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

                                    FORM 10-K
                                   (Mark One)

[X]  Annual report  pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934

                   For the fiscal year ended June 30, 1998 or

[    ]  Transition  report  pursuant  to Section  13 or 15(d) of the  Securities
     Exchange    Act    of    1934    For    the    transition    period    from
     _______________to__________________

                        Commission File Number : 0-17915
                                   1ST BANCORP
             (Exact name of registrant as specified in its charter)

                               Indiana 35-1775411
                   (State or other jurisdiction (IRS Employer
            of incorporation or organization) Identification Number)

                             101 North Third Street
                            Vincennes, Indiana 47591
               (Address of Principal executive offices) (Zip Code)

        Registrant's telephone number, including area code: (812)885-2255

           Securities registered pursuant to Section 12(b) of the Act:
                                      None
           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock ($1.00 par value)
                                 Title of Class

Indicate by check mark whether the registrant (1) has filed all reports required
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes X No___

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulations S-K (Para.  229.405 of this chapter) is not contained herein, and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this form 10-K. |X|

State the aggregate  market value of the voting stock held by  nonaffiliates  of
the registrant: $33,353,982 as of September 11, 1998.

Number of shares of Common Stock outstanding as of September 11, 1998: 1,096,189

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to  Shareholders  for the year ended June 30, 1998
are incorporated into Part II.


<PAGE>



                                   1ST BANCORP

                                    FORM 10-K

                                      INDEX

                                                                        Page No.

Forward Looking Statement......................................................3

Part I

Item  1.  Business.............................................................3

Item  2.  Properties...........................................................6

Item  3.  Legal Proceedings...................................................36

Item  4.  Submission of Matters to a Vote of Security Holders.................36

Item  4.5 Executive Officers of the Corporation...............................37

Part II

Item  5.   Market for Registrant's Common Equity and Related
             Shareholder Matters..............................................38

Item  6.   Selected Financial Data............................................38

Item  7.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations..............................38

Item 7A. Quantitative and Qualitative Disclosures about Market Risk...........38

Item  8.   Financial Statements and Supplementary Data........................40

Item  9.  Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure.............................40

Part III

Item 10.  Directors and Executive Officers of the Registrant..................41

Item 11.  Executive Compensation..............................................43

Item 12.  Security Ownership of Certain Beneficial Ownership and Management...46

Item 13.  Certain Relationships and Related Transactions......................47

Part IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.....48

Signatures....................................................................49


<PAGE>

This  Annual  Report  on Form  10-K  ("Form  10-K")  contains  statements  which
constitute  forward  looking  statements  within  the  meaning  of  the  Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-K and include  statements  regarding the intent,  belief,
outlook,  estimate or expectations  of the  Corporation (as defined below),  its
directors or its officers primarily with respect to future events and the future
financial  performance  of the  Corporation.  Readers  of  this  Form  10-K  are
cautioned that any such forward looking  statements are not guarantees of future
events or  performance  and  involve  risks and  uncertainties,  and that actual
results may differ materially from those in the forward looking  statements as a
result of various factors. The accompanying  information  contained in this Form
10-K  identifies  important  factors  that could cause such  differences.  These
factors include  changes in interest rates;  loss of deposits and loan demand to
other  savings and  financial  institutions;  substantial  changes in  financial
markets;  changes in real estate values and the real estate  market;  regulatory
changes;  the deterioration in the financial  strength of the Corporation's loan
customers; or the announced acquisition by German American Bancorp.

                                     PART I

Item 1.  Business

General

        1ST  BANCORP,   an  Indiana   corporation  (the  "Corporation"  or  "1ST
BANCORP"),  is a nondiversified,  unitary savings and loan holding company.  The
principal  asset of the  Corporation is the  outstanding  stock of First Federal
Bank, A Federal  Savings  Bank,  ("First  Federal" or the "Bank") and the Bank's
subsidiary,   Financial   Services  of  Southern  Indiana   Corporation.   Other
subsidiaries of the Corporation  include First Financial  Insurance Agency, Inc.
("First Financial"),  a full service insurance agency, and First Title Insurance
Company  ("First  Title"),  which  provides title search  services,  underwrites
mortgage title insurance, and provides mortgage loan closing services.

        First  Federal  is a  federally-chartered  stock  savings  bank that was
converted to the stock form of ownership  and to a federal  savings bank in May,
1987.  The Bank is primarily  engaged in  attracting  deposits  from the general
public and applying these funds, together with borrowings, to the origination of
residential mortgage loans and consumer loans.

        First Federal's  revenue is primarily derived from interest on, and fees
received  in  connection  with,  real  estate  and  other  loans.  The Bank also
experienced  gains on the sale of its mortgage  loans as part of its  continuing
operations and asset/liability management efforts. The Bank's principal expenses
are interest on deposits and borrowings and general and administrative expenses.

        The principal  sources of funds for First Federal's  lending  activities
are its deposits,  amortization and prepayments of outstanding  loans,  sales of
mortgage  loans and borrowings  from the Federal Home Loan Bank of  Indianapolis
("FHLB" or "FHLB of Indianapolis").

        The  Bank's  deposits  are  insured  by the full faith and credit of the
United States government by the Federal Deposit Insurance Corporation's ("FDIC")
Savings Association  Insurance Fund ("SAIF").  Deposit accounts in First Federal
are  generally  insured by the SAIF to a maximum of  $100,000  for each  insured
depositor.  The Bank is a member of the FHLB of  Indianapolis  and is subject to
comprehensive regulation,  examination,  and supervision by the Office of Thrift
Supervision ("OTS") and the FDIC.


<PAGE>

        First Federal  offers a full range of banking  services  through its two
banking offices located in Vincennes, Indiana.  Additionally,  the Bank operates
one loan origination office in Evansville Indiana.  During fiscal year 1997, the
Bank closed  loan  origination  offices in  Indianapolis,  Indiana,  Louisville,
Kentucky,  and suburbs of Cincinnati,  Cleveland,  and Dayton,  Ohio. The office
closures were undertaken to centralize all administrative  loan functions in the
Vincennes offices, to afford more standardized  procedures and controls,  and to
decrease overhead expenses in the nonconforming loan operations.

        The Bank's principal  market area is Knox County in Indiana.  The Bank's
deposits are obtained  primarily  from persons who are  residents of its primary
market area. However,  to supplement local deposits,  the Bank also makes use of
brokered  deposits which range in original  maturity from one to five years with
rates ranging from 5.7% to 6.3%. The program serves as an alternative  source of
funds to complement the borrowing program and retail savings programs offered in
the Bank's local market. The brokered funds enable the Bank to manage maturities
of its deposits in its effort to manage interest rate risk.

        During the third quarter of fiscal year 1998, the  Corporation  acquired
the assets of an existing  independent title and abstract company. The assets of
the acquired company were merged into the previously inactive subsidiary,  First
Title  Insurance  Company.  First Title sells  title  insurance  as an agent for
Chicago Title Insurance Company, Ticor Title Insurance Company, and Stewart
Title Guaranty Company.

        First Financial operates full service insurance offices in Vincennes and
Princeton,  Indiana. During fiscal year 1997, First Financial purchased the book
of business of an existing  independent  insurance agency.  The book of business
was merged with the existing  customer  base of First  Financial and resulted in
the establishment of First Financial's Princeton office.

        On August 5, 1998 1ST  BANCORP  and  German  American  Bancorp  ("German
American")  jointly  announced  the  signing  of  a  definitive  agreement  (the
"Agreement")  pursuant  to which the  Corporation  will be merged  with and into
German American (the "Merger").  The Agreement  provides that upon the effective
date of the Merger , the shareholders of the Corporation would receive shares of
common stock of German American with an aggregate value of $57,120,000  based on
market  prices  during a period of 15 days  ending on the  second  trading  date
before  closing).  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.

        Based on the current number of the Corporation's  shares outstanding and
assuming the exercise of stock  options for 29,679  shares held by employees and
directors of the Corporation  prior to the closing of the merger,  each share of
the Corporation's common stock would be exchanged for German American stock with
a value equal to approximately $50.94.

        The  Corporation  has also signed a Stock Option  Agreement  with German
American,  giving  German  American  an  option to  purchase  up to 19.9% of the
Corporation's   outstanding  shares,   exercisable  at  $50.94  per  share  upon
occurrence  of certain  events that create the  potential  for another  party to
acquire control of the Corporation.


<PAGE>

Lending Activities

        General

        First Federal has traditionally  concentrated its lending  activities on
first mortgage loans secured by residential property.  Typically these loans are
neither  insured by the Federal  Housing  Administration  ("FHA") nor  partially
guaranteed  by the  Veteran's  Administration  ("VA").  At June 30, 1998,  First
Federal's net loan portfolio  aggregated $185.3 million,  representing  71.2% of
total  assets at that date.  This  compares to the Bank's net loan  portfolio of
$146.8 million at June 30, 1997 representing 54.3% of total assets.

        The Bank has  historically  concentrated on the origination and purchase
of conforming conventional mortgage lending. This market is represented by loans
conforming to documentation and underwriting  standards  dictated by the Federal
Home Loan  Mortgage  Corporation  ("Freddie  Mac" or  "FHLMC")  and the  Federal
National Mortgage  Association  ("Fannie Mae" or "FNMA").  The Bank continues to
originate  conforming  loan  product but in the past four fiscal  years has also
concentrated on the origination of nonconforming  mortgage loans.  Nonconforming
loans meet alternative documentation and underwriting requirements dictated by a
secondary  market made up of companies other than FHLMC and FNMA. Such loans are
made  to  a  broader   customer   base  and  are   graded   "A"   through   "D."
Creditworthiness,  collateral,  equity,  and other  factors  are  weighed in the
grading of the  nonconforming  loans and interest rates charged are commensurate
with risk.

        The Bank offers both fixed rate  mortgage and  adjustable  rate mortgage
("AML") loans. In addition to residential  real estate  lending,  as part of its
asset and liability  management  strategy,  First Federal  continues its lending
activities  in other  shorter-term  interest  rate  sensitive  loans,  including
consumer  loans,  which  accounted for 11.9% of the total loan portfolio at June
30, 1998 as compared to 8.7% of the total loan portfolio at June 30, 1997.

<PAGE>


        The following  table (which  excludes the loans held for sale portfolio)
sets forth the  composition  of the Bank's loan portfolio by type of loan at the
dates indicated:


<TABLE>
<CAPTION>
                                                                                         At June 30,
                                                       ----------------------------------------------------------------------------
                                                            1998            1997            1996            1995            1994
                                                       ----------------------------------------------------------------------------
                                                                                       (in thousands)
Real estate loans:
<S>                                                        <C>             <C>             <C>             <C>             <C>
     Mortgage                                              $163,457        $135,189        $141,247        $181,676        $153,251
     Construction                                             4,501           2,038           2,171           7,364          12,460
Consumer loans                                               17,147           7,277           5,839          10,203           9,285
Other Loans                                                   4,986           5,471           4,171           6,859           6,775
                                                       ----------------------------------------------------------------------------
                                                            190,091         149,975         153,428         206,102         181,771
                                                       ----------------------------------------------------------------------------

Undisbursed loans funds                                     (3,475)         (1,536)         (1,297)         (3,038)         (7,707)
Deferred loan fees and unamortized
     premiums and discounts, net                                139           (441)           (486)           (367)           (430)
Allowance for loan losses                                   (1,465)         (1,158)           (896)           (878)           (817)
                                                       ----------------------------------------------------------------------------
                                                            (4,801)         (3,135)         (2,679)         (4,283)         (8,954)
                                                       ----------------------------------------------------------------------------

Net loans receivable                                       $185,290        $146,840        $150,749        $201,819        $172,817
                                                       ============================================================================

</TABLE>


        Contractual Maturities of Loans

        The  following  table  summarizes  the  contractual  maturities of First
Federal's  loan  portfolio due for the fiscal  periods  indicated as of June 30,
1998 by type of loan:



               Principal Repayments Contracturally Due During the
                  Fiscal Periods Indicated as of June 30, 1998

<TABLE>
<CAPTION>



                                                          More         More         More         More         More
                             Balance                     than 1       than 2       than 3       than 5      than 10
                          Outstanding at    One Year     Year to     Years to     Years to     Years to     Years to    More than
                           June, 30 1998     or less     2 Years      3 Years      5 Years     10 Years     15 Years     15 Years
                          --------------------------------------------------------------------------------------------------------
<S>                        <C>              <C>         <C>          <C>         <C>          <C>          <C>          <C>
Real estate loans:
         Mortgage          $163,457         $4,349      $4,728       $5,141      $11,664      $39,304      $47,859      $50,412
         Construction         4,501          4,501           -            -                         -            -            -
Consumer and Other Loans     22,133          1,982       2,167        2,369        5,424       10,191            -            -
                          ------------------------------------------------------------------------------------------------------
         Total             $190,091        $10,832      $6,895       $7,510      $17,088      $49,495      $47,859      $50,412
                          ======================================================================================================
</TABLE>



<PAGE>

        Contractual  maturities  of loans do not reflect the average life of the
Bank's loan portfolio.  The average life of mortgage loans is substantially less
than their  contractual  terms  because of loan  prepayments  and  refinancings.
Scheduled  principal  amortization also reduces the average maturity of the loan
portfolio.  The average life of mortgage loans tends to increase,  however, when
current mortgage rates substantially exceed rates on existing mortgages.


<PAGE>


        Adjustable- and Fixed-Rate Loans

        The  following  table  sets  forth by type of loan the  amount  of First
Federal's  fixed-rate  loans and adjustable rate mortgage loans ("AML") included
in its gross loans receivable:

<TABLE>
<CAPTION>
                                                                                 At June 30,
                                                  ---------------------------------------------------------------------------
                                                     1998            1997            1996            1995            1994
                                                  ---------------------------------------------------------------------------
                                 (in thousands)

<S>                                                  <C>             <C>             <C>             <C>             <C>
One-to-Four Family Residential Mortgage Loans
     Fixed Rates                                     $84,776         $67,310         $54,212         $71,772         $64,294
     Adjustable Rates                                 75,638          60,767          81,051         107,849          92,492
                                                  ---------------------------------------------------------------------------
                             Total                  $160,414        $128,077        $135,263        $179,621        $156,786

Commercial Real Estate Loans
     Fixed Rates                                       3,970           5,901           3,511           2,996           4,062
     Adjustable Rates                                  3,574           3,249           4,644           6,423           4,863
                                                  ---------------------------------------------------------------------------
                             Total                    $7,544          $9,150          $8,155          $9,419          $8,925

Total Real Estate Loans
     Fixed Rates                                      88,746          73,211          57,723          74,768          68,356
     Adjustable Rates                                 79,212          64,016          85,695         114,272          97,355
                                                  ---------------------------------------------------------------------------
                             Total                  $167,958        $137,227        $143,418        $189,040        $165,711

Consumer & Other Loans
     Fixed Rates                                      17,153           8,168           6,671          11,438          10,011
     Adjustable Rates                                  4,980           4,580           3,339           5,624           6,049
                                                  ---------------------------------------------------------------------------
                             Total                   $22,133         $12,748         $10,010         $17,062         $16,060

Total Loans Receivable
     Fixed Rates                                     105,899          81,379          64,394          86,206          78,367
     Adjustable Rates                                 84,192          68,596          89,034         119,896         103,404
                                                  ---------------------------------------------------------------------------
                             Total                  $190,091        $149,975        $153,428        $206,102        $181,771
</TABLE>


<PAGE>

        Residential Mortgage Loans

        To the  extent  deemed  appropriate,  in view of  market  forces,  First
Federal  intends to continue to originate  AMLs in order to reduce the impact of
rapid  increases  in market rates of interest on its  operations  and the market
value  of its  equity.  Although  critical  to  maintaining  an  asset/liability
matching  program and a reasonable  interest rate risk posture,  adjustable-rate
loans generally do not adjust as rapidly as changes in the Bank's cost of funds.

        The Bank also  continues  to be an  originator  of fixed  rate  mortgage
loans.  Fixed rate residential  mortgage loans currently  originated by the Bank
generally  are made with 15 and 30 year  amortization  schedules.  The Bank also
originates  fixed-rate  residential  mortgages with balloon  payments,  with the
balloon payment being due generally in five or seven years.

        A portion of the conforming  fixed rate and adjustable rate  residential
mortgage  loans  currently  being  originated and purchased by First Federal are
sold to FHLMC. These loans are typically sold with the servicing rights retained
by the Bank.  The  highest  quality  nonconforming  loans are being  retained in
portfolio in order to enhance the Bank's net interest margin. However, a portion
of the nonconforming mortgage loans are also sold on a non-recourse basis in the
nonconforming  secondary market. The nonconforming loans are typically sold with
the servicing rights released.

        Of the $118.1  million  loans  originated  and  purchased in fiscal year
1998,  $37.5 million were  nonconforming  mortgage  loans.  This compares to the
origination and purchase of $70.2 million of nonconforming mortgage loans of the
total $117.0 million loan originated and purchased  during fiscal year 1997. The
lower volume of  nonconforming  loans in fiscal year 1998  compared  with fiscal
year 1997 is a result of the restructure of the Bank's loan origination  network
in the  latter  part of  fiscal  year  1997.  At June 30,  1998,  $85.9  million
nonconforming  loans were  included in the loan  portfolio  as compared to $66.5
million in portfolio  at June 30, 1997.  The  increased  level of  nonconforming
loans in portfolio is an integral part of the Bank's  strategy to expand its net
interest margin in an orderly manner.

        The Bank also originates second mortgages,  the majority of which are on
real  estate in which it also holds the first  mortgage.  The loans have  either
adjustable  rate or fixed rate  features  with terms  similar to first  mortgage
loans.  The  second  mortgage,  when  combined  with the  balance  of the  first
mortgage,  normally does not exceed 90% of the value of the real estate.  During
fiscal year 1997, the Bank  discontinued a program of granting  second  mortgage
loans up to 100% of appraised  value.  The program was  discontinued  due to the
inherent credit risk associated with that type of lending.  The Bank offers 100%
financing  programs  with  the  first  mortgage  retained  by  the  Bank,  and a
concurrent second mortgage being closed and retained by another lender.

        First Federal offers residential  construction loans to both individuals
and builders.  The Bank  normally  grants a commitment  for permanent  financing
concurrent with the origination of the  construction  loan. Such commitments are
generally market rate commitments and require the borrower to satisfy the Bank's
normal underwriting  criteria at the time the loan is made. Terms are similar to
those  established for other first mortgage loans.  Interest rates are generally
adjustable and are set at the time of the origination of the construction  loan.
In the case of an AML,  the  construction  period is  included in the time frame
upon which the interest rate adjustment is based.


<PAGE>

        In many  instances,  construction  loans have a commitment for permanent
financing either from the Bank or another financial institution prior to closing
the construction  loan. In other cases,  the Bank does grant "spec"  residential
construction loans to builders on a limited basis. The number of "spec" loans to
each  builder is limited by the amount and number of projects  that such builder
has in  process at any one time.  These  limits are  established  and  regularly
monitored by the Board of Directors.

        Under policies adopted by the Bank's Board of Directors, the Bank limits
the  loan-to-value  ratio  to 100%  on  residential  mortgage  loans.  The  Bank
generally requires all conforming loans with  loan-to-value  ratios in excess of
80% to carry private  mortgage  insurance  which  insures First Federal  against
default on a portion of the principal amount of the loan. Nonconforming mortgage
loans  generally  may not  exceed  85% of the  value  of the  secured  property.
Commercial  real estate loans  generally  may not exceed 75% of the value of the
secured property.  Construction  loans generally may not exceed 80% of the value
of the secured  property and generally are made for 80% or less of the appraised
value of the property upon completion.

        It is the Bank's policy to obtain title insurance policies insuring that
First  Federal has a valid lien on mortgaged  real estate.  Borrowers  also must
obtain  hazard  insurance  policies  prior to closing and,  when required by the
Department of Housing and Urban Development, flood insurance policies.

        Commercial Real Estate Loans

        At June 30, 1998, First Federal's  commercial real estate loan portfolio
(including  loans secured by  nonresidential  property,  land,  and five or more
dwelling units)  aggregated  $7.5 million,  or 4.0% of the total loan portfolio.
During the early  1980s,  First  Federal  originated  and  purchased a number of
commercial  real estate  loans.  Such activity has been very limited in the past
several years.  Land development loans are generally limited to less than 75% of
the market  value of the  improved  land and are granted as  revolving  lines of
credit.  Interest rates generally are 2% above the prime rate, recalculated on a
monthly basis. As lot sales occur,  the Bank generally  requires a payment equal
to 75% of the gross sale proceeds.  The land development loans have been granted
in communities currently or previously served by various First Federal offices.

        Consumer Lending

        The Bank also originates  consumer loans,  which include savings account
loans, student loans,  automobile loans, property improvement loans, home equity
loans,  mobile home loans,  credit card loans,  and other  secured and unsecured
consumer loans. At June 30, 1998, such loans constituted $22.1 million, or 11.6%
of the total loan portfolio.

         The maximum term of automobile loans is generally five years,  with the
rate and term  dependent  upon  whether the  vehicle is new or used.  During the
fourth  quarter of fiscal year 1997, the Bank initiated an indirect auto lending
program  through a  selected  number of new and used  automobile  dealers in its
primary  market area.  The indirect auto lending  program  serves to augment the
traditional  auto  lending  program  of the  Bank.  Terms  are  similar  for the
traditional and indirect auto loan programs.  Indirect auto loan fundings during
fiscal year 1998 totaled $10.0 million. The indirect auto loan portfolio totaled
$8.5 million at June 30, 1998.

        Home equity loans are variable  rate and are treated as revolving  lines
of  credit.  At June 30,  1998,  home  equity  loans  aggregated  $4.6  million,
available balances averaged $10,300,  and approved credit line balances averaged
$19,900.  Savings  account  loans  generally  do not exceed  90% of the  savings
account  balance  which  collateralizes  the loan and  demand an  interest  rate
generally equal to 2.0% above the rate paid on the savings account.

<PAGE>



        Origination, Purchase and Sale of Loans and Participations

        As a federally-chartered savings institution,  First Federal has general
authority to make real estate loans secured by properties located throughout the
United States.  Through its loan origination office network,  the Bank's lending
market was expanded beyond its traditional areas.  However,  at June 30, 1998, a
majority of First Federal's  total loans  receivable were secured by real estate
located in central and southern Indiana and southern Illinois.

        During  the  mid-1980s,  First  Federal  purchased  a limited  number of
participations  in loans  originated by other  financial  institutions.  In such
instances,  First Federal purchased a portion of a loan from a lead lender which
services  the loan and remits to the Bank its  pro-rata  share of  interest  and
principal  payments  received from the  borrower.  First Federal pays a fee from
 .25% to .50% of the interest earned on the loan to the lead lender for servicing
the loan. This operating strategy was undertaken because of an inadequate supply
of loans in the Bank's primary lending area. Since that time, few participations
have been  purchased.  The Bank has  expanded  its  origination  and  purchasing
operations for mortgage  loans and currently has an adequate  supply of loans in
its market  areas.  The Bank is  continually  looking for new market  areas into
which it can expand.

        Historically, conforming mortgage loans have been originated by the Bank
primarily  through  referrals  from real estate  brokers,  builders  and walk-in
customers,  as well as through  refinancing  for  existing  customers.  The Bank
carefully  monitors  interest  rates in its market areas and believes that it is
competitive in such areas. First Federal continues to obtain its market share of
loans  in its  primary  market  area.  In  addition,  through  mortgage  banking
services,  additional  loans are  granted  in other  communities.  The  mortgage
banking services for the past four fiscal years have been primarily concentrated
in the nonconforming loan markets.  However,  during fiscal year 1998 conforming
mortgage banking operations increased.

        During fiscal 1998,  the Bank  originated  $85.7 million of  residential
real estate loans (including  construction  loans) as compared to $104.7 million
of residential  real estate loans in 1997 and $132.2 million of residential real
estate loans in 1996.  The  decreased  volume during fiscal 1998 was primarily a
decline in nonconforming  mortgage loan originations which resulted largely from
the closure of the Bank's loan origination offices in fiscal 1997. The decreased
volume of residential real estate loan originations  during fiscal 1997 compared
with fiscal 1996 resulted from reduced retail conforming loan originations.  The
decreased  conforming loan originations were largely attributable to the sale of
two retail banking  branches in Tipton and Kokomo,  Indiana during December 1995
(the "Branch Sales").  In addition,  the decline was attributable to the general
economic  conditions which depressed loan activity in the Bank's primary lending
area during fiscal 1997.

        During fiscal year 1998, $13.3 million in loans were purchased through a
wholesale  correspondent  network  compared with $2.0 million  purchased  during
fiscal  year 1997.  The  increase in loans  purchased  from  correspondents  was
designed  to  replace a portion  of the  decreased  loan  production  due to the
closure of the  majority of the Bank's loan  origination  offices in fiscal year
1997.  The  loans  purchased  in  fiscal  year  1998  included   conforming  and
nonconforming loans.


<PAGE>

        During 1998, the Bank sold $46.1 million in conforming loans to FHLMC as
compared to the sale of $32.1 million in loans to FHLMC in fiscal year 1997. The
Bank  continues  to service  most of the loans sold in fiscal 1998 and retains a
portion of the interest received (.250% to .375%) as a servicing fee. A total of
$871,000 in FHA/VA loans were sold to private  investors during fiscal year 1998
as  compared  with $6.4  million  in fiscal  year  1997.  These  loans were sold
servicing  released.  An aggregate of $8.2 million in  nonconforming  loans were
sold to various  investors  during  fiscal 1998 as compared to $37.7  million in
nonconforming  loan  sales in fiscal  1997.  These  loans  were  sold  servicing
released.  The  decline  in  nonconforming  loan  sales is a part of the  Bank's
asset/liability  strategy  to enhance  the net  interest  margin by  retaining a
larger portion of its mortgage loan production in portfolio.

        The following table shows total loan originations,  purchases, sales and
repayment  activities  (including  loans  held for sale) of the Bank  during the
periods indicated:

<TABLE>
<CAPTION>

                                                                     Years Ended June 30,
                                                         ---------------------------------------
                                                            1998           1997           1996
                                                         ---------------------------------------
                                                                         (in thousands)
<S>                                                      <C>            <C>            <C>
Loans Originated
         Real estate loans
                 Construction (1)                        $   2,663      $   3,623      $  15,466
                 Land                                           --             --             --

                 Loans for purchase or refinance of existing property:
                     One-to-four units                      83,019        101,047        116,783
                     Over four units                            --             --             --
                 Commercial                                  1,485            383            215
         Consumer loans (2)
                                                            17,665          9,926         12,394
                                                         ---------------------------------------

                 Total loans originated                  $ 104,832      $ 114,979      $ 144,858



Participations and whole loans purchased                 $  13,274      $   2,042      $  27,583

Participations and whole loans sold                      ($ 55,096)     ($ 76,202)     ($161,421)
Loan principal repayments                                  (48,214)       (35,093)       (50,208)
                                                         ---------------------------------------

Change in loan portfolio                                 $  14,796      $   5,726      ($ 39,188)
                                                         =======================================

--------------------------------------
</TABLE>

(1)  Construction loans originated are predominantly residential.

(2)  Consumer  loans  consist   primarily  of  home  equity,   savings  account,
     signature, automobile, and property improvement loans.



<PAGE>

        Income from Lending Activities

        Interest  rates charged by First Federal on mortgage loans are primarily
determined by competitive loan rates offered in its market areas.  Mortgage loan
rates reflect factors such as general interest rate levels,  the supply of money
available to the savings  industry and the demand for such loans.  These factors
are, in turn, affected by general economic conditions,  the monetary policies of
the federal government, (including the Board of Governors of the Federal Reserve
Board),  the  general  supply  of  money  in  the  economy,   tax  policies  and
governmental budget matters.

        In addition to interest earned on loans and the income from servicing of
loans,  the Bank receives  income through fees in connection with late payments,
changes of property  ownership  and for  miscellaneous  services  related to its
loans. Income from these activities varies from period to period with the volume
and type of loans  originated,  modified,  sold or  purchased,  which in turn is
dependent on prevailing  mortgage  interest rates and their effect on the demand
for loans in markets serviced by the Bank.

        In its  lending,  the Bank may charge  loan  origination  fees which are
calculated as a percentage of the amount  borrowed.  Loan  origination  fees and
certain related direct loan  origination  costs are offset and the resulting net
amount is  deferred  and  amortized  over the lives of the  related  loans as an
adjustment to the yield of such related loans. However, in the event the related
loan is sold,  any net deferred loan fees  remaining  with respect to such loans
are taken into income.  In addition,  commitment fees are offset against related
direct costs and recognized  over the life of the related loans as an adjustment
of  yield,  if the  commitment  is  exercised,  or,  if the  commitment  expires
unexercised, the commitment fees are recognized in income upon expiration of the
commitment.

        The  following  table sets forth  certain  information  concerning  loan
origination  and commitment  fees and deferred loan  origination  and commitment
fees on First Federal's mortgage loan portfolio for each of the periods or as of
the dates indicated.


                                               1998        1997         1996
                                           ----------------------------------
                                                       (in thousands)

Loan origination, commitment
         fees and service fees earned
         during the year ended June 30          $91        $137         $140

Net deferred loan origination and
         commitment fees on mortgage
         loans at end of year                   $47        $476         $611

Purchased and originated mortgage
         servicing rights at end of year      $1,012       $819         $591




<PAGE>

Asset Quality

        Collection Practices

        When a borrower fails to make a required payment on a mortgage loan, the
Bank attempts to cause the deficiency to be cured by contacting the borrower and
seeking  payment.  Contacts are generally made after a conforming  mortgage loan
payment is more than 16 days past due and a late charge is assessed at such time
for conforming  mortgage  loans.  In the case of  nonconforming  mortgage loans,
contact  is  generally  made  after  a  payment  is  five  days  past  due.  For
nonconforming  loans,  as with  conforming  loans,  late charges are assessed at
which time a payment is more than 16 days past due. If the  delinquency  exceeds
120 days and is not cured through the Bank's normal collection  procedures,  the
Bank  will  generally  institute  measures  to  remedy  the  default,  including
commencing a foreclosure action or accepting from the mortgagor a voluntary deed
of the  secured  property in lieu of  foreclosure.  If a  foreclosure  action is
instituted  and the loan is not  reinstated,  paid in full, or  refinanced,  the
property is sold pursuant to statutory  requirements  after obtaining a judgment
of foreclosure from the appropriate  court. The property is then included in the
Bank's "real estate owned"  account  until it is sold.  The Bank is permitted by
federal  regulations  to  finance  the  sales  of these  properties  by loans or
contracts to  facilitate  the sale of real estate  owned,  which involve a lower
down  payment  or a longer  term than would be  generally  allowed by the Bank's
underwriting standards.

        When a borrower fails to make a required payment on a consumer loan, the
Bank attempts to cause the deficiency to be cured by contacting the borrower and
seeking payment.  Contacts are generally made after a consumer loan is more than
10 days past due and a late charge is assessed at such time. If the  delinquency
is not  cured,  the Bank will  institute  measures  to remedy the  default.  The
remedies  include  repossession of the non-real estate  collateral,  foreclosure
action for loans secured by mortgages, and/or pursuing default judgments against
the borrower.  In the case of the Bank's auto loan programs,  if the delinquency
exceeds  45  days  and  is  not  cured  through  the  Bank's  normal  collection
procedures, the Bank will generally initiate action to repossess the collateral.
The Bank then holds the property for 10 days to allow the borrower to redeem the
collateral. If there is no borrower redemption,  the property is included in the
bank's repossessed assets account until it is sold.

        Nonaccrual Loans, Real Estate Owned, and Repossessed Assets

        At June 30, 1998,  nonaccrual  loans, real estate owned, and repossessed
assets totaled $4.4 million, or 1.70% of total assets. Overall, the upward trend
in nonaccrual loans is attributable to residential  one-to-four  family mortgage
loans.  In  particular,   the  Bank's   nonconforming  loan  delinquencies  have
increased. Over the past four fiscal years the Bank has expanded its residential
one-to-four  family  nonconforming  loan  portfolio to increase its net interest
margin.  While the larger  nonconforming  loan portfolio has been  successful in
expanding the net interest  margin,  the credit risk associated with these loans
has contributed to the increased level of  delinquencies,  nonaccrual loans, and
real estate owned.

        Loan quality  continues to be of major importance to the Bank and strong
efforts  are  being  made to ensure  loan  quality.  In an  effort  to  mitigate
potential  losses and reduce  non-performing  assets  additional loan collection
personnel  have  been  hired,  more  stringent  collection  practices  have been
implemented,  and the  100%  nonconforming  second  mortgage  loan  program  was
discontinued.  In addition,  loan loss allowances have been increased to prepare
for potential future losses in the loan portfolio.


<PAGE>

        The table below sets forth the amounts and categories of First Federal's
nonaccrual loans and real estate owned for the last five years. It is the policy
of the Bank to review loans regularly and loans are placed on nonaccrual  status
when the loans become contractually past due more than 90 days.

<TABLE>
<CAPTION>

                                   At June 30,
                                              -------------------------------------------------------------------------
                                                  1998            1997            1996            1995            1994
                                              -------------------------------------------------------------------------
                             (Dollars in thousands)
Nonaccrual loans and real estate owned:
<S>                                             <C>             <C>               <C>             <C>           <C>
Non-accrual loans (1)                           $3,491          $2,330            $846            $400          $1,635
Real estate owned and repossessed assets (2)       930             397             177             145             160
Restructured loans                                   -               -               -               -               -
                                              -------------------------------------------------------------------------

Total nonaccrual loans and real estate owned    $4,421          $2,727          $1,023            $545          $1,795
Nonaccrual loans and real estate owned to
   total assets                                   1.70%           1.01%           0.39%           0.17%           0.71%
</TABLE>
------------

(1)  Approximately $320,000 in gross interest income would have been recorded in
     the year ended June 30,  1998 if the loans had been  current in  accordance
     with their original terms and had been outstanding  throughout the year, or
     since origination if held for part of the period. Approximately $161,000 in
     interest income was actually recognized in the year.

(2)  Troubled loans acquired through repossession,  foreclosure, or deed-in-lieu
     of foreclosure are included in the Statement of Financial Condition as real
     estate owned.



        Loss and Delinquency Experience


<PAGE>

        During the year ended June 30, 1998,  the Bank realized net  charge-offs
on loans  aggregating  $448,000.  At June  30,  1998,  1.06% of the  outstanding
principal balance of loans in the Bank's portfolio was delinquent between 61 and
90 days and 1.88% was delinquent 91 days or more. The Bank's loss  experience on
its loan portfolio for the years shown is summarized in the following tables:




                                              Year Ended June 30,
                                 --------------------------------------------
                                     1998            1997            1996
                                 --------------------------------------------
                                            (Dollars in thousands)
Loans receivable, net              $185,290        $146,840        $150,749
Net losses (charge-offs)               $448            $111             $65
Percent delinquent 61 days
   or more at end of year              2.94%           2.67%           1.76%

Total dollar amount
   foreclosed                        $1,375            $686            $180
Percent foreclosed                     0.74%           0.47%           0.12%



                    Analysis of the Allowance for Loan Losses

<TABLE>
<CAPTION>

                                                                   Year Ended June 30,
                                        -----------------------------------------------------------------------------
                                          1998            1997            1996            1995            1994
                                        -----------------------------------------------------------------------------
                                                                 (Dollars in thousands)

<S>                                       <C>               <C>             <C>             <C>             <C>
Balance at beginning of year              $1,158            $896            $878            $817            $892

Charge-offs
   Loans
      Real estate mortgages                  389              81              30              15             138
      Consumer loans                          72              38              52              32              23

Recoveries
   Loans
      Real estate mortgages                    2               1              13              -                1
      Consumer loans                          11               7               4               8              10
                                          -----------------------------------------------------------------------

Net charge-offs                              448             111              65              39             150

Provisions charged to operations             755             373              83             100              75
                                          -----------------------------------------------------------------------

Balance at end of year                    $1,465          $1,158            $896            $878            $817

                                          =======================================================================

Ratio of net charge-offs during the
year to average loans outstanding
during the year                             0.27%           0.07%           0.04%           0.04%           0.09%

</TABLE>



<PAGE>

        Additional  information  regarding  the  allowance for loan losses is as
follows:

<TABLE>
<CAPTION>
                                                                                   At June 30, 1998
                                              -------------------------------------------------------------------------------------
                                                                    % of Loans in                                    Allowance as a
                                                Amount of         Each Category to            Allowance as a           % of Loans
                   Type of Loan                 Allowance         Loans Receivable            % of Loan Type           Receivable
-----------------------------------------     --------------   ------------------------   ---------------------   -----------------
                                                                                (Dollars in thousands)
<S>                                                 <C>                 <C>                        <C>                     <C>
One-to-Four Family Mortgage Loans                   $773                84.39%                     0.48%                   0.41%
Commercial Real Estate Loans                         492                 3.97%                     6.52%                   0.26%
                                                     
Consumer & Other Loans                               200                11.64%                     0.90%                   0.11%
                                         ----------------   -------------------                             ---------------------
                                                  $1,465               100.00%                                             0.78%

                                                                                At June 30, 1997
                                           ----------------------------------------------------------------------------------------
                                                                 % of Loans in                                      Allowance as a
                                             Amount of         Each Category to            Allowance as a             % of Loans
                   Type of Loan              Allowance         Loans Receivable            % of Loan Type             Receivable
-----------------------------------------  --------------   ------------------------   -----------------------   ------------------

                                                                             (Dollars in thousands)

One-to-Four Family Mortgage Loans                   $520               85.31%                 0.41%                      0.35%
Commercial Real Estate Loans                         508                6.19%                 5.47%                      0.34%
Consumer & Other Loans                               130                8.50%                 1.02%                      0.09%
                                         ----------------   ------------------                              -----------------
                                                  $1,158              100.00%                                            0.78%


                                                                                At June 30, 1996
                                           ----------------------------------------------------------------------------------------
                                                                 % of Loans in                                      Allowance as a
                                             Amount of         Each Category to            Allowance as a             % of Loans
                   Type of Loan              Allowance         Loans Receivable            % of Loan Type             Receivable
-----------------------------------------  --------------   ------------------------   -----------------------   ------------------

                                                                             (Dollars in thousands)

One-to-Four Family Mortgage Loans                   $267             88.16%                     0.20%                   0.17%
Commercial Real Estate Loans                         536              5.32%                     6.57%                   0.35%
Consumer & Other Loans                                93              6.52%                     0.93%                   0.06%
                                         ----------------   ----------------                             ---------------------
                                                    $896            100.00%                                             0.58%



<PAGE>

                                                                                At June 30, 1995
                                           ----------------------------------------------------------------------------------------
                                                                 % of Loans in                                      Allowance as a
                                             Amount of         Each Category to            Allowance as a             % of Loans
                   Type of Loan              Allowance         Loans Receivable            % of Loan Type             Receivable
-----------------------------------------  --------------   ------------------------   -----------------------   ------------------

                                                                             (Dollars in thousands)

One-to-Four Family Mortgage Loans                   $214               87.29%                  0.12%                   0.10%
Commercial Real Estate Loans                         559                4.52%                  5.93%                   0.27%
Consumer & Other Loans                               105                8.19%                  0.62%                   0.05%
                                         ----------------   ------------------                          ---------------------
                                                    $878              100.00%                                          0.42%


                                                                                At June 30, 1994
                                           ----------------------------------------------------------------------------------------
                                                                 % of Loans in                                      Allowance as a
                                             Amount of         Each Category to            Allowance as a             % of Loans
                   Type of Loan              Allowance         Loans Receivable            % of Loan Type             Receivable
-----------------------------------------  --------------   ------------------------   -----------------------   ------------------

                                                                             (Dollars in thousands)

One-to-Four Family Mortgage Loans                 $228              86.25%                     0.15%                   0.13%
Commercial Real Estate Loans                       566               4.91%                     6.34%                   0.31%
Consumer & Other Loans                              23               8.84%                     0.14%                   0.01%
                                           ------------   -----------------                             ---------------------
                                                  $817             100.00%                                             0.45%

</TABLE>

        First Federal regularly  reviews the status of non-performing  assets to
evaluate the adequacy of the  allowances  for loan and real estate owned losses.
The  allowance  for loan losses is  maintained  through the  provision  for loan
losses, which is charged to earnings.

        In addition to the general  loan loss  allowance of $1.0 million at June
30, 1998,  specific  valuation  allowances  have been  established for loans and
contracts.  An asset would  warrant such an  allowance  because the loan balance
exceeds the appraised value or because of other reasons to anticipate a loss. At
June 30, 1998,  specific  valuation  allowance  balances  were $465,000 of which
approximately  99% was for one real  estate  contract  acquired in a merger with
United Savings  Association of Central Indiana,  F.A., in 1989. The loan balance
at June  30,  1998 was $1.3  million.  This  specific  valuation  allowance  was
established  at the  time  the loan was  acquired;  the loan is  current  in its
payments and as the loan continues to pay down the specific valuation  allowance
is  released.  The  remainder of the specific  valuation  allowances  is for one
single family residential  mortgage loan in which the Bank anticipates a loss to
be realized in the future.

        Additional  information  regarding the Bank's  allowance for loan losses
and provision for loan losses is contained in the  Management's  Discussion  and
Analysis section of the 1998 Annual Report to Shareholders.


<PAGE>

Investment Activities

        The Bank is required  under  federal  regulations  to maintain a minimum
amount of liquid assets which may be invested in specified short-term securities
and the Bank is also  permitted to make certain  other  securities  investments.
Investment  decisions  are made by authorized  officers of First Federal  within
policies established by First Federal's Board of Directors.

        At June  30,  1998,  First  Federal's  investment  securities  portfolio
aggregated $19.6 million, consisting exclusively of U.S. agency obligations. See
Note 3 of the Notes to the Consolidated  Financial  Statements for a description
of investment  securities  owned at June 30, 1998. At June 30, 1998,  the Bank's
investment  securities  available for sale portfolio  aggregated  $15.5 million,
consisting of U.S. Treasury and agency  obligations.  See Note 2 of the Notes to
the Consolidated Financial Statements for a description of investment securities
available for sale owned at June 30, 1998.

        The  current  investment  policy  of the Bank  includes  the use of both
long-term and short-term U.S. government obligations to protect against interest
rate fluctuations.  The short-term  portfolio is managed by the Bank to maximize
the earnings on investable  funds while also  maintaining  an adequate  level of
liquidity.


     The following  tables set forth the values of the investment  securities as
of the dates  indicated.  Maturities  of each  category of  securities  are also
indicated.

Investment Securities Portfolio

<TABLE>
<CAPTION>

                                                                           At June 30,                     At June 30,   At June 30,
                                                                1998                                           1997          1996
                                                            -------------------------------------------   ------------  ------------
                                                              Amortized     Market       Wtd. Ave.          Amortized     Amortized
Investment Type (1)                             Maturity        Cost         Value          Yield              Cost          Cost
---------------------------------      ----------------------------------------------------------------   ------------  ------------
                                                                               (Dollars in thousands)
<S>                                                            <C>           <C>              <C>               <C>          <C>
U.S. Treasury and
  agency obligations                   less than 1 year          8,450         8,436          5.27%
  including mortgage-                  1 - 5 years               8,815         8,783          5.85%
  backed securities                    5 - 10 years              1,000         1,000          6.54%
                                       more than 10 years        1,288         1,295          7.11%
                                                            -------------------------
                                                               $19,553       $19,514          5.72%             $44,065      $43,624

Federal Home Loan Bank
  stock                                N/A                       5,769         5,769          8.00%               4,941        4,864
                                                            -------------------------                     --------------   ---------
     Total Investment Securities                               $25,322       $25,283          6.24%             $49,006      $48,488
                                                            =========================                     ==============   =========

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

(1) There are no tax-exempt securities included in the above
totals.


<PAGE>

Available for Sale Portfolio
                                                                           At June 30,                     At June 30,   At June 30,
                                                                1998                                           1997          1996
                                                            -------------------------------------------   ------------  ------------
                                                              Amortized     Market       Wtd. Ave.          Amortized     Amortized
Investment Type (1)                             Maturity        Cost         Value          Yield              Cost          Cost
---------------------------------      ----------------------------------------------------------------   ------------  ------------
                                                                               (Dollars in thousands)
U.S. Treasury and
  agency obligations                   less than 1 year
                                                                     -             -              -
  including mortgage-                  1 - 5 years                                            6.17%
                                                                 1,998         1,994
  backed securities                    5 - 10 years                                           8.01%
                                                                   601           600
                                       more than 10 years                                     6.23%
                                                                12,965        12,910
                                                            -------------------------
                                                               $15,564       $15,504          6.29%             $11,769    $10,907

                                                            -------------------------                     --------------   -------
     Total Available for Sale                                  $15,564       $15,504          6.29%             $11,769    $10,907
Securities
                                                            =========================                     ==============   =======

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

(1) There are no tax-exempt securities included in the above
totals.
</TABLE>



<PAGE>

The following table sets forth certain information regarding changes in interest
income and  interest  expense of the Bank for the  periods  indicated.  For each
category   of   interest-earning   assets  and   interest-bearing   liabilities,
information is provided on changes  attributable to (i) changes in rates (change
in rate  multiplied  by old volume),  (ii)  changes in volume  (change in volume
multiplied by old rate), and (iii) changes in rate/volume.

<TABLE>
<CAPTION>

                                                Year Ended June 30,                    Year Ended June 30,
                                     ---------------------------------    ------------------------------------------------
                                                   1997 vs. 1998                           1996 vs. 1997
                                                  (in thousands)                          (in thousands)
                                                         Rate/                                                   Rate/
                                        Rate    Volume  Volume   Total     Rate       Volume      Volume         Total
                                     -------  -------  ------   ------    --------  ------------  ----------  ------------

Interest earning assets:
<S>                                     <C>     <C>     <C>     <C>         <C>       <C>             <C>          <C>
  Loan portfolio (1)(2)(3)              $71     $519    ($2)    $588        $211      ($1,086)        ($5)         ($880)
  Investment securities,
    trading account investments
    and other short-term 
    deposits (4)                         45     (867)    (7)    (829)       (132)         (169)           0          (301)
                                     -------  -------  ------  ------    --------  ------------   ---------  ------------
               Total                    116     (348)    (9)    (241)        $79      ($1,255)        ($5)       ($1,181)
                                     -------  -------  ------  ------    --------  ------------   ---------  ------------

Interest-bearing liabilities:
  Savings accounts                      140     (504)    (6)    (370)       ($65)      ($1,326)        ($4)       ($1,395)
                                        
  Short-term borrowings                   1      (50)    (1)     (50)         31         (132)                      (101)
                                                                               -
  Advances from FHLB and other
    borrowings                           40       97     (5)     132        (302)           565           5           268
                                     -------  -------  ------  ------    --------  ------------   ---------  ------------
               Total                    181     (457)   (12)    (288)      ($336)        ($893)          $1       ($1,228)
                                     -------  -------  ------  ------    --------  ------------   ---------  ------------

Net change in interest
  income (expense)                    ($65)     $109      $3     $47        $415        ($361)         ($6)         $47
                                     =======  =======  ======  ======    ========  ============   =========  ============
</TABLE>
-------------------------------------
(1)  The  effect  of  nonaccrual  loans on net  interest-earning  assets  is not
     material.
(2)  Out-of-period items and adjustments excluded are not material.
(3)  Loan fees included in interest income are not material.
(4)  All taxable (no tax-exempt investments held).



<PAGE>

Yields Earned and Rates Paid; Certain Ratios

        The following  table sets forth for First  Federal the weighted  average
yields earned on its interest-earning  assets,  average cost of interest-bearing
liabilities  and the spread  between yields earned and rates paid as of June 30,
1998 and for each of the years ended June 30, 1998, 1997, and 1996.

<TABLE>
<CAPTION>
                                                           As of June 30,                  Year Ended June 30,
                                                         --------------------     --------------------------------------
                                                                1998                 1998         1997         1996
                                                         --------------------     --------------------------------------

<S>                                                             <C>                  <C>         <C>          <C>
Weighted average yield
on loan portfolio                                               8.46%                8.51%       8.47%        8.36%

Weighted average yield
on investment securities, trading
         account investments, and
         other short-term deposits                              6.06%                6.14%       6.08%        6.25%

Weighted average yield
on all interest-earning assets                                  7.91%                7.93%       7.77%        7.75%

Weighted average rate
paid on deposit accounts                                        5.56%                5.60%       5.50%        5.54%


Weighted average rate
paid on FHLB advances and other
         borrowings                                             5.44%                5.64%       5.60%        5.89%

Weighted average rate
on all interest-bearing liabilities                             5.50%                5.62%       5.54%        5.67%

Net interest margin                                             2.77%                2.63%       2.52%        2.36%

</TABLE>


Sources of Funds

        General

        Savings accounts and other types of deposits have traditionally been the
principal  source of the Bank's  funds for use in lending and for other  general
business  purposes.  In addition to deposits,  the Bank derives  funds from loan
repayments,  loan  sales,  FHLB  advances,  and reverse  repurchase  agreements.
Borrowings may be used on a short-term basis to compensate for seasonal or other
reductions in deposits or inflows at less than projected levels, as well as on a
longer-term basis to support expanded lending activities.



<PAGE>

        Deposits

        The Bank has a wide variety of deposit programs designed to attract both
short-term  and  long-term  deposits  from the  general  public.  These  deposit
accounts  include  passbook  accounts,  NOW accounts,  and money market accounts
(Super  NOW  accounts),  as well as  fixed-rate  certificates  and money  market
accounts.

        The  following  table  sets  forth  information  regarding  the types of
deposit accounts offered by First Federal at June 30, 1998 in its primary market
area:

<TABLE>
<CAPTION>
                                        Interest Rates
    Type of Deposit Accounts           at June 30, 1998            Compounding                Minimum
------------------------------------------------------------------------------------------------------------------------

<S>                                      <C>                          <C>             <C>
NOW                                      2.90 - 3.10%                 Simple          Varies by type
                                                                                      of account
MMDA                                     2.70 - 5.05%                 Simple          Varies by type
                                                                                      of account
Passbook/Statement Savings               2.70 - 4.00%                 Simple          Varies by type
                                                                                      of account
Certificates of Deposit:
     91 days                                 3.90%                    Simple                    1,000
     182 days                                4.40%                    Simple                      500
     7-11 months                             5.10%                    Simple                    1,000
     1 year                                  5.00%                    Simple                      500
     1 1/2 years                             5.25%                    Simple                      500
     1 1/2 year stepped-rate                 5.57%                    Simple                    1,000
     2  years                                5.40%                    Simple                      500
     2 1/2 years                             5.50%                    Simple                      500
     3 year stepped-rate                     5.74%                    Simple                    1,000
     3 1/2 years                             5.55%                    Simple                      500
     5 years                                 5.65%                    Simple                      500
     10 years                                5.65%                    Simple                      500
IRA Certificates:
     1 years                                 5.25%                    Simple                      100
     2 years                                 5.40%                    Simple                      100
     2 years - variable rate        2.50% below prime rate            Simple                      100
     3 years                                 5.65%                    Simple                      100
     4 years                                 5.75%                    Simple                      100
     5 years                                 6.00%                    Simple                      100
Negotiable Certificates:
Jumbo Certificates of Deposit             5.85%-6.45%                 Simple                   99,000

</TABLE>


        The large variety of savings  accounts offered by the Bank has increased
the  Bank's  ability to retain  retail  deposits  and has  allowed it to be more
competitive  in obtaining new funds;  but, it has not  eliminated  the threat of
disintermediation  (the flow of funds away from savings institutions into direct
investment  vehicles,  such as government  and corporate  securities  and mutual
funds).  As customers  have become more rate conscious and willing to move funds
into higher yielding  accounts,  the ability of the Bank to attract and maintain
deposits  and the  Bank's  cost of funds  have been,  and will  continue  to be,
significantly affected by money market conditions.


<PAGE>

     The following  table shows the  distribution  and weighted  average rate of
First Federal's deposits by type of deposits as of the dates indicated.

<TABLE>
<CAPTION>

                                                                                                June 30,
                                         ----------------------------------------------------------------------------------
                                                          1998                                    1997
                                         --------------------------------------    ------------------------------------
                                                          % of      Wtd. Avg.                     % of      Wtd. Avg.
                                            Balance     Deposits      Rate           Balance    Deposits      Rate
                                         --------------------------------------    ------------------------------------
                                                  (Dollars in thousands)                 (Dollars in thousands)
<S>                                            <C>           <C>          <C>          <C>           <C>          <C>
Type of account:
Statement Savings/NOW/Super NOW
   Variable Rate Savings Accounts(1)           $19,578       16.6%        3.7%         $20,193       14.0%        3.8%
MMDAs                                            3,447        2.9%        4.3%           3,015        2.1%        4.1%
Certificates of Deposit(2)                      94,738       80.5%        6.0%         121,108       83.9%        5.8%
                                         --------------------------                ------------------------

                 Total                        $117,763      100.0%        5.6%        $144,316      100.0%        5.5%
                                         ==========================                ========================
</TABLE>

                                                       June 30,
                                         ------------------------------------
                                                        1996
                                         ------------------------------------
                                                        % of      Wtd. Avg.
                                           Balance    Deposits      Rate
                                         ------------------------------------
                                               (Dollars in thousands)
Type of account:
Statement Savings/NOW/Super NOW
   Variable Rate Savings Accounts(1)         $17,170       12.5%        3.2%
MMDAs                                          3,089        2.3%        3.9%
Certificates of Deposit(2)                   116,889       85.2%        5.8%
                                         ------------------------

                 Total                      $137,148      100.0%        5.5%
                                         ========================
------------

(1)  Includes noninterest-bearing accounts.

(2)  Includes negotiated rate certificates of deposit and IRAs.



<PAGE>

   The  following  table shows the average  amount of, and average rate paid on,
First Federal's deposits by type of deposit for the periods indicated.

<TABLE>
<CAPTION>
                                                                                        Years Ended June 30,
                                         ---------------------------------------------------------------------------------
                                                          1998                                    1997
                                         --------------------------------------    ------------------------------------
                                            Average       % of      Wtd. Avg.        Average      % of      Wtd. Avg.
                                            Balance       Total       Rate           Balance      Total       Rate
                                         --------------------------------------    ------------------------------------
                                                (Dollars in thousands)                   (Dollars in thousands)
<S>                                            <C>          <C>          <C>           <C>          <C>          <C>
Type of account:
Statement Savings/NOW/Super NOW
   Variable Rate Savings Accounts(1)            20,777       15.8%        3.8%          17,627       12.5%        3.7%
MMDAs                                            3,245        2.5%        4.2%           3,172        2.3%        4.0%
Certificates of Deposit(2)                     106,480       81.0%        6.0%         118,875       84.5%        5.8%
Accrued Interest                                   935        0.7%         -             1,039        0.7%         -
                                         --------------------------                ------------------------

                 Total                        $131,437      100.0%        5.6%        $140,713      100.0%        5.5%
                                         ==========================                ========================
</TABLE>

                                                       June 30,
                                         -------------------------------------
                                                         1996
                                          ------------------------------------
                                            Average      % of      Wtd. Avg.
                                            Balance      Total       Rate
                                          ------------------------------------
                                                (Dollars in thousands)
Type of account:
Statement Savings/NOW/Super NOW
   Variable Rate Savings Accounts(1)           26,636       16.2%        2.9%
MMDAs                                           4,098        2.5%        3.1%
Certificates of Deposit(2)                    133,059       80.9%        6.2%
Accrued Interest                                  769        0.5%         -
                                          ------------------------

                 Total                       $164,562      100.0%        5.5%
                                          ========================
-----------
(1)  Includes noninterest-bearing accounts.
(2)  Includes negotiated rate certificates of deposit and IRAs.





<PAGE>

        The  following  table  sets  forth  information  relating  to the Bank's
deposit flows during the years indicated.


<TABLE>
<CAPTION>
                                                Year Ended June 30,
                                    -------------------------------------------
                                       1998             1997            1996
                                    -------------------------------------------
                                                       (in thousands)
<S>                                  <C>                <C>          <C>      
Increase (decrease) in deposits
         before interest credited    ($31,445)          $2,734       ($77,909)



Interest credited                       4,892           4,434           5,252
                                    ----------    ------------     -----------

Net increase (decrease)
         in deposits                ($26,553)          $7,168       ($72,657)
                                    ----------    ------------     -----------

Total deposits at end
         of period                   $117,763        $144,316        $137,148
                                    ==========    ============     ===========
</TABLE>


        The principal  methods used by First Federal to attract deposits include
the offering of a wide variety of services and  accounts,  competitive  interest
rates, and convenient office locations and service hours. In an effort to better
serve its primary market area and expand and retain its retail deposit base, the
Bank opened a new branch office during  fiscal 1997 in Vincennes,  Indiana.  The
primary  focus of the new branch  office is to better  serve the  Bank's  retail
deposit  customers.  The Bank uses traditional  marketing methods to attract new
customers and deposits,  including mass media  advertising and direct  mailings.
The  development  of new deposit  accounts and services  within the past several
years has enhanced the Bank's ability to attract deposits.

        During the  fiscal  year ended June 30,  1998,  the Bank  decreased  its
brokered  deposits to $26.2  million from $45.1  million at June 30,  1997.  The
lower level of brokered  deposits was partially  offset by an increased level of
Federal Home Loan Bank ("FHLB") advances. Advances have been a lower cost source
of funds than brokered  deposits  during the fiscal year.  The brokered  deposit
program  continues to serve as an alternative  source of funds to compliment the
borrowing  programs  and retail  savings  programs  offered in the Bank's  local
market.  The brokered funds enable the Bank to manage maturities of its deposits
in its effort to manage interest rate risk.

        The following table presents,  by various interest rate categories,  the
contractual maturity of certificates of deposits as of June 30, 1998.

<TABLE>
<CAPTION>


                                          Maturing in the 12 months ending June 30:
                                      Balances at
                                    June 30, 1998           1999              2000           2001         Thereafter
                                   ----------------------------------------------------------------------------------
                                                                  (in thousands)
Certificates of deposit:
<S>                                       <C>            <C>               <C>            <C>                <C>    
Less than 4.00%                           $   247        $   247           $     -        $     -            $     -
4.00% to 4.99%                              2,088          2,088                 -              -                  -
5.00% to 5.99%                             51,675         38,960             7,872          3,324              1,519
6.00% to 6.99%                             31,748         14,859             8,324          3,031              5,534
7.00% to 7.99%                              8,152          3,893             2,556            481              1,222
8.00% or more                                 828            659                25              2                142
                                   ----------------------------------------------------------------------------------
Total certificates of deposit             $94,738        $60,706           $18,777         $6,838             $8,417
                                   ==================================================================================
</TABLE>




         As of June 30, 1998,  First  Federal had $7.1 million of time  deposits
with balances over $100,000. Maturity of these deposits is as follows:

                                                    (in thousands)

3 months or less                                        $1,595
Over 3 months through 6 months                           1,508
Over 6 months through 12 months                          1,325
Over 12 months                                           2,622
                                                        ------

Total                                                   $7,050
                                                        ======

        Borrowings

        First  Federal   obtains   advances   from  the  FHLB  of   Indianapolis
collateralized  by the security of mortgage loans and  investment  securities it
owns. Such advances are made pursuant to several different credit programs, each
of which has its own interest  rate and range of  maturities.  Advances from the
FHLB are generally available to member institutions to meet seasonal withdrawals
and other  withdrawals of savings accounts and to expand lending,  as well as to
aid the  efforts of member  institutions  to  establish  better  asset/liability
management strategies.  The Bank had $115.4 million in outstanding advances from
the FHLB at June 30, 1998.

        1ST BANCORP had a $1.5 million loan outstanding from Ambank,  Vincennes,
Indiana at June 30, 1997. 1ST BANCORP originally  borrowed $1.5 million in June,
1991, of which, $1.0 million was used as a capital infusion to First Federal. An
additional $1.0 million was borrowed in December, 1994, all of which was used as
a capital  infusion to First Federal.  This borrowing was prepaid in full during
the 1998 fiscal year.

        First  Federal  also  obtains   short-term   financing  through  reverse
repurchase  agreements.   These  obligations  provide  another  source  to  meet
short-term demands for additional funds.  However,  at June 30, 1998, there were
no reverse repurchase agreements outstanding.

The following table sets forth certain  information  regarding advances from the
FHLB and other  borrowings,  excluding  reverse  repurchase  agreements,  by the
Corporation at the end of and during the years indicated.

<TABLE>
<CAPTION>
                                                                  At June 30,
                                                ------------------------------------------------
                                                     1998            1997            1996
                                                ------------------------------------------------

<S>                                                 <C>             <C>             <C>
Weighted average rate on
      advances from the Federal
      Home Loan Bank and other
      borrowings                                    5.44%           5.62%           5.56%


                                                              Year Ended June 30,
                                                ------------------------------------------------
                                                     1998            1997            1996
                                                ------------------------------------------------
                                                            (Dollars in thousands)
Maximum amount of advances
      from the Federal Home
      Loan Bank and other
      borrowings outstanding
      at any month end                                 $115,381        $100,346         $99,054

Approximate average advances
      from the Federal Home
      Loan Bank and other
      borrowings outstanding                           $100,955         $99,218         $89,103

Approximate weighted average
      rate paid on advances
      from the Federal Home
      Loan Bank and other
      borrowings                                          5.64%           5.60%           5.94%

</TABLE>


        The weighted average rates in the previous table were computed using the
average balance based upon quarter end balances and total interest expense.

Effects of Inflation

        The primary assets and liabilities of savings institutions such as First
Federal  are  monetary  in  nature.  As a  result,  interest  rates  have a more
significant  impact on First Federal's  performance  than the effects of general
levels of inflation.  Interest rates,  however,  do not necessarily  move in the
same  direction or with the same  magnitude as the price of goods and  services,
since such  prices are  affected  by  inflation.  In a period of rapidly  rising
interest rates, the liquidity and maturity  structures of First Federal's assets
and  liabilities  are  critical to the  maintenance  of  acceptable  performance
levels.

        The principal  effect of inflation,  as distinct from levels of interest
rates, on First Federal's earnings is in the area of other expense. Such expense
items as employee  compensation,  employee benefits, and occupancy and equipment
costs may be subject to increases as a result of inflation. An additional effect
of  inflation is the  possible  increase in the dollar  value of the  collateral
securing loans made by First  Federal.  First Federal is unable to determine the
extent,  if any, to which the properties  securing its loans have appreciated in
dollar value due to inflation.

Regulation

        General

        First Federal,  as a federally chartered stock savings bank, is a member
of the Federal  Home Loan Bank System (the "FHLB  System")  and its deposits are
insured  by  the  Savings   Association   Insurance  Fund  ("SAIF"),   which  is
administered  by the FDIC.  First Federal is subject to extensive  regulation by
the OTS.  Federal  associations may not enter into certain  transactions  unless
certain regulatory tests are met or they obtain prior governmental  approval and
the associations must file reports with these governmental  agencies about their
activities and their financial  condition.  Periodic compliance  examinations of
the Bank are  conducted  by the OTS which has, in  conjunction  with the FDIC in
certain  situations,  enforcement  powers.  This  supervision  and regulation is
intended  primarily  for  the  protection  of  depositors  and  federal  deposit
insurance funds.  First Federal is also subject to certain reserve  requirements
under the Board of Governors of the Federal  Reserve  System  ("FRB" or "Federal
Reserve Board") regulations.

        Congress  is  considering  legislation  that would  require  all federal
savings  associations,  such as First  Federal,  either to convert to a national
bank  or a  state-chartered  bank  by a  specified  date  to be  determined.  In
addition,  under the  legislation,  the  Corporation  likely  would no longer be
regulated  as a savings and loan holding  company,  but rather as a bank holding
company.  This  proposed  legislation  would  abolish the OTS and  transfer  its
functions  among the other federal  banking  regulators.  It cannot be predicted
with certainty  whether or in what form the legislation will be enacted and what
impact it might have on the powers of the Corporation and First Federal.

        An OTS regulation establishes a schedule for the assessment of fees upon
all savings  associations to fund the operations of the OTS. The regulation also
establishes a schedule of fees for the various types of applications and filings
made by savings associations with the OTS. The general assessment, to be paid on
a  semi-annual  basis,  is based upon the savings  association's  total  assets,
including  consolidated  subsidiaries,  as reported in a recent quarterly thrift
financial report.  Currently,  the quarterly assessment rates range from .01164%
of assets for  associations  with $67  million in assets or less to .00308%  for
associations  with  assets in excess of $35  billion.  First  Federal's  current
semi-annual  assessment,  based upon its March 31,  1998 total  assets of $259.5
million,  was $35,425.  The OTS has recently proposed a change to its assessment
regulations  which would require  assessments to be determined  generally on the
basis of an institution's size, condition, and complexity of operations.

        The Bank is also  subject to  federal  and state  regulation  as to such
matters as loans to officers,  directors,  or principal  shareholders,  required
reserves,  limitations as to the nature and amount of its loans and investments,
regulatory  approval of any merger or consolidation,  issuance or retirements of
its own securities, and limitations upon other aspects of banking operations. In
addition,  the  activities and operations of the Bank are subject to a number of
additional  detailed,  complex and sometimes  overlapping federal and state laws
and regulations.  These include state usury and consumer credit laws, state laws
relating to fiduciaries,  the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act,  anti-redlining  legislation and anti-trust
laws.

        Federal Home Loan Bank System

        First  Federal  is a member of the FHLB  System,  which  consists  of 12
regional  banks.  The Federal  Housing  Finance Board  ("FHFB"),  an independent
agency, controls the FHLB System,  including the FHLB of Indianapolis.  The FHLB
System  provides  a  central  credit  facility   primarily  for  member  savings
associations  and savings banks and other member financial  institutions.  First
Federal is required to hold shares of capital stock in the FHLB of  Indianapolis
in an amount at least  equal to the  greater  of 1% of the  aggregate  principal
amount of its unpaid  residential  mortgage loans,  home purchase  contracts and
similar  obligations at the end of each calendar year, .3% of its assets or 1/20
(or such  greater  fraction  established  by the  FHLBank) of  outstanding  FHLB
advances,  commitments,  lines of credit and letters of credit. First Federal is
currently in compliance with this requirement. At June 30, 1998, First Federal's
investment in FHLB of Indianapolis stock was $5,769,000.

        In past years,  First Federal  received  dividends on its FHLBank stock.
Certain  provisions  of  The  Financial   Institution  Reform,   Recovery,   and
Enforcement  Act of 1989,  as amended  ("FIRREA"),  require  all 12  FHLBanks to
provide  funds  for the  resolution  of  troubled  savings  associations  and to
establish affordable housing programs through direct loans or interest subsidies
on advances to members to be used for lending at subsidized  interest  rates for
low-and-moderate-income,  owner-occupied  housing  projects,  affordable  rental
housing, and certain other community projects. For the year ended June 30, 1998,
dividends paid to First Federal totaled $414,000,  for an annual rate of 8.0%. A
reduction  in value of such stock may  result in a  corresponding  reduction  in
First Federal's capital.

        The FHLB of Indianapolis  serves as a reserve or central bank for member
institutions  within its assigned  region.  It is funded primarily from proceeds
derived from the sale of consolidated  obligations of the FHLB system.  It makes
advances to members in accordance  with policies and  procedures  established by
the FHLB and the Board of Directors of the FHLB of Indianapolis.

        All FHLB  advances  must be fully  secured by  sufficient  collateral as
determined by the FHLB. FIRREA prescribes  eligible collateral as first mortgage
loans less than 90 days delinquent or securities  evidencing  interests therein,
securities (including mortgage-backed  securities) issued, insured or guaranteed
by the federal government or any agency thereof, FHLB deposits and, to a limited
extent,  real  estate  with  readily  ascertainable  value in which a  perfected
security interest may be obtained.  Other forms of collateral may be accepted as
overcollateralization  or, under certain  circumstances,  to renew advances. All
long-term  advances are required to provide funds for residential home financing
and the FHLB has  established  standards of community  service that members must
meet to maintain  access to  long-term  advances.  Currently  First  Federal has
$130.8  million of mortgage  loans and $29.1  million of  investment  securities
pledged as collateral for FHLB advances.

        Interest rates charged for advances vary  depending  upon maturity,  the
cost of funds to the FHLB of  Indianapolis  and the  purpose  of the  borrowing.
Under  current law,  savings  associations  which cease to be  Qualified  Thrift
Lenders are ineligible to receive advances from their FHLB.

        Liquidity

        For each  calendar  month,  First  Federal is  required  to  maintain an
average daily balance of liquid assets (cash,  certain time  deposits,  bankers'
acceptances,  specified  United  States  Government,  state  or  federal  agency
obligations,   shares  of  certain  mutual  funds  and  certain  corporate  debt
securities  and  commercial  paper) equal to an amount not less than a specified
percentage of its net withdrawable  deposit accounts plus short-term  borrowings
during the preceding  calendar month. This liquidity  requirement may be changed
from  time to  time  by the OTS to any  amount  within  the  range  of 4% to 10%
depending upon economic conditions and the savings flows of member institutions,
and is currently 4%. Monetary penalties may be imposed for failure to meet these
liquidity requirements. The monthly average liquidity of First Federal for June,
1998 was 8.1%.  First  Federal has never been subject to monetary  penalties for
failure to meet its liquidity requirements.

        Real Estate Lending Standards

        OTS regulations  require savings  associations to establish and maintain
written  internal  real estate  lending  policies.  Each  association's  lending
policies  must  be  consistent  with  safe  and  sound  banking   practices  and
appropriate  to the size of the  association  and the  nature  and  scope of its
operations.   The  policies  must  establish   loan  portfolio   diversification
standards;  establish prudent underwriting  standards,  including  loan-to-value
limits, that are clear and measurable;  establish loan administration procedures
for the  association's  real  estate  portfolio;  and  establish  documentation,
approval,   and  reporting   requirements   to  monitor   compliance   with  the
association's real estate lending policies.

        The Bank's  written real estate  lending  policies  must be reviewed and
approved by the  association's  board of directors at least  annually.  Further,
each Bank is expected to monitor  conditions in its real estate market to ensure
that  its  lending  policies  continue  to be  appropriate  for  current  market
conditions.

        Safety and Soundness Standards

        On February 2, 1995, the federal banking  agencies  adopted final safety
and soundness standards for all insured depository institutions.  The standards,
which were issued in the form of guidelines rather than  regulations,  relate to
internal   controls,   information   systems,   internal  audit  systems,   loan
underwriting  and  documentation,  compensation  and interest rate exposure.  In
general,  the standards are designed to assist the federal  banking  agencies in
identifying and addressing  problems at insured depository  institutions  before
capital becomes impaired.  If an institution fails to meet these standards,  the
appropriate  federal  banking  agency may  require the  institution  to submit a
compliance  plan.  Failure to submit a compliance plan may result in enforcement
proceedings.  On August 27,  1996,  the  federal  banking  agencies  added asset
quality and earnings standards to the safety and soundness guidelines.

        Insurance of Deposits

        Deposit  Insurance.  The  FDIC is an  independent  federal  agency  that
insures the deposits,  up to prescribed  statutory  limits, of banks and thrifts
and  safeguards  the safety and soundness of the banking and thrift  industries.
The FDIC  administers two separate  insurance fund, the BIF for commercial banks
and state savings banks,  and the SAIF for savings  associations  and banks that
have  acquired  deposits  from  savings  associations.  The FDIC is  required to
maintain  designated  levels of reserves in each fund. As of September 30, 1996,
the reserves of the SAIF were below the level required by law, primarily because
of a significant portion of the assessments paid into the SAIF have been used to
pay the cost of prior  thrift  failures,  while the  reserves of the BIF met the
levels required by law in May, 1995. However, on September 30, 1996,  provisions
designed to recapitalize  the SAIF and eliminate the premium  disparity  between
the BIF and the SAIF were signed into law. See "--Assessments" below.

        Assessments.  The  FDIC  is  authorized  to  establish  separate  annual
assessment rates for deposit insurance for members of the BIF and members of the
SAIF.  The FDIC may  increase  assessment  rates for either fund if necessary to
restore the fund's  ratio of reserves  to insured  deposits to the target  level
within a reasonable  time and may  decrease  these rates if the target level has
been met. The FDIC has established a risk-based  assessment system for both SAIF
and BIF members.  Under this system,  assessments vary depending on the risk the
institution poses to its deposit insurance fund. An institution's  risk level is
determined  based on its  capital  level  and the  FDIC's  level of  supervisory
concern about the institution.

        On September 30, 1996,  President  Clinton  signed into law  legislation
which included  provisions  designed to recapitalize  the SAIF and eliminate the
significant premium disparity between the BIF and SAIF. Under the new law, First
Federal was charged a one-time  special  assessment  equal to $0.657 per $100 in
assessable  deposits at March 31, 1995.  First Federal  recognized this one-time
assessment as a non-recurring  operating expense of $1,330,000 before tax during
the  three-month  period ending  September 30, 1996,  and First Federal paid the
assessment on November 27, 1996. The  assessment  was fully  deductible for both
federal  and state  income  tax  purposes.  Beginning  January  1,  1997,  First
Federal's  annual deposit  insurance  premium was reduced from .23% to .0644% of
total  assessable   deposits.   BIF  institutions  pay  lower  assessments  than
comparable SAIF  institutions  because BIF institutions pay only 20% of the rate
paid by SAIF  institutions on their deposits with respect to obligations  issued
by the  federally-chartered  corporation which provided some of the financing to
resolve the thrift crisis in the 1980's ("FICO"). The 1996 law also provides for
the merger of the SAIF and the BIF by 1999,  but not until such time as bank and
thrift  charters  are  combined.  Until  the  charters  are  combined,   savings
associations  with SAIF  deposits may not transfer  deposits into the BIF system
without  paying  various  exit and entrance  fees,  and SAIF  institutions  will
continue to pay higher FICO assessments. Such exit and entrance fees need not be
paid if a SAIF institution  converts to a bank charter or merges with a bank, as
long as the resulting bank continues to pay applicable insurance  assessments to
the SAIF, and as long as certain other conditions are met.

        Regulatory Capital

        Currently,  savings  associations  are subject to three separate minimum
capital-to-assets  requirements:  (i) a leverage limit,  (ii) a tangible capital
requirement,  and (iii) a risk-based  capital  requirement.  The leverage  limit
requires that savings  associations  maintain  "core  capital" of at least 3% of
total assets. Core capital is generally defined as common  stockholders'  equity
(including retained income), noncumulative perpetual preferred stock and related
surplus,   certain  minority  equity   interests  in  subsidiaries,   qualifying
supervisory goodwill,  purchased mortgage servicing rights, and purchased credit
card   relationships   (subject  to  certain   limitations)  less  nonqualifying
intangibles.  Under the tangible capital requirement, a savings association must
maintain  tangible  capital  (core  capital less all  intangible  assets  except
purchased  mortgage  servicing  rights  which may be included  after  making the
above-noted adjustments in an amount up to 100% of tangible capital) of at least
1.5% of total  assets.  Under the  risk-based  capital  requirements,  a minimum
amount of capital must be maintained by a savings association to account for the
relative  risks  inherent  in the type and  amount of assets  held by the saving
association.  The risk-based capital requirement  requires a savings association
to maintain capital  (defined  generally for these purposes as core capital plus
general valuation  allowances and permanent or maturing capital instruments such
as preferred  stock and  subordinated  debt less assets required to be deducted)
equal to 8.0% of  risk-weighted  assets.  Assets are ranked as to risk in one of
four categories (0-100%) with a credit risk-free asset such as cash requiring no
risk-based  capital  and an  asset  with a  significant  credit  risk  such as a
delinquent  commercial  loan being  assigned a factor of 100%. At June 30, 1998,
based on the capital  standards then in effect,  First Federal was in compliance
with the fully phased-in capital requirements.

        The OTS has  delayed  implementation  of a rule  which  sets  forth  the
methodology  for  calculating an interest rate risk component to be incorporated
into the OTS regulatory capital rule. Under the rule, only savings  associations
with "above normal"  interest rate risk  (institutions  whose  portfolio  equity
would decline in value by more than 2% of assets in the event of a  hypothetical
200 basis point move in interest rates) will be required to maintain  additional
capital for interest rate risk under the risk-based capital framework. A savings
association  with an "above  normal"  level of  exposure  will have to  maintain
additional  capital  equal to  one-half  the  difference  between  its  measured
interest rate risk (the most adverse change in the market value of its portfolio
resulting from a 200 basis point move in interest rates divided by the estimated
market  value of its  assets)  and 2%,  multiplied  by the  market  value of its
assets. That dollar amount of capital is in addition to a savings  association's
existing risk-based capital  requirement.  Although the OTS has decided to delay
implementation  of this rule, it will  continue to monitor  closely the level of
interest  rate  risk at  individual  savings  associations  and it  retains  the
authority,  on a case-by-case  basis, to impose additional capital  requirements
for individual savings associations with significant interest rate risk. The OTS
recently updated its standards regarding the management of interest rate risk to
include summary  guidelines to assist savings  associations in determining their
exposure to interest rate risk.

        In periods of rapidly changing  interest rates, the Bank's balance sheet
is subject to  significant  fluctuations  in market  value  (interest  rate risk
exposure).  However, as the delayed interest rate risk rules proposed by the OTS
currently  read,  the Bank at June 30, 1998,  would have no  additional  capital
requirement.  The Bank's management  remains cognizant of the proposed rules and
continues to monitor its interest rate risk position.

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


                                Tangible           Core            Risk-based
                                Capital          Capital            Capital
                               ----------   -------------------    ----------
                                          (Dollars in thousands)

Regulatory Capital             $22,602          $22,602            $23,602
Minimum capital requirement      3,897            7,793             12,633
                               --------         -------            -------
Excess capital                 $18,705          $14,809            $10,969

Regulatory capital ratio          8.7%             8.7%              15.0%

Minimum capital ratio             1.5%             3.0%               8.0%



        If an  association is not in compliance  with its capital  requirements,
the OTS is required to prohibit  asset growth and to impose a capital  directive
that may restrict,  among other  things,  the payment of dividends and officers'
compensation.  In addition,  the OTS and FDIC  generally are  authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements,  which actions may include  restrictions on operations and banking
activities,  the  imposition of a capital  directive,  a cease and desist order,
civil  monetary  penalties  or harsher  measures  such as the  appointment  of a
receiver or conservator or a forced merger into another institution.

        Prompt Corrective Action

        The  Federal  Deposit  Insurance  Corporation  Improvement  Act of  1991
("FedICIA") requires, among other things, federal bank regulatory authorities to
take "prompt  corrective  action" with respect to institutions  that do not meet
minimum capital  requirements.  For these  purposes,  FedICIA  establishes  five
capital  tiers:  well  capitalized,  adequately  capitalized,  undercapitalized,
significantly  undercapitalized,  and critically  undercapitalized.  At June 30,
1998,  the Bank was  categorized as "well  capitalized"  meaning that the Bank's
total  risk-based  capital  ratio  exceeded  10%,  its Tier I  risk-based  ratio
exceeded 6%, and its leverage ratio exceeded 5%, and the Bank was not subject to
a  regulatory  order,  agreement  or  directive  to meet and maintain a specific
capital level for any capital measure.

        Capital Distribution Regulations

        An OTS regulation imposes  limitations upon all "capital  distributions"
by  savings  associations,  including  cash  dividends,  payments  by a  savings
association  to  repurchase  or  otherwise  acquire  its  shares,   payments  to
shareholders   of  another   institution   in  a  cash-  out  merger  and  other
distributions charged against capital. The regulation establishes a three-tiered
system  of  regulation,   with  the  greatest   flexibility  being  afforded  to
well-capitalized  institutions.  A savings  association  which has total capital
(immediately prior to and after giving effect to the capital  distribution) that
is at least equal to its fully phased-in capital  requirements would be a Tier 1
institution.  A savings association that has total capital at least equal to its
minimum  capital  requirements,  but  less  than  its  fully  phased-in  capital
requirements,  would be a Tier 2 institution. A savings association having total
capital  that is less than its minimum  capital  requirements  would be a Tier 3
institution.  However, a savings association which otherwise qualifies as a Tier
1 institution  may be designated by the OTS as a Tier 2 or Tier 3 institution if
the OTS determines that the savings  association is "in need of more than normal
supervision." First Federal is currently a Tier 1 institution.

        A Tier 1 Institution  could, after prior notice but without the approval
of the OTS, make capital  distributions during a calendar year up to the greater
of (a) 100% of its net income to date  during the  calendar  year plus an amount
that would reduce by one-half its "surplus  capital  ratio" (the excess over its
fully phased-in capital  requirements) at the beginning of the calendar year, or
(b) 75% of its net  income  over  the  most  recent  four  quarter  period.  Any
additional  amount of  capital  distributions  would  require  prior  regulatory
approval.

        The OTS has proposed revisions to these regulations which would permit a
savings associations, without filing a prior notice or application with the OTS,
to make a capital distribution to its shareholders in a maximum amount that does
not exceed the  association's  undistributed  net income for the prior two years
plus the amount of its undistributed income from the current year. This proposed
rule  would  require a savings  association,  such as First  Federal,  that is a
subsidiary  of a savings and loan holding  company to file a notice with the OTS
30  days  before  making  a  capital  distribution  up to the  "maximum  amount"
described above. The proposed rule would also require all savings  associations,
whether  under a holding  company or not,  to file an  application  with the OTS
prior to making any capital  distribution  where the association is not eligible
for "expedited  processing" under the OTS "Expedited Processing  Regulation," or
where the proposed  distribution,  together with any other distributions made in
the same year, would exceed the "maximum amount" described above.

        Federal Reserve System

        Under FRB  regulations,  First Federal is required to maintain  reserves
against its  transaction  accounts  (primarily  checking and NOW accounts),  and
non-personal  money  market  deposit  accounts.  The  effect  of  these  reserve
requirements is to increase First  Federal's cost of funds.  First Federal is in
compliance with its reserve  requirements.  A federal savings association,  like
other depository  institutions  maintaining reservable accounts, may borrow from
the Federal Reserve Bank "discount  window," but the FRB's  regulations  require
the  savings  association  to  exhaust  other  reasonable  alternative  sources,
including  borrowing from its regional FHLB,  before  borrowing from the Federal
Reserve  Bank.   FedICIA   imposes   certain   limitations  on  the  ability  of
undercapitalized depository institutions to borrow from Federal Reserve Banks.

        Holding Company Regulations

        Under current law, the Corporation is a savings and loan holding company
within the meaning of the Home  Owners'  Loan Act, as amended  ("HOLA"),  and is
subject  to  regulatory  oversight  of the  Director  of the OTS.  As such,  the
Corporation  is  registered  with  the OTS and is  subject  to OTS  regulations,
examinations,  supervision  and  reporting  requirements.  As a subsidiary  of a
savings  and  loan  holding  company,   First  Federal  is  subject  to  certain
restrictions  in its  dealings  with the  Corporation  and with other  companies
affiliated with the Corporation.

        The HOLA generally prohibits a savings and loan holding company, without
prior  approval of the Director of the OTS,  from (i)  acquiring  control of any
other savings association or savings and loan holding company or controlling the
assets  thereof or (ii) acquiring or retaining more than 5 percent of the voting
shares  of a savings  association  or  holding  company  thereof  which is not a
subsidiary.  Additionally,  under  certain  circumstances,  a  savings  and loan
holding  company is permitted  to acquire,  with the approval of the Director of
OTS,   up  to  15  percent  of   previously   unissued   voting   shares  of  an
under-capitalized  savings association for cash without that savings association
being deemed  controlled by the holding company.  Except with the prior approval
of the Director of the OTS, no director or officer of a savings and loan holding
company or person owning or  controlling  by proxy or otherwise more than 25% of
such company's stock may also acquire control of any savings association,  other
than a subsidiary association, or any other savings and loan holding company.

        The Corporation currently is a unitary savings and loan holding company,
and under current law there are generally no restrictions on the activities of a
unitary savings and loan holding  company.  However,  if the Director of the OTS
determines that there is reasonable  cause to believe that the continuation by a
savings and loan holding  company of an activity  constitutes  a serious risk to
the  financial  safety,  soundness,  or  stability  of  its  subsidiary  savings
association,  the  Director  of the OTS may impose such  restrictions  as deemed
necessary  to address  such risk and  limiting  (i) payment of  dividends by the
savings  association,  (ii) transactions between the savings association and its
affiliates,  and (iii) any  activities  of the  savings  association  that might
create a serious  risk  that the  liabilities  of the  holding  company  and its
affiliates may be imposed on the savings association.

        Notwithstanding the above rules as to permissible business activities of
unitary  savings  and  loan  holding  companies,   if  the  savings  association
subsidiary of such a holding  company fails to meet the Qualified  Thrift Lender
("QTL") test,  then such unitary  holding  company shall also  presently  become
subject to the activities restrictions applicable to multiple holding companies.
(Additional  restrictions  on securing  advances from the Federal Home Loan Bank
also apply.) See "-- Qualified Thrift Lender." At June 30, 1998, First Federal's
asset  composition  was in excess of that required to qualify First Federal as a
Qualified Thrift Lender.

        If  the   Corporation   were  to  acquire  control  of  another  savings
association  other than through merger or other business  combination with First
Federal,  the  Corporation  would thereupon  become a multiple  savings and loan
holding  company.  Except where such acquisition is pursuant to the authority to
approve  emergency  thrift   acquisitions  and  where  each  subsidiary  savings
association meets the QTL test, the activities of the Corporation and any of its
subsidiaries (other than First Federal or other subsidiary savings associations)
would  thereafter be subject to further  restrictions.  The HOLA provides  that,
among other things,  no multiple  savings and loan holding company or subsidiary
thereof which is not a savings  association  shall  commence,  or continue for a
limited  period of time  after  becoming  a multiple  savings  and loan  holding
company or subsidiary  thereof,  any business activity other than (i) furnishing
or performing  management  services for a subsidiary savings  association,  (ii)
conducting an insurance agency or escrow business,  (iii) holding,  managing, or
liquidating assets owned by or acquired from a subsidiary  savings  association,
(iv) holding or managing  properties  used or occupied by a  subsidiary  savings
association,  (v) acting as trustee under deeds of trust,  (vi) those activities
previously directly authorized by the FSLIC by regulation as of March 5, 1987 to
be engaged in by multiple holding companies or (vii) those activities authorized
by the FRB as permissible for bank holding companies, unless the Director of the
OTS by  regulation  prohibits  or limits  such  activities  for savings and loan
holding  companies.  Those  activities  described  in (vii)  above  must also be
approved  by the  Director  of the OTS prior to being  engaged  in by a multiple
holding company.

        The Director of the OTS may also approve  acquisitions  resulting in the
formation of a multiple  savings and loan holding company which controls savings
associations  in more than one state,  if the multiple  savings and loan holding
company involved controls a savings  association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the  laws of the  state in which  the  association  to be  acquired  is  located
specifically permit associations to be acquired by state-chartered  associations
or savings and loan holding  companies  located in the state where the acquiring
entity is located (or by a holding  company that controls  such  state-chartered
savings associations).  Also, the Director of the OTS may approve an acquisition
resulting in a multiple  savings and loan holding  company  controlling  savings
associations  in more than one  state in the case of  certain  emergency  thrift
acquisitions.

        No subsidiary savings  association of a savings and loan holding company
may declare or pay dividends on its permanent or nonwithdrawable stock unless it
first gives the Director of OTS thirty days advance  notice of such  declaration
and payment.  Any dividend declared during such period, or without the giving of
such notice, shall be invalid.

        Federal Securities Law

        The shares of Common Stock of the  Corporation  are registered  with the
Securities  and  Exchange  Commission  (the  "SEC")  under  the  1934  Act.  The
Corporation is therefore subject to the information, proxy solicitation, insider
trading  restrictions  and other  requirements of the SEC under the 1934 Act and
the rules of the SEC thereunder.

        Shares  of  Common  Stock  held by  persons  who are  affiliates  of the
Corporation may not be resold without  registration or unless sold in accordance
with the resale  restrictions of Rule 144 under the 1933 Act. If the Corporation
meets the current public information requirements under Rule 144, each affiliate
of the Corporation who complies with the other conditions of Rule 144 (including
a one-year holding period and conditions that require the affiliate's sale to be
aggregated  with those of certain  other  persons)  would be able to sell in the
public market,  without  registration,  a number of shares not to exceed, in any
three-month  period,  the  greater  of (i) 1% of the  outstanding  shares of the
Corporation  or (ii) the average  weekly  volume of trading in such share during
the preceding four calendar weeks.

        Qualified Thrift Lender

        Savings  associations  must  meet a QTL test  which  requires  a savings
association to have at least 65% of its portfolio  assets invested in "qualified
thrift  investments"  on a  monthly  average  basis in nine out of every  twelve
months.  Qualified  thrift  investments  under  the QTL test  include  primarily
residential  mortgages  and  related  investments,  including  certain  mortgage
related  securities.  Portfolio  assets  under  the QTL test  include  all of an
association's assets less (i) goodwill and other intangibles,  (ii) the value of
property used by the  association to conduct its business,  and (iii) its liquid
assets as required to be maintained under law up to 20% of total assets.

        A  savings  association  that  fails to meet the QTL  test  must  either
convert to a bank (although its deposit  insurance  assessments will continue to
be those of, and payments  will  continue to be made to, the SAIF) or be subject
to the following  penalties:  (i) it may not enter into any new activity  except
for those  permissible for a national bank and for a savings  association;  (ii)
its branching  activities shall be limited to those of a national bank; (iii) it
shall not be eligible for any new FHLB  advances;  and (iv) it shall be bound by
regulations applicable to national banks respecting payment of dividends.  Three
years  after  failing  the QTL test the  association  must  (i)  dispose  of any
investment  or  activity  not  permissible  for a  national  bank and a  savings
association  and (ii) repay all  outstanding  FHLB  advances.  If such a savings
association  is  controlled  by a savings  and loan  holding  company,  then the
holding company must within a prescribed time period become registered as a bank
holding  company and become subject to all rules and  regulations  applicable to
bank holding  companies  (including  restrictions as to the scope of permissible
business activities).

        A savings  association  failing to meet the QTL test may  requalify as a
QTL if it thereafter  meets the QTL test. In the event of such  requalification,
it shall not be subject to the penalties  described above. A savings association
which  subsequently  again  fails to  qualify  under the QTL test  shall  become
subject to all of the described  penalties  without  application  of any waiting
period.

        At June 30, 1998, 83.0% of First Federal's  portfolio assets (as defined
on that date) were invested in qualified thrift  investments (as defined on that
date),  and therefore First  Federal's  asset  composition was in excess of that
required to qualify  First  Federal as a QTL.  First  Federal does not expect to
change  significantly  its lending or investment  activities in the near future;
and, therefore it expects to continue to qualify as a QTL, although there can be
no such assurance.

        Community Reinvestment Act Matters

        Under  current  law,  ratings  of  depository   institutions  under  the
Community  Reinvestment  Act of 1977 ("CRA") must be disclosed.  The  disclosure
will  include  both a  four-unit  descriptive  rating  -  using  terms  such  as
satisfactory and unsatisfactory - and a written evaluation of each institution's
performance.   Each  FHLB  is  required  to  establish  standards  of  community
investment  or service that its members must  maintain for  continued  access to
long-term  advances from the FHLBs.  The standards  take into account a member's
performance  under the Community  Reinvestment  Act and its record of lending to
first-time  home  buyers.  The FHLBs have  established  an  "Affordable  Housing
Program" to  subsidize  the  interest  rate of  advances to member  associations
engaged in lending for long-term,  low- and moderate-income,  owner-occupied and
affordable rental housing at subsidized rates. First Federal has participated in
such  programs  in the past and has  plans to  participate  in the  future.  The
examiners  have  determined  that First  Federal  has a  satisfactory  record of
meeting community credit needs.

Taxation

        Federal Taxation

        Historically,  savings  associations,  such as First Federal,  have been
permitted to compute bad debt deductions using either the bank experience method
or the percentage of taxable income method.  However,  for years beginning after
December  31,  1995,  the Bank is no  longer  be able to use the  percentage  of
taxable  income method of computing its  allocable tax bad debt  deduction.  The
Bank is required to compute its allocable deduction using the experience method.
As a result of the repeal of the percentage of taxable  income method,  reserves
taken after 1987 using the percentage of taxable income method generally must be
included in future  taxable income over a six-year  period,  although a two-year
delay may be permitted  for  institutions  meeting a  residential  mortgage loan
origination test. First Federal will recapture approximately $440,000 over a six
year period which began in fiscal 1997. In addition,  the pre-1988  reserve,  in
which no deferred taxes have been recorded,  will not have to be recaptured into
income unless (i) the Bank no longer qualifies as a bank under the Code, or (ii)
excess dividends are paid out by the Bank.

        Depending  on the  composition  of its items of income  and  expense,  a
savings  institution  may be subject to the  alternative  minimum tax. A savings
institution must pay an alternative  minimum tax equal to the amount (if any) by
which 20% of  alternative  minimum  taxable  income  ("AMTI"),  as reduced by an
exemption  varying with AMTI,  exceeds the regular tax due. AMTI equals  regular
taxable  income   increased  or  decreased  by  certain  tax   preferences   and
adjustments,  including depreciation  deductions in excess of that allowable for
alternative  minimum tax purposes,  tax-exempt interest on most private activity
bonds  issued  after  August 7, 1986  (reduced by any related  interest  expense
disallowed  for  regular  tax  purposes),  the  amount  of the bad debt  reserve
deduction  claimed in excess of the deduction based on the experience method and
75% of the excess of adjusted current earnings over AMTI (before this adjustment
and before any alternative tax net operating loss).  AMTI may be reduced only up
to 90% by net operating loss carryovers,  but alternative  minimum tax paid that
is  attributable  to most  preferences  (although  not to  post-August  7,  1986
tax-exempt interest) can be credited against regular tax due in later years.

        The Corporation and its subsidiaries file a consolidated  federal income
tax  return,  which has the effect of  eliminating  intercompany  distributions,
including dividends,  in the computation of consolidated taxable income.  Income
of the Corporation  generally would not be taken into account in determining the
bad  debt  deduction   allowed  to  First  Federal,   regardless  of  whether  a
consolidated tax return is filed. However, certain "functionally related" losses
of the Corporation would be required to be taken into account in determining the
permitted bad debt deduction.

        The  Corporation's  federal income tax returns for fiscal years 1997 and
1996 are currently being audited by the Internal Revenue Service.

        State Taxation

        For its taxable year  beginning  January 1, 1990,  First Federal  became
subject to Indiana's Financial  Institutions Tax ("FIT"),  which is imposed at a
flat rate of 8.5% on  "adjusted  gross  income."  "Adjusted  gross  income," for
purposes  of FIT,  begins  with  taxable  income as defined by Section 63 of the
Internal Revenue Code and, thus, incorporates federal tax law to the extent that
it affects the  computation of taxable  income.  Federal  taxable income is then
adjusted by several Indiana modifications.  Other applicable state taxes include
generally applicable sales and use taxes plus real and personal property taxes.

Competition

        The Bank's  primary  market area  consists of Knox  County,  Indiana.  A
majority of the Bank's  savings  deposits  are  received  from  residents of its
primary  market  area,  and a  significant  portion of its loans are  secured by
properties in this area.

        First Federal faces  substantial  competition  both in the attraction of
deposits  and in the making of mortgage  and other  loans in its primary  market
area.  Competition  for the origination of real estate loans  principally  comes
from  other  savings  institutions,   commercial  banks,  and  mortgage  banking
companies located in its primary market area.

        Under   current  law,  bank  holding   companies  may  acquire   savings
associations.  Savings associations may also acquire banks under federal law. To
date, several bank holding company  acquisitions of healthy savings associations
in Indiana have been completed.  Affiliations  between banks and healthy savings
associations  based in Indiana may also  increase the  competition  faced by the
Bank and the Corporation.

        In addition, the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the  "Riegle-Neal  Act") permits bank holding  companies to acquire
banks  in  other  states  and,   with  state  consent  and  subject  to  certain
limitations,  allows banks to acquire  out-of-  state  branches  either  through
merger  or  de  novo  expansion.   The  State  of  Indiana  enacted  legislation
establishing  interstate  branching provisions for Indiana state chartered banks
consistent with those established by the Riegle-Neal Act (the "Indiana Branching
Law"). The Indiana  Branching Law authorizes  Indiana banks to branch interstate
by merger or de novo expansion and authorizes out-of-state banks meeting certain
requirements to branch into Indiana by merger or de novo expansion provided that
acquisitions  or de novo  formations of branches by  out-of-state  banks are not
permitted  unless the laws of their home states permit  Indiana banks to acquire
or establish  branches on a reciprocal  basis. The Indiana  Branching Law became
effective March 15, 1996.

        The primary  factors  influencing  competition for deposits are interest
rates,  service and convenience of office locations.  The Bank competes for loan
originations  primarily  through  the  efficiency  and  quality of  services  it
provides  borrowers  and  through  interest  rates  and  loan  fees it  charges.
Competition  is affected by, among other  things,  the general  availability  of
lendable funds,  general and local economic  conditions,  current  interest rate
levels, and other factors that are not readily predictable.

Current Accounting Issues

        In  June  1997,  the  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 shareholders'  equity.  SFAS 130 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,  "Disclosures  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
Standards   No.   132,   "Employer's   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.

        In  June  1998,  the  FASB  issued  Statement  of  Financial  Accounting
Standards No. 133,  "Accounting for Derivative  Instruments" ("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 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.

Employees

        As of  September  9, 1998,  1ST  BANCORP  and its  subsidiaries  had 100
full-time and 7 part-time employees. None of these employees is represented by a
collective bargaining agreement or union, and the Corporation believes it enjoys
harmonious relations with its personnel.

Item 2.  Properties.

        At June 30, 1998, 1ST BANCORP and First Federal conducted their business
and  operations  from  the  main  office  located  at 101  North  Third  Street,
Vincennes, Indiana; a drive-up branch facility at 1700 Willow Street, Vincennes,
Indiana; and the office annex at 102 North Fifth Street, Vincennes, Indiana. The
property  and  buildings  are  owned by the Bank  with a net book  value of $2.0
million at June 30, 1998.  First Title  conducted  its business  from the office
annex located at 102 North Fifth Street,  Vincennes,  Indiana, at June 30, 1998.
First  Financial  conducted its business from its office located at 626 Veterans
Drive,  Vincennes,  Indiana.  This  property  and  building  are  owned by First
Financial  and had a net book value of $403,000 at June 30,  1998.  A portion of
the First Financial building is leased to an independent third party.

Item 3.  Legal Proceedings.

        Neither 1ST BANCORP, First Federal, First Financial,  nor First Title is
involved in any legal proceedings,  other than routine proceedings  occurring in
the ordinary course of its business.

Item 4.  Submission of Matters to Vote of Security Holders.

        No matter was  submitted to the  Corporation's  shareholders  during the
quarter ended June 30, 1998.

Item 4.5  Executive Officers of the Corporation.

        Presented below is certain information  regarding the executive officers
of the Corporation or the Corporation's  wholly owned subsidiary,  First Federal
Bank, A Federal Savings Bank:

        Frank  Baracani  (age  56)  has  been  President  and  Director  of  the
Corporation and First Federal during the past five years.

        Donald  G. Bell (age 68) has been Vice  President  and  Director  of the
Corporation;  Director of First Federal;  and Partner with the law firm of Hart,
Bell, Cummings, Ewing & Stuckey, Vincennes, Indiana during the last five years.

        C. James  McCormick  (73) has been  Chairman of the Board,  Director and
Chief  Executive  Officer  of the  Corporation,  and  Chairman  of the Board and
Director of First Federal during the last five years.

        Mary Lynn  Stenftenagel (44) has been Director and Secretary - Treasurer
of the Corporation and Director,  Executive Vice President,  and Chief Financial
Officer of First Federal during the last five years.

        John J. Summers (68) has been Vice Chairman of the Board and Director of
the  Corporation  and Vice  Chairman of the Board and Director of First  Federal
during the last five years.

<PAGE>

                                     PART II


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

         The  information  required  herein is  incorporated  by reference  from
"Shareholder  Information" and "Market  Information" on page 44 of 1ST BANCORP's
1998  Annual  Report to  Shareholders  (the  "Annual  Report to  Shareholders").
Information  concerning  dividends  paid by 1ST  BANCORP  is  incorporated  from
"Selected Financial Highlights" on page 3 of the Annual Report to Shareholders.

Item 6.  Selected Financial Data.

         The  information  required  herein is  incorporated  by reference  from
"Selected Financial Highlights" on page 3 of the Annual Report to Shareholders.

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

         The information required herein is incorporated by reference from pages
7 to 15 of the Annual Report to Shareholders.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

         Because the majority of the  Corporation's  balance  sheet  consists of
interest  earning  assets and  interest  bearing  liabilities,  it is exposed to
interest  rate  risk.  Therefore,   additional  information  is  being  provided
regarding the exposure to this interest rate risk.

         The OTS requires all  regulated  thrift  institutions  to calculate the
estimated  change in the  institution's  net portfolio  value  ("NPV")  assuming
instantaneous,  parallel  shifts in the Treasury yield curve of 100 to 400 basis
points, either up or down, and in 100 basis point increments. The NPV is defined
as the  present  value of  expected  cash flows from  existing  assets  less the
present value of expected cash flows from existing  liabilities plus the present
value of net expected cash inflows from existing off-balance sheet contracts.

         The OTS provides  all  institutions  that file a schedule  entitled the
Consolidated  Maturity  & Rate  schedule  ("CMR")  as a part of their  quarterly
Thrift Financial Report with an interest rate sensitivity report of NPV. The OTS
simulation  model  uses a  discounted  cash flow  analysis  and an  option-based
pricing  approach to measuring  the interest  rate  sensitivity  of NPV. The OTS
model  estimates  the  economic  value of each  type of  asset,  liability,  and
off-balance  sheet contract  under the assumption  that the Treasury yield curve
shifts  instantaneous  and  parallel up and down 100 to 400 basis  points in 100
basis  point  increments.  The OTS allows  thrifts  under $500  million in total
assets to use the results of their  interest rate  sensitivity  model,  which is
based on information provided by the institution, to estimate the sensitivity of
NPV.

         The OTS model utilizes an option-based pricing approach to estimate the
sensitivity of mortgage  loans.  The most  significant  embedded option in these
types of assets is the prepayment  option of the  borrowers.  The OTS model uses
various price indications and prepayment  assumptions to estimate sensitivity of
mortgage loans.

         The  NPV  sensitivity  of  the  structured  securities  segment  of the
investment  securities  portfolio  is provided by the Bank to the OTS and is not
simulated  by the OTS model.  The  sensitivity  to interest  rate changes of the
Bank's  structured  securities is obtained by simulation  analysis  performed by
independent third party investment brokers. The remaining investment  securities
are valued by the OTS model based upon a  discounted  cash flow  approach  which
assumes semi-annual  interest cash flows with principal repaid at maturity.  The
cash flows are  discounted  based upon  Treasury  security  yields with  similar
maturities.

         In the OTS model,  the value of deposit  accounts  appears on the asset
and liability side of the NPV analysis.  In estimating the value of certificates
of deposit ("CD")  accounts,  the liability  portion of the CD is represented by
the implied  value when  comparing the  difference  between the CD face rate and
available  wholesale  CD rates.  On the asset side of the NPV  calculation,  the
value of the "customer  relationship"  due to the rollover of retail CD deposits
represents an intangible asset in the NPV calculation.

         Other  deposit  accounts  such as  transaction  accounts,  money market
deposit accounts,  passbook accounts,  and noninterest bearing accounts also are
included  on the  asset and  liability  side of the NPV  calculation  in the OTS
model.  These accounts are valued at 100% of the respective  account balances on
the  liability  side.  On the  asset  side of the  analysis,  the  value  of the
"customer relationship" of the various types of deposit accounts is reflected as
a deposit intangible.

         The NPV  sensitivity  of borrowed  funds is  estimated by the OTS model
based on a discounted cash flow approach.  The cash flows are assumed to consist
of monthly or  semi-annual  interest  payments with  principal  paid at maturity
(dependent  upon the type of borrowing).  These cash flows are discounted  based
upon London Interbank Offered Rates ("LIBOR").

         The OTS model is based only on the Bank level  balance  sheet.  Various
asset and liability  categories were adjusted to reflect the consolidated NPV of
the  Corporation.  These  adjustments  were not  material  to the outcome of the
simulation  analysis of NPV. The most significant  changes in the results of the
OTS  simulation  analysis  were  primarily  due to a  downward  trend in  market
interest  rates and a change to a larger  portfolio of FHLB putable  advances in
fiscal year 1998.  There are  limitations  inherent in any  methodology  used to
estimate  the  exposure to changes in market  interest  rates.  Therefore,  this
analysis is not necessarily  intended to be a forecast of the actual effect of a
change  in  market   interest   rates.   The  following  table  sets  forth  the
Corporation's  interest rate  sensitivity of NPV as measured by the OTS model as
of June 30, 1998 and 1997.

Interest Rate Sensitivity as of June 30,1998

<TABLE>
<CAPTION>
                                                                                               Net Portfolio Value
                                         Net Portfolio                                       as a % of Present Value
                                             Value                                                  of Assets
                     ------------------------------------------------------------------------------------------------------
                                                     (Dollars in thousands)
           Change
         in Rates         $ Amount        $ Change        % Change                    NPV Ratio            Change
------------------   ----------------------------------------------            ------------------------------------

<S>                         <C>              <C>                <C>                     <C>                <C>
          +200 bp           30,995           (625)             -2%                      12.10%             19 bp
          +100 bp           32,075             455              1%                      12.27%             36 bp
             0 bp           31,620                                                      11.91%
          -100 bp           29,829         (1,791)             -6%                      11.10%           (81) bp
          -200 bp           27,576         (4,044)            -13%                      10.15%          (176) bp
</TABLE>



Interest Rate Sensitivity as of June 30,1997

<TABLE>
<CAPTION>

                                                                                           Net Portfolio Value
                                         Net Portfolio                                  as a % of Present Value
                                             Value                                             of Assets
                     -----------------------------------------------------------------------------------------------
                                                            (Dollars in thousands)
           Change
         in Rates          $ Amount           $ Change        % Change                NPV Ratio            Change
------------------   -----------------------------------------------            ------------------------------------

<S>                          <C>            <C>                 <C>                       <C>            <C>
          +200 bp            21,103         (9,474)            -31%                       8.00%          (302) bp
          +100 bp            26,342         (4,235)            -14%                       9.72%          (131) bp
             0 bp            30,577                                                      11.03%
          -100 bp            33,701           3,124             10%                      11.92%             90 bp
          -200 bp            35,986           5,409             18%                      12.53%            151 bp
</TABLE>

         Various  strategies are in place to control the Corporation's  exposure
to interest rate risk. The Corporation has an Asset/Liability Committee ("ALCO")
comprised  of senior  management  personnel  and  directors  which is  primarily
responsible for management of the Corporation's  exposure to interest rate risk.
The ALCO  actively  monitors  the  interest  rate  risk  position  and  develops
strategies  to minimize  its  potential  negative  effects on the  Corporation's
financial  condition.  As its primary strategy to control the potential negative
effects of the Corporation's market risk exposure, the ALCO actively adjusts its
interest earning asset and interest bearing liability composition and pricing.

Item 8.  Financial Statements and Supplementary Data.

         The information required herein is incorporated by reference from pages
16 to 40 of the Annual Report to Shareholders.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

         There were no such  changes  or  disagreements  during  the  applicable
period.




                                    PART III


Item 10.  Directors and Executive Officers of the Registrant.


  Information about the Corporation's executive officers is included in Item 4.5
in Part I of this report.

      The following tables set forth certain information  regarding the nominees
for the  position  of  director  of the  Corporation  and each  director  of the
Corporation  whose term continues,  including the principal  occupations of such
persons during at least the past five years and the number and percent of shares
of Common Stock  beneficially  owned by such persons as of September 9, 1998. No
nominee for director or director is related to any other nominee for director or
director  or  executive  officer  of the  Corporation  by  blood,  marriage,  or
adoption,  and there are no arrangements or  understandings  between any nominee
and any other person pursuant to which such nominee was selected. The table also
sets forth the number of shares of Corporation  Common Stock  beneficially owned
by all directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                                                                    Common Stock
                              Principal                 Director      Director                      Beneficially
                              Occupation                 Of the       of First      Term            Owned as of
                           During the Last            Corporation     Federal        To             September 9,
Name and Age                  Five Years                 Since         Since       Expire             1998(1)
------------                  ----------                 -----         -----       ------             -------
                                                                                                 Amount           %
                                                                                                 ------           -

<S>               <C>                                     <C>           <C>         <C>          <C>           <C>
Donald G.         Vice President and Director             1989          1988        1998         50,889        4.64%
Bell              of the Corporation; Director
(Age 68)          of First Federal; Senior
                  Partner with the law firm of
                  Hart, Bell Cummings, Ewing &
                  Stuckey
                  Vincennes, Indiana

Ruth Mix          Director of the Corporation              1991         1981        1998          5,414         .49%
Carnahan          and Director  and Treasurer
(Age 79)          of First Federal; Secretary-
                  Treasurer of Carnahan
                  Grain, Inc.
                  Edwardsport, Indiana

Rahmi             Director of the Corporation              1991         1989        1998       105,112(2)       9.58%
Soyugenc          and of First Federal;
(Age 67)          President of Evansville Metal
                  Products, Evansville, Indiana

R. William        Director of the Corporation              1991         1971        1999        33,050(3)       3.01%
Ballard           and of First Federal Bank;
(Age 64)          Retired Sr. Vice President
                  of First Federal

Frank D.          President and Director of                1989         1984        1999        42,612(4)       3.86%
Baracani          the Corporation and
(Age 56)          President, Chief Executive
                  Officer and Director of
                  First Federal

</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                                                                                                   Common Stock
                              Principal                  Director     Director                     Beneficially
                              Occupation                  of the      of First      Term            Owned as of
                           During the Last             Corporation     Federal       To            September 9,
Name and Age                  Five Years                  Since         Since      Expire             1998(1)
------------                  ----------                  -----         -----      ------             -------
                                                                                                 Amount           %
                                                                                                 ------           -

<S>               <C>                                     <C>           <C>         <C>          <C>           <C>
James W.          Director of the Corporation              1993         1993        2000              356(5)    .03%
Bobe              and of First Federal;
(Age 54)          President, Bobe Farms, Inc.
                  (farming)

C. James          Chairman of the Board and                1989         1966        2000        39,144(6)       3.55%
McCormick         Chief Executive Officer of
(Age 73)          the Corporation and Chairman
                  of the Board of First Federal;
                  Chairman of McCormick, Inc.
                  and Commercial Rentals, Inc.
                  and President of JAMAC Corp., all
                  located in
                  Vincennes, Indiana

Mary Lynn         Director and Secretary-                  1989          1988       2000         34,167(7)      3.09%
Stenftenagel      Treasurer of the Corporation;
(Age 44)          Director, Executive Vice
                  President, Secretary and Chief
                  Financial Officer of
                  First Federal

John J.           Vice Chairman of the Board               1989          1984       1999        28,672(8)       2.61%
Summers           of the Corporation and First
(Age 68)          Federal; retired President of
                  Hamilton Glass Products, Inc.,
                  Vincennes, Indiana

All directors
and executive
Officers as a                                                                                  339,415(9)      30.43%
group (9 persons)

</TABLE>


<PAGE>

(1)      Based upon information  furnished by the respective  directors.  Unless
         otherwise  indicated,  the named  beneficial  owner has sole voting and
         dispositive power with respect to the shares.

(2)      These shares include 4,340 shares held solely by Mr. Soyugenc's wife.

(3)      Of these  shares,  5,909 shares are owned  jointly  with Mr.  Ballard's
         wife.

(4)      Of these shares,  25,506  shares are owned jointly by Mr.  Baracani and
         his wife, 51 shares are held in trust for Mr. Baracani's daughter,  and
         6,300  shares  are  subject  to a stock  option  granted  under the 1ST
         BANCORP Stock Option Plan ("the Stock Option Plan").


(5)      All shares are owned jointly by Mr. Bobe and his wife. (6) These shares
         include  10,037  owned by each of two of  McCormick's  adult  children,
         3,544 owned by a third adult child of Mr. McCormick (collectively these
         beneficial owners are referred to as the "McCormick Family".) and 6,300
         shares  subject to a stock option  granted under the Stock Option Plan.
         Except for the shares  owned  directly  to which Mr.  McCormick  may be
         considered a beneficial  owner,  each member of the "McCormick  Family"
         disclaims  beneficial  ownership  of the shares  held of record by each
         other member.

(7)      Includes 6,300 shares subject to a stock option granted under the Stock
         Option Plan.

(8)      All shares are owned by Mr. Summers' wife.

(9)      Includes stock options for 18,900 shares under the Stock Option Plan.



  Section 16(a) Beneficial Ownership Reporting Compliance

          Section 16(a) of the 1934 Act requires that the Corporation's officers
  and  directors and persons who own more than 10% of the  Corporation's  Common
  Stock file reports of ownership and changes in ownership  with the  Securities
  and Exchange Commission (the "SEC"). Officers,  directors and greater than 10%
  shareholders  are required by SEC regulation to furnish the  Corporation  with
  copies of all Section 16(a) forms that they file.

      Based  solely on its review of the copies of such  forms  received  by it,
  and/or written  representations from certain reporting persons that no Forms 5
  were  required for those  persons,  the  Corporation  believes that during the
  fiscal year ended June 30, 1998,  all filing  requirements  applicable  to its
  officers,  directors  and greater than 10%  beneficial  owners with respect to
  Section 16(a) of the 1934 Act were satisfied in a timely manner.


Item 11.  Executive Compensation.


     During the fiscal year ended June 30, 1998, no cash  compensation  was paid
directly  by the  Corporation  to any of its  executive  officers.  Each of such
officers was compensated by First Federal.  However, the corporation  reimbursed
First Federal for certain of these compensation expenses.

     The  following  table sets forth  information  as to annual,  long-term and
other  compensation  for services in all capacities to the  Corporation  and its
subsidiaries  for the last three fiscal years,  of (i) the individual who served
as chief executive officer of the Corporation  during the fiscal year ended June
30, 1998, and (ii) each  executive  officer of the  Corporation  serving as such
during the 1998  fiscal  year,  who earned  over  $100,000 in salary and bonuses
during that year (the "Named Executive Officers").


<PAGE>
<TABLE>
<CAPTION>
                                                            Summary Compensation Table
                                    Long Term
                                        Annual Compensation                     Compensation
                            ------------------------------------------------------------------------
                                                                                   Awards
                                                                         ---------------------------

                                                         Other Annual       Restricted    Securities        All
Name and Principal            Fiscal                     Compensation          Stock      Underlying       Other
Position                       Year      Salary($)(1)    Bonus($)(2) ($)(3)   Awards($)    Options(#)  Compensation($)
--------                       ----      ------------    ------------------  ----------   ----------  ---------------
<S>                            <C>         <C>            <C>                <C>          <C>           <C>
C. James McCormick             1998        $47,218        $33,000    -         -          6,300            -
Chairman of the Board          1997        $43,531        $25,000    -         -          6,300            -
and Chief Executive            1996         41,865         34,729    -         -            -              -
Officer of the Corporation
and Chairman of the Board
of First Federal

Frank D. Baracani              1998         $113,008      $91,750    -         -          6,518            -
President and Director         1997         $105,845      $72,000    -         -          6,490            -
of the Corporation             1996          101,626       97,000    -         -            171            -
and First Federal and
Chief Executive Officer
of First Federal

Mary Lynn Stenftenagel         1998            77,816     $58,750    -         -          7,027            -
Director and Secretary-        1997            72,616     $48,000    -         -          6,926            -
Treasurer of the               1996            69,471      64,000    -         -            555            -
Corporation, Director,
Executive Vice President,
Secretary, and
Chief Financial Officer
of First Federal

</TABLE>

(1)  Salary  consists  of  salary  and  directors'  fees.  Directors'  fees were
     deferred  by  these  individuals  pursuant  to the  Corporation's  Director
     Deferred Compensation Plan.
(2)  The bonus amounts are paid pursuant to First Federal's Management Incentive
     Plan and were accrued in fiscal years to which they relate.
(3)  The Named Executive Officer of the Corporation receive certain perquisites,
     but the incremental  cost of providing such perquisites does not exceed the
     lesser of $50,000 or 10% of the officer's salary and bonus.

      Stock Options

         The following table sets forth  information  related to options granted
during fiscal year 1998 to each of the Named Executive Officers:


                                        Option Grants-Last Fiscal Year
<TABLE>
<CAPTION>
                                                           % of Total
                                                        Options Granted to        Exercise or
                                    Options                Employees              Base Price
Name                               Granted (#)          in Fiscal Year             ($/Share)           Expiration Date
----------------------             -------------        ------------------       -------------         ---------------
<S>                                  <C>                     <C>                 <C>                      <C>
C. James McCormick                   ---                         ---%               $  ---                      ---
Frank D. Baracani                    218 (1)                    4.86%               $16.59 (1)              6/30/98
Mary Lynn Stenftenagel               727 (1)                   16.23%               $16.59 (1)              6/30/98
</TABLE>

(1)      Options to acquire shares of the Corporation's Common Stock pursuant to
         the  Corporation's  Employee Stock  Purchase Plan. The option  exercise
         price  equaled  85% of the  lower  of the  market  value  of a share of
         Corporation  Common Stock on July 1, 1997 and on June 30,  1998,  which
         was $19.52 per share.


           The  following  table  shows  stock  option  exercises  by the  Named
   Executive Officers during fiscal 1998, including the aggregate value realized
   by such officers on the date of exercise.  The following  table  includes the
   number  of  shares  covered  by stock  options  held by the  Named  Executive
   Officers as of June 30, 1998. Also reported are the values for "in-the-money"
   options  (options  whose exercise price is lower than the market value of the
   shares at fiscal year end) which  represent  the spread  between the exercise
   price of any such existing stock options and the year-end market price of the
   stock.


               Aggregate Option Exercises in Last Fiscal Year and
        Outstanding Stock Option Grants and Value Realized As of 6/30/98
<TABLE>
<CAPTION>


                                                                       Number of Securities          Value of Unexercised
                                  Shares        Value Realized       Underlying Unexercised               In-the-Money
                                Acquired on      at Exercise       Options at Fiscal Year End      Options at Fiscal Year End
Name                            Exercise(#)       Date($)(1)       Exercisable   Unexercisable    Exercisable    Unexercisable
----                            -----------       ----------       -----------   -------------    -----------    -------------
<S>                                 <C>           <C>               <C>             <C>              <C>            <C>
   C. James McCormick                 -                  -          6,300              -             $147,672           -
   Frank D. Baracani                218           $  5,648          6,300              -             $147,672           -
   Lynn Stenftenagel                727           $ 18,837          6,300              -             $147,672           -
</TABLE>


(1)      Aggregate  market  value of the shares  covered by the option  less the
         aggregate price paid by the Named Executive Officer

(2)      Amounts  reflecting  gains on outstanding  option are based on the June
         30, 1998 closing price of $42.50 per share.

Director's Fees

         Directors of the  Corporation  are paid $150 for each  regular  monthly
meeting of the Board of Directors.  Directors of First Federal are paid $600 for
each regular  monthly  meeting of the Board of  directors  of First  Federal and
members  of  committees  of  First  Federal's  Board  of  Directors  who are not
employees of the Corporation  subsidiaries  are paid $300 per Committee  meeting
attended.

Director Deferred Compensation Plan

         Effective   July  1,  1993,   First   Federal   entered  into  deferred
compensation agreements with each of its directors. Under the Agreements,  First
Federal will defer an amount equal to $600 to which the director would otherwise
be entitled from First Federal for each month of the deferral. The director will
have the option of  apportioning  the deferral  between a guaranteed  investment
account  which  provides a fixed rate of return and a phantom unit account which
provides a return  equivalent to the  appreciation in the  Corporation's  Common
Stock during the period of the deferral. At the time the director reaches his or
her normal  retirement  date,  the value of his or her  guaranteed  account  and
phantom stock account will be annuitized and provide him or her with 180 monthly
payments.  There are other provisions in the Agreement which provide for earlier
payment in the case of disability or in the case of death. In addition, there is
a one time burial benefit equal to $10,000.



<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management.


The following  table sets forth  certain  information  regarding the  beneficial
ownership of the Common  Stock as of  September  9, 1998,  by each person who is
known  by the  Corporation  to own  beneficially  5% or more of the  outstanding
shares of Common Stock of the Corporation.

<TABLE>
<CAPTION>


                                                           Number of Shares of
           Name and Address of                          Common Stock Beneficially                      Percent of
             Beneficial Owner                                 Owned (1)(2)                                Class

<S>                                                            <C>                                         <C>
Rahmi Soyugenc                                                 105,112(3)                                  9.58%
119 LaDonna
Boulevard
Evansville, Indiana 47711

Investors of America Limited Partnership                         99,176                                   9.04%
(formerly Dierberg Four, L.P.)
c/o First Securities America, Inc.
39 Glen Eagles Drive
St. Louis, Missouri 63124

Joseph H.                                                        91,500                                   8.34%
Moss
1100 Circle 75 Parkway
Suite 800
Atlanta, Georgia 30339
</TABLE>


(1)      Under  applicable  regulations,  shares are  deemed to be  beneficially
         owned by a "person if he or she  directly or  indirectly  has or shares
         the power to vote or dispose of the shares. Unless otherwise indicated,
         the named beneficial  owner has sole voting and dispositive  power with
         respect to the shares.

(2)      The  information  in this chart is based on  Schedule  13D  Reports and
         amendments  thereto  filed by the  above  listed  individuals  with the
         Securities and Exchange  Commission (the "SEC") containing  information
         concerning  shares held by them,  and written  communications  from the
         shareholders.  It does not reflect  any changes in those  shareholdings
         which may have occurred since the date of such filings,  amendments, or
         communications.

(3)      These shares include 4,340 shares held solely by Mr. Soyugenc's wife.

         Information   concerning  the  beneficial   owners  of  shares  by  the
Corporation's management is incorporated from Item 10 of this report.


Item 13.  Certain Relationships and Related Transactions.

         During fiscal 1998 the  Corporation and its  subsidiaries  retained the
law firm of Hart, Bell, Cummings,  Ewing & Stuckey ("Hart, Bell"), of which firm
Mr. Donald G. Bell,  director of the Corporation and First Federal, is a retired
partner.

Indebtedness of Management

         Since the  beginning  of its fiscal  year ended  June 30,  1998,  First
Federal had outstanding from time to time loans which were made to the directors
and executive  officers of the Corporation and their  associates,  as defined in
Regulations of the SEC.  First Federal  offers loans to its directors,  officers
and employees.  However,  all of such loans were made in the ordinary  course of
business,  at  substantially  the  same  terms,  including  interest  rates  and
collateral,  as those  prevailing at the time for comparable  transactions  with
nonaffiliated  persons  and  did  not  involve  more  than  the  normal  risk of
collectibility or present other unfavorable features.


                                    PART IV.


Item 14.  Exhibits, Financial Statement Schedules and Reports on
                  Form 8-K.

         (a)  Documents Filed as Part of this Report

The following  financial  statements are  incorporated by reference (see Exhibit
13):

                                                                        Page
                                                                       in the
                                                                        1998
                                                                       Annual
                                                                      Report to
Financial Statements                                                Shareholders

Independent Auditors' Report                                            16

Consolidated Statements of Financial Condition
as of June 30, 1998, and 1997.                                          17

Consolidated Statements of Earnings for the
Years Ended June 30, 1998, 1997, and 1996.                              18

Consolidated Statements of Stockholders'
Equity for the Years Ended June 30, 1998,
1997, and 1996.                                                         19

Consolidated Statements of Cash Flows for the
Years Ended June 30, 1998, 1997, and 1996.                              20

Notes to Consolidated Financial Statements.                             21

         (b) There were no reports on Form 8-K filed  during the  quarter  ended
         June 30, 1998.

         (c) The exhibits filed herewith or incorporated by reference herein are
         set forth on the Exhibit Index on page 50.

         (d) All schedules are omitted as the required information either is not
         applicable or is included in the Consolidated  Financial  Statements or
         related notes.

<PAGE>



                                                      SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934,  the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                             1ST BANCORP

Date:  September 28, 1998         By:/s/ C. James McCormick
                                  -------------------------------------
                                                C. James McCormick
                                                Chief Executive Officer

Date:  September 28, 1998         By:/s/ Frank D. Baracani
                                  -------------------------------------
                                                Frank D. Baracani
                                                Director and President

         Each person whose individual  signature appears below hereby authorizes
Frank D. Baracani as attorney-in-fact with full power of substitution to execute
in the name and on  behalf of each  person,  individually  and in each  capacity
stated below, and to file any and all amendments to this Form 10-K.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report  has been  signed  below by the  following  person on behalf of the
Registrant and in the capacities and on the dates set forth below:


/s/ C. James McCormick                     Date: September 28, 1998
------------------------------------------
 C. James McCormick, Chairman of the Board
and Chief Executive Officer

/s/ John J. Summers                        Date: September 28, 1998
------------------------------------------
John J. Summers, Vice Chairman of the Board

/s/ Frank D. Baracani                      Date: September 28, 1998
------------------------------------------
Frank D. Baracani, Director, President

/s/ Donald G. Bell                         Date: September 28, 1998
------------------------------------------
Donald G. Bell, Director, Vice President

/s/ Mary Lynn Stenftenagel                 Date: September 28, 1998
------------------------------------------
Mary Lynn Stenftenagel, Director,
Secretary/Treasurer (Principal Accounting and Financial Officer)

/s/ R. William Ballard                     Date: September 28, 1998
------------------------------------------
R. William Ballard, Director

/s/ Rahmi Soyugenc                         Date: September 28, 1998
------------------------------------------
Rahmi Soyugenc, Director

/s/ Ruth Mix Carnahan                      Date: September 28, 1998
------------------------------------------
Ruth Mix Carnahan, Director

/s/ James W. Bobe                          Date: September 28, 1998
------------------------------------------
James W. Bobe, Director




<PAGE>




                                  EXHIBIT INDEX

         No.               Exhibits                                       Page

          3a   Articles of  Incorporation  (incorporated by reference to
               Exhibit 3.1 to  Registrant's  Registration  Statement  on
               Form S-4, Registration No. 33-24587,  filed September 28,
               1988 (the "Registration Statement").                         *

          3b   Restated   By-Laws  of  1ST  BANCORP   (incorporated   by
               reference to Exhibit 3b to the Registrant's Form 10-K for
               the year ended June 30, 1994).                               *

          10a  Incentive  Stock Option Plan  (incorporated  by reference
               from Exhibit 10a-1 to the Registrant's  Form 10-K for the
               year ended June 30, 1991).                                   *

          10b  1ST BANCORP Stock Option Plan  (incorporated by reference
               from Exhibit 10b-1 to the Registrant's  Form 10-K for the
               year ended June 30, 1991).                                   *

          10c  First Federal  Management  Incentive Plan for Fiscal Year
               1998.                                                        *

          10d  Form  of   Amended   and   Restated   Director   Deferred
               Compensation Agreement,  restated as of December 31, 1997
               between  First  Federal  and each of C. James  McCormick,
               John  J.   Summers,   Frank  D.   Baracani,   Mary   Lynn
               Stenftenagel,  Robert  W.  Ballard,  Ruth  Mix  Carnahan,
               Donald G. Bell, Rahmi Soyugenc, and James W. Bobe.           *

          10e  Form  of   Executive   Supplemental   Retirement   Income
               Agreement,  dated July 1, 1993, between First Federal and
               each of C. James McCormick,  Frank D. Baracani, Mary Lynn
               Stenftenagel (incorporated by reference to Exhibit 10d to
               the  Registrant's  Form 10-K for the year  ended June 30,
               1994). First Amendments to the foregoing Agreements Frank
               D. Baracani and Mary Lynn Stenftenagel are attached.         *

          13   Annual Report to Shareholders                                __

          21   Subsidiaries of the Registrant                               __

          23a  Independent Auditors' Consent                                __

          23b  Independent Auditors' Consent                                __

          23c  Independent Auditors' Consent                                __

          27   Financial Data Schedule (to be filed electronically)



(*)      Previously   filed   with   the  SEC  and  by  this   reference
         incorporated into this Annual Report.