1ST BANCORP

                                  ANNUAL REPORT

                                      1998






<PAGE>



                          1ST BANCORP AND SUBSIDIARIES


                                Table of Contents




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

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

Business
Discussion.....................................................................4

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....................................21

Office Locations..............................................................41

Board of Directors............................................................42

Management....................................................................43

Corporate Information.........................................................44


<PAGE>




     Message to the Shareholders:

     The announced  merger with German  American  Bancorp  overshadows all other
     events and  financial  reporting  that we  normally  discuss in this Annual
     Report. We are excited about the opportunities  afforded to the Corporation
     upon the  consummation  of the  merger.  We feel that our  addition  to the
     German American  Bancorp family will enhance an already solid,  profitable,
     well-managed multi-bank holding company.

     During 1998, the Corporation generated net earnings of $1,911,000, or $1.73
     per share on a diluted basis. This compares to net earnings of $821,000, or
     $.75 per share during the previous year when earnings were reduced with the
     special one-time SAIF assessment.  During the year, all of the subsidiaries
     were  profitable,  including the newest  member to our family,  First Title
     Insurance Company.

     We will continue to remain a  community-oriented  bank meeting the needs of
     our  current  and new  customers.  The future is bright for our  customers,
     associates,  and  shareholders!  As  always,  we wish to thank you for your
     continued loyalty and support.

     Sincerely,




     /s/ C. James McCormick
     C. James McCormick
     CEO and Chairman of the Board


     /s/ Frank Baracani
     Frank Baracani
     President
<PAGE>

                         Selected Financial Highlights

<TABLE>
<CAPTION>


                                                  1998             1997              1996              1995             1994
                                                  ----             ----              ----              ----             ----
Summary of Earnings                                               (Dollars in thousands except per share amounts)
  (for the year ended June 30):
<S>                                               <C>              <C>               <C>              <C>               <C>   
  Interest Income                                 19,453           19,694            20,875           19,903            15,506
  Interest Expense                                13,004           13,292            14,520           13,419             8,955
  Provision for Loan Losses                          755              373                83              100                75
  Non-Interest Income                              2,142            3,098            10,391            5,384             3,434
  Non-Interest Expense                             5,309            8,555             7,528            7,898             7,459
  Income Taxes                                       616            (249)             3,373            1,440               808
  Net Earnings                                     1,911              821             5,762            2,430             1,643

  Basic Earnings Per Share (1)                     $1.75            $0.75             $5.22            $2.24             $1.46
  Diluted Earnings Per Share (1)                   $1.73            $0.75             $5.22            $2.23             $1.46

Financial Condition
  (as of June 30):
  Total Assets                                   260,149          270,490           263,483          312,759           253,560
  Securities Available for Sale                   15,504           11,588            10,499               -              5,758
  Securities Held to Maturity                     19,553           44,065            43,624           72,005            51,119
  Loans                                          187,739          174,609           169,339          206,923           176,181
  Deposits                                       117,763          144,316           137,148          209,805           172,791
  Borrowings                                     115,381          100,296           100,885           79,387            59,520
  Stockholders' Equity                            23,855           22,333            21,729           16,333            13,520

  Stockholders' Equity Per Share (1)(2)           $21.85           $20.32            $19.71           $14.83            $13.79

Supplemental Data
  (At or for the year ended June 30):
  Yield on Interest-Earning Assets                 7.93%            7.77%             7.75%            7.22%             6.87%
  Cost of Interest-Earning Liabilities             5.62%            5.54%             5.67%            5.02%             4.18%
  Net Interest-Rate Spread                         2.31%            2.23%             2.08%            2.20%             2.69%
  Net Interest-Rate Margin                         2.63%            2.52%             2.36%            2.35%             2.89%

  Return on Average Total Assets                   0.73%            0.31%             2.05%            0.84%             0.70%
  Return on Average Shareholders' Equity           8.28%            3.79%            29.45%           16.62%            12.24%
  Equity to Assets Ratio                           9.17%            8.26%             8.25%            5.22%             5.33%

  Cash Dividends Per Share (1)                     $0.26            $0.25             $0.24            $0.11             $0.11
  Dividend Payout Ratio                           14.86%           33.37%             4.52%            5.13%             7.81%
</TABLE>
_______________________

(1)  All per share  calculations  have been adjusted for the 3-for-2 stock split
     effective  November 15, 1997 and the 5% stock dividends  issued February 9,
     1996, January 10, 1997, and January 23, 1998.

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




<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 Insurance Company ("First Title").

On August 6,  1998,  an  Agreement  was signed  providing  for the merger of 1ST
BANCORP into German American Bancorp.  Under the Agreement,  the shareholders of
1ST BANCORP will receive shares of common stock of German American  Bancorp with
a targeted  aggregate  market value of  $57,120,000  (based on market  prices of
German  American  common  stock during a period of 15 trading days ending on the
second trading date preceding closing) in a tax-free exchange,  or approximately
$50.94 per 1ST BANCORP share (assuming exercise of all outstanding  options). If
the German  American share price is less than $28 per share or more than $33 per
share  during the  valuation  period,  however,  then the number of shares to be
issued in the transaction  will be based on a minimum or maximum share price, as
the  case  may  be,  of $28 or  $33.  Accordingly,  to the  extent  that  German
American's share price during the valuation period is less than $28 or more than
$33,  then the market  value of the  transaction  could  vary from the  targeted
value.  The  proposed  merger is subject to the  approval of 1ST  BANCORP's  and
German  American's  shareholders  as well  as the  appropriate  bank  regulatory
agencies; receipt of a fairness opinion and other conditions. It is contemplated
the merger will become effective during the first quarter of calendar year 1999.




                                             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 $118.1  million in loans during fiscal 1998 as compared to
$117.0 million in loans during fiscal 1997.  Although total fundings  during the
two years are comparable, there was a shift from nonconforming to conforming and
consumer loan production in 1998. During 1998, conforming mortgage loan fundings
increased to $61.5 million as compared to $36.5  million in 1997.  This increase
is attributed mainly to refinance loan activity which resulted from the downward
trend in interest rates during the year.  Consumer loan production  increased to
$17.7 million  during 1998 from $9.9 million  during 1997 mainly  because of the
newly initiated indirect  automobile loan program.  Nonconforming  mortgage loan
fundings  decreased to $37.5 million during 1998 as compared to $70.2 million in
1997. This decreased volume resulted from the restructuring of the nonconforming
loan  production  office  network  in June,  1997 when all except one office was
closed.

First  Federal is committed  to  efficiently  providing  the credit needs of the
Vincennes  and  surrounding  communities  and is  successful  in that  endeavor.
However,  the Bank continues its focus on the  nonconforming  mortgage market as
well.  This  market  provides  loans  to a wider  range of  qualifying  mortgage
customers.

A portion of the highest  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 $55.1 million of
residential  mortgage  loans  as  compared  to the  sale  of  $76.2  million  of
residential mortgage loans during fiscal 1997.

At June 30, 1998, the Bank maintained a 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           $  4,501,000             2.4%

     Permanent Mortgages on:

        1-4 family dwelling units         155,913,000            82.0%
        5 or more dwelling units            2,904,000             1.5%
        Nonresidential property             2,768,000             1.5%
        Land                                1,872,000             1.0%
Consumer and Other Loans                   22,133,000            11.6%
                                         -----------------------------
Total Loans                              $190,091,000           100.0%

Over 95% of the total loan  portfolio at June 30, 1998  consisted of residential
real estate or consumer  loans.  Of the total  $118.1  million  loans  processed
during fiscal year 1998, over 98% was for residential or consumer purposes.

At June 30,  1998,  nonperforming  assets  totaled $3.9 million or 1.5% of total
assets This compares to $2.5  million,  or .9% of total assets at June 30, 1997.
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, 1998 aggregated $1.5 million, or .8%
of net loans  receivable.  This compares to $.1.2  million,  or .8% of net loans
receivable at June 30, 1997.  The provision for loan losses was $755,000  during
fiscal 1998 as compared  to $373,000  during  fiscal  1997.  This  increase  was
necessary  because of the increased  concentration of nonconforming and consumer
loans in portfolio  which,  by their nature,  exhibit a greater degree of credit
risk.  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 years 1997 and 1998, the Agency purchased
books  of  business  from  two  different  local  insurance  agencies,   thereby
increasing  the  premium  base.  At June 30,  1998,  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.



                                 Title Insurance

First Title Insurance Company had been a dormant corporation until the middle of
the fiscal  year when the assets of Illiana  Abstract  Company  were  purchased.
First Title provides title and abstract searches,  title insurance, and mortgage
closing  services.  The  Company  sells  insurance  as agent for  Chicago  Title
Insurance  Company,  Stewart Title Guaranty  Company,  and Ticor Title Insurance
Company.







<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,  increased  competition in the nonconforming
lending arena, and the announced acquisition by German American Corporation.

                  Results of Operations and Financial Condition

1ST BANCORP's net earnings  during fiscal year 1998 were  $1,911,000 as compared
to $821,000 during fiscal year 1997 and $5,762,000  during fiscal 1996.  Diluted
earnings per share were $1.73 during  1998,  $.75 during 1997,  and $5.22 during
1996.  Dividends per common share were $. 26 in 1998,  $.25 in 1997, and $.24 in
1996.

1ST  BANCORP's  assets  were  $260,149,000  at  June  30,  1998 as  compared  to
$270,490,000  at June  30,  1997.  Stockholders'  equity  at June  30,  1998 was
$23,855,000,  an increase of $1,522,000 from stockholders' equity of $22,333,000
at June 30, 1997.



           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, the trend was one of
declining interest rates.

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.

                               Net Interest Income

<TABLE>
<CAPTION>


                                                                      1998                          
                                                -----------------------------------------------------
                                                    Average                             Yield       
                                                    Balance         Interest            Rate        
ASSETS
  Interest Earning Assets:
    Short-Term Investments and
<S>                                                 <C>                 <C>                <C>      
      Interest Bearing Deposits                     $11,309             $621               5.49%    
    Investment and Trading
      Account Securities                             49,252            3,097               6.29%    
    Loans                                           184,877           15,735               8.51%    
                                                -------------------------------------------------   
  Total Interest Earning Assets                     245,438           19,453               7.93%    
  Allowance for Loan Losses                         (1,172)                                         
  Other Assets                                       17,146                                         
                                                ------------                                        
Total Assets                                        261,412                                         
                                                ============                                        

LIABILITIES AND
  STOCKHOLDERS' EQUITY
  Interest Bearing Liabilities:
    Deposits                                        130,502            7,308               5.60%    
    Short-Term Borrowings                                53                3               5.66%    
    Federal Home Loan Bank Advances
        and Other Borrowings                        100,955            5,693               5.64%    
                                                -------------------------------------------------   
  Total Interest Bearing Liabilities                231,510           13,004               5.62%    
  Other Liabilities                                   6,836                                         
  Stockholders' Equity                               23,066                                         
                                                ------------                                        
Total Liabilities and
  Stockholders' Equity                              261,412                                         
                                                ============                                        

Net Interest Income / Spread                                           6,449               2.31%    
                                                            =====================================   
Net Interest Margin                                                                        2.63%    
                                                                             ====================   

</TABLE>



<TABLE>
<CAPTION>
                                                                            1997                     
                                                   --------------------------------------------------
                                                        Average                              Yield   
                                                        Balance           Interest           Rate    
ASSETS                                                                                               
  Interest Earning Assets:                                                                           
    Short-Term Investments and                                                                       
<S>                                                       <C>                  <C>            <C>    
      Interest Bearing Deposits                           $12,579              $677           5.38%  
    Investment and Trading                                                                           
      Account Securities                                   62,237             3,870           6.22%  
    Loans                                                 178,746            15,147           8.47%  
                                               ----------------------------------------------------- 
  Total Interest Earning Assets                           253,562            19,694           7.77%  
  Allowance for Loan Losses                                 (979)                                    
  Other Assets                                             12,764                                    
                                               -------------------                                   
Total Assets                                              265,347                                    
                                               ===================                                   
                                                                                                     
LIABILITIES AND                                                                                      
  STOCKHOLDERS' EQUITY                                                                               
  Interest Bearing Liabilities:                                                                      
    Deposits                                              139,674             7,678           5.50%  
    Short-Term Borrowings                                     964                53           5.50%  
    Federal Home Loan Bank Advances                                                                  
        and Other Borrowings                               99,218             5,561           5.60%  
                                               ----------------------------------------------------- 
  Total Interest Bearing Liabilities                      239,856            13,292           5.54%  
  Other Liabilities                                         3,821                                    
  Stockholders' Equity                                     21,670                                    
                                               -------------------                                   
Total Liabilities and                                                                                
  Stockholders' Equity                                    265,347                                    
                                               ===================                                   
                                                                                                     
Net Interest Income / Spread                                                  6,402           2.23%  
                                                                  ================================== 
Net Interest Margin                                                                           2.52%  
                                                                                    ================ 
</TABLE>


<TABLE>
<CAPTION>

                                                                       1996                   
                                                ----------------------------------------------
                                                     Average                         Yield    
                                                     Balance         Interest         Rate    
ASSETS                                                                                        
  Interest Earning Assets:                                                                    
    Short-Term Investments and                                                                
<S>                                                   <C>                <C>         <C>      
      Interest Bearing Deposits                       $17,825            $955        5.36%    
    Investment and Trading                                                                    
      Account Securities                               59,777           3,893        6.51%    
    Loans                                             191,735          16,027        8.36%    
                                            -----------------------------------------------   
  Total Interest Earning Assets                       269,337          20,875        7.75%    
  Allowance for Loan Losses                             (886)                                 
  Other Assets                                         13,221                                 
                                            ------------------                                
Total Assets                                          281,672                                 
                                            ==================                                
                                                                                              
LIABILITIES AND                                                                               
  STOCKHOLDERS' EQUITY                                                                        
  Interest Bearing Liabilities:                                                               
    Deposits                                          163,793           9,073        5.54%    
    Short-Term Borrowings                               3,368             154        4.57%    
    Federal Home Loan Bank Advances                                                           
        and Other Borrowings                           89,103           5,293        5.94%    
                                            -----------------------------------------------   
  Total Interest Bearing Liabilities                  256,264          14,520        5.67%    
  Other Liabilities                                     5,842                                 
  Stockholders' Equity                                 19,566                                 
                                            ------------------                                
Total Liabilities and                                                                         
  Stockholders' Equity                                281,672                                 
                                            ==================                                
                                                                                              
Net Interest Income / Spread                                            6,355        2.08%    
                                                              =============================   
Net Interest Margin                                                                  2.36%    
                                                                              =============   
</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  $6,449,000  in 1998 as compared to $6,402,000 in
1997 and $6,355,000 in 1996. The increases during the three-year period were due
to the increase in the net interest  spread and net interest margin during times
in which the volume of interest earning assets and interest bearing  liabilities
decreased.

Interest  income was  $19,453,000 in 1998 as compared to $19,694,000 in 1997 and
$20,875,000  in 1996.  Interest  expense was  $13,004,000 in 1998 as compared to
$13,292,000 in 1997 and $14,520,000 in 1996.  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
7.93% during 1998 from 7.77% during 1997 and 7.75% during 1996.  The  annualized
average cost of interest bearing  liabilities has fluctuated  during the period,
increasing  to 5.62%  during  1998 from 5.54%  during  1997 as compared to 5.67%
during 1996. The net interest  spread has increased to 2.31% in 1998 as compared
to 2.23% in 1997 and 2.08% during 1996.


Fiscal 1998 vs. Fiscal 1997

Although the average  levels of interest  earning  assets and  interest  bearing
liabilities  decreased during 1998 as compared to 1997, there was an increase in
net interest income.

The average  balance of short-term  investments  and interest  bearing  deposits
decreased to $11,309,000 during 1998 as compared to $12,579,000 during 1997. The
average yield stayed relatively stable at 5.49% during 1998 as compared to 5.38%
during 1997.

Average  investment  and trading  account  securities  decreased  during 1998 to
$49,252,000  from  $62,237,000  in 1997.  The  decision  was  made to allow  the
investment  portfolio  to decrease as  securities  matured or were called and to
reinvest funds in portfolio loans which generate a higher rate of interest.  The
average interest rate on the investment and trading account securities  remained
relatively constant at 6.29% during 1998 compared to 6.22% during 1997.

Average loans increased to  $184,877,000  during 1998 from  $178,746,000  during
1997 because of the decision to place loans in portfolio for yield purposes. The
average  yield on loans  increased  to 8.51%  during  1998 as  compared to 8.47%
during 1997. Although this increase appears insignificant,  it occurred during a
time of declining  interest  rates.  The increased  yield  resulted from placing
higher yielding nonconforming loans in portfolio during the year.

With the  increased  yields  on  short-term  investments  and  interest  bearing
deposits,  investment and trading  account  securities,  and loans,  the overall
yield on total  interest  earning  assets  increased  to  7.93%  during  1998 as
compared  to 7.77%  during  1997.  This  increase  was  somewhat  offset  by the
increased cost of interest-bearing liabilities.

Because of the  fluctuating  interest rates  experienced in the fiscal year, the
cost of average  deposits  increased  to 5.60%  during 1998 as compared to 5.50%
during  1997.  The  average  balance  of  deposits  declined  during the year to
$130,502,000  during 1998 from $139,674,000  during 1997. This decrease resulted
from normal fluctuations in deposits experienced by the Bank.

 The cost of Federal Home Loan Bank advances and other  borrowed  money remained
relatively  constant at 5.64% during 1998 as compared to 5.60% during 1997.  The
level of average  borrowings  increased to $100,955,000  during 1998 compared to
$99,218,000  during 1997, as more  borrowings were utilized as an alternative to
the acquisition of savings deposits.


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.


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  $13,928,000 in 1998, by $13,706,000 in 1997, and by $13,073,000
in 1996. 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 32 basis points in
1998, by 29 basis points in 1997, and by 28 basis points in 1996.




                               Non-Interest Income

Non-interest  income decreased to $2,142,000 in 1998 from $3,098,000 in 1997 and
from  $10,391,000 in 1996.  During the past three years,  more emphasis has been
placed on interest income,  therefore the level of non-interest income continues
to decline.  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  decreased  during  1998 to  $831,000  as compared to
$2,124,000  during 1997 and  $2,026,000  during  1996.  The decrease in 1998 was
caused by the  decision to place loans in  portfolio  to generate  net  interest
income.  Total loan sales aggregated  $55,096,000 in 1998,  $76,202,000 in 1997,
and  $161,422,000  in 1996.  The greater  gain on sale of loans in 1997 and 1996
resulted from sale of  nonconforming  loans which generate a strong gain on sale
and are not as rate sensitive as conforming mortgage loans. Included in the loan
sales during 1998, 1997 and 1996, respectively, were $8,163,000, $37,709,000 and
$27,910,000 in nonconforming loans.

A $32,000 net gain on sales of securities was recognized during 1998 as compared
to a net loss of $29,000 during 1997 and a net loss of $111,000 during 1996. 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.

Income  from fees and service  charges  decreased  to $321,000  during 1998 from
$341,000  during 1997 and as compared to $296,000 in 1996.  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
$120,811,000 at June 30, 1998, $112,642,000 at June 30, 1997, and $81,353,000 at
June 30, 1996.

Other  non-interest  income  increased to $958,000 in 1998 from $662,000 in 1997
and as compared to $906,000 in 1996.  The increase in 1998 is  attributed to the
increased  income  generated by First Financial  Insurance  Agency,  Inc. and by
First Title Insurance Company.  First Financial  recognized  insurance income of
$437,000  during 1998 as compared  to $260,000 in 1997.  First Title  recognized
$93,000 in title-related income during 1998 as compared to no income during 1997
when the company  was  inactive.  Included in the 1996 income is $237,000  which
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 1998 or 1997.


                              Non-Interest Expense

Non-interest  expense  decreased   substantially  to  $5,309,000  in  1998  from
$8,555,000 in 1997 and from  $7,528,000  in 1996.  The decrease in 1998 resulted
from the closing of the outlying  mortgage loan  production  offices,  including
reduction in personnel,  occupancy,  and other expenses. 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.

Compensation and employee benefits, the major component of non-interest expense,
decreased to $2,993,000 in 1998 from  $4,195,000 in 1997 and from  $4,273,000 in
1996. The decrease during 1998 was from the decrease in employees resulting from
the closing of the  majority of the  mortgage  loan  production  offices in late
fiscal 1997.

Net  occupancy  decreased  to  $536,000  in 1998 from  $719,000 in 1997 and from
$746,000  in  1996.  This  is  also  due to the  closing  of the  mortgage  loan
production offices.

Other non-interest  expense also decreased in 1998 to $1,619,000 from $2,052,000
in 1997 and from  $2,040,000 in 1996.  This decrease is attributed to a decrease
of ancillary expenses because of the closing of the loan production offices.

                                  Income Taxes

The  Corporation  incurred an income tax expense of $616,000 in 1998 as compared
to an income  tax  benefit  of  $249,000  in 1997 and an income  tax  expense of
$3,373,000 in 1996. The Corporation has invested in an affordable housing senior
citizen project that produces tax credits. This significantly lowered the income
tax rate during the three fiscal years. In 1997,  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.

                               Financial Condition

The Corporation's assets aggregated $260,149,000 at June 30, 1998, a decrease of
$10,341,000  from assets of $270,490,000  at June 30, 1997.  Total cash and cash
equivalents  decreased  by  $4,131,000  to  $16,163,000  at June 30,  1998  from
$20,294,000 at June 30, 1997.  This decrease was due to a normal  fluctuation in
cash in conjunction with managing the mortgage loan pipeline.

Net  loans   receivable   increased  to  $185,290,000  at  June  30,  1998  from
$146,840,000 at June 30, 1997.  This increase  resulted from the decision during
the  year  to  portfolio  mortgage  loans  as the  highest  yielding  investment
alternative  in  the  decreasing  interest  rate  environment.   Lower  yielding
conforming  loans  continued to be sold whereas the higher yielding high quality
nonconforming  loans  were  retained  in  portfolio.  The  loans  held  for sale
decreased  to  $2,449,000  at June 30,  1998 from  $27,769,000  at June 30, 1997
because of a bulk sale in late 1998 and because of the  decision to retain loans
in portfolio rather than to include them as held for sale.

Securities  held  to  maturity  decreased  by  $24,512,000  during  the  year to
$19,553,000 at June 30, 1998 from  $44,065,000  at June 30, 1997.  This decrease
resulted  from  securities  maturing  or being  called  during  the year and the
decision to allow the portfolio to shrink to fund the increasing loan portfolio.
Securities  available for sale  increased to  $15,504,000  at June 30, 1998 from
$11,588,000 at June 30, 1997. Securities purchased during the year for liquidity
reasons were placed in the available for sale portfolio.

Total deposits  decreased by $26,553,000 to  $117,763,000  at June 30, 1998 from
$144,316,000  at June 30, 1997.  This  occurred  because of greater  reliance on
borrowed  funds  rather than use of  brokered  deposits  to  supplement  savings
deposits obtained in the Vincennes area.

To somewhat  offset  this  decrease in  deposits,  advances  from FHLB and other
borrowings  increased  by  $15,085,000  to  $115,381,000  at June 30,  1998 from
$100,296,000 at June 30, 1997.


                                Capital Resources

At  June  30,  1998,  stockholders'  equity  was  $23,855,000,  an  increase  of
$1,522,000 over total stockholders' equity of $22,333,000 at June 30, 1997.

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, 1998, 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, 1998, First
Federal was classified as "well-capitalized."

The  following  is a  summary  of the  Bank's  regulatory  capital  and  capital
requirements at June 30, 1998:

<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                       $23,855,000
First Federal GAAP Capital                     $22,603,000   $22,603,000    $22,603,000    $22,603,000    $22,603,000   $22,603,000

Capital Adjustments:
  Unrealized Loss on Investment Securities                        36,000         36,000         36,000         36,000        36,000
  General Valuation Allowance                                                                                             1,000,000
  Disallowed                                                    (37,000)       (37,000)       (37,000)       (37,000)      (37,000)
                                                           -------------------------------------------------------------------------
Regulatory Computed Capital                                   22,602,000     22,602,000     22,602,000     22,602,000    23,602,000
                                                           =========================================================================

Total Assets:
  Adjusted Total Assets                                      259,779,000    259,779,000    259,779,000    -             -
  Risk-Weighted Assets                                       -              -              -              157,919,000   157,919,000
                                                           -------------------------------------------------------------------------
Regulatory Computed Assets                                   259,779,000    259,779,000    259,779,000    157,919,000   157,919,000
                                                           =========================================================================

Regulatory Capital Ratio                                           8.70%           8.70%          8.70%         14.31%        14.95%
                                                                   ====            ====           ====          =====         ===== 
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 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, 1998.
Prepayment  assumptions  and decay  rates have been  applied to more  accurately
reflect the asset/liability gap.

<TABLE>
<CAPTION>
                                                                           At June 30, 1998
                                                                     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
-----------------------------------------------------------------------------------------------------------------------------------
Loans Receivable (1)
<S>                                     <C>         <C>               <C>               <C>               <C>               <C>   
   Adjustable Rate Mortgage loans       8.39%       $80,425           $34,969           $35,950           $8,034            $1,472
   Fixed Rate Mortgage loans            8.39%        89,982            22,303            24,006           15,620            28,053
   Nonmortgage Loans                    8.97%        22,133             8,763             8,113            4,240             1,017
Investments                             6.06%        56,657            31,813             9,679            5,470             9,695
                                      ---------------------------------------------------------------------------------------------

Total Rate Sensitive Assets             7.91%      $249,197           $97,848           $77,748          $33,364           $40,237
===================================================================================================================================

Rate Sensitive Liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Deposits
  Fixed Maturity Deposits               5.99%       $94,738           $60,706           $25,615           $6,365            $2,052
  Other Deposits (2)                    3.79%        23,023            17,059             2,341            1,339             2,284
FHLB Advances and Other Borrowings      5.44%       115,381            26,209            19,000           45,000            25,172
                                      ---------------------------------------------------------------------------------------------

Total Rate Sensitive Liabilities        5.50%      $233,142          $103,974           $46,956          $52,704           $29,508
===================================================================================================================================

Total Asset/Liability Gap                           $16,055          ($6,126)           $30,792        ($19,340)           $10,729
Cumulative Asset/Liability Gap                      $16,055          ($6,126)           $24,666           $5,326           $16,055
Cumulative Gap as a Percentage of
 Total Assets - 1998                                                   -2.35%             9.48%            2.05%             6.17%
Cumulative Gap as a Percentage of
Total Assets - 1997                                                    -8.26%           -16.44%           -9.71%             4.99%

</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   $117,763,000  at  June  30,  1998,  and   borrowings,   which  totaled
$115,381,000  at June 30,  1998.  During  the year,  cash flow  needs  were also
supplied by loan  payments,  proceeds  from sales of loans and  securities,  and
proceeds from maturities and calls of securities.

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. At
June 30, 1998, First Federal's regulatory liquidity exceeded the 4% requirement.



                              Year 2000 Compliance

The Year 2000 issue is the result of  potential  problems  with the  programming
code in existing computer systems as the Year 2000 approaches.  An assessment of
the impact of the Year 2000 issue on the Corporation's computer systems has been
completed. Management is closely monitoring the progress of the systems in place
toward Year 2000 compliance.

The Bank's records are primarily  maintained by a third-party  data center.  The
Corporation  also  relies on third  party  vendors  to provide  data  processing
capabilities.  Formal  communications  from the data  center  and other  service
providers  indicate  reprogramming  will be completed  within a sufficient  time
frame to allow  adequate  testing to ensure  continuing  operations  in the Year
2000.  Completion  of testing for Year 2000  compliance  is expected by June 30,
1999.  Management  believes  the Year  2000  issue  will  not  pose  significant
operational problems for the Corporation's computer systems.

Expenses  related to upgrading  the  computer  systems and software for Year 200
compliance is estimated to be $200,000. At June 30, 1998, approximately $130,000
of  this  amount  had  already  been  expended  in  connection  with  Year  2000
compliance.  Management  does not consider the cost to the  Corporation of these
Year 2000  compliance  activities  to be material to the  financial  position or
results of operations in any given year.

<PAGE>



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, 1998 and 1997 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,  1998.  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, 1998 and 1997, and the results of their  operations
and their cash flows for each of the years in the three year  period  ended June
30, 1998 in conformity with generally accepted accounting principles.





Indianapolis, Indiana
July 23, 1998 except as to note 17,
    which is as of August 6, 1998



<PAGE>


                          1ST BANCORP AND SUBSIDIARIES

                 Consolidated Statements of Financial Condition

                             June 30, 1998 and 1997

<TABLE>
<CAPTION>



                Assets                                                                 1998                 1997

Cash and cash equivalents:
<S>                                                                            <C>                          <C>       
    Interest bearing deposits                                                  $       15,831,000           19,771,000
    Non-interest bearing deposits                                                         332,000              523,000
                                                                                 -----------------    -----------------
       Cash and cash equivalents                                                       16,163,000           20,294,000
                                                                                 -----------------    -----------------

Securities available for sale (note 2)                                                 15,504,000           11,588,000
Securities held to maturity (market value of $19,514,000
    and $43,556,000) (note 3)                                                          19,553,000           44,065,000
Loans receivable, net (notes 4 and 8)                                                 185,290,000          146,840,000
Loans held                                                                              2,449,000           27,769,000
for sale
Accrued interest receivable:
    Securities                                                                            524,000            1,081,000
    Loans                                                                               1,205,000            1,099,000
Stock in FHLB of Indianapolis, at cost                                                  5,769,000            4,941,000
Office premises and equipment (note 6)                                                  3,077,000            3,225,000
Real estate                                                                               930,000              397,000
owned
Prepaid expenses and other assets                                                       9,685,000            9,191,000
                                                                                 -----------------    -----------------

                                                                                      260,149,000          270,490,000
                                                                                 =================    =================

    Liabilities and Stockholders' Equity

Liabilities:
    Deposits                                                                          117,763,000          144,316,000
    (note 7)
    Advances from FHLB and other borrowings (note 8)                                  115,381,000          100,296,000
    Advance payments by borrowers for taxes and insurance                                 362,000              304,000
    Accrued interest payable on deposits                                                  598,000            1,194,000
    Accrued expenses and other liabilities                                              2,190,000            2,047,000
                                                                                 -----------------    -----------------
                                                                                      236,294,000          248,157,000
                                                                                 -----------------    -----------------

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
       1,091,710 and 1,099,187                                                          1,092,000              698,000
    Paid-in                                                                             2,084,000            2,642,000
    capital
    Retained earnings, substantially restricted                                        20,715,000           19,102,000
    Unrealized depreciation on securities available for
       sale (note 2)                                                                     (36,000)            (109,000)
       
                                                                                 -----------------    -----------------
                                                                                       23,855,000           22,333,000
                                                                                 -----------------    -----------------

Commitments (note 14)
                                                                               $      260,149,000          270,490,000
                                                                                 =================    =================
</TABLE>

See accompanying notes to consolidated financial statements.



                     


<PAGE>

                          1ST BANCORP AND SUBSIDIARIES

                       Consolidated Statements of Earnings

                    Years ended June 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                                                  1998             1997             1996

Interest income:
<S>                                                                        <C>                    <C>              <C>       
    Loans                                                                  $     15,735,000       15,147,000       16,027,000
    Securities                                                                    3,093,000        3,852,000        3,890,000
    Trading account securities                                                        4,000           18,000            3,000
    Other short-term investments and interest bearing deposits                      621,000          677,000          955,000
                                                                             ---------------  ---------------  ---------------
          Total interest income                                                  19,453,000       19,694,000       20,875,000
                                                                             ---------------  ---------------  ---------------

Interest expense:
    Deposits (note 7)                                                             7,308,000        7,678,000        9,073,000
    Short-term borrowings                                                             3,000           53,000          154,000
    FHLB advances and other borrowings                                            5,693,000        5,561,000        5,293,000
                                                                             ---------------  ---------------  ---------------
          Total interest expense                                                 13,004,000       13,292,000       14,520,000
                                                                             ---------------  ---------------  ---------------

          Net interest income before
              provision for loan losses                                           6,449,000        6,402,000        6,355,000

Provision for loan losses (note 4)                                                  755,000          373,000           83,000
                                                                             ---------------  ---------------  ---------------

          Net interest income after
              provision for loan losses                                           5,694,000        6,029,000        6,272,000
                                                                             ---------------  ---------------  ---------------

Non-interest income:
    Fees and service charges                                                        321,000          341,000          296,000
    Net gain (loss) on sales of securities available for
       sale and trading account securities (note 2)                                  32,000         (29,000)        (111,000)
    Net gain on sales of loans                                                      831,000        2,124,000        2,026,000
    Net gain on sale of branch offices (note 13)                                          -                -        7,274,000
    Other (note 5)                                                                  958,000          662,000          906,000
                                                                             ---------------  ---------------  ---------------
          Total non-interest income                                               2,142,000        3,098,000       10,391,000
                                                                             ---------------  ---------------  ---------------

Non-interest expense:
    Compensation and employee benefits                                            2,993,000        4,195,000        4,273,000
    Net occupancy                                                                   536,000          719,000          746,000
    Federal insurance premiums (note 7)                                             161,000        1,589,000          469,000
    Other                                                                         1,619,000        2,052,000        2,040,000
                                                                             ---------------  ---------------  ---------------
          Total non-interest expense                                              5,309,000        8,555,000        7,528,000
                                                                             ---------------  ---------------  ---------------

          Earnings before income taxes                                            2,527,000          572,000        9,135,000

Income taxes (note 12)                                                              616,000        (249,000)        3,373,000
                                                                             ---------------  ---------------  ---------------

          Net earnings                                                     $      1,911,000          821,000        5,762,000
                                                                             ===============  ===============  ===============

Basic earnings per share (note 10)                                         $           1.75              .75             5.22
                                                                             ===============  ===============  ===============
Diluted earnings per share (note 10)                                       $           1.73              .75             5.22
                                                                             ===============  ===============  ===============

</TABLE>

See accompanying notes to consolidated financial statements.





<PAGE>


                          1ST BANCORP AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

                    Years ended June 30, 1998, 1997 and 1996


<TABLE>
<CAPTION>


                                                                                                         Unrealized
                                                                                                        depreciation
                                                                                                        on securities      Total
                                                            Common        Paid-in      Retained          available     stockholders'
                                                             stock        capital      earnings          for sale          equity

<S>                                                      <C>               <C>          <C>             <C>             <C>       
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
       reinvestment 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 ($.24 per share)                                       -             -     (261,000)              -         (261,000)
    Change in net unrealized depreciation on
       securities available for sale (note 2)                        -             -             -       (55,000)          (55,000)
    Net earnings                                                     -             -     5,762,000              -        5,762,000
                                                            ----------- ------------- -------------    -----------   --------------
Balance at June 30, 1996                                       667,000     2,747,000    18,560,000      (245,000)       21,729,000
    Issuance of common stock through employee
       stock purchase plan (note 9)                              3,000        76,000             -              -           79,000
    Issuance of common stock through dividend
       reinvestment and shareholder stock purchase plan          2,000        52,000             -              -           54,000
    Purchase and retirement of common stock (note 9)            (7,000)     (200,000)            -              -        (207,000)
    Issuance of 33,013 shares of common stock at
       par value for 5% stock dividend plus cash in
       lieu of fractional shares                                33,000      (33,000)       (5,000)              -          (5,000)
    Dividends ($.25 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
    Issuance of common stock through employee
       stock purchase plan (note 9)                              3,000        72,000             -              -           75,000
    Issuance of common stock through dividend
       reinvestment and shareholder stock purchase plan          1,000        35,000             -              -           36,000
    Purchase and retirement of common stock (note 9)          (10,000)     (295,000)             -              -        (305,000)
    Issuance of 51,705 shares of common stock at
       par value for 5% stock dividend plus cash in
       lieu of fractional shares                                52,000      (52,000)       (5,000)              -          (5,000)
    Issuance of 345,741 shares of common stock at
       par value for 3 for 2 stock split plus cash in lieu
       of fractional shares                                    346,000     (346,000)       (5,000)              -          (5,000)
    Exercise of stock options to purchase 1,575 shares
       of common stock at $19.07 per share (note 9)              2,000        28,000             -              -           30,000
    Dividends ($0.26 per share)                                      -             -     (288,000)              -        (288,000)
    Change in net unrealized depreciation on
       securities available for sale (note 2)                        -             -             -         73,000           73,000
    Net earnings                                                     -             -     1,911,000              -        1,911,000
                                                            ----------- ------------- -------------    -----------   --------------

Balance at June 30, 1998                                  $  1,092,000     2,084,000    20,715,000       (36,000)       23,855,000
                                                            =========== ============= =============    ===========   ==============

</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>


                          1ST BANCORP AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                    Years ended June 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>


                                                                                   1998                  1997            1996

Net cash flows from operating activities:
<S>                                                                              <C>                     <C>           <C>      
    Net earnings                                                                 $   1,911,000           821,000       5,762,000
    Adjustments to reconcile net earnings to net cash provided
       (used) by operating activities:
          Depreciation and amortization                                                479,000           348,000         300,000
          Amortization of mortgage servicing rights                                    242,000           153,000         107,000
          Gain on sale of loans                                                      (831,000)       (2,124,000)     (2,026,000)
          Loss (gain) on sale of securities                                           (32,000)            29,000         111,000
          Gain on sale of branch                                                             -                 -     (7,274,000)
          Loss on sale of equipment                                                          -            54,000               -
          Net change in loans held for sale                                         25,320,000       (9,179,000)    (13,486,000)
          Provision for loan losses                                                    755,000           373,000          83,000
          Change in accrued interest receivable                                        451,000            35,000         107,000
          Change in prepaid expenses and other assets                                (634,000)         (476,000)         635,000
          Change in accrued expenses and other liabilities                           (501,000)          (79,000)     (1,646,000)
          Loss on investment in limited partnership                                    113,000           122,000         263,000
                                                                                  -------------   ---------------  --------------
             Net cash provided (used) by operating activities                       27,273,000       (9,923,000)    (17,064,000)
                                                                                  -------------   ---------------  --------------

Cash flows from investing activities:
    Purchases of securities held to maturity                                                 -       (3,519,000)    (34,262,000)
    Proceeds from maturities of securities held to maturity                         24,510,000         3,062,000      16,872,000
    Purchases of securities available for sale                                    (49,709,000)      (31,913,000)    (46,074,000)
    Proceeds from maturity of securities available for sale                         10,530,000         1,192,000       5,015,000
    Proceeds from sale of securities available for sale                             35,339,000        29,826,000      76,159,000
    Change in loans, net                                                          (39,213,000)         1,159,000    (12,834,000)
    Purchase of life insurance policies                                                      -          (35,000)               -
    Purchase of stock of FHLB of Indianapolis                                        (828,000)          (77,000)       (988,000)
    Purchases of office premises and equipment                                       (161,000)         (615,000)       (154,000)
    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
                                                                                  -------------   ---------------  --------------
             Net cash used by investing activities                                (19,532,000)         (920,000)     (5,544,000)
                                                                                  -------------   ---------------  --------------

Cash flows from financing activities:
    Net (decrease) increase in deposits                                           (26,553,000)         7,168,000      11,017,000
    Proceeds from FHLB advances and other borrowings                                81,996,000        83,768,000     202,544,000
    Repayment of FHLB advances and other borrowings                               (66,911,000)      (84,357,000)   (181,046,000)
    Proceeds from issuance of common stock                                             141,000           133,000         137,000
    Purchase and retirement of common stock                                          (305,000)         (207,000)       (182,000)
    Payment of dividends on common stock                                             (298,000)         (279,000)       (266,000)
    Increase (decrease) in advance payments by borrowers for interest and taxes         58,000         (188,000)     (1,829,000)
                                                                                  -------------   ---------------  --------------
             Net cash provided (used) by financing activities                     (11,872,000)         6,038,000      30,375,000
                                                                                  -------------   ---------------  --------------

Net increase (decrease) in cash and cash equivalents                               (4,131,000)       (4,805,000)       7,767,000

Cash and cash equivalents at beginning of year                                      20,294,000        25,099,000      17,332,000
                                                                                  -------------   ---------------  --------------

Cash and cash equivalents at end of year                                         $  16,163,000        20,294,000      25,099,000
                                                                                  =============   ===============  ==============

Additional disclosures:
    Interest paid                                                                $  13,567,000        12,917,000      14,170,000
                                                                                  =============   ===============  ==============
    Income taxes paid                                                            $     996,000           287,000       4,700,000
                                                                                  =============   ===============  ==============
    Transfer of investment securities held to maturity to available
       for sale account                                                          $           -                 -      45,838,000
                                                                                  =============   ===============  ==============
    Transfer of loans receivable to prepaid expenses and other assets            $   3,863,000         4,111,000               -
                                                                                  =============   ===============  ==============
</TABLE>

See accompanying notes to consolidated financial statements.





<PAGE>


                          1ST BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1998, 1997 and 1996


(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  Insurance  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 significantly 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 as 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.

       The Bank provides specific  valuation  allowances for estimated losses on
       loans and real estate owned when a significant  and permanent  decline in
       value occurs.  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.  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.


<PAGE>

                                       2

                          1ST BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


                                   (Continued)

       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.

       Loans are placed on  non-accrual  status when the  collection of interest
       becomes doubtful.  Interest previously accrued but not deemed collectible
       is reserved.

       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.

       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, 1998.

       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.


<PAGE>
                                        3

                          1ST BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




       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.

       New Accounting Pronouncements

       In June 1997,  the  Financial  Accounting  Standards  Board (FASB) issued
       Statement  of  Financial   Accounting   Standards   No.  130,   Reporting
       Comprehensive   Income  (SFAS  130),  which  establishes   standards  for
       reporting and displaying  comprehensive  income and its components in the
       financial statements. Comprehensive income is the total of net income and
       all nonowner  changes in equity.  The  statement is effective  for fiscal
       years  beginning  after  December  15,  1997.  The  Corporation  does not
       anticipate  the  adoption of SFAS 130 in fiscal 1999 will have any impact
       on its financial position or results of operations.

       In June 1997, the FASB issued Statement of Financial Accounting Standards
       No.  131,   Disclosure  About  Segments  of  an  Enterprise  and  Related
       Information  (SFAS 131) which  requires the  disclosure  of financial and
       descriptive  information about reportable  operating segments.  Operating
       segments  are   components  of  an  enterprise   about  which   financial
       information  is available  and is evaluated  regularly in deciding how to
       allocate  resources  and assess  performance.  The  Corporation  does not
       anticipate  the  adoption of SFAS 131 in fiscal 1999 will have any impact
       on its financial position or results of operations.

       In February  1998,  the FASB issued  Statement  of  Financial  Accounting
       Standard  No.  132,  Employers'   Disclosures  About  Pension  and  Other
       Postretirement   Benefits  (SFAS  132)  which   standardizes   disclosure
       requirements for pension and other postretirement  benefit plans. As this
       standard does not change the  measurement  or recognition of those plans,
       the Corporation does not anticipate the adoption of SFAS 132 in 1999 will
       have any impact on its financial position or results of operations.



<PAGE>

                                       4

                          1ST BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



       In June 1998, the FASB issued Statement of Financial Accounting Standards
       No. 133,  Accounting for Derivative  Instruments  and Hedging  Activities
       (SFAS 133) which  establishes  accounting  and  reporting  standards  for
       derivative   instruments.   SFAS  133  requires  all  derivatives  to  be
       recognized as either assets or  liabilities in the statement of financial
       condition at fair value.  The accounting for changes in fair value of the
       derivative  depends  on  the  intended  use  of the  derivative  and  the
       resulting  designation.  The Corporation does not anticipate the adoption
       of SFAS 133 in fiscal 2000 will have a material  impact on its  financial
       position or results of operations.

       Reclassifications

       Certain amounts in the 1997 and 1996  consolidated  financial  statements
       have been reclassified to conform to the 1998 presentation.

(2)    Securities Available for Sale

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

<TABLE>
<CAPTION>

                                                                              1998
                                             -----------------------------------------------------------------------
                                               Amortized         Unrealized         Unrealized           Market
                                                  Cost              Gains             Losses             Value

       Mortgage-backed securities:
<S>                                       <C>                                             <C>            <C>      
          FHLMC                           $     1,723,000                   -             (2,000)        1,721,000
          GNMA                                  9,245,000                   -            (60,000)        9,185,000

       Investments:
         U.S. Treasury and agency
          obligations                           4,596,000               6,000             (4,000)        4,598,000
                                             ---------------    --------------     --------------    ---------------

                                          $    15,564,000               6,000            (66,000)       15,504,000
                                             ===============    ==============     ==============    ===============

                                                                              1997
                                              ----------------------------------------------------------------------
                                                Amortized        Unrealized          Unrealized          Market
                                                  Cost              Gains              Losses            Value

       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>

       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.



<PAGE>



       For the year ended June 30, 1998, gross realized gains and gross realized
       losses on sales of investment  securities  available for sale were $7,000
       and  $13,000,   respectively  and  from  the  sales  of   mortgage-backed
       securities available for sale were $35,000 and $4,000, respectively.  For
       the year ended June 30,  1997,  gross  realized  losses from the 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, 1998, gross realized gains and gross realized
       losses on sales of trading  account  securities were $18,000 and $11,000,
       respectively.  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.

       At June 30, 1998, the  contractual  maturity of securities  available for
sale follows:

                                                      Amortized       Market
                                                        cost          value

          Due after one year through five years      $ 1,998,000     1,994,000
          Due after five years through ten years         601,000       600,000
          Due after ten years                          1,997,000     2,004,000
          Mortgage-backed securities                  10,968,000    10,906,000
                                                      ------------  ----------

                                                     $15,564,000    15,504,000
                                                     ===========    ==========

 (3)   Securities Held to Maturity

       Securities held to maturity at June 30 consist of:

<TABLE>
<CAPTION>

                                                                               1998
                                               ---------------------------------------------------------------------
                                                 Amortized         Unrealized         Unrealized          Market
                                                    Cost              Gains             Losses             Value

<S>                                         <C>                          <C>               <C>            <C>       
          U.S. Treasury and agency
             obligations                    $     19,258,000             2,000             (46,000)       19,214,000

          Mortgage-backed securities                 295,000             5,000                   -           300,000
                                               ---------------    --------------     -------------     --------------

                                            $    19,553,000              7,000             (46,000)       19,514,000
                                               ===============    ==============     =============     ==============

                                                                               1997
                                               ---------------------------------------------------------------------
                                                Amortized         Unrealized         Unrealized          Market
                                                   Cost              Gains             Losses             Value

          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>


<PAGE>



       At June 30, 1998, the contractual maturity of securities held to maturity
follows:

<TABLE>
<CAPTION>
                                                               Amortized           Market
                                                                 cost               value

<S>                                                        <C>                      <C>      
          Due within one year                              $     8,450,000          8,436,000
          Due after one year through five years                  8,808,000          8,776,000
          Due after five years through ten years                 1,000,000          1,000,000
          Due after ten years                                    1,000,000          1,002,000
          Mortgage-backed securities                               295,000            300,000
                                                             --------------     --------------

                                                           $    19,553,000         19,514,000
                                                             ==============     ==============

(4)    Loans Receivable

       Loans receivable at June 30 consist of:

                                                                1998               1997
                                                                ----               ----

          Real estate loans:
             Mortgage                                    $    163,457,000        135,189,000
             Construction                                       4,501,000          2,038,000
          Consumer and other loans                             22,133,000         12,748,000
                                                           ---------------    ----------------
                                                              190,091,000        149,975,000
                                                           ---------------    ----------------

          Less:
             Undisbursed loan funds                            (3,475,000)        (1,536,000)
             Deferred loan fees and unamortized premiums
              and discounts, net                                  139,000           (441,000)
             Allowance for loan losses                         (1,465,000)        (1,158,000)
                                                           ---------------    ----------------
                                                               (4,801,000)        (3,135,000)
                                                           ---------------    ----------------

                                                         $    185,290,000        146,840,000
                                                           ===============    ================
                                                                     8.46%              8.53%
                                                           ===============    ================
</TABLE>



       At June 30,  1998,  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>


                                                    1998              1997             1996
                                                    ----              ----             ----

<S>                                            <C>                     <C>              <C>    
          Balance at beginning of year         $   1,158,000           896,000          878,000
          Provision charged to operations            755,000           373,000           83,000
          Loans charged off, net of recoveries      (448,000)         (111,000)         (65,000)
                                                --------------    -------------     ------------

          Balance at end of year               $   1,465,000         1,158,000          896,000
                                                ==============    =============     ============

</TABLE>



<PAGE>



       Non accrual loans  amounted to $3,491,000 and $2,330,000 at June 30, 1998
       and 1997, 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, 1998 consists of:

           Balance at beginning of year                       $    614,000
           Loans originated                                        132,000
           Repayments                                             (482,000)
                                                                ===========
           Balance at end of year                             $    264,000
                                                                ===========

 (5)   Mortgage Banking

       The amount of loans  serviced  by the Bank for the  benefit of others was
       $120,811,000,  $112,642,000,  and  $81,353,000 at June 30, 1998, 1997 and
       1996, respectively.

       At June 30, 1998 and 1997,  unamortized  loan  servicing  rights  totaled
       $1,012,000  and  $819,000,  respectively,  and are  included  in  prepaid
       expenses  and other  assets in the  Consolidated  Statement  of Financial
       Condition.  For the years ended June 30, 1998,  1997,  and 1996, the Bank
       capitalized $426,000, $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. 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 1998 or 1997.

(6)    Office Premises and Equipment

       Office premises and equipment at June 30 consist of:

                                                 1998              1997
                                                 ----              ----

           Land and improvements           $     345,000           345,000
           Buildings and improvements          2,956,000         2,952,000
           Furniture and equipment             1,949,000         1,986,000
                                            -------------     -------------
                                               5,250,000         5,283,000
           Less accumulated depreciation       2,173,000         2,058,000
                                            -------------     -------------

                                           $   3,077,000         3,225,000
                                            =============     =============



<PAGE>



(7)    Deposits

       Deposits at June 30 consist of:

<TABLE>
<CAPTION>

<S>                                                                       <C>                     <C>      

                                                                              1998                    1997
          Statement savings accounts (2.87% and 2.86% at               
             June 30, 1998 and 1997)                                        6,340,000               6,766,000
          Variable rate savings accounts (6.00% at June 30,            
                 1998 and 1997)                                             8,776,000               9,163,000
          NOW and Super NOW accounts (0.00%-3.10% and                  
                 0.00%-3.25% at June 30, 1998 and 1997)                     3,447,000               3,015,000
          Money market accounts (weighted average rate of 4.29%        -------------------     ----------------
                 and 4.06% at June 30, 1998 and 1997)                      23,025,000              23,208,000
                                                                       -------------------     ----------------
                                                                       
          Certificates:                                                
                 Less than 4%                                                 247,000                 191,000
                 4% - 4.99%                                                 2,088,000               4,435,000
                 5% - 5.99%                                                51,675,000              77,581,000
                 6% - 6.99%                                                31,748,000              25,478,000
                 7% - 7.99%                                                 8,152,000              12,228,000
                 8% or more                                                   828,000               1,195,000
                                                                       -------------------     ----------------
                                                                           94,738,000             121,108,000
                                                                       -------------------     ----------------
                                                                       
          Weighted average cost of all deposits                           117,763,000             144,316,000
                                                                       ==============          ==============

                                                                                 5.56%                   5.49%
                                                                       ==============          ==============

</TABLE>



       Scheduled  maturities of  certificates at June 30, 1998 are summarized as
follows:

           Year ending June 30,

           1999                      $     60,706,000
           2000                            18,777,000
           2001                             6,838,000
           2002                             1,875,000
           2003                             4,490,000
           Thereafter                       2,052,000
                                      ----------------

                                     $     94,738,000
                                      ================

       Included  in  certificates  at June 30,  1998 and 1997 are  approximately
       $7,050,000 and $8,828,000,  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, 1998.



<PAGE>



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

<TABLE>
<CAPTION>


                                                  1998              1997             1996
                                                  ----              ----             ----

<S>                                          <C>                     <C>              <C>    
          Statement Savings and variable
             rate savings accounts           $    552,000            316,000          392,000
          NOW, Super NOW and Money Market         381,000            375,000          652,000
          Certificates                          6,375,000          6,987,000        8,029,000
                                              --------------    -------------    -------------

                                             $  7,308,000          7,678,000        9,073,000
                                              ==============    =============    =============
</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 were reduced in 1998 and will continue
       to be reduced in the future.

(8)    Advances From FHLB and Other Borrowings

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

<TABLE>
<CAPTION>


                                                                                     1998                1997
                                                                                     ----                ----

<S>                                                                            <C>                      <C>       
          Advances from FHLB collateralized by qualifying mortgages,  investment
              securities  and  mortgage-backed  securities (as defined) equal to
              125% of FHLB
              advances                                                         $   115,381,000          98,815,000
          Promissory note with interest payable at prime rate
              (as defined) plus 1/2% (9.0% at June 30,
              1997) with principal payments of $49,375
              due quarterly through December 30, 2004.
              Collateralized by 100% of the common stock of
              the-Bank. Prepaid in November 1997                                           ---           1,481,000
                                                                                ----------------    ----------------

                                                                               $   115,381,000         100,296,000
                                                                                ================    ================
</TABLE>

       The  interest  rates on the  advances  from FHLB at June 30, 1998 were as
       follows: $5,000,000 at 4.88%, $13,209,000 at 4.96%, $10,000,000 at 5.00%,
       $10,000,000  at  5.35%,  $10,000,000  at  5.39%,  $10,000,000  at  5.50%,
       $10,000,000  at  5.55%,  $5,000,000  at  5.60%,   $10,000,000  at  5.62%,
       $10,000,000  at  5.68%,   $10,000,000  at  5.72%,  $3,000,000  at  5.83%,
       $9,000,000  at  5.85%,  and  $172,000  at  5.91%.  Although  all of these
       advances are at fixed interest rates,  the FHLB has the option at various
       times of  converting  $87,000,000  of the  advances to variable  interest
       rates. 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%, $10,000,000 at 5.72%, and $20,000,000 of variable rate advances
       with a rate at June 30, 1997 of 5.775%.  The  weighted  average  interest
       rate of all  borrowings  was 5.44%  and 5.62% at June 30,  1998 and 1997,
       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,  and $2,956,000 for the years ended June 30, 1997 and
       1996, respectively,  with maximum amounts outstanding at any month-end of
       $4,020,000, and $8,838,000 during the years ended June 30, 1997 and 1996,
       respectively.



<PAGE>



       Advances from FHLB at June 30, 1998 are contractually scheduled to mature
as follows:

           Maturity

              1999                  $       26,209,000
              2000                          19,000,000
              2001                                   -
              2002                          10,000,000
              2003                          35,000,000
              Thereafter                    25,172,000
                                       ===============
                                    $      115,381,000
                                       ===============

 (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, 1998, the Bank's risk-based capital
       ratio of 15.0%  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,  1998,  the Bank's  core
       capital  and  leverage  ratio  of 8.7%  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, 1998,  the Bank was
       classified as well-capitalized with a total risked based capital ratio of
       15.0%, a Tier 1 risked-based capital ratio of 14.3% and a leverage (core)
       capital ratio of 8.7%.

       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.


<PAGE>



       The following is a summary of the Bank's  regulatory  capital and capital
       requirements at June 30, 1998 and 1997.
<TABLE>
<CAPTION>

                                                                                                      To be well
                                                                                                    capitalized under
                                                                        For capital                 prompt corrective
                                             Actual                  adequacy purposes              action provisions
                                   ---------------------------    -------------------------     --------------------------

                                      Amount          Ratio          Amount         Ratio          Amount         Ratio
                                   --------------    ---------    -------------     -------     -------------    ---------

        As of June 30, 1998:

<S>                                  <C>               <C>          <C>              <C>          <C>            <C>            
           Total capital to
             risk-weighted
             assets                  23,602,000        15.0%        12,633,000       8.0%         15,792,000     10.0%    

           Tier 1 capital to
              risk-weighted
              assets                 22,602,000        14.3%         6,317,000       4.0%          9,475,000      6.0%

           Tier 1 capital to
             adjusted total          22,602,000         8.7%        10,391,000       4.0%         12,989,000      5.0%
             assets

        As of June 30, 1997:

           Total capital to
             risk-weighted
             assets                  23,086,000        16.0%        11,555,000       8.0%         14,444,000     10.0%

           Tier 1 capital to
              risk-weighted
              assets                 22,436,000        15.5%         5,778,000       4.0%          8,666,000      6.0%

           Tier 1 capital to
             adjusted total
             assets                  22,436,000         8.3%        10,823,000       4.0%         13,528,000      5.0%
</TABLE>


       At the  time of  conversion  from  mutual  to  stock  in  1987,  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 any
       liquidation  distribution  may be made with respect to the  stockholders.
       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 October 23,  1997,  the Board of  Directors  approved a 3-for-2  stock
       split. On December 18, 1997, the Board of Directors  approved a 5% common
       stock  dividend.  Also,  on November 22, 1996 and December 21, 1995,  the
       Board of Directors approved 5% common stock dividends.  All share and per
       share data have been  retroactively  restated  to reflect the stock split
       and stock dividends.


<PAGE>



       Stock Option Plans

       The  Corporation  has a stock option plan under which 260,465  authorized
       but  unissued  shares  of common  stock  were  reserved.  Under the plan,
       151,938  non-qualified  stock  options were granted at $3.45 per share to
       outside   directors  and  65,117   incentive  stock  options  and  16,279
       non-qualified  stock  options  were granted at $3.45 and $3.54 per share,
       respectively,  to certain key employees.  Of the 65,117  incentive  stock
       options granted to certain key employees,  2,605 options were canceled in
       1994.  All options  granted had been exercised or canceled as of June 30,
       1996. In 1997,  26,775  incentive stock options were granted at $19.07 to
       certain key employees. In 1998, no incentive stock options were granted.

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

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

<S>                                                <C>                <C>              <C>  
           Balance at June 30, 1995 and 1996        29,736                 -            -                     
               Granted in 1997                     (26,775)           26,775           19.07
                                               -------------    --------------
           Balance at June 30, 1997                  2,961            26,775           19.07
               Exercised in 1998                         -            (1,575)          19.07
                                               =============    ==============
           Balance at June 30, 1998                  2,961            25,200           19.07
                                               =============    ==============    ==============
</TABLE>

       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 basic
       earnings per share would have been as follows:

                                                  1998           1997
                                                  ----           ----

           Net earnings:
               As reported                 $    1,911,000         821,000
                                             =============    ============
               Pro forma                   $    1,911,000         724,000
                                             =============    ============

           Basic earnings per share:
               As reported                 $         1.75             .75
                                             =============    ============
               Pro forma                   $         1.75             .66
                                             =============    ============

       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.



<PAGE>



       Stock Purchase Plans

       The  Corporation  maintains  an  Employee  Stock  Purchase  Plan  whereby
       full-time  employees  of 1ST BANCORP and  subsidiaries  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 24,522 authorized but unissued shares were reserved for issuance under
       this plan. In 1998,  5,613 shares were issued and purchased by employees.
       The Board of Directors  suspended  this plan  effective June 30, 1998 for
       plan years 1999 and beyond.  Under a former plan, with identical terms as
       the  existing  plan,  a total of 5,904 and 8,621  shares  were issued and
       purchased by employees in 1997 and 1996, respectively.

       Stock Repurchase Plan

       In August 1996,  the Board  authorized  the repurchase of up to 5% of the
       outstanding  shares of common stock (1,108,230 shares were outstanding at
       the time),  subject to market  conditions,  over a two year period  which
       expires in August  1998.  During the years  ended June 30, 1998 and 1997,
       15,750 and 11,628 shares, respectively,  of common stock were repurchased
       at an average price per share of $19.37 and $17.80, respectively. Under a
       similar plan,  10,516 shares were repurchased in 1996 at an average price
       of $17.28.


(10)   Earnings Per Share

       In February  1997,  the FASB issued  Statement  of  Financial  Accounting
       Standard  No.  128,  Earnings  Per  Share  (FAS  128).  FAS 128  provides
       computation,  presentation,  and disclosure requirements for earnings per
       share and  supersedes  Accounting  Principles  Board  Opinion  15.  Basic
       earnings per share for 1998,  1997,  and 1996,  were computed by dividing
       net earnings by the weighted  average shares of common stock  outstanding
       (1,090,922,   1,101,724,   and  1,103,539  in  1998,   1997,   and  1996,
       respectively).  Diluted  earnings per share for 1998, 1997, and 1996 were
       computed  by dividing  net  earnings by the  weighted  average  shares of
       common stock and common stock that would have been  outstanding  assuming
       the  issuance  of  all  dilutive   potential  common  shares  outstanding
       (1,099,293,   1,101,724,   and  1,103,539  in  1998,   1997,   and  1996,
       respectively.)  Dilution of the  per-share  calculation  relates to stock
       options. Diluted earnings per share for 1998, 1997, and 1996 are the same
       as primary  earnings per share  calculated and reported under  superseded
       APB 15. Fully diluted earnings per share as previously reported under APB
       15 are no longer required.

(11)   Employee Benefit Plans

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

<TABLE>
<CAPTION>
                                                       1998              1997             1996
                                                       ----              ----             ----

<S>                                               <C>                    <C>              <C>    
          Service cost                            $      81,000          128,000          177,000
          Interest cost                                  77,000           79,000          124,000
          Actual return on assets                      (279,000)        (173,000)         (87,000)
          Net amortization and deferral                 (15,000)          76,000          (34,000)
                                                   --------------    -------------     -----------

          Net periodic pension expense (benefit)  $    (136,000)         110,000          180,000
                                                   ==============    =============     ===========
</TABLE>


       Prior service cost is being amortized over the average  remaining service
period of active employees.



<PAGE>

<TABLE>
<CAPTION>

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

                                                                                     1998                1997
                                                                                     ----                ----

<S>                                                                           <C>                        <C>    
          Actuarial present value of projected benefit obligations:
              Vested benefit obligation                                       $      747,000             721,000
              Nonvested benefit obligation                                            31,000              60,000
                                                                                --------------    ----------------
                 Total accumulated benefit obligation                                778,000             781,000
              Additional benefits based upon estimated future
                 salary levels                                                       192,000             190,000
                                                                                --------------    ----------------
                 Total projected benefit obligation                                  970,000             971,000
          Fair market value of plan assets                                         1,526,000           1,336,000
                                                                                --------------    ----------------
          Fair market value of plan assets over projected benefit
              obligation                                                             556,000             365,000

          Unrecognized prior service cost                                            (25,000)            (28,000)
          Unrecognized gain                                                         (350,000)           (355,000)
          Unrecognized transition asset                                                5,000               6,000
                                                                                --------------    ----------------

                 Accrued pension asset (liability)                            $      186,000             (12,000)
                                                                                ==============    ================
</TABLE>

       The  weighted-average  assumed rate of return used in determining the net
       periodic  pension cost for 1998 and 1997 was 8.0% and in determining  the
       actuarial  present value of accumulated  benefit  obligations at June 30,
       1998 and 1997 was 7.5%. The  weighted-average  rate of increase in future
       compensation levels used for 1998 and 1997 was 5.0%.

       The Bank has an Incentive Bonus Plan for certain salaried employees.  The
       bonus pool for the years ended June 30, 1998, 1997 and 1996 was $278,000,
       $220,000, and $300,000, 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  fifteen-year  period once the  director  reaches
       normal  retirement  age. 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, 1998, 1997 and 1996, the Bank expensed $256,000,
       $102,000,  and  $99,000,  respectively,  under the  plans and  recognized
       $66,000,  $65,000, and $41,000,  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.

(12)   Income Taxes

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

<TABLE>
<CAPTION>

                                        1998              1997             1996
                                        ----              ----             ----
<S>                                <C>                    <C>             <C>      
          Current:
             Federal               $    510,000           (213,000)       2,881,000
             State income taxes         236,000             71,000          843,000
          Deferred                     (130,000)          (107,000)        (351,000)
                                    --------------    -------------    --------------

                                   $    616,000           (249,000)       3,373,000
                                    ==============    =============    ==============
</TABLE>


<PAGE>



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

<TABLE>
<CAPTION>


                                                                               1998           1997           1996
                                                                               ----           ----           ----

<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                                 6.2            8.2            6.1
             Affordable, housing tax credit                                    (13.6)         (60.0)           -
             Refund of prior year taxes                                          -            (26.0)           -
             Increase in cash surrender value of life insurance                 (0.9)          (3.8)          (0.2)
             Other                                                              (1.3)           4.1           (3.0)
                                                                             ----------    -----------     ----------

          Effective tax rate                                                    24.4%         (43.5)%         36.9%
                                                                             ==========    ===========     ==========
</TABLE>

       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>

                                                                                1998            1997
                                                                                ----            ----

          Deferred tax assets:
<S>                                                                         <C>                  <C>   
              Deferred loan fees                                            $    20,000          41,000
              Securities available for sale                                      24,000          72,000
              Allowance for loan losses for financial reporting purposes        400,000         260,000
              Deferred compensation and benefits                                307,000         270,000
              Uncollected interest                                               89,000               -
              Other                                                              16,000          26,000
                                                                             -----------     -----------
                                                                                856,000         669,000
                                                                             -----------     -----------

          Deferred tax liabilities:
              Mortgage servicing                                                405,000         327,000
              Excess tax depreciation                                            86,000          85,000
              FHLB stock dividend                                                52,000          52,000
              Allowance for loan losses for tax purposes in excess of
                 base year allowance                                             80,000         125,000
              Partnership loss                                                   53,000               -
              Other                                                              64,000          46,000
                                                                             -----------     -----------
                                                                                740,000         635,000
                                                                                             -----------
                                                                             -----------

          Net deferred tax asset                                            $   116,000          34,000
                                                                             ===========     ===========
</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.



<PAGE>



       Retained earnings at June 30, 1998, 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.

       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  $2,269,000  and
       $2,287,000 at June 30, 1998 and 1997, respectively.

(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 $18,143,000 and $5,255,000, and $1,674,000
       and $2,555,000 at June 30, 1998 and 1997,  respectively.  The Bank had no
       outstanding  commitments to purchase loans,  mortgage-backed  securities,
       and investments at June 30, 1998. 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 6.75% to 10.40% and adjustable  rate
       mortgage loans at rates ranging from 7.25% to 10.25% at June 30, 1998.



<PAGE>



(15)   Parent Company Financial Information

       Following is condensed financial information of the Corporation:

       Condensed Statements of Financial Condition

<TABLE>
<CAPTION>


                                                                                              June 30,
                                                                                  ----------------------------------
       Assets                                                                          1998               1997
       ------                                                                          ----               ----

<S>                                                                             <C>                         <C>    
       Cash                                                                     $        330,000            691,000
       Investment in subsidiaries                                                     23,513,000         23,091,000
       Due from subsidiary                                                                14,000             33,000
       Other assets                                                                            -             16,000
                                                                                  ---------------    ---------------

                                                                                $     23,857,000         23,831,000
                                                                                  ===============    ===============

       Liabilities and Stockholders' Equity

       Long-term debt                                                                          -          1,481,000
       Accounts payable and accrued expenses                                               2,000             17,000
                                                                                  ---------------    ---------------
                                                                                           2,000          1,498,000

       Stockholders' equity                                                           23,855,000         22,333,000
                                                                                  ---------------    ---------------

                                                                                $     23,857,000         23,831,000
                                                                                  ===============    ===============
</TABLE>



       Condensed Statements of Earnings
<TABLE>
<CAPTION>

                                                                                 Year ended June 30,
                                                                   -------------------------------------------------
                                                                       1998              1997             1996
                                                                       ----              ----             ----

<S>                                                               <C>                   <C>                <C>    
       Dividend from subsidiaries                                 $   1,800,000         1,600,000          550,000
       Other operating income                                            21,000            27,000           38,000
       Operating expenses                                              (168,000)         (242,000)        (263,000)
                                                                   --------------    -------------    --------------
                                                                      1,653,000         1,385,000          325,000
       Income tax benefit                                                58,000            85,000           89,000
                                                                   --------------    -------------    --------------
       Income before equity in undistributed earnings
         of subsidiaries                                              1,711,000         1,470,000          414,000
       Equity in undistributed earnings (loss) of
         subsidiaries                                                   200,000          (649,000)       5,348,000
                                                                   --------------    -------------    --------------

             Net earnings                                         $   1,911,000           821,000        5,762,000
                                                                   ==============    =============    ==============

</TABLE>


<PAGE>



       Condensed Statements of Cash Flows
<TABLE>
<CAPTION>


                                                                                 Year ended June 30,
                                                                  --------------------------------------------------
                                                                       1998              1997              1996
                                                                       ----              ----              ----

       Net cash flows from operating activities:
<S>                                                              <C>                      <C>             <C>      
       Net earnings                                              $    1,911,000           821,000         5,762,000
       Adjustments to reconcile net earnings to net
         cash provided by operating activities:
           Equity in undistributed earnings of
              subsidiaries                                             (200,000)          649,000        (5,348,000)
           Change in accounts payable and accrued
              expenses                                                  (15,000)                -                 -
           Change in due from subsidiary                                 19,000           (12,000)           25,000
           Change in other assets                                        16,000             3,000             1,000
                                                                  ---------------    -------------    ---------------
              Net cash provided by operating
                activities                                            1,731,000         1,461,000           440,000
                                                                  ---------------    -------------    ---------------

       Cash flows from investing activities:
         Capital contributions to subsidiaries                         (149,000)         (500,000)                -
                                                                  ---------------    -------------    ---------------
              Net cash used by investing activities                    (149,000)         (500,000)                -
                                                                  ---------------    -------------    ---------------

       Cash flows from financing activities:
         Repayment of long-term debt                                 (1,481,000)         (198,000)         (197,000)
         Dividends to stockholders                                     (298,000)         (279,000)         (266,000)
         Purchase of common shares                                     (305,000)         (207,000)         (182,000)
         Proceeds from issuance of common stock                         141,000           133,000           137,000
                                                                  ---------------    -------------    ---------------
              Net cash used by financing activities                  (1,943,000)         (551,000)         (508,000)
                                                                  ---------------    -------------    ---------------

       Net increase (decrease) in cash and cash
         equivalents                                                   (361,000)          410,000           (68,000)

       Cash and cash equivalents at beginning of year                   691,000           281,000           349,000
                                                                  ---------------    -------------    ---------------

       Cash and cash equivalents at end of year                  $      330,000           691,000           281,000
                                                                  ===============    =============    ===============
</TABLE>


(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.



<PAGE>



       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.

<TABLE>
<CAPTION>
                                                                   1998                             1997
                                                       -----------------------------    ------------------------------
                                                        Carrying        Estimated        Carrying         Estimated
       (In thousands)                                    amount         fair value        amount          fair value

       Assets
<S>                                                   <C>                    <C>             <C>              <C>   
         Cash and cash equivalents                    $    16,163            16,163          20,294           20,294
         Securities including securities
           available for sale                              35,057            35,018          55,653           55,144
         Loans receivable including loans
           held for sale, net                             187,739           189,022         174,609          173,651
         Accrued interest receivable                        1,729             1,729           2,180            2,180
         Stock in FHLB of Indianapolis                      5,769             5,769           4,941            4,941
         Residential mortgage loan servicing                1,012             1,165             819            1,005

       Liabilities
         Deposits                                         117,763           117,569         144,316          143,241
         Borrowings
           FHLB advances                                  115,381           115,735          98,815           97,599
           Long-term borrowing                                  -                 -           1,481            1,481
         Advance payments by borrowers
           for taxes and insurance                            362               362             304              304
         Accrued interest payable                             856               856           1,409            1,409

</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.

       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.

       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  for
       similar deposit accounts.



<PAGE>




       FHLB Advances.  Fair values for  fixed-maturity  fixed-rate FHLB advances
       and fix-maturity  variable rate advances are calculated using either fair
       market  valuations  provided by the FHLB of  Indianapolis or 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.

(17)   Subsequent Event

       On August 6, 1998, the  Corporation  announced that it had entered into a
       definitive  agreement  to merge  the  Corporation  with  and into  German
       American Bancorp.  Under the terms of the agreement,  the shareholders of
       the  Corporation are targeted to receive shares of common stock of German
       American  Bancorp with an equivalent  value of  approximately  $50.94 for
       each 1ST BANCORP share, subject to certain changes in the market value of
       German American Bancorp shares.

       The  proposal  is subject to  approval  by the  shareholders  of both the
       Corporation and German  American  Bancorp,  approval by appropriate  bank
       regulatory agencies and other conditions  outlined in the agreement.  The
       Corporation anticipates the merger will become effective during the first
       calendar  quarter of 1999. In connection  with the definitive  agreement,
       the  Corporation  also entered into a Stock Option  Agreement with German
       American  Bancorp,  which  gives  German  American  Bancorp  an option to
       purchase  19.9% of the  Corporation's  outstanding  shares at $50.94  per
       share upon the occurrence of certain events that create the potential for
       another party to acquire control of the Corporation.



<PAGE>

                          1ST BANCORP AND SUBSIDIARIES

                                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, Indiana 47670
   (812) 385-2659

First Title Insurance Company
   102 N. Fifth Street
   Vincennes, Indiana 47591
   (812) 882-7837

<PAGE>

                          1ST BANCORP AND SUBSIDIARIES

                      DIRECTORS AND OFFICERS OF 1ST BANCORP

C. James McCormick, Chairman & CEO*

      Chairman  of the Board -  McCormick,  Inc.,  Bestway  Express,  Inc.,  and
      President of JAMAC Corp.

John J. Summers, Vice Chairman

      Retired President,
      Hamilton Glass Products, Inc.

Frank Baracani, President*

      President and Chief Executive Officer,
      First Federal Bank,
      A Federal Savings Bank

Donald G. Bell, Vice President

      Retired Senior Partner - Hart, Bell, Cummings,
      Ewing & Stuckey, Attorneys-at-Law

Lynn Stenftenagel, Secretary/Treasurer*

      Executive Vice President, Secretary,
      and Chief Financial Officer,
      First Federal Bank,
      A Federal Savings Bank

R. William Ballard

      Retired Senior Vice President,
      First Federal Bank,
      A Federal Savings Bank

James W. Bobe
      Farmer and County Commissioner

Ruth Mix Carnahan

      Secretary-Treasurer, Carnahan Grain, Inc.

Rahmi Soyugenc

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

All 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>



                              1ST BANCORP AND SUBSIDIARIES

                                      MANAGEMENT

        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, Chief Financial
    Officer and Secretary
Ruth Mix Carnahan, Treasurer
Bradley M. Rust, Senior Vice President/Controller
Gerald R. Belanger, Senior Vice President
Jay A. Baker, Vice President
Laura E. Bogard, Vice President
Rana M. Lee, Vice President
Cheryl A. Otten, Vice President
Paula J. Pesch, Vice President
Doris J. Blackburn, Assistant Vice President
Scott E. Blackburn, Assistant Vice President
Lynn Elliott, Assistant Vice President
Kelly J. Gay, Assistant Vice President
Ruth Etta Hunter, Assistant Vice President
Randall W. Pratt, Assistant Vice President
Karen K. Tolliver, Assistant Vice President
Carol A. Witshork, Assistant Vice President
Glenda L. Berryman, Assistant Secretary
Katherine E. Coleman, Assistant Secretary
Denise A. Loudermilk, Assistant Secretary
Shirley S. Rose, Assistant Secretary
Shawn M. Thomas, Assistant Secretary


           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

                    Officers of First Title Insurance Company

C. James McCormick, Chairman of the Board
Frank Baracani, President and Chief Executive Officer
Lynn Stenftenagel, Secretary and Treasurer
Kathy V. Frey, General Manager



<PAGE>



                          1ST BANCORP AND SUBSIDIARIES

                              CORPORATE INFORMATION
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,  1998,  there were 385  shareholders  of record  and  1,096,189
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 1998               45.00       26.50
                  March 1998              29.25       25.00
                  December 1997           40.50       26.00
                  September 1997          43.50       29.00

                  June 1997               33.25       30.00
                  March 1997              32.00       28.50
                  December 1996           31.50       27.25
                  September 1996          32.00       26.00

Internet Address
    http://www.businesswire.com/cnn/fbcv.htm