 1995,  respectively,  with a total of 13,781
       shares issued under the former plan.



<PAGE>

       Stock Repurchase Plan

       In August 1996,  the Board  authorized  the repurchase of up to 5% of the
       outstanding  shares of common stock (703,638  shares were  outstanding at
       the time),  subject to market  conditions,  over a two year period  which
       expires in August 1998. During the year ended June 30, 1997, 7,383 shares
       of common stock were repurchased at an average price per share of $28.04.
       Under a similar plan, 6,677 shares were repurchased in 1996 at an average
       price of $27.21.

(10)   Earnings Per Share

       Earnings  per share  have  been  computed  on the  basis of the  weighted
       average number of common shares  outstanding  and the dilutive  effect of
       stock options during the years presented using the treasury stock method.
       The weighted average number of shares outstanding used in the computation
       was 699,507, 701,273 and 683,226 in 1997, 1996 and 1995, respectively.

(11)   Employee Benefit Plans

       Substantially all employees are covered under a  noncontributory  defined
       benefit  pension plan. Net periodic  pension  expense for the years ended
       June 30 consists of the following:

<TABLE>
<CAPTION>
                                                    1997          1996         1995
                                                    ----          ----         ----

<S>                                              <C>             <C>           <C>    
              Service cost                       $ 128,000       177,000       170,000
              Interest cost                         79,000       124,000       123,000
              Actual return on assets             (173,000)      (87,000)     (234,000)
              Net amortization and deferral         76,000       (34,000)      139,000
                                                  --------      --------       -------

              Net periodic pension expense       $ 110,000       180,000       198,000
                                                   =======       =======       =======
</TABLE>


       Prior service cost is being amortized over the average  remaining service
       period of active employees at the effective date of the amendment.



<PAGE>



       Accumulated plan benefit information for the Bank's plan is as follows:

<TABLE>
<CAPTION>
                                                                                1997            1996
                                                                                ----            ----
<S>                                                                           <C>            <C>    
       Actuarial present value of projected benefit obligations:
           Vested benefit obligation                                          $    721,000        754,000
           Nonvested benefit obligation                                             60,000         87,000
                                                                               -----------    -----------
             Total accumulated benefit obligation                                  781,000        841,000
           Additional benefits based upon
             estimated future salary levels                                        190,000        157,000
                                                                                ----------     ----------
             Total projected benefit obligation                                    971,000        998,000
       Fair market value of plan assets                                          1,336,000      1,257,000
                                                                                 ---------      ---------
       Fair market value of plan assets over
         projected benefit obligation                                              365,000        259,000
       Unrecognized prior service cost                                             (28,000)       (31,000)
       Unrecognized gain                                                          (355,000)      (291,000)
       Unrecognized transition asset                                                 6,000          6,000
                                                                              ------------   ------------

             Accrued pension cost                                            $     (12,000)       (57,000)
                                                                               ===========    ===========
</TABLE>

       The  weighted-average  assumed rate of return used in determining the net
       periodic  pension cost for 1997 and 1996 was 8.0% and in determining  the
       actuarial  present value of accumulated  benefit  obligations at June 30,
       1997 and 1996 was 7.5%,  and the  weighted-average  rate of  increase  in
       future compensation levels used for 1997 and 1996 was 5.0%.

       The Bank has an Incentive Bonus Plan for certain salaried employees.  The
       bonus pool for the years ended June 30, 1997, 1996 and 1995 was $220,000,
       $300,000 and $345,000, respectively.

       Effective  July 1, 1993,  the Board of Directors  approved a supplemental
       retirement plan (Officer Plan) for certain key officers. The Officer Plan
       provides a target benefit to eligible  employees based on their projected
       salary  at time of  retirement.  Effective  July 1,  1993,  the  Board of
       Directors  also  approved  a  deferred  compensation  agreement  for  the
       directors  (Directors  Plan).  The Directors Plan allows the directors to
       defer their monthly  director fee. The deferred fees accrue  interest and
       will be paid out over a ten-year period once the director  retires.  Both
       plans provide certain  additional  survivor benefits in the case of death
       before retirement. In connection with the plans, on July 1, 1993 the Bank
       purchased  life  insurance  policies  on  certain  of  the  officers  and
       directors  participating  in the plans.  During the years  ended June 30,
       1997,  1996 and 1995, the Bank expensed  $102,000,  $99,000 and $100,000,
       respectively,  under  the  plans  and  recognized  $65,000,  $41,000  and
       $79,000,  respectively,  related to life insurance  policy cash surrender
       values.  In addition  to the  expense  for the year ended June 30,  1996,
       $133,000  related to benefits for officers  terminated as a result of the
       branch sales was charged against the gain on sale of branches.



<PAGE>



(12)   Income Taxes

       The components of the provision  (benefit) for income taxes for the years
       ended June 30 consist of:

                                      1997          1996          1995
                                      ----          ----          ----

       Current:
           Federal                $ (213,000)     2,881,000     1,090,000
           State income taxes         71,000        843,000       339,000
       Deferred                     (107,000)      (351,000)       11,000
                                     -------     ----------   -----------

                                  $ (249,000)     3,373,000      1,440,000
                                     =======      =========      =========

       The differences  between the effective  income tax rate and the statutory
       Federal corporate rate consist of:

<TABLE>
<CAPTION>
                                                                      1997      1996    1995
                                                                      ----      ----    ----

<S>                                                                   <C>        <C>     <C> 
              Statutory Federal income tax rate                       34.0%      34.0    34.0

              Increase (decrease) in taxes resulting from:
                State taxes, net of federal benefit                    8.2        6.1     5.8
                Affordable housing tax credit                        (60.0)        -      -
                Refund of prior year taxes                           (26.0)        -      -
                Increase in cash surrender value of life insurance    (3.8)      (0.2)   (0.7)
                Other                                                  4.1       (3.0)   (1.9)
                                                                     -----       ----    ----

              Effective tax rate                                     (43.5)%     36.9    37.2
                                                                      ====       ====    ====
</TABLE>




<PAGE>



       The tax effects of temporary  differences  that give rise to  significant
       portions of the  deferred tax assets and  liabilities  at June 30 consist
       of:

<TABLE>
<CAPTION>

                                                                                             1997          1996
                                                                                             ----          ----
<S>                                                                                      <C>                 <C>   
              Deferred tax assets:
                Deferred loan fees                                                       $   41,000          61,000
                Securities available for sale                                                72,000         163,000
                Allowance for loan losses for financial reporting purposes                  260,000         157,000
                Deferred compensation and benefits                                          270,000         224,000
                Other                                                                        26,000          82,000
                                                                                           --------        --------
                                                                                            669,000         687,000

              Deferred tax liabilities:
                Purchased mortgage servicing                                                 57,000          74,000
                Originated mortgage servicing                                               270,000         163,000
                Excess tax depreciation                                                      85,000         144,000
                FHLB stock dividend                                                          52,000          52,000
                Allowance for loan losses for tax purposes in
                  excess of base year allowance                                             125,000         156,000
                Other                                                                        46,000          80,000
                                                                                           --------        --------
                                                                                            635,000         669,000

              Net deferred tax asset                                                     $   34,000          18,000
                                                                                           ========        ========
</TABLE>

       Under the  Internal  Revenue  Code,  through  1996 the Bank was allowed a
       special bad debt deduction  related to additions to tax bad debt reserves
       established  for the  purpose  of  absorbing  losses.  Subject to certain
       limitations,  the Bank was  permitted  to deduct from  taxable  income an
       allowance  for bad debts based on a percentage  of taxable  income before
       such deductions or actual loss  experience.  The Bank generally  computed
       its annual  addition to its bad debt  reserves  using the  percentage  of
       taxable income method;  however,  due to certain limitations in 1996, the
       Bank was only allowed a deduction based on actual loss experience.

       Under legislation enacted in 1996,  beginning in fiscal 1997, the Bank is
       no longer  allowed a special bad debt  deduction  using a  percentage  of
       taxable income method.  Also,  beginning in 1997, the Bank is required to
       recapture  its excess bad debt  reserve  over its 1987 base year  reserve
       over a  six-year  period.  The  amount  has been  provided  in the Bank's
       deferred tax liability.

       Retained earnings at June 30, 1997, includes approximately $2,300,000 for
       which no provision  for federal  income taxes has been made.  This amount
       represents  allocations  of income  for  allowable  bad debt  deductions.
       Reduction  of amounts so allocated  for purposes  other than tax bad debt
       losses  will  create  taxable  income  which  will be subject to the then
       current  corporate income tax rate. It is not  contemplated  that amounts
       allocated  to bad debt  deductions  will be used in any  manner to create
       taxable income.



<PAGE>



       Financial Services of Southern Indiana Corp.  ("Financial  Services"),  a
       subsidiary of the Bank,  became a limited  partner in House  Investments,
       Shady  Oak,  L.P.  during  1994.  Under  the  terms  of  the  partnership
       agreement,  Financial Services contributed capital of $2,500,000 in 1995.
       The  Partnership  owns and operates an apartment  complex which qualifies
       for affordable housing tax credits. The investment is being accounted for
       using the equity  method.  The Bank also  provided a mortgage loan to the
       partnership  in August 1996 which had a balance of $2,287,000 at June 30,
       1997.

(13)   Sale of Branches

       On December  16,  1995,  the  Corporation  completed  the sale of certain
       assets and certain  liabilities of two of the Bank's  full-service retail
       branch offices in Tipton and Kokomo,  Indiana resulting in a pre-tax gain
       of $7,274,000.  The transaction consisted of the sale of certain mortgage
       and consumer  loans,  office  premises and  equipment and the transfer of
       certain deposit liabilities.

(14)   Commitments and Contingencies

       The Bank had  outstanding  commitments  to  originate  and sell loans and
       mortgage-backed securities of $5,255,000 and $30,112,000,  and $2,555,000
       and $11,147,000 at June 30, 1997 and 1996, respectively.  The Bank had no
       outstanding  commitments to purchase loans,  mortgage-backed  securities,
       and investments at June 30, 1997. These commitments, which are subject to
       certain  limitations,  extend  over  varying  periods  of time  with  the
       majority  to be  fulfilled  over a  12-month  period.  The Bank  does not
       project any losses will be incurred as a result of these commitments. The
       majority  of the  commitments  to  originate  loans  are for  fixed  rate
       mortgage loans at rates ranging from 7.875% to 13.45% and adjustable rate
       mortgage loans at rates ranging from 7.25% to 9.63% at June 30, 1997.



<PAGE>



(15)   Parent Company Financial Information

       Following is condensed financial information of the Corporation:

       Condensed Statements of Financial Condition

                                                            June  30,
       Assets                                     1997                1996
       ------                                     ----                ----

       Cash                                    $      691,000            281,000
       Investment in subsidiaries                  23,091,000         23,104,000
       Due from subsidiary                             33,000             21,000
       Other assets                                    16,000             19,000
                                                -------------      -------------

                                                 $ 23,831,000         23,425,000
                                                   ==========         ==========

       Liabilities and Stockholders' Equity

       Long-term debt                               1,481,000          1,679,000
       Accounts payable and accrued expenses           17,000             17,000
                                                -------------      -------------
                                                    1,498,000          1,696,000

       Stockholders' equity                        22,333,000         21,729,000
                                                   ----------         ----------

                                                 $ 23,831,000         23,425,000
                                                   ==========         ==========

       Condensed Statements of Earnings

<TABLE>
<CAPTION>

                                                                                   Year ended June 30,
                                                                           1997             1996           1995
                                                                           ----             ----           ----
<S>                                                                     <C>                 <C>             <C>    
       Dividend from subsidiaries                                       $ 1,600,000         550,000         100,000
       Other operating income                                                27,000          38,000         105,000
       Operating expenses                                                  (242,000)       (263,000)       (249,000)
                                                                         ----------      ----------      ----------
                                                                          1,385,000         325,000         (44,000)
       Income tax benefit                                                    85,000          89,000          75,000
                                                                        -----------     -----------     -----------
       Income before equity in undistributed
         earnings of subsidiaries                                         1,470,000         414,000          31,000
       Equity in undistributed earnings of subsidiaries                    (649,000)      5,348,000       2,399,000
                                                                         ----------       ---------       ---------

               Net earnings                                            $    821,000       5,762,000       2,430,000
                                                                         ==========       =========       =========
</TABLE>



<PAGE>



       Condensed Statements of Cash Flows
<TABLE>
<CAPTION>


                                                                                    Year ended June 30,
                                                                           1997             1996           1995
                                                                           ----             ----           ----
<S>                                                                   <C>                <C>              <C>      
       Net cash flows from operating activities:
       Net earnings                                                   $    821,000       5,762,000        2,430,000
       Adjustments to reconcile net earnings to net cash
         provided by operating activities:
           Equity in undistributed earnings of subsidiaries                649,000      (5,348,000)      (2,399,000)
           Change in accounts payable and accrued expenses                -               -                  11,000
           Change in due from subsidiary                                   (12,000)         25,000          (33,000)
           Change in other assets                                            3,000           1,000           (6,000)
                                                                      ------------    ------------     ------------
              Net cash provided by operating activities                  1,461,000         440,000            3,000
                                                                         ---------      ----------     ------------

       Cash flows from investing activities:
         Capital contributions to subsidiaries                            (500,000)        -             (1,000,000)
                                                                        ---------- ---------------        ---------
              Net cash used by investing activities                       (500,000)        -             (1,000,000)
                                                                        ---------- ---------------        ---------

       Cash flows from financing activities:
         Proceeds from long-term debt                                     -                -              1,000,000
         Repayment of long-term debt                                      (198,000)       (197,000)        (174,000)
         Dividends to stockholders                                        (279,000)       (266,000)        (115,000)
         Purchase of common shares                                        (207,000)       (182,000)         -
         Proceeds from issuance of common stock                            133,000         137,000          465,000
                                                                        ----------      ----------       ----------
              Net cash provided (used) by financing
                 activities                                               (551,000)       (508,000)       1,176,000
                                                                        ----------      ----------        ---------

       Net increase (decrease) in cash and cash equivalents                410,000         (68,000)         179,000

       Cash and cash equivalents at beginning of year                      281,000         349,000          170,000
                                                                        ----------      ----------       ----------

       Cash and cash equivalents at end of year                       $    691,000         281,000          349,000
                                                                        ==========      ==========       ==========
</TABLE>

<PAGE>



(16)   Fair Value of Financial Instruments

       The following  disclosure of fair value information is made in accordance
       with the requirements of Statement of Financial  Accounting Standards No.
       107,  "Disclosures  About Fair Value of Financial  Instruments." SFAS No.
       107  requires  disclosure  of  fair  value  information  about  financial
       instruments, whether or not recognized in the balance sheet, for which it
       is practicable to estimate  value.  The estimated fair value amounts have
       been determined by the Corporation using available market information and
       other   appropriate   valuation   techniques.    These   techniques   are
       significantly affected by the assumptions used, such as the discount rate
       and  estimates  of future cash flows.  Accordingly,  the  estimates  made
       herein are not  necessarily  indicative  of the amounts 1ST BANCORP could
       realize in a current  market  exchange  and the use of  different  market
       assumptions  and/or estimation  methods may have a material effect on the
       estimated fair value amount.

       The following  schedule  includes the book value and estimated fair value
       of all financial assets and  liabilities,  as well as certain off balance
       sheet items, at June 30, 1997.

<TABLE>
<CAPTION>

                                                                  Carrying       Estimated
       (In thousands)                                              amount       fair value
<S>                                                             <C>              <C>   
       Assets
         Cash and cash equivalents                              $   20,294           20,294
         Securities including securities available for sale         55,653           55,144
         Loans receivable including loans held for sale, net       174,609          173,651
         Accrued interest receivable                                 2,180            2,180
         Stock in FHLB of Indianapolis                               4,941            4,941
         Residential mortgage loan servicing                           819            1,005

       Liabilities
         Deposits                                                  144,316          143,241
         Borrowings:
           FHLB advances                                            98,815           97,599
           Long-term borrowing                                       1,481            1,481
         Advance payments by borrowers for taxes and insurance         304              304
         Accrued interest payable                                    1,194            1,194
</TABLE>


       The  following  valuation  methods  and  assumptions  were  used  by  the
       Corporation in estimating the fair value of its financial instruments.

       Cash and Cash  Equivalents.  The fair value of cash and cash  equivalents
       approximates carrying value.

       Securities.  Fair values are based on quoted market prices.



<PAGE>



       Loans  Receivable  Including  Loans Held for Sale, Net. The fair value of
       loans is estimated by discounting  the estimated  future cash flows using
       market  rates at which  similar  loans  would be made to  borrowers  with
       similar credit ratings and similar maturities. Contractual cash flows for
       all types of loans were adjusted for prepayment estimates consistent with
       those used by the Office of Thrift Supervision at June 30, 1997.

       Accrued   Interest   Receivable.   The  fair  value  of  these  financial
       instruments approximates carrying value.

       Stock in FHLB of  Indianapolis.  The fair value of FHLB stock is based on
       the price at which it may be resold to the FHLB.

       Residential  Mortgage  Loan  Servicing.  The fair  value  of  residential
       mortgage  loan  servicing  rights  is  determined  based  on an  internal
       valuation  using the estimated  discounted  net cash flows to be received
       less the estimated cost of servicing.

       Deposits.  The fair value of deposits is  calculated  using a  discounted
       cash flow  analysis  that applies  market  interest  and decay  estimates
       consistent  with those used by the Office of Thrift  Supervision  at June
       30, 1997, for similar deposit accounts.

       FHLB Advances.  Fair values for  fixed-maturity  fixed-rate FHLB advances
       and fix-maturity variable rate advances are calculated using a discounted
       cash flow analysis applying market interest rates for similar borrowings.

       Long-term Borrowing.  The long-term borrowing is an adjustable instrument
       tied to the prime interest rate. Fair value approximates carrying value.

       Advance  Payments by Borrowers  for Taxes and  Insurance.  The fair value
       approximates carrying value.

       Accrued Interest Payable.  The fair value of these financial  instruments
       approximates carrying value.

<PAGE>

                         Management and Office Locations

                          1ST BANCORP AND SUBSIDIARIES


        Officers of First Federal Bank, A Federal Savings Bank

C. James McCormick, Chairman of the Board
Frank Baracani, President and Chief Executive Officer
Lynn Stenftenagel, Executive Vice President, CFO and Secretary
Ruth Mix Carnahan, Treasurer
Bradley M. Rust, Senior Vice President/Controller
Gerald R. Belanger, Senior Vice President
Carroll C. Hamner, Senior Vice President
Laura E. Bogard, Vice President
Cheryl A. Otten, Vice President
Paula J. Pesch, Vice President
Jay A. Baker, Assistant Vice President
Doris J. Blackburn, Assistant Vice President
Kathy L. Clinkenbeard, Assistant Vice President
Lynn Elliott, Assistant Vice President
Kelly J. Gay, Assistant Vice President
Ruth E. Hunter, Assistant Vice President
Rana M. Lee, Assistant Vice President
Randall W. Pratt, Assistant Vice President
Carol A. Witshork, Assistant Vice President
Glenda L. Berryman, Assistant Secretary
T. Rene' Buck, Internal Auditor and Compliance Officer


           Officers of First Financial Insurance Agency, Inc.

C. James McCormick, Chairman of the Board
Frank Baracani, President and Chief Executive Officer
J. Timothy Tresslar, Vice President and General Manager
Lynn Stenftenagel, Secretary and Treasurer

                                Office Locations

1ST BANCORP
Corporate Headquarters:
      101 N. Third Street
      Vincennes, Indiana 47591
      (812) 885-2255
      (800) 688-3865

First Federal Bank, A Federal Savings Bank
Main Office:
      101 N. Third Street
      Vincennes, Indiana 47591
      (812) 882-4528
      (800) 688-4528

Willow Street Drive Up Branch:
      1700 Willow Street
      Vincennes, Indiana 47591
      (812) 885-6085

Main Office Annex:
      102 N. Fifth Street
      Vincennes, Indiana 47591
      (812) 885-2255
      (800) 688-3865

Evansville Loan Origination Office:
      125 N. Weinbach, Suite 730
      Evansville, Indiana 47711
      (812) 476-4441
      (888) 476-4441

First Financial Insurance Agency, Inc.
Main Office:
      626 Veterans Drive
      Vincennes, Indiana 47591
   (812) 886-7283

Princeton Office:
   108 South 5th Ave.
   Princeton, IN 47670
   (812) 385-2659

<PAGE>


                                SENIOR MANAGEMENT

                          [PHOTO OF SENIOR MANAGEMENT]

Front row, left to right:

Bradley M. Rust
Senior Vice President and Controller

Carroll C. Hamner
Senior Vice President
Lending Services

C. James McCormick
Chairman of the Board

Frank Baracani
President and CEO

Gerald R. Belanger
Senior Vice President
Human Resources

Back row, left to right

J. Timothy Tresslar *
Vice President and General Manager
First Financial Insurance Agency,Inc.

Cheryl A. Otten
Vice President
Savings

Paula J. Pesch
Vice President
Secondary Market

Laura E. Bogard
Vice President
Mortgage Lending

Lynn Stenftenagel
Executive Vice President
Secretary and CFO

*Not an Officer of First Federal Bank, A Federal Savings Bank
<PAGE>
  

                              Corporate Information
                          1ST BANCORP AND SUBSIDIARIES

Corporate Headquarters

      101 North Third Street, Vincennes, Indiana 47591
      Annex - 102 North Fifth Street, Vincennes, Indiana 47591
      (812) 885-2255

General Counsel

      Hart, Bell, Cummings, Ewing & Stuckey, Vincennes, Indiana

Special Counsel

      Barnes & Thornburg, Indianapolis, Indiana

Transfer Agent

      Fifth Third Bank
      Corporate Trust Operations
      38 Fountain Square Plaza
      MD#1050F5
      Cincinnati, Ohio 45202
      (800) 837-2755

Independent Public Accountants

     KPMG Peat Marwick LLP, Indianapolis, Indiana

Statement of Policy

     1ST BANCORP is an equal opportunity employer.

Form 1O-K Report

     Forms 1O-K and 1O-Q, as filed with the SEC, are available without charge by
writing to Lynn Stenftenagel,  1ST BANCORP,  101 North Third Street,  Vincennes,
Indiana 47591 or by calling (812) 885-2255.

Shareholder Information

     At July 31, 1997,  there were 390 shareholders of record and 691,461 shares
of common stock outstanding.

Market Information

     1ST BANCORP  common stock is traded on NASDAQ  under the symbol  FBCV.  The
following table sets forth the high and low bid prices per share of common stock
for the periods indicated. This information was furnished by the NASD.

                  Quarter Ended           High        Low
                  June 1997               33.25       30.00
                  March 1997              32.00       28.50
                  December 1996           31.50       27.25
                  September 1996          32.00       26.00
                  June 1996               28.00       26.00
                  March 1996              29.75       29.00
                  December 1995           31.75       30.50
                  September 1995          35.00       33.00

Internet Address

      http://www.businesswire.com/cnn/fbcv.htm
<PAGE>

                                  [BACK COVER]

















                               [1ST BANCORP LOGO]

          Third & Busseron Streets   P.O. Box 1417   Vincennes, Indiana