<PAGE>
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                   FORM 10-KSB

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934 [Fee Required]

                  For the fiscal year ended June 30, 1997

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934 [No Fee Required]

                  For the transition period from _______ to _______

         Commission file number 0-25484

                              AMTRUST CAPITAL CORP.
        (Exact Name of Small Business Issuer as Specified in its Charter)

                    Delaware                                  35-1940250
         (State or other jurisdiction of                   (I.R.S. Employer
         incorporation or organization)                   Identification No.)


      20 West Fifth Street, Peru, Indiana                     46970
    (Address of principal executive offices)                (Zip Code)

Issuer's telephone number, including area code: (765) 472-1991

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                                (Title of Class)

         Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve months (or for
such shorter period that the Issuer was required to file such reports), and (2)
has been subject to such requirements for the past 90 days. YES [X] NO [ ]

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

         The Issuer had $5.7 million in gross income for the year ended June 30,
1997.

         As of September 15, 1997, there were issued and outstanding 526,479
shares of the Issuer's Common Stock. The aggregate market value of the voting
stock held by non-affiliates of the Issuer, computed by reference to the average
of the closing bid and asked price of such stock on the Nasdaq SmallCap Market
as of September 15, 1997 was approximately $5.9 million. (The exclusion from
such amount of the market value of the shares owned by any person shall not be
deemed an admission by the Issuer that such person is an affiliate of the
Issuer.)

                       DOCUMENTS INCORPORATED BY REFERENCE

PART II of Form 10-KSB--Annual Report to Stockholders for the fiscal year ended
June 30, 1997.
PART III of Form 10-KSB--Proxy Statement for the Annual Meeting of Stockholders
for the fiscal year ended June 30, 1997.

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

<PAGE>



                                     PART I

Item 1.           Business

General

         AmTrust Capital Corp. ("AmTrust" or the "Company") is a Delaware
corporation which was organized in 1994 by AmericanTrust Federal Savings Bank
("AmericanTrust" or the "Bank") for the purpose of becoming the savings and loan
holding company of the Bank. The Company owns all of the outstanding stock of
the Bank issued on March 28, 1995 in connection with the Bank's conversion from
the mutual to the stock form of organization (the "Conversion"). Unless the
context otherwise requires, all references herein to the Bank or the Company
include the Company and the Bank on a consolidated basis.

         At June 30, 1997, the Company had total assets of $72.2 million,
deposits of $53.5 million and stockholders' equity of $7.5 million. The
executive offices of the Company are located at 20 West Fifth Street, Peru,
Indiana 46970 and its telephone number is (765) 472-1991.

         The Bank, the Company's only operating subsidiary, was originally
chartered under the laws of the state of Indiana in 1886 as Peru Building and
Loan Association and converted to a federally chartered mutual savings and loan
association in 1936.

         AmericanTrust is principally engaged in the business of attracting
deposits from the general public and using such deposits, together with funds
generated from operations and borrowings, to originate one- to four-family
residential loans. The Bank also originates consumer loans and, to a lesser
extent, construction loans. The Bank has in the past originated a limited number
of multi-family and commercial real estate loans. See " - Lending Activities."
In addition, the Bank also invests in mortgage-backed securities, the majority
of which are insured or guaranteed by federal agencies, and other securities.
See " - Investment Activities - Mortgage-Backed Securities" and " - Investment
Activities - Securities and Other Interest-Earning Assets."

         Through its main office, one branch office, and a limited service
office (which provides all the services of a branch office with the exception of
loan origination), the Bank serves communities located in Howard and Miami
Counties, Indiana.

         The Bank's operations are regulated by the Office of Thrift Supervision
(the "OTS"). The Bank is a member of the Federal Home Loan Bank System ("FHLB
System") and a stockholder in the Federal Home Loan Bank ("FHLB") of
Indianapolis. The Bank is also a member of the Savings Association Insurance
Fund ("SAIF") and its deposit accounts are insured up to applicable limits by
the Federal Deposit Insurance Corporation ("FDIC").

                                        2

<PAGE>



Lending Activities

         General. Historically, the Bank originated primarily fixed-rate one- to
four-family mortgage loans. In the mid 1980s, the Bank introduced the
origination of balloon mortgage loans for retention in its portfolio, and the
Bank securitized a portion of its fixed-rate loan portfolio and exchanged it for
adjustable-rate securities in order to increase the percentage of assets in its
portfolio with more frequent repricing or shorter maturities than traditional
long-term, fixed-rate mortgage loans. Thereafter, the Bank began originating ARM
loans and converted some of the balloon mortgages to adjustable-rate mortgage
("ARM") loans when they matured. Nevertheless, the Bank has continued to
originate fixed-rate mortgage loans in response to customer demand, which are
typically sold in the secondary market with servicing retained. Such loans are
primarily for terms of up to 30 years. The Bank still originates a limited
number of balloon loans and has purchased a small amount of leases on business
equipment. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Assets/Liability Management" in the Annual Report to
Stockholders for the fiscal year ended June 30, 1997 attached hereto as Exhibit
13 (the "Annual Report").

         While the Bank primarily focuses its lending activities on the
origination of loans secured by first mortgages on owner-occupied one- to
four-family residences, it also originates consumer loans (including mobile home
loans), and to a lesser extent, construction loans. The Bank had in the past
purchased and originated a limited number of multi-family and commercial real
estate loans. See " - Multi-Family and Commercial Real Estate Lending." With the
exception of consumer loans and lease contracts, substantially all of the Bank's
loans are originated in its market area. At June 30, 1997, the Bank's loans, net
and loans held for sale totaled $50.7 million.

         Notwithstanding loan sales, the Bank's loan portfolio decreased
$583,000, or 1.2%, from $51.3 million at June 30, 1996 to $50.7 million at June
30, 1997. While the real estate loan portfolio decreased, consumer loans,
including mobile home and recreational vehicle ("RV") loans increased $3.5
million from $17.1 million at June 30, 1996 to $20.6 million at June 30, 1997.
As a result, a portion of the Bank's loan portfolio represents unseasoned loans.
See "- Consumer Lending."

         The President has authority to approve loans up to $214,600 (the FHLMC
loan limit). All loans in excess of $214,600 require the approval of the entire
Board of Directors.

         Under OTS regulations, the Bank's loans-to-one-borrower limit is
generally limited to the greater of 15% of unimpaired capital and surplus or
$500,000. See "Regulation - Federal Regulation of Savings Associations." At June
30, 1997, the maximum amount which the Bank could have lent to any one borrower
and the borrower's related entities was $1.1 million.



                                        3

<PAGE>



         Loan Portfolio Composition. The following table sets forth information
concerning the composition of the Bank's loan portfolio (including loans held
for sale) in dollar amounts and in percentages (before deductions for loans in
process, deferred fees and discounts and allowances for losses) as of the dates
indicated.

<TABLE>
<CAPTION>
                                                                                 June 30,
                                                    ------------------------------------------------------------------
                                                          1997                    1996                    1995
                                                    --------------------   -------------------    --------------------
                                                     Amount     Percent      Amount   Percent      Amount      Percent
                                                    --------    --------   --------   --------    -------     --------  
                                                                             (Dollars in Thousands)
     <S>                                             <C>           <C>        <C>       <C>         <C>          <C>
Real Estate Loans:
------------------
  One- to four-family(1)......................       $25,542      50.24%   $29,476      57.58%    $30,966       62.65%
  Multi-family................................         1,352       2.66      1,387       2.71       1,343        2.71
  Commercial..................................           955       1.88      1,045       2.04       1,359        2.75
  Construction................................           919       1.81        690       1.35         644        1.31
                     --                              -------     ------    -------     ------     -------      ------ 
        Total real estate loans...............        28,768      56.59     32,598      63.68      34,312       69.42
                     --                              -------     ------    -------     ------     -------      ------ 

Other Loans:
------------
   Consumer Loans
     Deposit account..........................           159        .31        107        .21         111         .22
     Automobile...............................           890       1.75      1,118       2.18       1,005        2.03
     Home equity..............................           315        .62        258        .50         254         .51
     Home improvement.........................         1,035       2.04      1,521       2.97       1,753        3.55
     Mobile homes/RVs.........................        17,827      35.07     13,861      27.08      10,754       21.76
     Other....................................           351        .69        238        .47         365         .74
                     --                              -------     ------    -------     ------     -------      ------ 
        Total consumer loans..................        20,577      40.48     17,103      33.41      14,242       28.81

   Lease Contracts(2).........................         1,491       2.93      1,491       2.91         871        1.77
                     --                              -------     ------    -------     ------     -------      ------ 
        Total other loans.....................        22,068      43.41     18,594      36.32      15,113       30.58
                     --                              -------     ------    -------     ------     -------      ------ 
        Total loans...........................        50,836     100.00%    51,192     100.00%     49,425      100.00%
                                                                 ======                ======                  ======
Less:
-----
 Loans in process.............................           857                   540                    527
 Deferred fees (costs) and discounts..........        (1,270)               (1,151)                (1,134)
 Allowance for losses.........................           523                   494                    400
                                                     -------               -------                -------
        Total loans, net......................       $50,726               $51,309                $49,632
                                                     =======               =======                =======
</TABLE>
____________________
(1)  Includes $1.1 million, $1.5 million and $1.8 million of loans held for 
     sale at June 30, 1997, 1996 and 1995, respectively.
(2)  Represents a pool of leases on office equipment.

                                               
                                        4

<PAGE>



         The following table shows the composition of the Bank's loan portfolio
(including loans held for sale) by fixed- and adjustable-rate at the dates
indicated.
<TABLE>
<CAPTION>

                                                                   June 30,
                                          -------------------------------------------------------------
                                                  1997              1996                1995
                                          -----------------------------------------------------------
                                            Amount   Percent   Amount    Percent   Amount    Percent
                                          --------   -------   ------    -------   ------  ----------
                                                           (Dollars in Thousands)
Fixed-Rate Loans:
-----------------
<S>                                            <C>     <C>       <C>        <C>       <C>      <C>
 Real estate:
  One- to four-family(1)................. $  9,008    17.72%  $ 9,523     18.60%  $ 9,118    18.45%
  Multi-family...........................      644     1.27       653      1.28       630      1.27
  Commercial.............................      ---      ---       369       .72       811      1.64
  Construction...........................      721     1.41       ---       ---       644      1.30
                                           -------   ------   -------    ------   -------    ------ 
     Total real estate loans.............   10,373    20.40    10,545     20.60    11,203     22.66
                                           -------   ------   -------    ------   -------    ------ 

 Consumer................................   20,262    39.86    16,845     32.91    13,988     28.31
 Lease contracts(2)......................    1,491     2.93     1,491      2.91       871      1.76
                                           -------   ------   -------    ------   -------    ------ 
     Total other loans...................   21,753    42.79    18,336     35.82    14,859     30.07
                                           -------   ------   -------    ------   -------    ------ 
        Total fixed-rate loans...........   32,126    63.19    28,881     56.42    26,062     52.73
                                           -------   ------   -------    ------   -------    ------ 

Adjustable-Rate Loans:
----------------------
 Real estate:
  One- to four-family(1).................   16,534    32.53    19,953     38.98    21,848     44.20
  Multi-family...........................      708     1.39       734      1.43       713      1.44
  Commercial.............................      234      .46       676      1.32       548      1.11
  Construction...........................      919     1.81       690      1.35       ---       ---
                                           -------   ------   -------    ------   -------    ------ 

        Total real estate loans..........   18,395    36.19    22,053     43.08    23,109     46.75

  Consumer...............................      315      .62       258       .50       254       .52
                                           -------   ------   -------    ------   -------    ------ 
        Total adjustable-rate loans......   18,710    36.81    22,311     43.58    23,363     47.27
                                           -------   ------   -------    ------   -------    ------ 
            Total loans..................   50,836   100.00%   51,192    100.00%   49,425    100.00%
                                                     =======             =======             ========
Less:
-----
 Loans in process........................      857                540                 527
 Deferred fees (costs) and discounts.....   (1,270)            (1,151)             (1,134)
 Allowance for losses on loans...........      523                494                 400
                                           -------            -------             -------
     Total loans, net....................  $50,726            $51,309             $49,632
                                           =======            =======             =======
</TABLE>
________________________
(1) Includes $1.1 million, $1.5 million and $1.8 million of fixed- and 
    adjustable-rate loans held for sale at June 30, 1997, 1996 and 1995,
    respectively.
(2) Represents a pool of leases on office equipment.

                                        5

<PAGE>



         The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at June 30, 1997. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>
                                                           Real Estate
                            --------------------------------------------------------------------
                                                    Multi-family and
                            One- to Four-Family(1)       Commercial            Construction        
                            ----------------------  ---------------------  ---------------------          
                                        Weighted                Weighted               Weighted                
                                         Average                 Average                Average                
                             Amount       Rate       Amount       Rate      Amount       Rate        
                            --------   -----------  --------   ----------  --------   ----------     
                                                   (Dollars in Thousands)
       Due During Years
         Ending June 30,
---------------------------
<S>                            <C>         <C>        <C>         <C>        <C>          <C>
1998(2).................... $    35       8.30%       $644        8.39%      $919        6.96%     
1999.......................      93       8.17         325        9.79        ---         ---        
2000.......................      65       8.76         ---         ---        ---         ---        
2001 and 2002..............     285       9.05         ---         ---        ---         ---        
2003 to 2007...............   3,009       8.47         974        8.76        ---         ---        
2008 to 2022...............  12,833       7.32         364        9.10        ---         ---        
2023 and following.........   9,222       7.80         ---         ---        ---         ---        
                            -------                 ------                   ----              
                            $25,542       7.65      $2,307        8.86       $919        6.96        
                            =======                 ======                   ====             

                                  Consumer            Lease Contracts              Total       
                            ----------------------  ---------------------  --------------------      
                                        Weighted                Weighted               Weighted                
                                         Average                 Average                Average                
                             Amount       Rate       Amount       Rate      Amount       Rate        
                            --------   -----------  --------   ----------  --------   ---------     
                                                   (Dollars in Thousands)
       Due During Years               
         Ending June 30,      
--------------------------        
1998(2)...................  $   455       8.99%     $  814         ---%    $2,867        5.64%
1999......................      364      11.37         117         ---        899        8.99
2000......................      789      10.16         560         ---      1,414        6.07
2001 and 2002.............    1,425      10.44         ---         ---      1,710       10.21
2003 to 2007..............    4,697      10.25         ---         ---      8,680        9.47
2008 to 2022..............   12,840       9.72         ---         ---     26,037        8.53
2023 and following........        7      10.50         ---         ---      9,229        7.80
                            -------                 ------                -------                                       
                            $20,577       9.92      $1,491         ---    $50,836        8.39
                            =======                 ======                =======                   
</TABLE>
__________________________          
(1) Includes loans held for sale.
(2) Includes demand loans, loans having no stated maturity and overdraft loans.
(3) Lease contracts were all on non-accrual status.





                                        6

                                     
<PAGE>



         At June 30, 1997, the total amount of loans due after June 30, 1998
which have fixed interest rates is $30.5 million, while loans due after such
date which have floating or adjustable interest rates is $17.4 million.

         All of the Bank's lending is subject to its written underwriting
standards and loan origination procedures. Decisions on loan applications are
made on the basis of detailed applications and property valuations. Properties
securing real estate loans made by AmericanTrust are generally appraised by
Board-approved independent appraisers. In the loan approval process,
AmericanTrust assesses the borrower's ability to repay the loan, the adequacy of
the proposed security, the employment stability of the borrower and the
credit-worthiness of the borrower.

         The Bank requires evidence of marketable title and lien position or
appropriate title insurance (except on certain home equity loans) on all loans
secured by real property. The Bank also requires fire and extended coverage
casualty insurance in amounts at least equal to the lesser of the principal
amount of the loan or the value of improvements on the property, depending on
the type of loan. As required by federal regulations, the Bank also requires
flood insurance to protect the property securing its interest if such property
is located in a designated flood area.

         Management reserves the right to change the amount or type of lending
in which it engages to adjust to market or other factors.

         One- to Four-Family Residential Mortgage Lending. Residential loan
originations are generated by the Bank's marketing efforts, its present
customers, walk-in customers and referrals from real estate brokers. The Bank
has focused its lending efforts primarily on the origination of loans secured by
first mortgages on owner-occupied, single-family residences in its market area.
At June 30, 1997, the Bank's one- to four-family residential mortgage loans
totaled $25.5 million, or 50.2%, of the Bank's gross loan portfolio. In the
future, the Bank intends to utilize third-party originations as a source of one-
to four-family loan originations subject to compliance with all customary
underwriting procedures of the Bank. The loans purchased may include loans
secured by modular housing units that qualify as one- to four-family loans.

         The Bank currently offers fixed-rate and adjustable-rate mortgage
loans. For the year ended June 30, 1997, the Bank originated $2.1 million of
adjustable-rate one-to four-family real estate loans. During the same period,
the Bank originated $6.3 million of fixed-rate one- to four-family real estate
loans. Substantially all of the Bank's one- to four-family residential mortgage
originations are secured by properties located in its market area.

         The Bank has offered adjustable-rate mortgage loans at rates and on
terms determined in accordance with market and competitive factors. The Bank
currently originates adjustable-rate mortgage loans with terms of 15 to 30
years. The Bank currently offers one-year adjustable-rate mortgage loans with a
stated interest rate margin over the one-year Constant Maturity Treasury Index.
The Bank has utilized other indices in prior years, such as the Eleventh FHLB
District's Cost of Funds Index. The majority of these loans provided for a 1.0%
maximum annual cap and a life-time cap of 5.0% over the initial rate. Currently,
the Bank's one-year adjustable-rate mortgages generally provide for a 2.0%
annual cap and a lifetime cap of 6.0% over the initial rate.

                                        7
<PAGE>



As a consequence of using caps, the interest rates on these loans may not be as
rate sensitive as is the Bank's cost of funds. Currently, all adjustable-rate
mortgage loans originated do not provide for a minimum interest rate.

         From time to time, AmericanTrust originates adjustable-rate mortgages
which may have an initial interest rate that is lower than the sum of the
specified index plus the margin. Borrowers with adjustable-rate mortgage loans
are qualified at 2% over the initial rate. Adjustable-rate loans decrease the
risk to the Bank associated with changes in interest rates but involve other
risks, primarily because as interest rates rise, the payment by the borrower may
rise to the extent permitted by the terms of the loan, thereby increasing the
potential for default. At the same time, the market value of the underlying
property may be adversely affected by higher interest rates.

         The Bank currently offers fixed-rate mortgage loans with maturities
from 15 to 30 years. The Bank also offers a balloon loan with a term of seven
years. Interest rates charged on these fixed-rate loans are priced on a regular
basis according to market conditions. See "- Originations, Purchases and Sales
of Loans and Mortgage-Backed Securities."

         The Bank also originates loans with terms of 15 or 30 years pursuant to
programs sponsored by the Veteran's Administration ("VA") or the Federal Housing
Administration ("FHA"). Such loans generally carry a guarantee from the VA or
are insured by the FHA. These loans are typically sold in the secondary market
with servicing released. The Bank also offers loans for the Guaranteed Loan
Program with Rural Development (formerly Farmers Home Administration).

         Currently, AmericanTrust will lend up to 95% of the lesser of the sales
price or appraised value of the security property on owner occupied one- to
four-family loans, provided that private mortgage insurance is obtained in an
amount sufficient to reduce the Bank's exposure to not more than 80% of the
appraised value or sales price, as applicable. The loan-to-value ratio on
non-owner occupied one- to four-family loans is generally 75% of the lesser of
the sales price or appraised value of the security property. Residential loans
do not include prepayment penalties, are non-assumable (other than
government-insured or guaranteed loans), and do not produce negative
amortization. Real estate loans originated by the Bank contain a "due on sale"
clause allowing the Bank to declare the unpaid principal balance due and payable
upon the sale of the security property.

         The loans currently originated by the Bank are typically underwritten
and documented pursuant to the guidelines of the FHLMC. The Bank's decision to
hold or sell these loans is based on its asset liability management policy and
goals and the market conditions for mortgages at any period in time. Under
current policy, the Bank typically originates for sale all conforming fixed- and
adjustable-rate mortgage loans originated. The Bank currently retains the
servicing of the conventional loans it sells. See "- Originations, Purchases and
Sales of Loans and Mortgage-Backed Securities" for information regarding fees
received by the Bank in connection with loans serviced for others. At June 30,
1997, the Bank had $2.3 million of fixed-rate residential loans with remaining
terms of less than 10 years and $6.7 million of fixed-rate loans with remaining
terms of 10 years or more in its loan portfolio.

                                        8

<PAGE>



                  Residential Construction Lending. The Bank makes construction
loans for the construction of residences (including modular homes). At June 30,
1997 the Bank's construction loan portfolio totaled $919,000 or 1.8% of its
gross loan portfolio. As of that date, all of these loans were secured by
property located within the Bank's market area.

         Construction loans to individuals for their residences are structured
to be converted to permanent loans at the end of the construction phase, which
typically runs from four to six months. These construction loans have rates and
terms comparable to one- to four-family loans then offered by the Bank, except
that during the construction phase, the borrower pays interest only. The maximum
loan-to-value ratio of owner occupied single family construction loans is 95%.
Residential construction loans are generally underwritten pursuant to the same
guidelines used for originating permanent residential loans.

         Construction loans are obtained primarily from walk-in customers. The
application process includes submission to the Bank of plans and costs of the
project to be constructed. These items are used as a basis to determine the
appraised value of the subject property. Loans are based on the lesser of
current appraised value or the cost of construction (land plus building).

         The Bank's construction loan agreements generally provide that loan
proceeds are disbursed in increments as construction progresses. The Bank
reviews the progress of the construction of the dwelling and requires that the
dwelling be inspected by an independent appraiser before disbursements are made.

         Consumer Lending. AmericanTrust currently offers a variety of secured
consumer loans, including mobile home and RV loans, home improvement and home
equity loans, automobile loans and loans secured by savings deposits. The Bank
also offers unsecured consumer loans. Except for mobile home and RV loans,
AmericanTrust currently originates substantially all of its consumer loans in
its market area. AmericanTrust originates consumer loans by extending credit
directly to the borrower. Mobile home and RV loans are originated on an indirect
basis through the acquisition of installment payment contracts from retailers
who have extended credit to their customers for the purchase of mobile homes or
RVs. At June 30, 1997, the Bank's consumer loans totaled $20.6 million, or 40.5%
of the Bank's gross loan portfolio.

         The largest component of AmericanTrust's consumer loan portfolio
consists of mobile home and RV loans. At June 30, 1997, mobile home loans
totaled $4.6 million, or approximately 9.1% of the Bank's gross loan portfolio,
and RV loans totalled $13.2 million, or 26.0% of the Bank's gross loan
portfolio. In 1984, the Bank began offering mobile home loans in order to
provide affordable housing to individuals. AmericanTrust typically indirectly
originates loans secured by new and used mobile homes purchased by individuals
from dealers who meet AmericanTrust's qualifications. Pursuant to agreements
with two corporations specializing in financing and originating mobile home
loans, these companies solicit loan opportunities from dealers, receive and
process all credit applications, submit applications to AmericanTrust and assist
in the collection of delinquent accounts and resale of repossessed collateral.
When the completed loan application package is received by AmericanTrust, the
Bank independently underwrites the loan and determines whether to accept the
loan. At June 30, 1997, mobile home

                                        9

<PAGE>



loans originated pursuant to these agreements amounted to substantially all
mobile home loans outstanding.

         Mobile homes securing such loans are located primarily in Indiana.
Mobile home loans are typically made at a higher yield and for a shorter
maturity than one- to four-family residential mortgage loans. Most of the Bank's
mobile home loans have been originated with fixed rates of interest and are
generally made in amounts of up to a maximum of the lesser of 125% of the net
invoice or 90% of the appraised value or buyer's cost. The buyer's cost can
include such items as freight, itemized set-up charges, physical damage
insurance, sales tax and filing and recording fees. AmericanTrust is permitted
by regulation to make mobile home loans for terms of up to 20 years, although
most of the Bank's mobile home loans are for terms of 15 years or less. At June
30, 1997, mobile home loans totaling $42,000, or .08% of the Bank's gross loan
portfolio were 60 days or more delinquent.

         In January 1994, the Bank began indirectly originating RV loans to
individuals who meet the Bank's underwriting standards, pursuant to agreements
with financing companies which are similar to the mobile home loan origination
agreements described above. At June 30, 1997, RV loans totaling $144,000 or .28%
were 60 days or more delinquent.

         The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of the ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.

         Management considers consumer lending to be an important component of
its asset/liability management strategy. Consumer loans, in particular mobile
home and RV loans, generally have intermediate terms to maturity as compared to
single family mortgage loans. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset/Liability Management" in
the Annual Report. As a result, AmericanTrust has increased its consumer lending
in recent periods.

         Consumer loans may entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured, or are
secured by rapidly depreciable assets, such as automobiles or mobile homes. In
such cases, any repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan balance as a
result of the greater likelihood of damage, loss or depreciation. Furthermore,
repossession of mobile homes and RVs can be difficult and time consuming as
compared to the repossessing other property. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. Although the level of delinquencies in the Bank's consumer loan
portfolio has generally been low (approximately $170,000 or approximately .83%
of the Bank's consumer loan portfolio at June 30, 1997 was 90 days or more
delinquent), there can be no assurance that delinquencies will not increase in


                                       10

<PAGE>



the future, particularly since many such credits, particularly loans secured by 
RVs, are new and unseasoned. See "- Asset Quality - Non-Performing Assets."

         Multi-Family and Commercial Real Estate Lending. AmericanTrust has
originated and purchased a limited amount of real estate loans secured by
multi-family and non-residential properties. Properties securing these loans
included office buildings, strip malls, apartment buildings, churches and
nursing homes. At June 30, 1997, $2.3 million, or 4.5% of the Bank's gross loan
portfolio, consisted of multi-family and commercial real estate loans.

         Multi-family and commercial real estate loans typically involve large
loan balances to single borrowers or groups of related borrowers. The payment
experience on such loans is typically dependent on the successful operation of
the real estate project and as such may be subject to a greater extent than
residential loans to adverse conditions in the economy generally.

         Appraisals on properties securing multi-family and commercial real
estate property loans originated by the Bank generally are performed by
independent fee appraisers at the time the loan is made. Appraisals on
multi-family and commercial real estate loans are generally reviewed by the
Bank's Board of Directors. In addition, the Bank's underwriting procedures
generally require verification of the borrower's credit history, income and
financial statements, banking relationships and income projections for the
property. Personal guarantees are often required for the Bank's multi-family and
commercial real estate loans.

         Loans secured by commercial real estate and multi-family properties are
generally larger and involve a greater degree of credit risk than one- to
four-family residential mortgage loans. At June 30, 1997, none of the Bank's
loans secured by multi-family and commercial real estate were non-accruing. See
"- Asset Quality."

         In the future, the Bank may continue to consider originating or
participating in multi-family and commercial real estate lending especially in
low- and moderate-income projects in the communities it serves. Such lending may
entail additional credit risk not present in other lending ventures.

         Lease Contracts. In fiscal 1993, the Bank began purchasing commercial
leases covering business equipment located principally in the various states
located throughout the Midwest and along the East Coast. At June 30, 1997, the
book value of the Bank's lease contracts totaled $1,491,000, or 2.9% of the
Bank's gross loan portfolio. In general, the leases are full-payout finance
leases in which the lease payments effectively repay the lessor for the purchase
price of the equipment, plus an acceptable yield. The leases were purchased from
a commercial lease origination firm with expertise in originating and acquiring
such leases. The Bank purchased these leases because they were available at
relatively high yields at a time when investment alternatives were generating
lower yields and because such leases have relatively short terms, consistent
with the Bank's asset/liability management strategy. Although, like other
commercial business financings, commercial leases involve higher risk than
residential mortgage loans, management believes that the purchase of such leases
is consistent with the Bank's asset/liability strategy, in light of the
comparatively higher yields, and the additional credit recourse provided by the


                                       11

<PAGE>


seller. The leases are currently on non-accrual status due to the bankruptcy of 
Bennett Funding Group, Inc. ("BFGI"), the servicer of the leases. BFGI continues
to service the lease contracts under the leadership of the court-appointed 
Trustee. See "-Asset Quality-Bennett Funding."

Originations, Purchases and Sales of Loans and Mortgage-Backed Securities

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

         While the Bank originates both adjustable-rate and fixed-rate loans,
its ability to originate loans to a certain extent is dependent upon the
relative customer demand for loans in its market, which is affected by the
interest rate environment, among other factors. For the fiscal year ended June
30, 1997, the Bank originated $6.3 million in fixed-rate loans and $2.1 million
in adjustable rate loans, all of which were secured by one-to-four family real
estate.

         The Bank currently holds in its portfolio certain non-conforming fixed-
and adjustable-rate loans that it originates. The conforming fixed- and
adjustable-rate loans originated by the Bank are generally sold in the secondary
market, primarily to the FHLMC with servicing retained. From time to time, in
order to reduce the interest rate risk associated with these loans, the Bank
obtains forward delivery commitments from investors on loans in process. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" in the Annual Report. FHA and VA
loans are sold with servicing released. During the fiscal year ended June 30,
1997, the Bank sold $5.3 million of one- to four-family loans in the secondary
market with servicing retained, and $1.0 million servicing released.

         Typically, when loans are sold, AmericanTrust retains responsibility
for collecting and remitting loan payments, making certain insurance and tax
payments on behalf of borrowers and otherwise servicing the loans, and receives
a fee for performing this service. Sales of whole loans generate income (or
loss) at the time of sale, produce future servicing income and provide funds for
additional lending and other purposes. At June 30, 1997, AmericanTrust was
servicing mortgage loans for others in the amount of $29.0 million.

         The contractual right to service mortgage loans that have been
originated and sold has an economic value that results from the future income
stream of the servicing fees, the availability of the cash balances associated
with escrow funds collected monthly for real estate taxes and insurance, the
availability of the cash from monthly principal and interest payments from the
collection date to the remittance date, and the ability of the servicer to
cross-sell other products and services. The actual value of a servicing
portfolio is dependent upon such factors as the age, maturity, and prepayment
rate of the loans in the portfolio, the average dollar balance of the loans, the
location of the collateral property, the average amount of escrow funds held,
the interest rates and delinquency experience on the loans, the types of loans
and other factors.

         Gains or losses on the sale of mortgage loans are recorded at the time
of the cash sale in an amount reflecting the difference between the contractual
interest rate of the loans sold and the current market rate of interest. 
The Bank receives a servicing fee from FHLMC on each loan sold.

                                       12

<PAGE>




         The Bank has from time to time purchased loans or interests in loans
secured predominantly by one- to four-family real estate from other lenders.
Purchased loans must comply with the Bank's underwriting standards. At June 30,
1997, the Bank had $1.5 million of lease contracts. See "- Lease Contracts." In
addition, the Bank has invested funds in mortgage-backed securities. During the
fiscal year ended June 30, 1997, the Bank neither purchased nor sold
mortgage-backed securities. See the Notes to Consolidated Financial Statements
in the Annual Report. See "- Investment Securities."

         The following table shows the loan origination, purchase, sale and
repayment activities of the Bank for the periods indicated.


                                               Year Ended June 30,
                                         --------------------------------
                                           1997        1996         1995
                                         -------    --------      -------
                                               (In Thousands)
Originations:
-------------
  One- to four-family.................   $ 8,397     $15,328      $11,523
  Consumer............................     8,927       7,358        9,020
                                         -------     -------      -------
         Total loans originated.......    17,324      22,686       20,543
                                         -------     -------      -------

Purchases:
----------
  Lease contracts.....................       ---       1,147          500
  Multi-family and commercial.........       ---         490          ---
  Mortgage-backed securities..........       ---         ---        3,000
                                         -------     -------      -------
         Total purchased..............       ---       1,637        3,500
                                         -------     -------      -------

Sales:
------
  One- to four-family.................     6,319      12,948        6,836
  Mortgage-backed securities..........       ---         ---        3,000
                                         -------     -------      -------
         Total sales..................     6,319      12,948        9,836
                                         -------     -------      -------

Principal repayments:
---------------------
  Loans...............................    11,361       9,608        8,971
  Mortgage-backed securities..........       392         718          692
                                         -------     -------      -------
         Total principal payments.....    11,753      10,326        9,663
                                         -------     -------      -------

         Net increase (decrease)......   $  (748)    $ 1,049      $ 4,544
                                         =======     =======      =======


Asset Quality

         General. When a borrower fails to make a required payment on a loan,
the Bank attempts to cause the delinquency to be cured by contacting the
borrower. In the case of loans secured by real estate, a reminder notice is sent
to the borrower on all loans over five days delinquent. When a loan becomes 15
days delinquent, late charges are assessed and a notice of late charges is sent
to the borrower. An additional late notice is sent to the borrower if the
delinquency is not cured within 30 days of the required payment date. If the
loan becomes 60 days delinquent and the borrower has not attempted to contact
the Bank to arrange an acceptable plan to bring the loan current, the borrower


                                       13
<PAGE>
is contacted by telephone. If the borrower contacts the Bank with a reasonable
explanation for the delinquency, the Bank generally will attempt to reach
workable accommodations with the borrower to bring the loan current. All
proposed workout arrangements are evaluated on a case by case basis, based on
the best judgement of the Bank's management, considering, among other things,
the borrower's past credit history, current financial status, cooperativeness,
future prospects and the reason for the delinquency. If the loan is in excess of
90 days delinquent, the loan will be referred to the Bank's legal counsel for
collection. In all cases, if the Bank believes that its collateral is at risk
and added delay would place the collectibility of the balance of the loan in
further question, management may refer loans for collection even sooner than the
90 days described above.

         When a loan becomes delinquent 90 days or more, the Bank will place the
loan on non-accrual status and previously accrued interest income on the loan is
charged against current income. The loan will remain on a non-accrual status as
long as the loan is 90 days delinquent.

         Delinquent consumer loans are handled in a similar manner as to those
described above; however, shorter time frames for each step apply due to the
type of collateral generally associated with such types of loans. See " -
Lending Activities - Consumer Lending." The Bank's procedures for repossession
and sale of consumer collateral are subject to various requirements under
Indiana consumer protection laws.

         The following table sets forth the Bank's loan delinquencies by type,
by amount and by percentage of type at June 30, 1997. The amounts presented in
the table below represent the total remaining principal balances of the loans,
rather than the actual payment amounts which are overdue.
<TABLE>
<CAPTION>

                                              Loans Delinquent For:
                            ----------------------------------------------------------
                                     60-89 Days                90 Days and Over             Total Delinquent Loans
                            ---------------------------   ----------------------------  -----------------------------
                                               Percent                        Percent                        Percent
                                               of Loan                        of Loan                        of Loan
                            Number   Amount    Category    Number   Amount    Category    Number   Amount    Category
                            ------   ------    --------   -------  -------    --------  --------  -------    --------
                                                               (Dollars in Thousands)
<S>                            <C>    <C>        <C>         <C>    <C>         <C>        <C>      <C>        <C>
One- to four-family.........    8      $287       .56%       2    $   66       .13%        10     $  353       .69%
Consumer....................   11       103       .20       14       170       .34         25        273       .54
Lease contracts.............  ---       ---       ---      305     1,491      2.93        305      1,491      2.93
                              ---      ----       ---     ----    ------      ----        ---     ------      ----
     Total..................   19      $390       .76%     321    $1,727      3.40%       340     $2,117      4.16%
                              ===      ====       ===     ====    ======      ====        ===     ======      ====
</TABLE>


         Real estate acquired by AmericanTrust as a result of foreclosure or by
deed in lieu of foreclosure is classified as real estate owned until it is sold.
When property is acquired, it is recorded at the lower of cost or estimated fair
value at the date of acquisition, and any write-down resulting therefrom is
charged to the allowance for losses on loans. After acquisition, all costs
incurred in maintaining the property are expensed. However, costs relating to
the development and improvement of the property are capitalized to the extent of
fair value.

         Bennett Funding Group, Inc. The Company has a business relationship
with Bennett Funding Group, Inc. ("BFGI") which recently filed for Chapter 11
bankruptcy protection on March 29, 1996. From 1992 to 1995, the Company


                                       14

<PAGE>
purchased commercial lease contracts covering business equipment from BFGI, for
which BFGI acts as the servicer. At June 30, 1997, the book value of the
Company's lease contracts totaled $817,000. In addition, the Company and
$674,000 in Short Term Dealer Contracts with Bennett Leasing Corporation ("BLC")
which was later included in the bankruptcy proceedings. Newspaper reports have
indicated that BFGI may have utilized fictitious leases in some of its business
activities. The SEC has filed a criminal and civil suit against an officer of
BFGI which alleges various fraudulent actions including the sale of the same
leases to two or more buyers. Reserves of $67,000 have been recorded for
probable losses as a result of lease prepayments. In addition, reserves of
$149,000 have been allocated to the leases for potential losses.

         The Company is continuing to evaluate the allegations against BFGI and
BLC and the effect that the bankruptcy filing will have on its leases and its
security. Until the evaluation is complete, management is unable to predict with
any certainty the effects of the bankruptcy on the Company.

         Non-Performing Assets. The following table sets forth the amounts and
categories of non-performing assets. Interest income on loans is accrued over
the term of the loans based upon the principal outstanding except where serious
doubt exists as to the collectibility of a loan, in which case the accrual of
interest is discontinued. For all years presented, the Bank's troubled debt
restructurings (which involve forgiving a portion of interest or principal on
any loans or making loans at a rate or with a maturity less than that customary
in the Bank's market) are included in the table below. Foreclosed assets include
assets acquired in full or partial settlement of loans. The amounts shown do not
reflect reserves set up against such assets. See "- Allowance for Losses on
Loans."


                                                        June 30,
                                         ---------------------------------------
                                         1997           1996             1995
                                        ------         ------           ------
                                                 (Dollars in Thousands)
Non-accruing loans:
  One- to four-family.................  $   66        $    66          $  ---
  Commercial real estate..............     ---            ---              44
  Consumer............................     239             23              46
  Leases..............................   1,491          1,491             ---
                                        ------          ------            ----
     Total............................   1,796          1,580              90

Restructured loans:
  Commercial real estate..............     644            809             826

Foreclosed assets:
  One- to four-family.................     ---             43             ---
  Consumer............................     186            ---             ---
                                        ------          ------            ----
Total non-performing assets...........  $2,626          $2,432            $916
                                        ======          ======            ====
Total as a percentage of total assets.    3.64%           3.38%           1.35%
                                        ======          ======            ====


         For the fiscal year ended June 30, 1997, gross interest income which
would have been recorded had the non-accruing and restructured loans been
current in accordance with their

                                       15

<PAGE>



original terms amounted to $224,000. Interest income received or accrued
included $55,000 for the year ended June 30, 1997 on the non-accruing loans and
restructured loans.

         At June 30, 1997, the Bank's non-accruing loans consisted of two loans
secured by residential real estate totaling $66,000 and 19 consumer loans
totaling $239,000. As discussed in more detail below, the Bank's interest in
restructured loans at June 30, 1997 totaled $644,000. Such loans are secured by
apartment complexes located in Indiana which were restructured in fiscal 1991
and 1992. At June 30, 1997, borrowers on each of these loans, of which the
Bank's interest had aggregate balances of $363,000 and $281,000, respectively,
had made all required payments in accordance with the terms of the restructured
loan agreements. A description of these restructured loans is set forth below.

         In 1983, the Bank purchased a 50% interest in a $711,000 loan secured
by an apartment complex located in Rochester, Indiana. In fiscal 1992, due to
chronic delinquencies on the part of the borrower, the Bank and the lead lender
agreed to restructure the loan to extend the initial term until 1997. Subsequent
to the restructuring, the borrowers continued to make payments approximately 30
days late. The loan was 30 days delinquent at June 30, 1997. The Bank is
accruing interest on this loan at the restructured interest rate. In addition,
the borrowers have not established any reserve for repairs on the property
should they become necessary. At June 30, 1997, the Bank's interest in this loan
totalled $363,000.

         In 1983, the Bank originated a $724,000 loan secured by an apartment
complex located in Logansport, Indiana of which it retained 40% interest. In
fiscal 1992, due to chronic delinquencies on the part of the borrowers, the Bank
agreed to restructure the loan to extend the repayment term until 199 . At June
30, 1997, the Bank's interest in this loan totalled $281,000. On the same date,
the borrowers had made all required payments in accordance with the terms of the
modified loan agreement. The Bank is accruing interest on this loan at the
restructured interest rate.

         Other Loans of Concern. In addition to the non-performing assets set
forth in the table above as of June 30, 1997, there were no other loans with
respect to which known information about the possible credit problems of the
borrowers or the cash flows of the security properties have caused management to
have concerns as to the ability of the borrowers to comply with present loan
repayment terms and which may result in the future inclusion of items in the
non-performing asset categories.

         Classified Assets. Federal regulations provide for the classification
of loans and other assets, such as debt and equity securities, considered by the
OTS to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full" on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"

                                       16

<PAGE>
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.

         When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for losses in an
amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge-off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the regulatory authorities, who may order the establishment
of additional general or specific loss allowances.

         In connection with the filing of its periodic reports with the OTS and
in accordance with its classification of assets policy, the Bank regularly
reviews problem loans and real estate acquired through foreclosure to determine
whether such assets require classification in accordance with applicable
regulations. On the basis of management's review of its assets, at June 30,
1997, the Bank had classified a total of $2.8 million of its assets as
substandard, $23,000 as doubtful, and $114,000 as loss. At June 30, 1997, total
classified assets comprised $2.9 million, or 38.7% of the Bank's capital, or
4.0% of the Bank's total assets.

         Allowance for Losses on Loans. The allowance for losses on loans is
established through a provision for loan losses based on management's evaluation
of the risk inherent in its loan portfolio and changes in the nature and volume
of its loan activity, including those loans which are being specifically
monitored by management. Such evaluation, which includes a review of loans for
which full collectibility may not be reasonably assured, considers among other
matters, the loan classifications discussed above, the estimated fair value of
the underlying collateral, economic conditions, historical loan loss experience,
the amount of loans outstanding and other factors that warrant recognition in
providing for an adequate loan loss allowance.

         Real estate properties acquired through foreclosure are recorded at the
lower of cost or fair value minus estimated cost to sell. If fair value at the
date of foreclosure is lower than the balance of the related loan, the
difference will be charged-off to the allowance for losses on loans at the time
of transfer. Valuations are periodically updated by management and if the value
declines, a specific provision for losses on such property is established by a
charge to operations.

         Although management believes that it uses the information available to
determine the allowance, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Bank's allowance for losses on loans will
be the result of periodic loan, property and collateral reviews and thus cannot
be predicted in advance. In addition, federal regulatory agencies, as an
integral part of the examination process, periodically review the Bank's
allowance for losses on loans. Such agencies may require the Bank to increase
the allowance based upon their judgment of the information available to them at
the time of their examination. At June 30, 1997, the Bank had a total allowance


                                       17
<PAGE>
for losses on loans of $523,000, representing 21.4% of total non-performing
loans and 1.0% of the Bank's loans, net. See Notes to Consolidated Financial
Statements in the Annual Report.

         The following table sets forth an analysis of the Bank's allowance for
losses on loans.
<TABLE>
<CAPTION>


                                                         Year Ended June 30,
                                                    ---------------------------------
                                                      1997       1996          1995
                                                    --------   --------     ---------
                                                           (In Thousands)
<S>                                                      <C>      <C>          <C>
Balance at beginning of period....................    $494        $400         $334
                                                      ----        ----         ----
Charge-offs:
   One- to four-family............................     ---         ---           20
   Consumer.......................................       4          31            2
                                                      ----       -----         ----
Net charge-offs...................................       4          31           22
Provision for losses on loans ....................      33         125           88
                                                      ----        ----         ----
Balance at end of period..........................    $523        $494         $400
                                                      ====        ====         ====

Ratio of net charge-offs during the period to
 average loans outstanding during the period......     .01%        .06%         .05%
                                                       ===         ===          ===
Ratio of net charge-offs during the period to
 average non-performing assets....................     .40%       2.28%        1.85%
                                                       ===        ====         ====
</TABLE>


         The distribution of the Bank's allowance for losses on loans at the
dates indicated is summarized as follows:

<TABLE>
<CAPTION>

                                                                    June 30,
                                        ---------------------------------------------------------------
                                                1997                  1996                  1995
                                        -------------------  --------------------  --------------------
                                                   Percent               Percent               Percent
                                                   of Loans              of Loans              of Loans
                                                   in Each               in Each               in Each
                                        Amount of  Category   Amount of  Category  Amount of   Category
                                        Loan Loss  to Total   Loan Loss  to Total  Loan Loss   to Total
                                        Allowance   Loans     Allowance   Loans    Allowance     Loans
                                        ---------  --------   ---------  --------  ---------   --------
                                                             (Dollars in Thousands)
<S>                                         <C>       <C>        <C>       <C>         <C>         <C>
One- to four-family.....................  $ 31       50.24%     $ 35       57.58%    $ 39        62.65%
Multi-family and commercial real estate.    63        4.54        77        4.75      139         5.46
Construction............................   ---        1.81       ---        1.35      ---         1.31
Consumer................................   155       40.48       131       33.41      110        28.81
Lease contracts.........................   216        2.93       171        2.91      ---         1.77
Unallocated.............................    58         ---        80         ---      112          ---
                                          ----      ------      ----      ------     ----        ----- 
                                   
     Total..............................  $523      100.00%     $494      100.00%    $400        100.0%
                                          ====      ======      ====      ======     ====        =====
</TABLE>

Investment Activities

         General. AmericanTrust must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Historically, the Bank has
generally maintained liquid assets at levels above the minimum requirements
imposed by the OTS regulations and at levels believed adequate to meet the
requirements of normal operations, including repayments of maturing debt and
potential deposit outflows. Cash flow projections are regularly reviewed and


                                       18

<PAGE>

updated to assure that adequate liquidity is maintained. At June 30, 1997, the
Bank's liquidity ratio (liquid assets as a percentage of net withdrawable
savings deposits and current borrowings) was 11.3%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" in the Annual Report and "Regulation - Liquidity."

         Federally chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.

         Generally, the investment policy of the Company and Bank, as
established by the Board of Directors, is to invest funds among various
categories of investments and maturities based upon liquidity needs,
asset/liability management policies, investment quality, marketability and
performance objectives. Subject to the policies established by the Board of
Directors, President Borst and Treasurer and Chief Financial Officer Cornish
manage and oversee the investments and objectives for the investment portfolio.
Such individuals are authorized to purchase, sell and trade securities subject
to the guidelines set forth in the investment policy. All securities
transactions are disclosed to the Board of Directors at their next regular
meeting.

         Securities and Other Interest-Earning Assets. At June 30, 1997, the
Company's interest-bearing deposits with other financial institutions totaled
$1.1 million, or 1.5% of total assets, and its securities, consisting of federal
agency obligations, mutual funds which invest in adjustable-rate mortgages and
asset-backed securities, totaled $14.2 million, or 19.7% of total assets. In
addition, as of such date, the Company had a $1,050,000 investment in FHLB
stock, satisfying its requirement for membership in the FHLB of Indianapolis. It
is the Company's general policy to purchase securities which are U.S. Government
securities or federal agency obligations or other issues that are rated
investment grade. At June 30, 1997, the average term to maturity or repricing of
the securities portfolio (excluding FHLB stock) was 12.3 years.

         The Company's securities, except for mortgage-backed securities,
portfolio at June 30, 1997 contained neither tax-exempt securities nor
securities of any issuer with an aggregate book value in excess of 10% of the
Company's stockholders' equity, excluding those issued by the United States
Government or its agencies.

         The Company has investment securities of $183,000 that are backed by
auto receivables in four Auto Receivables Trusts. The auto receivables were
purchased between 1992 and 1994. In December 1995, Duff & Phelps Rating Co.
("Duff & Phelps") placed the Trusts on "rating watch-down" due to high vehicle
repossessions and issues concerning the charge-off of certain loan balances
against available cash reserves. On February 14, 1996 Duff & Phelps announced
the downgrade to BBB-. At June 30, 1997 all of the auto receivable pools owned
by the Company were paying as agreed.

                                       19
<PAGE>



         OTS guidelines regarding investment portfolio policy and accounting
require insured institutions to categorize securities and certain other assets
as held for "investment," "sale," or "trading." In addition, effective June 30,
1993, the Company adopted SFAS 115 which states that securities available for
sale are accounted for at fair value and securities which management has the
intent and the Company has the ability to hold to maturity are accounted for on
an amortized cost basis. The investment policy of the Company has strategies for
each type of security. See the Notes to the Consolidated Financial Statements in
the Annual Report.

                                       20
<PAGE>



         The following table sets forth the composition of the Company's
securities portfolio and other interest earning assets at the dates indicated.

<TABLE>
<CAPTION>
                                                                                       June 30,
                                                    --------------------------------------------------------------------------------
                                                               1997                      1996                       1995
                                                    --------------------------   ------------------------   ------------------------
                                                     Carrying           % of      Carrying         % of      Carrying      % of
                                                      Value             Total      Value           Total      Value        Total
                                                    -----------        -------   ----------      --------    ----------    ---------
                                                                                (Dollars in Thousands)
<S>                                                    <C>              <C>            <C>        <C>           <C>          <C>
Securities
  Available for sale:
     Federal agency obligations....................    $ 8,309          54.4 %      $8,117         52.1%     $3,004          24.3%
     Mortgage-backed securities....................      2,724          17.9         2,737         17.6         511           4.1
     Mutual funds..................................      1,116           7.3         1,065          6.8         120            .9
                                                       -------         -----     ---------       -------     ------         -----
         Subtotal..................................     12,149          79.6        11,919         76.5       3,635          29.3
                                                       -------         -----      --------       ------      ------         -----

  Held to maturity:
     Federal agency obligations....................        500           3.3           500          3.2       1,000           8.1
     Mortgage-backed securities....................      1,384           9.0         1,729         11.1       4,777          38.6
     Other asset-backed securities.................        183           1.2           384          2.5       2,164          17.5
                                                       -------         ------     --------       ------      ------         -----
         Subtotal..................................      2,067          13.5         2,613         16.8       7,941          64.2
                                                       -------         ------     --------       ------      ------         -----

FHLB stock.........................................     1,050            6.9         1,050          6.7         800           6.5
                                                       -------         -----      --------       ------      ------         -----

     Total securities and FHLB stock...............    $15,266         100.00%     $15,582        100.00%   $12,376         100.00%
                                                       =======         ======      =======        ======    =======         ======

Average remaining life of securities and mortgage-
    backed securities (excluding FHLB stock).......    12.3 years                  11.8 years                7.5 years

Other interest-earning assets
  Interest-bearing deposits with banks.............     $1,093         100.00%        $618        100.00%    $2,097         100.00%
                                                        ======         ======         ====        ======     ======         ======
</TABLE>


                                       21
<PAGE>



         The composition and maturities of the securities portfolio, excluding
FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>


                                                                    June 30, 1997
                                     -------------------------------------------------------------------------------
                                       Less Than     1 to 5        5 to 10      Over 10
                                        1 Year        Years         Years        Years        Total Securities
                                       ----------  -----------  ------------  ----------  --------------------------
                                       Amortized    Amortized     Amortized    Amortized  Amortized
                                         Cost         Cost          Cost         Cost        Cost      Market Value
                                       ----------  -----------  ------------  ----------  ----------   -------------
                                                               (Dollars in Thousands)
<S>                                        <C>          <C>          <C>        <C>            <C>             <C>
Available for sale:
    Federal agency obligations....     $    ---       $3,000         $500        $5,000      $8,500         $8,309
    Mortgage-backed securities....          ---          ---          ---         2,792       2,792          2,724
    Asset management fund.........        1,117          ---          ---           ---       1,117          1,116
                                         ------       ------         ----        ------     -------        -------
                                          1,117        3,000          500         7,792      12,409         12,149
                                         ------       ------         ----        ------     -------        -------
Held to maturity:
     Federal agency obligations...          500          ---          ---           ---         500            493
     Mortgage-backed securities...          ---          ---          ---         1,384       1,384          1,350
     Asset-backed securities......          ---          183          ---           ---         183            150
                                         ------       ------         ----        ------     -------        -------
                                            500          183          ---         1,384       2,067          1,993
                                         ------       ------         ----        ------     -------        -------
Total securities..................       $1,617       $3,183         $500        $9,176     $14,476        $14,142
                                         ======       ======         ====        ======     =======        =======

Weighted average yield............          5.4%         6.3%         6.6%          7.1%        6.7%
</TABLE>


         Mortgage-Backed Securities. The Bank has a portfolio of mortgage-backed
securities and has utilized such investments to complement its mortgage lending
activities. Mortgage-backed securities can also serve as collateral for
borrowings and as a source of liquidity. At June 30, 1997, the mortgage-backed
securities totaled $4.2 million, or 5.8% of total assets. For information
regarding the carrying and market values of the Bank's mortgage-backed
securities portfolio, see the Notes to Consolidated Financial Statements in the
Annual Report.

         Historically, most of the Bank's mortgage-backed securities were
long-term, fixed-rate securities. In more recent years, the Bank has begun to
purchase other types of mortgage-backed securities consistent with its
asset/liability management objectives. In this regard, the Bank emphasizes the
purchase of adjustable-rate mortgage-backed securities for asset/liability
management purposes and in order to supplement the Bank's origination of
adjustable-rate mortgage loans. At June 30, 1997, $354,000, or 8.5% of the
Bank's mortgage-backed securities, carried adjustable rates of interest.



                                       22

<PAGE>



         The following table sets forth the composition of the Bank's
mortgage-backed securities portfolio at the dates indicated.
<TABLE>
<CAPTION>

                                                                                     June 30,
                                                     ------------------------------------------------------------------------------
                                                              1997                      1996                      1995
                                                     ------------------------------------------------------------------------------
                                                     Carrying          % of     Carrying          % of      Carrying        % of
                                                       Value           Total      Value           Total       Value        Total
                                                     ----------     ----------  ---------         ------    --------       -----
                                                                                (Dollars in Thousands)
          <S>                                          <C>            <C>          <C>              <C>         <C>           <C>
  Available for sale:
     Government National Mortgage Association......      $2,792          66.9%     $2,737          61.3%     $  511         9.7%
                                                         ------          ----      ------          ----      ------         ---

  Held to maturity:
     Government National Mortgage Association......         ---          ---          ---          ---        2,442        46.2
     Federal National Mortgage Association.........         354           8.5         369           8.3         587        11.1
     ASMC Acceptance Corporation...................         256           6.1         352           7.9         471         8.9
     Statewide Acceptance Corporation..............         774          18.5       1,008          22.5       1,277        24.1
                                                        -------         -----      ------         -----      ------       -----
          Subtotal.................................       1,384          33.1       1,729          38.7       4,777        90.3
                                                         ------         -----      ------         ------     ------       -----
     Total mortgage-backed securities..............      $4,176         100.00%    $4,466         100.00%    $5,288       100.00%
                                                         ======         ======     ======         ======     ======       ======
</TABLE>




                                       23
<PAGE>



         The following table sets forth the contractual maturities of the Bank's
mortgage-backed securities at June 30, 1997.


                                                                 Over 10
                                                                  Years
                                                                 -------

Available for sale:
    Government National Mortgage Association...............       $2,792
                                                                  ------

Held to maturity:
    Federal National Mortgage Association..................          354
    ASMC Acceptance Corporation............................          256
    Statewide Acceptance Corporation.......................          774
                                                                  ------
           Subtotal........................................        1,384
                                                                  ------
     Total.................................................       $4,176
                                                                  ======


         At June 30, 1997, the Bank's portfolio of mortgage-backed securities
did not contain securities of any issuer with an aggregate book value in excess
of 10% of the Company's stockholders' equity, excluding those issued by the
United States Government or its agencies, except for securities issued by
Statewide Acceptance Corp. which had an aggregate carrying value of $774,000 and
an aggregate market value of $763,000. The Statewide Acceptance Corporation
securities are securities backed by FHA Title I home improvement loans which are
generally insured by FHA up to 90% of the loan amount.

         Under the OTS risk-based capital requirements, Government National
Mortgage Association ("GNMA") mortgage-backed securities have a zero percent
risk weighting and Federal National Mortgage Association ("FNMA"), FHLMC and
"AA" or higher rated mortgage-backed securities have a 20% risk weighting, in
contrast to the 50% risk weighting carried by one- to four-family performing
residential mortgage loans. At June 30, 1997, all of the Bank's mortgage-backed
securities are backed by federal agencies except for mortgage-backed securities
totaling $1.0 million.

         In addition, from time to time, the Bank has purchased collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs and REMICs are securities derived by reallocating the cash
flows from mortgage-backed securities or pools of mortgage loans in order to
create multiple classes or tranches of securities with coupon rates and average
lives that differ from the underlying collateral as a whole. The Bank invests in
these securities as an alternative to mortgage loans or mortgage-backed
securities generally to satisfy the short- to intermediate-term portion of its
asset/liability management strategy. At June 30, 1997, the Bank had no REMICs
and CMOs.

Sources of Funds

         General. The Bank's primary sources of funds are deposits, payment of
principal and interest on loans, interest earned on securities and
mortgage-backed securities, interest earned on interest-bearing deposits with
other banks, FHLB advances, and other funds provided from operations, including
asset sales.


                                       24

<PAGE>



         FHLB advances are used to support lending activities and to assist in
the Bank's asset/liability management strategy. Typically, the Bank does not use
other forms of borrowings. At June 30, 1997, the Bank had total FHLB advances of
$10.9 million. See "- Borrowings" and the Notes to Consolidated Financial
Statements in the Annual Report.

         Deposits. AmericanTrust offers a variety of deposit accounts having a
wide range of interest rates and terms. The Bank's deposits consist of passbook,
savings, NOW, checking, money market deposit and certificate accounts. The
certificate accounts currently range in terms from 91 days to six years.

         The Bank relies primarily on advertising (including television, radio
and newspaper), competitive pricing policies and customer service to attract and
retain these deposits. Currently, AmericanTrust solicits deposits from its
market area only, does not use brokers to obtain deposits and currently, does
not engage in any type of premium, gift or promotional programs beyond the
advertising vehicles mentioned above. The flow of deposits is influenced
significantly by general economic conditions, changes in money market and
prevailing interest rates and competition.

         The Bank also serves as a depository for public funds for various
municipalities and related entities. At June 30, 1997, the amount of public
funds on deposit with the Bank was $11.2 million. These accounts are subject to
volatility depending on governmental funding needs and the Bank's desire to
attract such funds.

         The Bank has become more susceptible to short-term fluctuations in
deposit flows as customers have become more interest rate conscious. The Bank
endeavors to manage the pricing of its deposits in keeping with its
asset/liability management and profitability objectives. The ability of the Bank
to attract and maintain savings accounts and certificates of deposit, and the
rates paid on these deposits, has been and will continue to be significantly
affected by market conditions.

         The following table sets forth the savings flows at the Bank during the
periods indicated.


                                               Year Ended June 30,
                                      -------------------------------------
                                      1997            1996           1995
                                      ---------    ----------      --------
                                                  (In Thousands)

Opening balance..................       $44,562      $50,514       $48,349
Deposits (withdrawals), net......         6,704       (3,120)          151
Deposits sold....................           ---       (5,146)          ---
Interest credited................         2,257        2,314         2,014
                                       --------      -------       -------
Ending balance...................        53,523       44,562        50,514
                                       --------       ------       -------
Net increase (decrease)..........      $  8,961      ($5,952)      $ 2,165
                                       ========     ========       =======
Percent increase (decrease)......          20.1%       (11.8)%        4.48%
                                          =====        =====          ====



                                       25

<PAGE>



         The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by the Bank for the periods
indicated.

<TABLE>
<CAPTION>

                                                                             Year Ended June 30,
                                         -----------------------------------------------------------------------------------------
                                                         1997                           1996                        1995
                                         ------------------------------------   ------------------------   -----------------------
                                                                    Weighted
                                                        Percent      Average                    Percent                  Percent
                                            Amount     of Total       Rate       Amount        of Total     Amount      of Total
                                         ----------    ---------    ---------   ---------      ---------    -------     ---------
                                                                         (Dollars in Thousands)
        <S>                                    <C>          <C>         <C>         <C>            <C>         <C>          <C>

Transactions and Savings Deposits:
----------------------------------

NOW accounts(1).........................    $ 7,300         13.6%      2.3%   $   6,590          14.79%   $ 7,386         14.62%
Statement savings.......................      1,871          3.5       3.3        1,986           4.45      2,270          4.49
Regular passbook........................      3,917          7.3       3.3        3,775           8.47      3,991          7.90
90-day passbook accounts................      1,104          2.1       3.5        1,251           2.81      1,884          3.73
Money Market Accounts...................      4,700          8.8       3.8        4,785          10.74      5,671         11.23
                                            -------        -----                -------          -----      -----        ------  

Total Non-Certificates..................     18,892         35.3                 18,387          41.26     21,202         41.97
                                            -------        -----                -------          -----      -----        ------  

Certificates:
-------------

 2.50 -  3.49%..........................         54           .1                     58            .13        423           .84
 3.50 -  4.49%..........................        314           .6                    905           2.03      2,622          5.19
 4.50 -  5.49%..........................     12,176         22.7                  8,689          19.50      4,538          8.98
 5.50 -  6.49%..........................     20,216         37.8                 13,937          31.28     15,068         29.83
 6.50 -  7.49%..........................      1,671          3.1                  2,163           4.85      5,392         10.68
 7.50 -  8.49%..........................        200           .4                    423            .95      1,269          2.51

Total Certificates......................     34,631         64.7       5.6       26,175          58.74     29,312         58.03
                                           --------        -----                -------          ------    ------        ------

Total Deposits..........................    $53,523        100.00%     4.7%     $44,562         100.00%   $50,514        100.00%
                                            =======        ======               =======         ======    =======        ====== 
</TABLE>

----------
(1)      Includes business checking accounts.



                                       26

<PAGE>



         The following table shows rate and maturity information for the Bank's
certificates of deposit as of June 30, 1997.
<TABLE>
<CAPTION>

                                    3.00-      4.00-       6.00-       8.00-                  Percent
                                    3.99%      5.99%       7.99%       9.99%     Total       of Total
                                  --------   --------    --------     -------   ---------   -----------

Certificate accounts maturing in
quarter ending
---------------------------------
<S>                                 <C>         <C>          <C>        <C>          <C>         <C>
September 30, 1997...............  $  55     $10,201        $353        $---     $10,609         30.6%
December 31, 1997................     12       6,936         760         ---       7,708         22.3
March 31, 1998...................     38       1,646         479         ---       2,163          6.2
June 30, 1998....................      8       3,726         631         ---       4,365         12.6
September 30, 1998...............    ---       1,727         197         ---       1,924          5.6
December 31, 1998................    ---         922          81         ---       1,003          2.9
March 31, 1999...................    ---         429         276         ---         705          2.0
June 30, 1999....................    ---         185         642         ---         827          2.4
September 30, 1999...............    ---         355         291         ---         646          1.9
December 31, 1999................    ---         207         310         ---         517          1.5
March 31, 2000...................    ---         330         238         200         768          2.2
June 30, 2000....................    ---         166         257         ---         423          1.2
Thereafter.......................    ---         634       2,339         ---       2,973          8.6
                                    ----     -------      ------        ----     -------       ------

   Total.........................   $113     $27,464      $6,854        $200     $34,631       100.00%
                                    ====     =======      ======        ====     =======       ======

   Percent of total..............    .3%       79.3%       19.8%         .6%
                                     ==        ====        ====          ==

</TABLE>

         The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of June 30, 1997.

<TABLE>
<CAPTION>
                                                                             Maturity
                                                    -------------------------------------------------------------
                                                                    Over        Over
                                                    3 Months       3 to 6      6 to 12        Over
                                                     or Less       Months      Months       12 Months      Total
                                                    --------     --------     --------      ---------     -------
                                                                           (In Thousands)
<S>                                                  <C>            <C>         <C>            <C>           <C>
Certificates of deposit less than $100,000.......     $4,105       $2,708       $6,426         $9,486     $22,725
Certificates of deposit of $100,000 or more......        304          ---          102            300         706
Public funds (1).................................      6,200        5,000          ---            ---      11,200
                                                     -------      -------       ------         ------     -------
Total certificates of deposit....................    $10,609      $ 7,708       $6,528         $9,786     $34,631
                                                     =======      =======       ======         ======     =======
</TABLE>
_________________________
(1)      Deposits from governmental and other public entities.

         Borrowings. Although deposits are the Bank's primary source of funds,
the Bank's policy has been to utilize borrowings to support lending activities
and to assist the Bank's asset/liability management strategy when they are a
less costly source of funds, can be invested at a positive interest rate spread
or when the Bank desires additional capacity to fund loan demand.

         AmericanTrust's borrowings historically have consisted of advances from
the FHLB of Indianapolis. Such advances may be made pursuant to several
different credit programs, each of which has its own interest rate and range of
maturities. Federal law limits an institution's borrowings from the FHLB to 20
times the amount paid for capital stock in the FHLB, subject to regulatory
collateral requirements. At June 30, 1997, the Bank had $1,050,000 of FHLB of

                                       27

<PAGE>



Indianapolis stock. The Bank has the ability to purchase additional capital
stock from the FHLB. As a policy matter, however, the FHLB of Indianapolis
typically limits the amount of borrowings from the FHLB to 50% of adjusted
assets (total assets less borrowings). For additional information regarding the
term to maturity and average rate paid on FHLB advances, see the Notes to
Consolidated Financial Statements in the Annual Report.

         The following table sets forth the maximum month end balance and
average balance of FHLB advances and other borrowings for the periods indicated.


                                          Year Ended June 30,
                                    ----------------------------------
                                    1997           1996         1995
                                    --------     --------      -------
                                        (Dollars in Thousands)
Maximum Balance:
----------------
  FHLB advances................      $19,015      $20,450      $16,000

Average Balance:
----------------
  FHLB advances................      $14,618      $12,771      $12,542



         The following table sets forth certain information as to the Bank's
borrowings at the dates indicated.


                                                            June 30,
                                                 -------------------------------
                                                     1997       1996      1995
                                                     ----       ----      ----
                                                     (Dollars in Thousands)

FHLB advances...................................... $10,902     $19,5    $9,500
Weighted average interest rate of FHLB advances....    6.13%     5.85%     6.98%


Service Corporation Activities

         As a federally chartered savings bank, AmericanTrust is permitted by
OTS regulations to invest up to 2% of its assets, or approximately $1.4 million
at June 30, 1997, in the stock of, or loans to, service corporation
subsidiaries. As of such date, the net book value of AmericanTrust's investment
in its service corporation, Indiana Financial Service Corporation ("IFSCO") was
approximately $474,000. AmericanTrust may invest an additional 1% of its assets
in service corporations where such additional funds are used for inner-city or
community development purposes and up to 50% of its total capital in conforming
loans to service corporations in which it owns more than 10% of the capital
stock. In addition to investments in service corporations, federal associations
are permitted to invest an unlimited amount in operating subsidiaries engaged
solely in activities in which a federal association may engage.

         AmericanTrust's service corporation, IFSCO, is an Indiana corporation
located in Peru, Indiana. IFSCO was organized by the Bank in 1972 and provides
mortgage banking, annuity sales, credit life and other insurance services to
customers in the Bank's primary market area. In December, 1995, IFSCO purchased
the assets of U.S. Title, Inc. Following the acquisition, IFSCO, doing business
as U.S. Title, has continued to provide the title insurance services offered by

                                       28
<PAGE>

the former U.S. Title, Inc. For the fiscal year ended June 30, 1997, IFSCO had a
net loss of approximately $42,000.

Competition

         AmericanTrust faces strong competition, both in originating real estate
loans and in attracting deposits. Competition in originating real estate loans
comes primarily from commercial banks, savings institutions, mortgage bankers
and credit unions located in the Bank's market area. Commercial banks, savings
institutions and credit unions provide vigorous competition in consumer lending.
The Bank competes for real estate and other loans principally on the basis of
the quality of services it provides to borrowers, the interest rates and loan
fees it charges, and the types of loans it originates. See "- Lending
Activities."

         The Bank attracts all of its deposits through its retail banking
offices, primarily from the communities in which those retail banking offices
are located. Therefore, competition for those deposits is principally from
commercial banks, savings banks, brokerage firms and credit unions located in
these communities. The Bank competes for these deposits by offering a variety of
account alternatives at competitive rates and by providing convenient business
hours, branch locations and interbranch deposit and withdrawal privileges.

         The Bank primarily serves Howard and Miami Counties, Indiana. There are
four commercial banks, one savings institution, other than AmericanTrust, and
three credit unions which compete for deposits and loans in Miami County. The
Bank estimates that its share of the savings market in Miami County is
approximately seven percent and its share of the residential mortgage market is
approximately 15%. The Bank competes with seven commercial banks, four savings
institutions and two credit unions in Howard County. The Bank's estimated market
share of deposits and residential mortgages in this county is less than one
percent.

Employees

         At June 30, 1997, the Bank had a total of 28 full-time and 5 part-time
employees. The Bank's employees are not represented by any collective bargaining
group. Management considers its employee relations to be good.

Regulation

         General. AmericanTrust is a federally chartered savings bank, the
deposits of which are federally insured and backed by the full faith and credit
of the United States Government. Accordingly, the Bank is subject to broad
federal regulation and oversight extending to all its operations. The Bank is a
member of the FHLB of Indianapolis and is subject to certain limited regulation
by the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). As the savings and loan holding company of the Bank, the Company also
is subject to federal regulation and oversight. The purpose of the regulation of
the Company and other holding companies is to protect subsidiary savings


                                       29

<PAGE>
associations. The Bank is a member of the SAIF and the deposits of the Bank are
insured by the SAIF of the FDIC. As a result, the FDIC has certain regulatory
and examination authority over the Bank.

         Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.

         Federal Regulation of Savings Associations. The OTS has extensive
authority over the operations of savings associations. As part of this
authority, the Bank is required to file periodic reports with the OTS and is
subject to periodic examinations by the OTS and the FDIC. The last regular OTS
and FDIC examinations of the Bank were as of May 19, 1997 and March 8, 1993,
respectively. Under agency scheduling guidelines, it is likely that another
examination will be initiated in the near future. When these examinations are
conducted by the OTS and the FDIC, the examiners may require the Bank to provide
for higher general or specific loan loss reserves. All savings associations are
subject to a semi-annual assessment, based upon the savings association's total
assets, to fund the operations of the OTS. The Bank's OTS assessment for the
fiscal year ended June 30, 1997, was approximately $25,000.

         The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Bank and the Company.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.

         In addition, the investment, lending and branching authority of the
Bank is prescribed by federal laws, and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. The Bank is in compliance with the noted restrictions.

         The Bank's general permissible lending limit for loans-to-one-borrower
is equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
June 30, 1997, the Bank's lending limit under this restriction was $1.1 million.
The Bank is in compliance with the loans-to-one-borrower limitation.

         The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. A
failure to submit a plan or to comply with an approved plan will subject the


                                       30
<PAGE>

institution to further enforcement action. The OTS and the other federal banking
agencies have also proposed additional guidelines on asset quality and earnings
standards. No assurance can be given as to whether or in what form the proposed
regulations will be adopted.

         Insurance of Accounts and Regulation by the FDIC. AmericanTrust is a
member of the SAIF, which is administered by the FDIC. Deposits are insured up
to applicable limits by the FDIC and such insurance is backed by the full faith
and credit of the United States Government. As insurer, the FDIC imposes deposit
insurance premiums and is authorized to conduct examinations of and to require
reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation or
order to pose a serious risk to the FDIC. The FDIC also has the authority to
initiate enforcement actions against savings associations, after giving the OTS
an opportunity to take such action, and may terminate the deposit insurance if
it determines that the institution has engaged in unsafe or unsound practices or
is in an unsafe or unsound condition.

         The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, ranging from .23% to .31% of
deposits, based upon their level of capital and supervisory evaluation. Under
the system, institutions classified as well capitalized (i.e., a core capital
ratio of at least 5%, a ratio of Tier 1 or core capital to risk-weighted assets
("Tier 1 risk-based capital") of at least 6% and a risk-based capital ratio of
at least 10%) and considered healthy pay the lowest premium while institutions
that are less than adequately capitalized (i.e., core or Tier 1 risk-based
capital ratios of less than 4% or a risk-based capital ratio of less than 8%)
and considered of substantial supervisory concern pay the highest premium. Risk
classification of all insured institutions will be made by the FDIC for each
semi-annual assessment period.

         The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.

         On September 30, 1996, federal legislation was enacted that required
the SAIF to be recapitalized with a one-time assessment on virtually all
SAIF-insured institutions, such as the Bank, equal to 65.7 basis points on
SAIF-insured deposits maintained by those institutions as of March 31, 1995. The
SAIF special assessment applicable to the Bank, which was paid to the FDIC in
November 1996, was approximately $295,000. This amount was accrued by the
Company at September 30, 1996 by a charge to earnings.

         As a result of the SAIF recapitalization, the FDIC has amended its
regulation concerning the insurance premiums payable by SAIF-insured
institutions. For the period October 1, 1996 through December 31, 1996, the SAIF
insurance premium for all SAIF-insured institutions that are required to pay the
Financing Corporation ("FICO") obligation, such as the Bank, was reduced to a
range of 18 to 27 basis points from 23 to 31 basis points per $100 of domestic

                                       31

<PAGE>
deposits. The FDIC further reduced the SAIF insurance premium to a range of 0 to
27 basis points per $100 of domestic deposits, effective January 1, 1997. The
Bank qualifies for the minimum SAIF assessment.

         Additionally, the FDIC has imposed a FICO assessment on SAIF-
assessable deposits for the first semi-annual period of 1997 equal to 6.48 basis
points per $100 of domestic deposits, as compared to a FICO assessment on
BIF-assessable deposits for that same period equal to 1.30 basis points per $100
of domestic deposits.

         Regulatory Capital Requirements. Federally insured savings
associations, such as the Bank, are required to maintain a minimum level of
regulatory capital. The OTS has established capital standards, including a
tangible capital requirement, a leverage ratio (or core capital) requirement and
a risk-based capital requirement applicable to such savings associations. These
capital requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.

         The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. At June 30, 1997, the Bank did not have any intangible assets.

         The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital.

         At June 30, 1997, the Bank had tangible capital of $7.3 million, or
10.1% of adjusted total assets, which is approximately $6.2 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.

         The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At June 30, 1997, the Bank
had no intangibles which were subject to these tests.


                                       32
<PAGE>



         At June 30, 1997, the Bank had core capital equal to $7.3 million, or
10.1% of adjusted total assets, which is $5.1 million above the minimum leverage
ratio requirement of 3% as in effect on that date.

          The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At June 30, 1997, the Bank had no
capital instruments that qualify as supplementary capital and $382,000 of
general loss reserves, which was less than 1.25% of risk-weighted assets.

         Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. AmericanTrust had no such
exclusions from capital and assets at June 30, 1997.

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

         The OTS has adopted a final rule that requires every savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets. This exposure is a measure of the potential decline in the
net portfolio value of a savings association, greater than 2% of the present
value of its assets, based upon a hypothetical 200 basis point increase or
decrease in interest rates (whichever results in a greater decline). Net
portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between calculating interest rate risk and recognizing any deduction from
capital. The OTS announced that it will delay the effectiveness of the rule
until it evaluates the implementation of the process by which savings
associations may appeal an interest rate risk deduction determination. It is
uncertain as to when this evaluation will be completed. Any savings association
with less than $300 million in assets and a total capital ratio in excess of 12%
is exempt from this requirement unless the OTS determines otherwise.

         On June 30, 1997, the Bank had total risk-based capital of $7.6 million
(including $7.3 million in core capital and $382,000 in qualifying supplementary
capital) and risk-weighted assets of $45.5 million (with no covered off-balance


                                       33
<PAGE>
sheet assets); or total capital of 16.8% of risk-weighted assets. This amount
was $4.0 million above the 8% requirement in effect on that date.

         The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.

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

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

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

         The imposition by the OTS or the FDIC of any of these measures on the
Company or the Bank may have a substantial adverse effect on the Company's
operations and profitability. Company shareholders do not have preemptive
rights, and therefore, if the Company is directed by the OTS or the FDIC to
issue additional shares of Common Stock, such issuance may result in the
dilution in the percentage of ownership of the Company.

         Limitations on Dividends and Other Capital Distributions. OTS
regulations impose various restrictions or requirements on associations with
respect to their ability to pay dividends or make other distributions of
capital. OTS regulations prohibit an association from declaring or paying any
dividends or from repurchasing any of its stock if, as a result, the regulatory
capital of the association would be reduced below the amount required to be
maintained for the liquidation account established in connection with its mutual
to stock conversion.

                                       34

<PAGE>



         The OTS utilizes a three-tiered approach to permit associations, based
on their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account. See "- Regulatory Capital
Requirements."

         Generally, Tier 1 associations, which are associations that before and
after the proposed distribution meet their fully phased-in capital requirements,
may make capital distributions during any calendar year equal to the greater of
100% of net income for the year-to-date plus 50% of the amount by which the
lesser of the association's tangible, core or risk-based capital exceeds its
fully phased-in capital requirement for such capital component, as measured at
the beginning of the calendar year, or the amount authorized for a Tier 2
association. However, a Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association as a result of such a determination. The Bank meets the requirements
for a Tier 1 association and has not been notified of a need for more than
normal supervision. Tier 2 associations, which are associations that before and
after the proposed distribution meet their current minimum capital requirements,
may make capital distributions of up to 75% of net income over the most recent
four quarter period.

         Tier 3 associations (which are associations that do not meet current
minimum capital requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of the
noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
within the safe harbor provisions and Tier 1 associations proposing to make any
capital distribution need only submit written notice to the OTS 30 days prior to
such distribution. As a subsidiary of the Company, the Bank will also be
required to give the OTS 30 days' notice prior to declaring any dividend on its
stock. The OTS may object to the distribution during that 30-day period based on
safety and soundness concerns. See "- Regulatory Capital Requirements."

         The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered structure
and the safe-harbor percentage limitations. Under the proposal a savings
association may make a capital distribution without notice to the OTS (unless it
is a subsidiary of a holding company) provided that it has a CAMEL 1 or 2
rating, is not in troubled condition (as defined by regulation) and would remain
adequately capitalized (as defined in the OTS prompt corrective action
regulations) following the proposed distribution. Savings associations that
would remain adequately capitalized following the proposed distribution but do
not meet the other noted requirements must notify the OTS 30 days prior to
declaring a capital distribution. The OTS stated it will generally regard as
permissible that amount of capital distributions that do not exceed 50% of the
institution's excess regulatory capital plus net income to date during the
calendar year. A savings association may not make a capital distribution without
prior approval of the OTS and the FDIC if it is undercapitalized before, or as a
result of, such a distribution. As under the current rule, the OTS may object to
a capital distribution if it would constitute an unsafe or unsound practice. No
assurance may be given as to whether or in what form the regulations may be
adopted.


                                       35
<PAGE>



         Liquidity. All savings associations, including the Bank, are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. For a discussion of what
the Bank includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
in the Annual Report. This liquid asset ratio requirement may vary from time to
time (between 4% and 10%) depending upon economic conditions and savings flows
of all savings associations. At the present time, the minimum liquid asset ratio
is 5%.

         In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At June 30, 1997, the Bank was in compliance with both
requirements, with an overall liquid asset ratio of 11.3% and a short-term
liquid assets ratio of 5.2%.

         Accounting. An OTS policy statement applicable to all savings
associations clarifies and re-emphasizes that the investment activities of a
savings association must be in compliance with approved and documented
investment policies and strategies, and must be accounted for in accordance with
GAAP. Under the policy statement, management must support its classification of
and accounting for loans and securities (i.e., whether held for investment, sale
or trading) with appropriate documentation. The Bank is in compliance with these
amended rules.

         The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.

         Qualified Thrift Lender Test. All savings associations, including the
Bank, are required to meet a qualified thrift lender ("QTL") test to avoid
certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. Such assets primarily consist of residential
housing related loans and investments. At June 30, 1997, the Bank met the test
and has always met the test since its effectiveness.

         Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the


                                       36

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

         Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), every FDIC insured institution has a continuing and affirmative
obligation consistent with safe and sound banking practices to help meet the
credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with the examination of the Bank, to assess the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications, such as a
merger or the establishment of a branch, by the Bank. An unsatisfactory rating
may be used as the basis for the denial of an application by the OTS.

         The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, the Bank may be required to devote additional funds for
investment and lending in its local community. The Bank was examined for CRA
compliance in September 1996 and received a satisfactory rating.

         Transactions with Affiliates. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on terms
as favorable to the association as transactions with non-affiliates. In
addition, certain of these transactions, such as loans to an affiliate, are
restricted to a percentage of the association's capital. Affiliates of the Bank
include the Company and any company which is under common control with the Bank.
In addition, a savings association may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities
of most affiliates. The Bank's subsidiary is not deemed an affiliate, however;
the OTS has the discretion to treat subsidiaries of savings associations as
affiliates on a case by case basis.

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

         Holding Company Regulation. The Company is a unitary savings and loan
holding company subject to regulatory oversight by the OTS. As such, the Company
is registered with and files reports with the OTS and is subject to regulation
and examination by the OTS. In addition, the OTS has enforcement authority over
the Company and its non-savings association subsidiaries which also permits the
   

                                       37

<PAGE>


OTS to restrict or prohibit activities that are determined to be a serious risk
to the subsidiary savings association.

         As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Bank or any other SAIF-insured savings association)
would become subject to such restrictions unless such other associations each
qualify as a QTL and were acquired in a supervisory acquisition.

         If the Bank fails the QTL test, the Company must obtain the approval of
the OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition, within
one year of such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies. The activities
authorized for a bank holding company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company. See "-
Qualified Thrift Lender Test."

         The Company must obtain approval from the OTS before acquiring control
of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.

         Federal Securities Law. The stock of the Company is registered with the
SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.

         Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.

         Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At June 30, 1997, the Bank was in compliance with these
reserve requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve Board may be used to satisfy liquidity
requirements that may be imposed by the OTS. See "- Liquidity."

         Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including

                                       38

<PAGE>
FHLB borrowings, before borrowing from the Federal Reserve Bank.

         Federal Home Loan Bank System. The Bank is a member of the FHLB of
Indianapolis, which is one of 12 regional FHLBs, that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures, established by the board of directors of the FHLB,
which are subject to the oversight of the Federal Housing Finance Board. All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of Indianapolis. At June 30, 1997, the Bank had $1,050,000 of FHLB stock,
which was in compliance with this requirement. In past years, the Bank has
received substantial dividends on its FHLB stock. Over the past five fiscal
years such dividends have averaged 7.81% and were 7.85% for fiscal 1997.

         Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.

         For the fiscal year ended June 30, 1997, dividends paid by the FHLB of
Indianapolis to the Bank totaled approximately $82,000, which constitute a
$15,000 increase over the amount of dividends received in fiscal year 1996. The
$21,000 dividend received for the quarter ended June 30, 1997 reflects an
annualized rate of 7.85%, or 5 basis points less than the rate for fiscal 1996.
No assurance can be given that such dividends will continue in the future at
such levels.

         Federal Regulation. For three years following the Bank's conversion to
stock form, OTS regulations prohibit any person, without the prior approval of
the OTS, from acquiring or making an offer (if opposed by the institution) to
acquire more than 10% of the stock of any converted savings institution if such
person is, or after consummation of such acquisition would be, the beneficial
owner of more than 10% of such stock. In the event that any person, directly or
indirectly, violates this regulation, the securities beneficially owned by such
person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matter submitted to a vote of stockholders.

         Federal and State Taxation. Savings associations such as the Bank that
meet certain definitional tests relating to the composition of assets and other
conditions prescribed by the Internal Revenue Code of 1986, as amended (the
"Code"), are permitted to establish reserves for bad debts and to make annual



                                       39

<PAGE>

additions thereto which may, within specified formula limits, be taken as a
deduction in computing taxable income for federal income tax purposes. The
amount of the bad debt reserve deduction is computed under the experience
method.

         Under the experience method, the bad debt reserve deduction is an
amount determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.

         Since 1987, the percentage of specially-computed taxable income that
was used to compute a savings association's bad debt reserve deduction under the
percentage of taxable income method (the "percentage bad debt deduction") was
8%. The percentage bad debt deduction thus computed was reduced by the amount
permitted as a deduction for non-qualifying loans under the experience method.
The availability of the percentage of taxable income method permitted qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction). Under changes in federal tax law enacted
in August 1996, the percentage bad debt deduction has been eliminated for tax
years beginning after December 31, 1995. Accordingly, this method will not be
available to the Bank for its tax years ending June 30, 1997 and thereafter.

         Under the percentage of taxable income method, the percentage bad debt
deduction could not exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equals the amount by
which 12% of the amount comprising savings accounts at year-end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year. Through
December 31, 1995, the 6% and 12% limitations did not restrict the percentage
bad debt deduction available to the Bank.

         The federal tax legislation enacted in August 1996 also imposes a
requirement to recapture into taxable income the portion of the qualifying and
non-qualifying loan reserves in excess of the "base-year" balances of such
reserves. For the Bank, the base-year reserves are the balances as of June 30,
1988. Recapture of the excess reserves will occur over a six-year period which
could begin for the Association as early as the tax year ending June 30, 1997
(commencement of the recapture period may be delayed, however, for up to two
years provided the Bank meets certain residential lending requirements). The
Bank previously established, and will continue to maintain, a deferred tax
liability with respect to its federal tax bad debt reserves in excess of the
base-year balances; accordingly, the legislative changes will have no effect on
total income tax expense for financial reporting purposes.

         Also, under the August 1996 legislation, the Bank's base-year federal
tax bad debt reserves are "frozen" and subject to current recapture only in very
limited circumstances. Generally, recapture of all or a portion of the base-year
reserves will be required if the Association pays a dividend in excess of the
greater of its current or accumulated earnings and profits, redeems any of its
stock, or is liquidated. The Bank has not established a deferred federal tax



                                       40
<PAGE>
liability under SFAS No. 109 for its base-year federal tax bad debt reserves, as
it does not anticipate engaging in any of the transactions that would cause such
reserves to be recaptured.

         The Bank and its subsidiary file consolidated federal income tax
returns on a fiscal year basis using the accrual method of accounting. The
Company intends to file consolidated federal income tax returns with the Bank
and its subsidiary. Savings associations, such as the Bank, that file federal
income tax returns as part of a consolidated group are required by applicable
Treasury regulations to reduce their taxable income for purposes of computing
the percentage bad debt deduction for losses attributable to activities of the
non-savings association members of the consolidated group that are functionally
related to the activities of the savings association member.

         The Bank and its consolidated subsidiary have not been audited by the
IRS recently with respect to consolidated federal income tax returns. In the
opinion of management, any examination of still open returns (including returns
of subsidiaries and predecessors of, or entities merged into, the Bank) would
not result in a deficiency which could have a material adverse effect on the
financial condition of the Bank and its consolidated subsidiary.

         Indiana Taxation. The Company and the Bank are subject to the State of
Indiana's 8.5% franchise tax on the net income of financial (including thrift)
institutions, exempting them from the current gross income, supplemental net
income and intangible taxes. Net income for franchise tax purposes will
constitute federal taxable income before net operating loss deductions and
special deductions, adjusted for certain items, including Indiana income taxes,
tax exempt interest and bad debts. Other applicable Indiana taxes include sales,
use and property taxes.

         Delaware Taxation. As a Delaware holding company, the Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Company is also
subject to an annual franchise tax imposed by the State of Delaware.

Executive Officer Who Is Not A Director

         Jami L. Cornish, age 34, is Treasurer and Chief Financial Officer of
AmericanTrust and the Company, positions she has held since November 1994. Ms.
Cornish joined the Bank in 1992 and was the Bank's Controller from 1992 to 1994.
Ms. Cornish is responsible for the supervision of the Bank's accounting and loan
processing departments. Prior to joining the Bank, Ms. Cornish was employed as
Controller of Flexco Products located in Elkhart, Indiana.

Item 2.           Description of Properties

         The Bank conducts its business through two offices, its main office
located in Peru, Indiana and its branch office located in Kokomo, Indiana; all
locations are owned by the Bank. The Bank also operates a limited service office
located in Peru, Indiana in space leased by the Bank. In June, 1996, IFSCO
purchased a building in Kokomo, Indiana for the future use of U.S. Title. The
following table sets forth information relating to each of the Bank's offices as
of June 30, 1997. The total net book value of the Bank's premises and equipment
(including land, buildings and leasehold improvements and furniture, fixtures



                                       41

<PAGE>
and equipment) at June 30, 1997 was approximately $1.3 million. See the Notes to
Consolidated Financial Statements in the Annual Report.


                                                   Total
                                                Approximate       Net Book Value
                                 Date             Square                at
             Location          Acquired           Footage          June 30, 1997
---------------------------    --------        ------------       --------------

Main Office:
    20 West Fifth Street         1962            6,600              $244,030
    Peru, Indiana  46970

Branch Offices:
    1936 South Dixon Road        1994            4,000               687,360
    Kokomo, Indiana  46902

Limited Service Office:
    915 West Main Street        Leased             158                19,778
    Peru, Indiana  46970

U.S. Title Office:               1996            7,000               326,808
    210 N. Main Street
    Kokomo, Indiana  40901


         AmericanTrust believes that its current facilities are adequate to meet
the present and foreseeable needs of the Bank and the Company.

         The Bank maintains an on-line data base with a service bureau servicing
financial institutions. The net book value of the data processing and computer
equipment utilized by the Bank at June 30, 1997 was approximately $150,000.

Item 3.           Legal Proceedings

         The Company and AmericanTrust are involved, from time to time, as
plaintiff or defendant in various legal actions arising in the normal course of
their businesses. While the ultimate outcome of these proceedings cannot be
predicted with certainty, it is the opinion of management, after consultation
with counsel representing AmericanTrust and the Company in the proceedings, that
the resolution of these proceedings should not have a material effect on
Company's financial condition or results of operations on a consolidated basis.

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

         No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended June 30, 1997.



                                       42

<PAGE>



                                     PART II


Item 5.           Market for Common Equity and Related Stockholder Matters

         Page 46 of the attached 1997 Annual Report to Stockholders is herein
incorporated by reference.

Item 6.           Management's Discussion and Analysis or Plan of Operation

         Pages 4 through 20 of the attached 1997 Annual Report to Stockholders
is herein incorporated by reference.

Item 7.           Financial Statements and Supplementary Data

         The following information appearing in the Company's Annual Report to
Stockholders for the year ended June 30, 1997, is incorporated by reference in
this Annual Report on Form 10-KSB as Exhibit 13.
<TABLE>
<CAPTION>
                                                                                                 Pages in
                                                                                                  Annual
Annual Report Section                                                                             Report
---------------------                                                                             ------
<S>                                                                                                  <C>

Report of Independent Auditors...............................................................          21

Consolidated Statement of Balance Sheet as of June 30, 1997 and 1996..........................         22

Consolidated Statement of Income for the Years Ended June 30, 1997, 1996 and 1995.............         23

Consolidated Statement of Changes in Stockholders' Equity for the
  Years Ended June 30, 1997, 1996 and 1995....................................................         24

Consolidated Statement of Cash Flows for the Years Ended June 30, 1997, 1996 and 1995.........         25

Notes to Consolidated Financial Statements...................................................    26 to 44
</TABLE>
         With the exception of the aforementioned information, the Company's
Annual Report to Stockholders for the year ended June 30, 1997, is not deemed
filed as part of this Annual Report on Form 10-KSB.

Item 8.           Changes In and Disagreements With Accountants on Accounting 
                  and Financial Disclosure

         There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.


                                       43
<PAGE>



                                    PART III


Item 9.           Directors, Executive Officers, Promoters and Control Persons; 
                  Compliance with Section 16(a) of the Exchange Act


         Information concerning directors of the Registrant is incorporated
herein by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held in 1997, a copy of which will be filed not
later than 120 days after the close of the fiscal year. Information concerning
the executive officer of the Registrant who is not a director is incorporated by
reference from Part I of this Form 10-KSB under the caption "Executive Officer
of the Registrant Who Is Not A Director."


Item 10.          Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1997, a copy of which will be filed not later than
120 days after the close of the fiscal year.


Item 11.          Security Ownership of Certain Beneficial Owners and Management

         Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in 1997, a copy of
which will be filed not later than 120 days after the close of the fiscal year.


Item 12.          Certain Relationships and Related Transactions

         Information concerning certain relationships and related transactions
is incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1997, a copy of which will be filed
not later than 120 days after the close of the fiscal year.

                                       44
<PAGE>



Item 13.          Exhibits and Reports on Form 8-K
--------------------------------------------------
(a)      Exhibits


<TABLE>
<CAPTION>
                                                                             Reference to
    Regulation                                                              Prior Filing or
   S-B Exhibit                                                               Exhibit Number
      Number                              Document                           Attached Hereto
--------------------------------------------------------------------------------------------
<S>                                  <C>                                           <C>
        2         Plan of acquisition, reorganization, arrangement,               None
                  liquidation or succession
       3(a)       Articles of Incorporation                                        *
       3(b)       By-Laws                                                          *
        4         Instruments defining the rights of security holders,             *
                  including debentures
        9         Voting Trust Agreement                                          None
        10        Material contracts
                    Form of Proposed Stock Option and Incentive Plan               *
                    Form of Proposed Recognition and Retention Plan                *
                    Employment Agreement with Bruce M. Borst                       *
        11        Statement regarding computation of per share earnings           None
        13        Annual Report to Security Holders                                13
        16        Letter regarding change in certifying accountants               None
        18        Letter regarding change in accounting principles                None
        21        Subsidiaries of Registrant                                       21
        22        Published report regarding matters submitted to vote of         None
                  security holders
        23        Consents of Experts and Counsel                                  23
        24        Power of Attorney                                               None
        27        Financial Data Schedule                                          27
        28        Information from reports furnished to state insurance           None
                  regulatory authorities
        99        Additional Exhibits                                             None
</TABLE>
____________________
*        Filed as exhibits to the Company's Form S-1 registration statement
         filed on December 19, 1994 (File No. 33- 87580) pursuant to Section 5
         of the Securities Act of 1933. All of such previously filed documents
         are hereby incorporated herein by reference in accordance with Item 601
         of Regulation S-B.

(b)      Reports on Form 8-K

           During the quarter ended June 30, 1997, a current report on Form 8-K
was filed by the Company on April 25, 1997 to announce a $.05 per share cash
dividend.





                                       45
<PAGE>


                                   SIGNATURES

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

                                     AMTRUST CAPITAL CORP.



                                     By: /S/ Bruce M. Borst
                                     ------------------------------------------
                                     Bruce M. Borst, President, Chief Executive
                                     Officer and Director
                                     (Duly Authorized Representative)


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.



/s/ Bruce M. Borst   
-------------------------------------------                               
Bruce M. Borst, President,
 Chief Executive Officer and Director
(Principal Executive and Operating Officer)

Date:             September 22, 1996



/s/ Kenneth L. Hasselkus
-------------------------
Kenneth L. Hasselkus, Director

Date:             September 22, 1996



/s/ Dean H. Hartley
-------------------------
Dean H. Hartley, Director

Date:             September 22, 1996



/s/ Thomas A. Kirk
------------------------
Thomas A. Kirk, Director

Date:             September 22, 1996


/s/ Roderic E. Daniels
----------------------------
Roderic E. Daniels, Director


Date:             September 22, 1996


/s/ Jami L. Cornish
------------------------------------
Jami L. Cornish, Treasurer and Chief
 Financial Officer
(Principal Financial and Accounting
 Officer)

Date:             September 22, 1996



                                       46



<PAGE>

                                 EXHIBITS INDEX


<TABLE>
<CAPTION>
                                                                             Reference to
    Regulation                                                              Prior Filing or
   S-B Exhibit                                                               Exhibit Number
      Number                              Document                           Attached Hereto
--------------------------------------------------------------------------------------------
<S>               <C>                                                           <C>
        2         Plan of acquisition, reorganization, arrangement,               None
                  liquidation or succession
       3(a)       Articles of Incorporation                                        *
       3(b)       By-Laws                                                          *
        4         Instruments defining the rights of security holders,             *
                  including debentures
        9         Voting Trust Agreement                                          None
        10        Material contracts
                    Form of Proposed Stock Option and Incentive Plan               *
                    Form of Proposed Recognition and Retention Plan                *
                    Employment Agreement with Bruce M. Borst                       *
        11        Statement regarding computation of per share earnings           None
        13        Annual Report to Security Holders                                13
        16        Letter regarding change in certifying accountants               None
        18        Letter regarding change in accounting principles                None
        21        Subsidiaries of Registrant                                       21
        22        Published report regarding matters submitted to vote of         None
                  security holders
        23        Consents of Experts and Counsel                                  23
        24        Power of Attorney                                               None
        27        Financial Data Schedule                                          27
        28        Information from reports furnished to state insurance           None
                  regulatory authorities
        99        Additional Exhibits                                             None
</TABLE>