TABLE OF CONTENTS


President's Letter.........................................  2            

Selected Consolidated Financial Data.......................  3   

Quarterly Results of Operations............................  5   

Management's Discussion and Analysis of
  Financial Condition and Results of Operations............  6   

Independent Auditors' Report............................... 18   

  Consolidated Statements of Financial Condition........... 19   

  Consolidated Statements of Income........................ 20   

  Consolidated Statements of Stockholders' Equity.......... 21   

  Consolidated Statements of Cash Flows.................... 22   

  Notes to Consolidated Financial Statements............... 24   

Officers and Directors..................................... 46  

Corporate Information...................................... 47                  
<PAGE>
LETTER TO STOCKHOLDERS


To Our Stockholders:

         It is a pleasure to present the results of the financial performance of
Permanent  Bancorp,  Inc. for the year ended March 31, 1997.  This completes our
third  full  year as a public  company  and was our  best  year as  measured  by
earnings.

         The Company  recorded a 90% increase in earnings during the fiscal year
before a one-time industry wide assessment by the Savings Association  Insurance
Fund of the Federal  Deposit  Insurance  Corporation.  Even with this assessment
earnings were improved from the previous year.

         To further enhance  shareholder  value the Company completed a 5% stock
buyback  program in January and  announced  another 5% buyback  program to begin
April 1, 1997. In fiscal 1997, a cash  dividend was paid that  represented a 50%
increase over the previous year.

         During the year,  our subsidiary  bank  announced  plans to acquire the
Newburgh  branch  of NBD Bank to  expand  its  franchise  and  better  serve the
residents of Newburgh.

         The Bank has developed a plan to provide a customer  interactive  voice
response  system and a check imaging  system.  These  technological  changes are
expected to be  implemented  early in our next  fiscal year and are  expected to
enhance service to customers and reduce operational costs.

         The Bank announced the formation of a commercial  lending department in
January  1997,  when it  added  Seth P.  Allen  as  Senior  Vice  President  and
Commercial  Lending  Officer.  Mr.  Allen's  immediate  duties will  include the
development  of a commercial  loan  portfolio as well as overseeing the consumer
lending  activities.  Mr.  Allen  comes  to us with  many  years  of  successful
experience in the commercial banking industry.

         This past year, the Board of Directors elected two new directors to its
Board.  Mr. James A. McCarty,  Jr.,  President of Colonial Garden Center,  Inc.,
joined  the  Board in  August  1996 and Mr.  Murray  J.  Brown,  Executive  Vice
President  and Chief  Operating  Officer of Permanent  Bancorp,  Inc. and of our
subsidiary  bank, was elected in March 1997. Mr. McCarty and Mr. Brown were also
elected directors of the subsidiary bank.

         We wish to  acknowledge  the retirement of two officers from their long
time employment with our subsidiary bank. Mrs. Gail Hendrix completed her career
as Vice  President and Manager of our West Franklin  Street  Office.  Mr. Joseph
Stofleth  completed  his career as Asst.  Vice  President and Manager of our Ft.
Branch Office.
<PAGE>
         Southwestern  Indiana  continues its industrial  expansion with the new
Toyota Motor  Manufacturing plant under construction and the ground breaking for
AK Steel  Corporation's  steel finishing plant.  These two industries along with
their support suppliers will help assure economic expansion in our core market.

         We appreciate and depend on the continued  support of our customers and
shareholders. We look forward to another year of earnings improvement and in the
growth in shareholder value that will come along with these results.






                                                        /s/Donald P. Weinzapfel
                                                        -----------------------
                                                        Donald P. Weinzapfel
                                                        Chairman of the Board
                                                        President and
                                                        Chief Executive Officer

                                      - 2-
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(In Thousands)
                                                                              At March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                     1997           1996          1995           1994          1993
---------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>            <C>            <C>            <C>
Selected Financial Condition Data:
Total assets                                       $423,698      $395,903       $342,678       $365,184       $327,334
Loans, net                                          210,220       206,910        195,217        188,513        174,733
Loans held for sale                                      --            --            266            727          1,133
Cash and interest-bearing deposits                    6,364         4,916          5,573         36,235          3,803
Mortgage-backed securities available
  for sale                                           74,052        61,953            981             --          2,000
Mortgage-backed securities held
  to maturity                                        27,181        32,154         76,262         76,027         76,695
Securities available for sale                        85,180        73,171            992             --          9,048
Securities held to maturity                              25            25         48,076         48,247         39,634
Goodwill - net                                          326           545            769          1,015          1,290
Deposits                                            280,753       280,008        267,520        285,180        289,538
Total borrowings                                    100,278        70,985         28,114         34,823         14,673
Stockholders' equity - net                           39,095        41,494         43,488         41,747         19,578

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(In Thousands)

                                                                          Year Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                     1997           1996          1995           1994          1993
---------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>            <C>            <C>           <C>
Selected Operations Data:
Interest income                                     $29,689       $25,892        $22,705        $21,785       $24,767
Interest expense                                     18,724        16,354         13,352         13,616        15,323
---------------------------------------------------------------------------------------------------------------------------
  Net interest income                                10,965         9,538          9,353          8,169         9,444
Provision for loan losses                               113           207            410            350         1,041
---------------------------------------------------------------------------------------------------------------------------
  Net interest income after provision
    for loan losses                                  10,852         9,331          8,943          7,819         8,403
---------------------------------------------------------------------------------------------------------------------------
Other income:
  Service charges                                       841           628            619            817           915
  Gain (loss) on sales of loans                          23            18            (16)           228           476
  Gain (loss) on sale of investment and
    mortgage-backed securities                          (56)           (6)             5             36            12
  Other                                                 816           797          1,085            544           555
---------------------------------------------------------------------------------------------------------------------------
  Total other income                                  1,624         1,437          1,693          1,625         1,958
---------------------------------------------------------------------------------------------------------------------------
Other expense:
  Salaries and employee benefits                      4,295         4,427          4,397          3,768         3,512
  Deposit insurance assessment                        2,351           711            738            776           745
  Occupancy                                             809           819            769            704           641
  Other                                               2,714         2,900          2,614          2,449         3,034
---------------------------------------------------------------------------------------------------------------------------
  Total other expense                                10,169         8,857          8,518          7,697         7,932
---------------------------------------------------------------------------------------------------------------------------
Income before income taxes and
  cumulative effect of change for deferred
  income taxes                                        2,307         1,911          2,118          1,747         2,429
Income tax provision                                  1,003           662            874            721         1,070
Cumulative effect of change in
  accounting for deferred income taxes                   --            --             --             --           547
---------------------------------------------------------------------------------------------------------------------------
Net income                                          $ 1,304       $ 1,249        $ 1,244        $ 1,026       $ 1,906
===========================================================================================================================
</TABLE>
                                     - 3 -
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA

                                                                    At or For the Year Ended March 31,
                                                     1997           1996          1995           1994          1993
---------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>            <C>           <C>           <C>     
Selected Financial Ratios and Other Data:

Performance Ratios:
  Return on average assets (ratio of net
    income to average total assets)                  0.31%         0.34%          0.36%         0.31%         0.57%
  Interest rate spread information:
      Average during year                            2.40          2.28           2.41          2.40          2.95
      End of year                                    2.62          2.50           2.29          2.27          2.85
  Net interest margin (1)                            2.76          2.72           2.83          2.58          3.03
  Ratio of operating expense to average
    total assets                                     2.44          2.41           2.37          2.39          2.39
  Return on average stockholders' equity
    (ratio of net income to average
    stockholders' equity)                            3.25          2.95           2.92          4.90         10.23
  Ratio of average interest-earning
    assets to average interest-bearing
    liabilities                                    107.63        109.42         110.51        104.19        101.16

Asset Quality Ratios:
  Non-performing assets to total assets at
    end of year (2)                                  1.11          1.75           2.43          2.83          3.46
  Allowance for loan and real estate
    owned losses to non-performing
    assets                                          44.73         32.22          25.33         21.75         20.19
  Allowance for loan losses to total loans           1.00          1.07           1.06          1.11          1.17

Capital Ratios:
  Stockholders' equity to total assets at
    end of year                                      9.23         10.48          12.69         11.43          5.98
  Average stockholders' equity to average
    assets                                           9.63         11.54          12.29          6.34          5.61
Number of full-service offices                        11             11             11             11           11
Number of deposit accounts                        35,426         36,452         35,075         38,644       39,633
Book value per share - primary                     $19.05        $19.44         $18.72        $16.95           N/A



(1) Net interest income divided by average interest-earning assets.
(2) Non-performing assets consist of non-accruing loans,  including in-substance
foreclosures,   accruing  loans  past  due  90  or  more  days,   troubled  debt
restructurings and real estate owned.
</TABLE>
                                     - 4 -
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

         The following table presents certain  selected  unaudited data relating
to  results  of  operations  for the  three  month  periods  ending on the dates
indicated.
<TABLE>
<CAPTION>
                                                                             Three Months Ended
---------------------------------------------------------------------------------------------------------------------------
                                                       June 30,        September 30,    December 31,       March 31,
                                                         1996              1996             1996             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>
Fiscal 1997
Total interest income                                  $7,226,117       $7,436,240       $7,532,390       $7,493,878
Total interest expense                                  4,571,382        4,711,195        4,752,329        4,689,090
---------------------------------------------------------------------------------------------------------------------------
Net interest income                                     2,654,735        2,725,045        2,780,061        2,804,788
Provision for loan losses                                  60,000           88,486         (132,040)          96,810
---------------------------------------------------------------------------------------------------------------------------
Net interest income after
  provision for loan losses                             2,594,735        2,636,559        2,912,101        2,707,978
Other income                                              353,983          442,397          513,793          296,929
Other expense                                           2,037,515        3,915,272        2,135,720        2,063,438
---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                         911,203         (836,316)       1,290,174          941,469
Income tax provision (benefit)                            406,800         (275,822)         573,492          298,516
---------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                        $504,403        $(560,494)        $716,682         $642,953
===========================================================================================================================
<CAPTION>
                                                                             Three Months Ended
---------------------------------------------------------------------------------------------------------------------------
                                                       June 30,        September 30,    December 31,       March 31,
                                                         1995              1995             1995             1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>
Fiscal 1996
Total interest income                                  $5,982,494       $6,316,474       $6,690,583       $6,902,361
Total interest expense                                  3,705,531        4,081,309        4,283,422        4,283,978
---------------------------------------------------------------------------------------------------------------------------
Net interest income                                     2,276,963        2,235,165        2,407,161        2,618,383
Provision for loan losses                                  26,354           76,070           48,902           55,597
---------------------------------------------------------------------------------------------------------------------------
Net interest income after
  provision for loan losses                             2,250,609        2,159,095        2,358,259        2,562,786
Other income                                              360,359          322,709          366,628          380,873
Other expense                                           2,158,711        2,110,650        2,258,731        2,322,475
---------------------------------------------------------------------------------------------------------------------------
Income before income taxes                                452,257          371,154          466,156          621,184
Income tax provision                                      147,833           56,907          138,657          318,049
---------------------------------------------------------------------------------------------------------------------------
Net income                                               $304,424         $314,247         $327,499         $303,135
===========================================================================================================================
</TABLE>
         During the second  quarter of fiscal 1997 the  Company  paid a one-time
assessment of approximately  $1.8 million for the  capitalization of the Savings
Association   Insurance  Fund.  See  Note  12  of  the  Consolidated   Financial
Statements.
                                     - 5 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


General

         At March 31, 1997, Permanent Bancorp, Inc. (the "Company") successfully
completed  its third year as a publicly  owned  entity.  All  references  to the
Company  before  March  31,  1994,  refer  to the  operations  of the  Company's
subsidiary,  Permanent Federal Savings Bank ("Permanent Federal" or the "Bank").
The principal  business of the Company consists of attracting  deposits from the
general  public and using these  deposits,  together with  borrowings  and other
funds, primarily to originate one- to four-family  residential mortgage loans as
well as multi-family  and commercial real estate,  automobile and other consumer
loans. The Company also originates  construction and commercial  business loans.
The Company also invests in mortgage-backed and other investment securities. The
Company's  results of operations  are  primarily  dependent on its interest rate
spread,  which  is the  difference  ("spread")  between  the  average  yield  on
interest-earning   assets,  such  as  loans,   mortgage-backed   securities  and
investment securities and the average rate paid on interest-bearing liabilities,
such as deposits and other  borrowings.  The interest rate spread is affected by
regulatory, economic and competitive factors that influence interest rates, loan
demand and deposit flows.  In addition to credit risk, the Company is subject to
interest  rate risk to the degree  that its  interest-earning  assets  mature or
reprice at different times, or on a different basis,  than its  interest-bearing
liabilities.

         The  Company's  results of  operations  also depend  upon,  among other
things,  the level of fee  income,  gains on the sale of loans,  provisions  for
possible  loan losses,  income  derived from  subsidiary  activities,  operating
expenses and income taxes. The Company's operating expenses  principally consist
of employee  compensation  and benefits,  occupancy  expenses,  federal  deposit
insurance premiums and other general and administrative expenses.

         Permanent  Federal is  significantly  affected by  prevailing  economic
conditions,  including  federal  monetary  and  fiscal  policies,  as well as by
federal regulation of financial institutions. Deposit balances are influenced by
a number  of  factors,  including  interest  rates  paid on  competing  personal
investments   and  the  level  of  personal   income  and  savings   within  the
institution's  market area. In addition,  deposit balances are influenced by the
perceptions  of customers  regarding  the  stability of the  financial  services
industry. Management expects to retain a significant portion of existing deposit
balances by offering  competitive rates on such deposits.  Permanent Federal has
adopted a strategy of employing  Federal Home Loan Bank of  Indianapolis  (FHLB)
advances to  supplement  deposits.  FHLB  advances  are  expected to augment the
liquidity  necessary to fund lending  operations and  investment  opportunities.
Lending  activities  are  influenced  by the  demand  for  housing  as  well  as
competition  from other lending  institutions.  The primary sources of funds for
lending activities  include deposits,  loan payments,  borrowings,  gains on the
sale of loans and funds provided from operations. 
<PAGE>
FINANCIAL CONDITION

March 31, 1997 Compared to March 31, 1996

         The Company's  total assets at March 31, 1997 were $423.7  million,  an
increase of $27.8 million,  or 7.0% from $395.9 million at March 31, 1996. Total
investment and  mortgage-backed  securities  amounted to $186.4 million at March
31, 1997, an increase of $19.1  million,  or 11.4% from $167.3  million at March
31, 1996. Net loans increased by $3.3 million or 1.6% to $210.2 million at March
31, 1997 compared to $206.9 million at March 31, 1996.  Total  liabilities  were
$384.6 million at March 31, 1997, up $30.2 million,  or 8.5% from $354.4 million
at March 31, 1996.  Deposits at $280.8 million were up $0.8 million or 0.3% from
$280.0  million at March 31, 1996.  FHLB advances  increased by $30.2 million to
$98.5  million at March 31,  1997 from $68.3  million at March 31,  1996.  Tota1
stockholders'  equity  decreased by $2.4  million to $39.1  million at March 31,
1997.  Treasury  stock  in the  amount  of $2.2  million  acquired  through  the
Company's stock repurchases  exceeded increases in retained earnings and benefit
program  awards.  Stockholder's  equity was also  decreased  by $1.5  million in
unrealized  changes in  securities  available  for sale and by $609,000  paid in
dividends.

                                     - 6 -
<PAGE>
         The  availability  of  reasonably  priced FHLB  advances  provided  the
opportunity  for the  Company to borrow  funds and invest the  proceeds  in U.S.
Government Agency and mortgage- backed securities earning higher rates than paid
on the  advances.  The growth in both loans and deposits was  indicative  of the
strength of the local economy. One to four family first mortgage loans increased
by $8.5 million,  consumer and auto loans increased by $1.4 million.  Commercial
and  multi-family  real  estate  loans  decreased  by  $4.5  million,  land  and
construction  loans  decreased  by  $811,000  and  commercial  paper and bankers
acceptances  decreased by $1.3 million.  The allowance for loan losses decreased
by $142,000. 

RESULTS OF OPERATIONS

Comparison of Operating Results for the Years Ended March 31, 1997 and March 31,
1996.

         General.  The Company's  net income of $1.30 million  during the fiscal
year ended March 31, 1997 was slightly  improved from the $1.25  million  earned
during the fiscal year ended March 31, 1996.  The earnings  improvement  occured
despite the payment of a special  assessment  in the amount of $1.77  million to
recapitalize  the  Savings  Association  Insurance  Fund  (SAIF) of the  Federal
Deposit Insurance Corporation (FDIC). The after tax impact of this assessment on
earnings was $1.07 million.

         Net Interest  Income.  The Company's net interest  income  increased by
$1.5 million to $11.0 million for the year ended March 31, 1997 compared to $9.5
million  for  the  year  ended  March  31,  1996.  The  increase  was  primarily
attributable to an increase in interest earning assets and an inprovement in the
interest rate spread (the difference between the rate earned on interest earning
assets and the rate paid on interest bearing liabilities).

         Interest  Income.  Interest  income for the year ended  March 31,  1997
increased  $3.8 million to $29.7 million  compared to $25.9 million for the same
period in 1996.  Interest income was higher for all major  categories  including
increased  interest income on loans of $458,000,  mortgage-backed  securities of
$341,000,  and investment  securities of $2,851,000.  Due to increased holdings,
dividends on Federal  Home Loan Bank stock were also up by  $166,000.  Income on
interest bearing deposits was down by a modest $19,000. Interest income on loans
increased as a result of growth in average  loans  outstanding  of $ 3.9 million
for the year ended March 31, 1997. The weighted average yield on loans was 8.02%
during the fiscal year ended March 31, 1997, compared to 8.13% during the fiscal
year ended March 31, 1996.  Interest  income on  mortgage-backed  and investment
securities also increased primarily as a result of higher outstanding  balances.
Mortgage-backed  securities  averaged $91.4 million during fiscal 1997, compared
to $87.6 million  during fiscal 1996.  Securities  and FHLB stock averaged $95.2
million  during fiscal 1997,  compared to $60.3 million  during fiscal 1996. The
weighted average yields on mortgage-backed and investment  securities were 6.67%
and 7.02%  respectively  during fiscal 1997,  compared to 6.58% and 6.09% during
fiscal 1996.
<PAGE>
         Interest  Expense.  Interest expense increased by $2.3 million to $18.7
million  during the fiscal year ended March 31, 1997,  compared to $16.4 million
during fiscal 1996.  Interest paid on deposits  decreased by $109,000,  due to a
decrease  in the average  rate paid to 4.84% from 4.93%,  which more than offset
the decrease of $2.8 million in average  deposit  balances.  Interest on Federal
Home  Loan  Bank  advances   increased  by  $2.5  million  as  average  balances
outstanding  increased by $46.3  million.  The average rate paid on advances was
5.74% during fiscal 1997, compared to 6.17% during fiscal year 1996.

         Provision for Loan Losses.  The Bank establishes its provision for loan
losses and  evaluates  the  adequacy of its  allowance  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. Such evaluation, which includes a
review of all loans for which full collectibility may not be reasonably assured,
considers,  among other  matters,  the  estimated  fair value of the  underlying
collateral,   economic   conditions,   historical  loan  loss  experience,   the
composition of its loan portfolio and other factors that warrant


                                     - 7 -
<PAGE>
recognition in providing for an adequate loan loss allowance.  This  methodology
is  performed  on a monthly  basis and is designed  to ensure that all  relevant
matters  affecting  loan  collectibility  will  consistently  be identified in a
detailed  loan review and that the outcome of the review will be considered in a
disciplined  manner by management in determining the necessary  reserves and the
provision  for loan losses.  The amounts  actually  reported in each period will
vary with the outcome of this detailed review.

         During the year ended March 31, 1997, the Company  recorded a provision
for loan  losses of $113,000  compared to $207,000  for the year ended March 31,
1996.  During the period  ended  March 31,  1997 the bank  reduced the loan loss
provision  by  $232,000  relating  to the  reversal  of  specific  reserves on a
previously  impaired loan. This decrease in the provision is partially offset by
increases of $119,000  reflecting  increased  charge offs on consumer loans. Net
recoveries  amounted to $225,000  during fiscal 1997 compared to $62,000  during
fiscal 1996. Asset quality, as measured by non-performing  loans to total loans,
improved  for the year ended March 31,  1997  compared to the same period a year
ago. The ratios of non-performing assets to total assets were 1.11% at March 31,
1997 and 1.75% at March 31, 1996  respectively.  The allowance for losses,  as a
ratio to total  loans,  was 1.00 % at March 31, 1997  compared to 1.07% at March
31, 1996. It is management's  belief that the allowance for loan losses reflects
an  adequate  reserve  against  potential  loss on the  loan  portfolio.  Future
additions  to the  Company's  allowance  for loan  losses  and any change in the
related ratio to non-performing  loans are dependent upon the performance of the
Company's loan portfolio, the economy, inflation,  changes in real estate values
and interest rates as well as the view of regulatory authorities toward adequate
reserve levels. See also "Asset Quality."

         Other Income.  Other income increased by $187,000 to $1,624,000  during
the fiscal year ended March 31,  1997.  Service  charges  increased by $213,000,
profit on sale of loans by $5,000,  and gains on real  estate  owned by $10,000.
Commissions on investment and insurance products decreased by $20,000. A loss of
$56,000 was realized on the sale of investment  and  mortgage-backed  securities
compared to a loss of $6,000  during  fiscal 1996.  Earnings  from other sources
were up by $29,000 during fiscal 1997.
 
         Other Expense.  The Company's other expenses  increased $1.3 million to
$10.2  million for the year ended March 31,  1997,  compared to $8.9 million for
the year  ended  March 31,  1996,  primarily  because of the  special  FDIC-SAIF
special  assessment in the amount of $1.8 million  mentioned under the "general"
heading above. Salaries and employee benefits were $133,000 or 3.0% lower during
fiscal  1997 than  during  fiscal  1996,  while  most  other  expenses  remained
relatively stable.

         Income Tax Provision. The Company's income tax provision increased from
$661,000  for the year ended  March 31,  1996 to  $1,003,000  for the year ended
March 31,  1997.  The  increase  was  primarily  because the Company was able to
recognize a greater loan loss  deduction  for tax purposes due to growth in loan
balances during fiscal 1996.
<PAGE>
Comparison of Operating Results for the Years Ended March 31, 1996 and March 31,
1995.

         General.  The Company's  net income of $1.25 million  during the fiscal
year ended March 31, 1996 was slightly  improved from the $1.24  million  earned
during the fiscal year ended March 31, 1995.

         During the later part of the fiscal  year  ended  March 31,  1996,  the
Company retained a consulting firm to assist management in performing a detailed
study of profit improvement  opportunities.  The study  successfully  identified
areas  where  savings  may be  realized  through  technological  and  work  flow
improvements, permitting a reduction in staff, and where non-interest income can
be improved while remaining competitive in pricing the Company's services.  Many
of the  study's  recommendations  were  implemented  in  fiscal  1997.  Staffing
reductions were achieved through normal attrition.

                                     - 8 -
<PAGE>
         Net Interest  Income.  The Company's net interest  income  increased by
$185,000 to $9.5  million  for the year ended  March 31,  1996  compared to $9.4
million  for  the  year  ended  March  31,  1995.  The  increase  was  partially
attributable to an increase in interest earning assets funded by lower cost FHLB
advances.  The increase somewhat offset the effects of the Company's  repurchase
of common stock which used otherwise  investable assets to reduce  stockholder's
equity.

         Interest  Income.  Interest  income for the year ended  March 31,  1996
increased  $3.2 million to $25.9 million  compared to $22.7 million for the same
period in 1995.  Interest income was higher for all major  categories  including
increased  interest income on loans of $992,000,  mortgage-backed  securities of
$1,307,000,  investment securities of $810,000, and interest bearing deposits of
$25,000.  Due to increased  holdings,  dividends on Federal Home Loan Bank stock
were also up by $52,000.  Interest  income on loans  increased  as a result of a
growth in average loan  outstanding of $6.3 million for the year ended March 31,
1996. The weighted average yield on loans was 8.13% during the fiscal year ended
March 31,  1996,  compared to 7.88% during the fiscal year ended March 31, 1995.
Interest  income on  mortgage-backed  and investment  securities  also increased
primarily as a result of higher outstanding balances. Mortgage-backed securities
averaged  $87.6  million  during fiscal 1996,  compared to $78.1 million  during
fiscal 1995.  Securities  and FHLB stock  averaged  $60.2 million  during fiscal
1996,  compared to $55.3 million during fiscal 1995. The weighted average yields
on mortgage-backed  and investment  securities were 6.58% and 6.09% respectively
during fiscal 1996, compared to 5.71% and 5.07% during fiscal 1995.
 
         Interest  Expense.  Interest expense increased by $3.0 million to $16.4
million  during the fiscal year ended March 31, 1996,  compared to $13.4 million
during fiscal 1995. Interest paid on deposits increased by $1.4 million,  due to
an increase in the average rate paid to 4.93% from 4.34%, which more than offset
the decrease of $4.6 million in average  deposit  balances.  Interest on Federal
Home  Loan  Bank  advances   increased  by  $1.6  million  as  average  balances
outstanding  increased by $26.0  million.  The average rate paid on advances was
6.17% during fiscal 1996, compared to 6.31% during fiscal year,1995.

         Provision for Loan Losses.  The Bank establishes its provision for loan
losses and  evaluates  the  adequacy of its  allowance  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. Such evaluation, which includes a
review of all loans for which full collectibility may not be reasonably assured,
considers,  among other  matters,  the  estimated  fair value of the  underlying
collateral,   economic   conditions,   historical  loan  loss  experience,   the
composition of its loan portfolio and other factors that warrant  recognition in
providing for an adequate loan loss allowance.  This methodology is performed on
a monthly  basis and is designed to ensure that all relevant  matters  affecting
loan  collectibility  will  consistently be identified in a detailed loan review
and that the outcome of the review will be considered in a disciplined manner by
management  in  determining  the  necessary  reserves and the provision for loan
losses.  The amounts actually reported in each period will vary with the outcome
of this detailed review.

         During the year ended March 31, 1996, the Company  recorded a provision
for loan  losses of $207,000  compared to $410,000  for the year ended March 31,
1995. The decreased loss provision  reflects the improved  charge off experience
during  fiscal  1996.  Net charge offs  amounted to $62,000  during  fiscal 1996
compared  to  $427,000  during  fiscal  1995.  Asset  quality,  as  measured  by
non-performing loans to total loans,  improved for the year ended March 31, 1996
<PAGE>
compared to the same period a year ago. The ratios of  non-performing  assets to
total  assets  were  1.75%  at March  31,  1996 and  2.43%  at  March  31,  1995
respectively.  The allowance for losses, as a ratio to total loans, was 1.07% at
March 31, 1996  compared to 1.06% at March 31, 1995. It is  management's  belief
that  the  allowance  for loan  losses  reflects  an  adequate  reserve  against
potential  loss  on the  loan  portfolio.  Future  additions  to  the  Company's
allowance for loan losses and any change in the related ratio to  non-performing
loans are dependent upon the  performance of the Company's loan  portfolio,  the
economy, inflation,  changes in real estate values and interest rates as well as
the view of regulatory  authorities  toward adequate  reserve  levels.  See also
"Asset Quality."


                                     - 9 -
<PAGE>
         Other Income.  Other income decreased by $256,000 to $1,437,000  during
the fiscal year ended  March 31,  1996.  Service  charges  increased  by $8,000,
profit on sale of loans by $34,000 and  commissions  on investment and insurance
products by  $77,000.  Real estate  owned gains and  recoveries  net of expenses
produced a net benefit of $6,000  during  fiscal 1996,  compared to a benefit of
$315,000  during fiscal 1995 when greater  non-recurring  gains on sales of real
estate  owned  were  achieved.  A loss of  $6,000  was  realized  on the sale of
investment and  mortgage-backed  securities  compared to a gain of $5,000 during
fiscal 1995.  Earnings  from other  sources were down by $55,000  during  fiscal
1996.
 
         Other Expense.  The Company's other expenses increased $340,000 to $8.9
million for the year ended March 31, 1996, compared to $8.5 million for the year
ended March 31, 1995. Consultant and management fees were $168,000 higher during
fiscal year 1996, primarily because of the profit improvement study described in
this section under the "General"  heading.  Salaries and employee  benefits were
$30,000 or 0.7% higher during fiscal 1996 than during fiscal 1995.
 
         Income Tax Provision. The Company's income tax provision decreased from
$875,000  for the year ended March 31, 1995 to $661,000 for the year ended March
31, 1996. The decrease was primarily because the Company was able to recognize a
greater loan loss deduction for tax purposes due to growth in loan balances.

         Average  Balance  Sheet.  The following  table presents for the periods
indicated the average balance of  interest-earning  assets and  interest-bearing
liabilities,  the amount of interest  income and the interest  expense,  and the
average  yield on assets and the average  cost of  liabilities.  Such yields and
costs are derived by dividing  interest income or expense by the average balance
of assets or liabilities, respectively, for the periods shown. No tax equivalent
adjustments  were made.  All  average  balances  are monthly  average  balances.
Non-accruing  loans  have been  included  in the table as loans  carrying a zero
yield.
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands)                      1997                         1996                          1995
---------------------------------------------------------------------------------------------------------------------------

                                Average   Interest Average    Average  Interest  Average    Average  Interest  Average
                              Outstanding  Earned/ Yield/   Outstanding Earned/  Yield/   Outstanding Earned/  Yield/
                                Balance     Paid    Rate      Balance    Paid     Rate      Balance    Paid     Rate
---------------------------------------------------------------------------------------------------------------------------
<S>                             <C>        <C>       <C>     <C>        <C>       <C>      <C>        <C>       <C>
Interest-earning assets:
 Loans receivable               $209,420   $16,796   8.02%   $200,940   $16,338   8.13%    $194,675   $15,346   7.88%
 Mortgage-backed securities       91,431     6,101   6.67      87,551     5,761   6.58       78,070     4,454   5.71
 Securities and FHLB stock        95,212     6,686   7.02      60,268     3,669   6.09       55,303     2,806   5.07
 Other                             1,869       106   5.67       1,854       124   6.69        2,274        99   4.35
---------------------------------------------------------------------------------------------------------------------------
  Total interest-earning
   assets (1)                   $397,932   $29,689   7.46    $350,613   $25,892   7.38     $330,322   $22,705   6.87
===========================================================================================================================

Interest-bearing liabilities:
 Deposits                       $275,407   $13,333   4.84    $272,568   $13,442   4.93     $277,130   $12,015   4.34
 FHLB advances                    92,604     5,320   5.74      46,308     2,856   6.17       20,284     1,280   6.31
 Other borrowings                  1,693        71   4.19       1,541        56   3.63        1,476        57   3.86
---------------------------------------------------------------------------------------------------------------------------
  Total interest-bearing
   liabilities                  $369,704   $18,724   5.06    $320,417   $16,354   5.10     $298,890   $13,352   4.47
===========================================================================================================================

Net interest income                        $10,965                      $ 9,538                       $ 9,353
===========================================================================================================================

Net interest rate spread                             2.40%                        2.28%                         2.40%
===========================================================================================================================

Net earning assets              $ 28,228                     $ 30,196                      $ 31,432
===========================================================================================================================

Net interest margin(2)                               2.76%                        2.72%                         2.83%
===========================================================================================================================

Average interest-earning
 assets to average interest-
 bearing liabilities               107.64%                      109.42%                       110.52%
===========================================================================================================================

(1) Calculated net of deferred loan fees, loan  discounts,  loans in process and
loss reserves. (2) Net interest margin represents net interest income divided by
average interest-earning assets.
</TABLE>
                                     - 10 -
<PAGE>
         Rate/Volume Analysis.  The following table presents the extent to which
changes in interest rates and changes in the volume of  interest-earning  assets
and interest-bearing liabilities have affected the Company's interest income and
interest   expense   during  the  years   indicated.   For  each   category   of
interest-earning  assets  and  interest-bearing   liabilities,   information  is
provided for changes  attributable  to (i) changes in volume  (i.e.,  changes in
volume multiplied by prior rate) and (ii) changes in rate (i.e., changes in rate
multiplied by prior volume).  Changes  attributable to both rate and volume have
been allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
                                                                         Year Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
(In Thousands)                                            1997 vs. 1996                       1996 vs. 1995
---------------------------------------------------------------------------------------------------------------------------
                                                 Increase (Decrease)      Total      Increase (Decrease)      Total
                                                       Due to           Increase           Due to           Increase
                                                Volume        Rate     (Decrease)    Volume       Rate     (Decrease)
---------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>         <C>         <C>         <C>          <C>         <C>
Interest-earning assets:
 Loans receivable                                $  676      $ (218)     $  458      $  502       $  490      $  992
 Mortgage-backed securities                         258          82         340         578          729       1,307
 Securities and FHLB stock                        2,386         631       3,017         268          595         863
 Other                                                1         (19)        (18)        (13)          38          25
---------------------------------------------------------------------------------------------------------------------------
   Total interest-earning assets                 $3,321      $  476      $3,797      $1,335       $1,852      $3,187
===========================================================================================================================

Interest-bearing liabilities:
 Deposits                                        $  143      $ (252)     $ (109)     $ (194)      $1,621      $1,427
 FHLB advances                                    2,645        (181)      2,464       1,604          (28)      1,576
 Other borrowings                                     6           9          15           3           (4)         (1)
---------------------------------------------------------------------------------------------------------------------------
   Total interest-bearing liabilities            $2,794      $ (424)     $2,370      $1,413       $1,589      $3,002
===========================================================================================================================

Net change in interest income                                            $1,427                               $  185
===========================================================================================================================
</TABLE>
<PAGE>
         The  following  table  presents the weighted  average  yields on loans,
investments and other  interest-earning  assets,  the weighted  average rates on
savings  deposits and borrowings and the resultant  interest rate spreads at the
dates indicated: 
<TABLE>
<CAPTION>
                                                                           At March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                      1997                     1996                    1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                     <C>                      <C>
Weighted average yield on:
 Loans, net                                           8.02%                   8.01%                    7.84%
 Mortgage-backed securities                           6.71                    6.87                     6.20
 Securities                                           7.05                    6.40                     5.47
 Other                                                6.69                    5.35                     5.14
  Combined weighted average yield on
   interest-earning assets                            7.47                    7.39                     7.07
Weighted average rate paid on:
 Savings deposits                                     3.87                    3.90                     2.79
 Demand and NOW deposits                              2.06                    2.20                     2.58
 Time deposits                                        5.67                    5.74                     5.60
 Borrowings                                           5.19                    4.76                     4.82
  Combined weighted average rate paid
   on interest-bearing liabilities                    4.85                    4.89                     4.78
Spread                                                2.62                    2.50                     2.29
</TABLE>
                                     - 11 -
<PAGE>
Asset Quality

         In  accordance  with the  Company's  classification  of assets  policy,
management  evaluates the loan and investment  portfolios each month to identify
substandard  assets  that may  contain  the  potential  for loss.  In  addition,
management evaluates the adequacy of its allowance for possible loan losses.

         Non-Performing  Assets.  The following table sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio.  For the years
presented,  the Bank had no accruing loans  delinquent  more than 90 days.  Real
estate owned includes loans classified as in-substance foreclosures and property
acquired in  settlement  of  foreclosed  loans which are carried at the lower of
cost or estimated fair value less estimated cost to sell.
 
<TABLE>
<CAPTION>
                                                                         Year Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)                               1997           1996          1995           1994          1993
---------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>           <C>          <C>             <C>
Non-accruing loans:
  One- to four-family                               $1,131        $  695        $1,219       $ 1,911         $  908
  Multi-family                                       1,062         3,654         3,696         3,912          4,302
  Commercial real estate                                --            --            --           646            764
  Construction or development                          171           171            --            57             36
  Consumer                                              99           185            78            93            206
---------------------------------------------------------------------------------------------------------------------------
    Total                                            2,463         4,705         4,993         6,619          6,216
---------------------------------------------------------------------------------------------------------------------------
Troubled debt restructurings                         2,128         2,165         3,293         3,341          3,374
---------------------------------------------------------------------------------------------------------------------------
Total non-performing loans                          $4,591        $6,870        $8,286       $ 9,960        $ 9,590
===========================================================================================================================

Real estate owned:
  One- to four-family                               $   41        $   22         $   7        $   46         $  351
  Commercial real estate                                --            --            --            --            327
  Construction or development                           --            --            26           342          1,056
  Consumer                                              53            54            25            --             --
---------------------------------------------------------------------------------------------------------------------------
    Total                                               94            76            58           388          1,734
---------------------------------------------------------------------------------------------------------------------------
Total non-performing assets                         $4,685        $6,946        $8,344       $10,348        $11,324
===========================================================================================================================

Total as a percentage of total assets                 1.11%         1.75%         2.43%         2.83%          3.46%
===========================================================================================================================
</TABLE>
         At  March  31,  1997  the Bank  had  four  non-performing  assets  with
outstanding balances in excess of $100,000.

         Non-accruing  Loans. As of March 31, 1997, the Bank had $2.5 million in
book value of non-accruing  loans compared to $4.7 million as of March 31, 1996.
For the year ended March 31, 1997,  gross interest  income which would have been
recorded had the Bank's non-accruing loans been current in accordance with their
original  terms  amounted to $241,000.  The amount that was included in interest
income on such loans was actually $105,000 for the year ended March 31, 1997.
<PAGE>

         Real Estate Owned.  At March 31, 1997, the Bank's real estate  acquired
through foreclosure totaled $41,000.

         Other Loans of Concern.  In addition to the  non-performing  assets set
forth in the table above,  as of March 31, 1997,  there was also an aggregate of
$2.6 million in net book value of loans ($2.4  million  secured by single family
residences,  $82,000  secured by  non-redsidential  property,  and  $160,000  of
secured and  unsecured  consumer  loans)  compared to $4.2 million for the prior
year, with respect to which known information about the possible credit problems
of the borrowers have caused  management to have doubts as to the ability of the
borrowers to comply with present  loan  repayment  terms and which may result in
the future inclusion of such items in the non-performing asset category.

                                     - 12 -
<PAGE>
         Delinquent  Loans.  The  following  table sets  forth the  Bank's  loan
delinquencies by type, by amount and by percentage of type at March 31, 1997.
<TABLE>
<CAPTION>
                                                                 Loan Delinquent For:
---------------------------------------------------------------------------------------------------------------------------
                                         30-59 Days                   60-89 Days                 90 Days and Over
---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)          Number   Amount  Percentage   Number   Amount  Percentage   Number   Amount Percentage
---------------------------------------------------------------------------------------------------------------------------
<S>                               <C>    <C>       <C>          <C>    <C>      <C>           <C>    <C>      <C>
Real Estate:
  One- to four-family             128    $2,972     73.75%       77    $2,397    90.62%       38     $1,131    45.92%
  Multi-family                     --        --       --         --        --       --         1      1,062    43.12
  Construction or
    development                     2        27      0.67        --        --       --         1        171     6.94
  Consumer                        155     1,031     25.58        40       248     9.38        26         99     4.02
---------------------------------------------------------------------------------------------------------------------------
       Total                      285    $4,030    100.00%      117    $2,645   100.00%       66     $2,463   100.00%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

         Allowance for Loan Losses. The allowance for loan losses is established
through a provision  for loan losses based upon  management's  evaluation of the
risk inherent in its loan portfolio and changes in the nature and volume of it's
loan activity.
<PAGE>
         The  following  table sets forth an anaysis of the Bank's  allowance at
the years indicated.
<TABLE>
<CAPTION>
(Dollars in Thousands)                                                        At March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                     1997           1996          1995           1994          1993
---------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>            <C>          <C>           <C>
Balance at beginning of year                         $2,238        $2,093         $2,110       $2,077        $2,190
Charge-offs:
  One- to four-family                                    --            11             20            5            18
  Multi-family                                           --            --             86           97           698
  Construction or development                            --            --             --           --           594
  Consumer                                              354            93             63           57            84
  Commercial business                                    17            --            414          183            20
---------------------------------------------------------------------------------------------------------------------------
                                                        371           104            583          342         1,414
---------------------------------------------------------------------------------------------------------------------------
Recoveries:
  One- to four-family                                     2            11            134           --            --
  Multi-family                                           98             4             --           --            --
  Consumer                                               46            27             22           25            21
---------------------------------------------------------------------------------------------------------------------------
                                                        146            42            156           25            21
---------------------------------------------------------------------------------------------------------------------------
Net charge-offs                                         225            62            427          317         1,393
Provision for loan losses charged
  to operations                                         113           207            410          350         1,280
---------------------------------------------------------------------------------------------------------------------------
Balance at end of year                               $2,126        $2,238         $2,093       $2,110        $2,077
===========================================================================================================================

Ratio of net charge-offs during the period to
  average loans outstanding during the year            0.11%         0.03%          0.22%         0.17%        0.73%
===========================================================================================================================
Ratio of net charge-offs during the period to
  ending non-performing assets                         4.80%         0.89%          5.12%         3.06%       12.30%
===========================================================================================================================
Ratio of provision for loan losses
  to total loans                                       0.05%         0.10%          0.21%         0.19%        0.73%
===========================================================================================================================
Ratio of allowance for loan losses
  to non-performing loans                             46.31%        32.58%         25.26%        21.18%       21.66%
===========================================================================================================================
Ratio of allowance for loan losses
  to total loans                                       1.00%         1.07%          1.06%         1.11%        1.17%
===========================================================================================================================
</TABLE>
                                     - 13 -
<PAGE>
Asset/Liability Management

         The  measurement and analysis of the exposure of the Bank to changes in
the interest rate environment is referred to as asset/liability  management. One
method used to analyze the Bank's sensitivity to changes in interest rates is to
measure the difference between the amount of  interest-earning  assets which are
anticipated  to mature or reprice  within a given  period of time as compared to
the  amount of  interest-bearing  liabilities  which are  expected  to mature or
reprice  within the same period.  This  difference is known as the interest rate
sensitivity "gap." A gap is considered positive when the amount of interest rate
sensitive assets anticipated to reprice or mature exceeds the amount of interest
rate sensitive liabilities anticipated to reprice or mature in a given period. A
gap  is  considered   negative  when  the  amount  of  interest  rate  sensitive
liabilities anticipated to reprice or mature exceeds the amount of interest rate
sensitive assets anticipated to reprice or mature in a given period.

         At March 31, 1997,  the Company's  total  interest-earning  liabilities
maturing or repricing  within one year exceeded  total  interest-bearing  assets
maturing  or  repricing  in the same  period by $66.4  million,  representing  a
negative  cumulative  one-year gap ratio of 15.8% of total  assets.  The Company
relies  on  certain  assumptions,   such  as  the  amount  and  timing  of  loan
prepayments,  among others,  in the measurement of the interest rate sensitivity
gap.  In  light  of  the  Company's  negative  cumulative  one-year  gap  ratio,
management believes that an increase in interest rates will adversely effect its
net interest income.

         The Company focuses lending efforts toward the origination and purchase
of  competitively  priced  adjustable-rate  loan  products and  fixed-rate  loan
products with  relatively  short terms to maturity,  generally  fifteen years or
less.  This allows the  Company to  maintain a portfolio  of loans which will be
sensitive to changes in the level of interest rates while providing a reasonable
spread to the cost of liabilities used to fund the loans.

         The effect of these  assumptions  is to quantify  the dollar  amount of
items that are  interest-sensitive  and which can be repriced within each of the
periods  specified.  Such repricing can occur in one of three ways: (i) the rate
of interest to be paid on an asset or liability may adjust  periodically  on the
basis of an interest rate index,  (ii) an asset or liability  such as a mortgage
loan may amortize,  permitting reinvestment of cash flows at the then-prevailing
interest  rate,  or (iii) an asset or  liability  may mature,  at which time the
proceeds can be reinvested at the current market rates.
 
         The  following  table sets forth the interest rate  sensitivity  of the
Company's  assets  and  liabilities  at  March  31,  1997  on the  basis  of the
above-described assumptions, and sets forth the repricing dates of the Company's
interest-earning  assets and interest-bearing  liabilities at March 31, 1997 and
the  Company's   interest  rate  sensitivity  "gap"  percentages  at  the  dates
indicated.  Information presented is based on estimated prepayment rates ranging
from 9% to 50% for  loans and  mortgage-backed  securities,  depending  on their
maturity and yield.  Passbook  savings and NOW account balances assume a 17% and
37% annual decay rate,  respectively,  and money market demand  amounts assume a
79% annual decay rate.

                                     - 14 -
<PAGE>
<TABLE>
<CAPTION>

                                                                Maturing or Repricing
---------------------------------------------------------------------------------------------------------------------------
                                               Less than     6-12      Over 1-3    Over 3-5       Over
                                               6 Months     Months       Years       Years       5 Years
---------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>         <C>         <C>         <C>           <C>
Fixed-rate one- to four-
  family, multi-family (including
  mortgage-backed securities),
  commercial real estate and
  construction loans                           $ 19,142    $ 13,583    $ 37,100    $ 24,425      $46,069
Adjustable rate one- to four-
  family, multi-family (including
  mortgage-backed securities)
  commercial real estate and
  construction loans                             65,783      16,120      26,369       8,143        9,330
Consumer loans                                    7,382       6,097      19,580       8,458        3,540
Investment securities and other                   7,174       2,000       4,023      10,015       62,988
---------------------------------------------------------------------------------------------------------------------------
  Total interest-earning assets                  99,481      37,800      87,072      51,041      121,927
---------------------------------------------------------------------------------------------------------------------------
Savings deposits                                  2,468       4,194      12,286       5,940       29,356
Demand and NOW deposits                          10,470       6,612       9,905       2,865        5,706
Certificates                                     81,639      22,082      54,149      10,334       21,814
FHLB advances                                    38,374      37,053      20,630       1,310        1,124
Other borrowings                                    711         104         417         327            0
---------------------------------------------------------------------------------------------------------------------------
  Total interest-bearing liabilities            133,662      70,045      97,387      20,776       58,000
---------------------------------------------------------------------------------------------------------------------------
Interest-earning assets less
  interest-bearing liabilities                 $(34,181)   $(32,245)   $(10,315)   $ 30,265      $63,927
===========================================================================================================================

Cumulative interest-rate
  sensitivity gap                              $(34,181)   $(66,426)   $(76,741)   $(46,476)     $17,451
===========================================================================================================================

Cumulative interest-rate
  gap as a percentage of assets                   (8.14)%    (15.82)%    (18.27)%     (11.07)%       4.16%
===========================================================================================================================
</TABLE>
<PAGE>
         In  evaluating  the Company's  exposure to interest rate risk,  certain
shortcomings  inherent  in the method of  analysis  presented  in the  foregoing
tables must be considered.  For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while  interest rates on other types may lag behind changes in
market rates.  Additionally,  certain assets, such as adjustable-rate mortgages,
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate  significantly  from
those assumed in calculating the table. For example,  projected passbook,  money
market and NOW account  maturities may also materially  change if interest rates
change.  Finally,  the  ability  of many  borrowers  to  service  their debt may
decrease in the event of an interest rate increase. The Company considers all of
these factors in monitoring its exposure to interest rate risk.

         In addition,  the  foregoing  table does not  necessarily  indicate the
impact of general  interest rate movements on the Company's net interest  income
because the repricing of certain categories of assets and liabilities is subject
to competitive and other pressures  beyond the Company's  control.  As a result,
certain  assets and  liabilities  indicated as maturing or  otherwise  repricing
within a stated period may, in fact, mature or reprice at different times and at
different volumes.


                                     - 15 -
<PAGE>
Liquidity and Capital Resources

         The OTS  requires  minimum  levels of liquid  assets.  OTS  regulations
presently require the Bank to maintain an average daily balance of liquid assets
(United States Treasury,  federal agency and other investments having maturities
of five years or less)  equal to at least 5.0% of the sum of its  average  daily
balance of net withdrawable  deposit accounts and borrowings payable in one year
or  less.  Such  requirements  may be  changed  from  time to time by the OTS to
reflect changing economic conditions. Such investments are intended to provide a
source of  relatively  liquid funds upon which  Permanent  Federal may rely,  if
necessary,  to fund deposit  withdrawals and other short-term funding needs. The
Bank has historically maintained its liquidity ratio in excess of that required.
At March  31,  1997,  the  amount of the  Bank's  liquidity  was $33.0  million,
resulting in a liquidity ratio of 8.71%.

         Liquidity  management is both a daily and long-term  responsibility  of
management.  The Bank  adjusts  its  investments  in liquid  assets  based  upon
management's  assessment  of (i) expected  loan demand,  (ii)  expected  deposit
flows,  (iii)  yields  available  on  interest-bearing  deposits  and  (iv)  the
objectives of its asset/liability management program. Excess liquidity generally
is  invested  in  interest-bearing   overnight  deposits  and  other  short-term
government and agency obligations. If the Bank requires additional funds, beyond
its internal ability to generate,  it has additional borrowing capacity with the
FHLB and collateral eligible for repurchase agreements.

         The Bank  principally  uses its  liquidity  resources  to meet  ongoing
commitments,  to fund maturing  certificates of deposit and deposit withdrawals,
to invest, to fund existing and future loan commitments,  to maintain liquidity,
and to meet operating expenses.  At March 31, 1997, the Bank had $5.2 million of
loans in  process.  The Bank  anticipates  that it will  have  sufficient  funds
available to meet current loan commitments.
 
         Certificates of deposit  scheduled to mature in a year or less at March
31, 1997 totalled $103.7  million.  Based on historical  experience,  management
believes that a significant  portion of such deposits will remain with the Bank,
however, there can be no assurance that the Bank can retain all such deposits.

         Management  believes  that loan  repayments  and other sources of funds
will be adequate to meet and exceed the Bank's  foreseeable short- and long-term
liquidity needs.

         The primary  investing  activities  of the Bank  include  investing  in
loans, mortgage-backed securities, U.S. Treasury and agency securities and other
investment  securities.  At March 31, 1997,  these assets accounted for 94.8% of
the  Company's  total  assets.  The  purchases  are funded  primarily  from loan
repayments,  maturities of  securities,  FHLB advances and increases in deposits
and net income.

         At March 31, 1997, the Bank had outstanding borrowings of $98.5 million
from the FHLB and had the capacity to borrow up to a total of approximately $163
million.

         Under the Financial Institutions Reform,  Recovery, and Enforcement Act
of  1989  ("FIRREA"),   the  capital  requirements  applicable  to  all  savings
institutions,  including the Bank, have been substantially  increased.  However,
the Bank is in compliance with the fully  phased-in  capital  requirements.  See
Note 11 to the  Consolidated  Financial  Statements for a further  discussion of
regulatory capital requirements.
<PAGE>
         Dividends are subject to determination  and declaration by the Board of
Directors,  which will take into account the  Company's  consolidated  financial
condition  and results of  operations  as well as other  relevant  factors.  The
Company's  ability to pay  dividends is subject to federal  regulations  and its
continued compliance with regulatory capital  requirements.  The Company is also
subject to the requirements of Delaware law, which generally limits dividends to
an amount in excess of a company's net assets over paid-in-capital, or, if there
is no such excess, to its net profits for the current and immediately  preceding
fiscal year. See Note 12 to the Consolidated  Financial Statements for a further
discussion.


                                     - 16 -
<PAGE>
Impact of Inflation and Changing Prices

         The consolidated financial statements and related data presented herein
have been prepared in accordance with generally accepted  accounting  principles
which require the measurement of financial position and results of operations in
terms  of  historical  dollars  without  considering  changes  in  the  relative
purchasing power of money over time because of inflation.

         Unlike  most  industrial  companies,  virtually  all of the  assets and
liabilities of Permanent Federal are monetary in nature.  As a result,  interest
rates  have a more  significant  impact on the  Company's  performance  than the
effects of general levels of inflation.  Interest rates do not necessarily  move
in the same  direction  or in the same  magnitude  as the  prices  of goods  and
services.  In the present  interest rate  environment,  the liquidity,  maturity
structure  and  quality  of  Permanent  Federal's  assets  and  liabilities  are
important factors in the maintenance of acceptable performance levels.
 
Recent Accounting Pronouncements

         The Financial Accounting Standards Board has issued Statements 123, 125
and 128 that the  Company  either has  adopted or will be  required  to adopt in
future  periods.  See  Note 1 to the  Consolidated  Financial  Statements  for a
further discussion.

                                     - 17 -
<PAGE>
                          INDEPENDENT AUDITORS' REPORT


To the Stockholders and the Board of Directors of
    Permanent Bancorp, Inc.:


         We have audited the accompanying  consolidated  statements of financial
condition of Permanent  Bancorp,  Inc. and its subsidiary  (the "Company") as of
March 31,  1997 and 1996 and the  related  consolidated  statements  of  income,
stockholders'  equity and cash  flows for each of the three  years in the period
ended March 31, 1997. These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

         In our opinion, such consolidated  financial statements present fairly,
in all material respects,  the financial position of Permanent Bancorp, Inc. and
its  subsidiary  as of  March  31,  1997  and  1996,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
March 31, 1997 in conformity with generally accepted accounting principles.











/s/Deloitte & Touche L L P
--------------------------
DELOITTE & TOUCHE L L P

May 14, 1997
Indianapolis, Indiana

                                     - 18 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION
                                                                                                  March 31,
                                                                                          1997               1996
---------------------------------------------------------------------------------------------------------------------------
                                     ASSETS:
<S>                                                                                   <C>                <C>
Cash                                                                                  $ 3,211,091        $ 4,900,671
Interest-bearing deposits                                                               3,153,385             15,750
---------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents                                                         6,364,476          4,916,421
---------------------------------------------------------------------------------------------------------------------------
Securities available for sale - at fair value
  (amortized cost - $87,020,254 and $73,408,696) (Note 2, 9)                           85,180,313         73,170,635
Mortgage-backed securities available for sale - at fair value
  (amortized cost - $74,846,178 and $61,888,585) (Note 3)                              74,052,253         61,953,242
Securities held to maturity (fair value - $25,000 and $25,000) (Notes 2, 9)                25,000             25,000
Mortgage-backed securities held to maturity
  (fair value - $27,197,070 and $32,319,409) (Note 3)                                  27,180,891         32,153,595
Other investments                                                                       1,056,036            633,302
Loans (net of allowance for loan losses of $2,126,225
  and $2,237,804 (Notes 4, 14)                                                        210,189,422        206,909,621
Interest receivable, net (Note 5)                                                       3,539,085          2,874,362
Office properties and equipment, net (Note 6)                                           6,968,587          7,256,587
Real estate owned, net                                                                     40,653             21,881
Deferred income taxes (Note 10)                                                         1,374,109            281,495
Federal Home Loan Bank stock (Note 8)                                                   5,192,600          3,503,600
Cash surrender value of life insurance (Note 13)                                        1,552,875            953,199
Goodwill (net of accumulated amortization of $1,741,967 and $1,523,364)                   326,198            544,801
Other                                                                                     655,833            705,051
---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                         $423,698,331       $395,902,792
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION (continued)
                                                                                                  March 31,
                                                                                          1997               1996
---------------------------------------------------------------------------------------------------------------------------
                      LIABILITIES AND STOCKHOLDERS' EQUITY:
<S>                                                                                   <C>                <C>
LIABILITIES:
Deposits (Note 7)                                                                    $280,753,353       $280,008,062
Federal Home Loan Bank advances (Note 8)                                               98,483,986         68,303,217
Advance payments by borrowers for taxes and insurance                                   1,014,598          1,022,263
Other borrowed funds (Note 9)                                                           1,793,967          2,681,753
Interest payable                                                                        2,049,727          1,922,635
Other                                                                                     508,073            471,231
---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                                     384,603,704        354,409,161
---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies  (Notes 4, 14)
STOCKHOLDERS' EQUITY (Notes 11, 12, 13):
Serial  Preferred  Stock ($.01 par value)  Authorized  and  unissued - 1,000,000
  shares 
Common Stock ($.01 par value) Authorized - 9,000,000
  Issued - 2,458,982 and 2,460,196 Outstanding - 2,052,075 and 2,134,515                   24,590             24,602
Additional paid-in capital                                                             24,045,413         23,849,500
Treasury Stock - 317,893 and 211,803 shares - at cost                                  (5,547,823)        (3,361,279)
Retained Earnings - substantially restricted                                           23,393,701         22,727,602
Unrealized losses on securities available for sale,
  net of deferred tax of $1,043,275 and $64,521                                        (1,590,591)           (98,371)
ESOP borrowing                                                                           (952,200)        (1,190,250)
Unearned compensation - restricted stock awards                                          (278,463)          (458,173)
---------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY - NET                                                       39,094,627         41,493,631
---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                           $423,698,331       $395,902,792
===========================================================================================================================


See notes to consolidated financial statements.
</TABLE>
                                     - 19 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME

                                                                                     Years Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                              1997           1996            1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>            <C>
INTEREST INCOME:
   Loans                                                                  $16,796,387     $16,338,109    $15,345,850
   Mortgage-backed securities and  mortgage-backed securities
     available for sale                                                     6,101,478       5,760,962      4,453,802
   Securities and securities available for sale                             6,301,581       3,450,724      2,640,466
   Deposits                                                                   105,488         124,465         99,551
   Dividends on Federal Home Loan Bank stock                                  383,691         217,652        165,426
---------------------------------------------------------------------------------------------------------------------------
                                                                           29,688,625      25,891,912     22,705,095
---------------------------------------------------------------------------------------------------------------------------

INTEREST EXPENSE:
   Deposits (Note 7)                                                       13,332,587      13,441,629     12,014,313
   Federal Home Loan Bank advances (Note 8)                                 5,320,326       2,856,167      1,280,111
   Short-term borrowings (Note 9)                                              71,083          56,444         57,196
---------------------------------------------------------------------------------------------------------------------------
                                                                           18,723,996      16,354,240     13,351,620
---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME                                                        10,964,629       9,537,672      9,353,475
PROVISION FOR LOAN LOSSES (Note 4)                                            113,256         206,923        410,479
---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER LOAN LOSS PROVISION                              10,851,373       9,330,749      8,942,996
---------------------------------------------------------------------------------------------------------------------------

OTHER INCOME:
   Service charges                                                            840,520         627,917        619,487
   Gain (loss) on sale of loans                                                22,771          18,233        (16,080)
   Commissions                                                                539,487         559,593        483,030
   Gain (loss) on sale of securities and mortgage-backed securities           (55,897)         (6,307)         5,273
   Gain on Real Estate owned                                                   16,811           6,400        314,786
   Other                                                                      260,221         231,133        286,191
---------------------------------------------------------------------------------------------------------------------------
                                                                            1,623,913       1,436,969      1,692,687
---------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (continued)

                                                                                     Years Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                              1997           1996            1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>            <C>
OTHER EXPENSE:
   Salaries and employee benefits (Note 13)                                 4,294,824       4,427,347      4,396,995
   Deposit insurance assessment (Note 12)                                   2,350,715         710,909        738,155
   Occupancy (Note 14)                                                        809,138         818,544        769,187
   Equipment (Note 14)                                                        566,098         592,033        583,269
   Computer service                                                           494,374         484,652        477,755
   Advertising                                                                326,211         304,593        294,689
   Postage and office supplies                                                273,474         320,030        293,851
   Other                                                                    1,053,922       1,198,859        963,474
---------------------------------------------------------------------------------------------------------------------------
                                                                           10,168,756       8,856,967      8,517,375
---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES                                                  2,306,530       1,910,751      2,118,308
INCOME TAX PROVISION (Note 10)                                              1,002,986         661,446        874,541
---------------------------------------------------------------------------------------------------------------------------
NET INCOME                                                                $ 1,303,544     $ 1,249,305    $ 1,243,767
---------------------------------------------------------------------------------------------------------------------------

EARNINGS PER SHARE OF COMMON STOCK
   Primary                                                                     $ 0.59          $ 0.57         $ 0.53
   Fully diluted                                                                 0.59            0.55           0.52
WEIGHTED AVERAGE SHARES OUTSTANDING
   Primary                                                                  2,202,466       2,206,710      2,346,140
   Fully diluted                                                            2,225,188       2,283,016      2,383,532

See notes to consolidated financial statements.
</TABLE>
                                     - 20 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
For the Years Ended March 31, 1995, 1996 and 1997

                                                              Additional                                          
                                       Common Stock            Paid-in         Treasury         Retained        Unrealized 
                                    Shares       Amount         Capital          Stock          Earnings        Gain (Loss) 
---------------------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>          <C>              <C>              <C>             <C>
BALANCES, APRIL 1, 1994            2,463,452     $24,635      $23,614,766                       $20,603,441                 
Net income                                                                                        1,243,767                 
Net change in unrealized
 gain (loss) on securities
 available for sale                                                                                                $ 6,571    
ESOP shares earned                                                                                           
Vesting of restricted stock
 awards (Note 13)                                                                                            
Cancellation of Restricted
 Stock                                   400          (4)          (3,996)                                          
---------------------------------------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1995           2,463,052      24,631       23,610,770                        21,847,208          6,571    

Net income                                                                                        1,249,305                 
Net change in unrealized
 gain (loss) on securities
 available for sale                                                                                               (104,942)   
ESOP shares earned                                                265,528                                           
Vesting of restricted 
 stock awards                                                                                                
Cancellation of restricted
 stock awards                         (2,856)        (29)         (28,531)                                          
Purchase of Treasury Stock          (218,372)                                  $(3,465,463)                             
Issuance of restricted 
 stock awards                          3,000                        1,733           47,580                              
Exercise of stock options              3,569                                        56,604          (20,915)                
Payment of dividends                                                                               (347,996)                
---------------------------------------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1996           2,248,393      24,602       23,849,500       (3,361,279)      22,727,602        (98,371)   

Net income                                                                                        1,303,544                 
Net change in unrealized
 gain (loss) on securities
 available for sale                                                                                             (1,492,220)   
ESOP shares earned                                                205,471                                           
Vesting of restricted 
 stock awards                                                                                                
Cancellation of restricted
 stock awards                         (1,214)        (12)         (12,128)                                          
Purchase of treasury stock          (112,419)                                   (2,286,925)                             
Issuance of restricted
 stock awards                            500                        2,570            7,930                              
Exercise of stock options              5,829                                        92,451          (28,806)                
Payment of dividends                                                                               (608,639)                
---------------------------------------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1997           2,141,089     $24,590      $24,045,413      ($5,547,823)     $23,393,701    $(1,590,591)  
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (continued)
For the Years Ended March 31, 1995, 1996 and 1997

                                                        Restricted          Total               
                                           ESOP           Stock         Stockholders'   
                                        Borrowing         Awards           Equity     
---------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>              <C>              <C>
BALANCES, APRIL 1, 1994               $(1,666,350)     $(829,520)       $41,746,972           
Net income                                                                1,243,767               
Net change in unrealized                                                    
 gain (loss) on securities                                                  
 available for sale                                                           6,571           
ESOP shares earned                                       238,050            238,050        
Vesting of restricted stock                                                 
 awards (Note 13)                                        252,360            252,360                 
Cancellation of Restricted                                                  
 Stock                                                     4,000                               
---------------------------------------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1995               (1,428,300)      (573,160)        43,487,720        
                                                                            
Net income                                                                1,249,305               
Net change in unrealized                                                    
 gain (loss) on securities                                                  
 available for sale                                                        (104,942)          
ESOP shares earned                        238,050                           503,578         
Vesting of restricted                                                       
 stock awards                                            135,740            135,740                  
Cancellation of restricted                                                  
 stock awards                                             28,560                              
Purchase of Treasury Stock                                               (3,465,463)                 
Issuance of restricted                                                      
 stock awards                                            (49,313)                           
Exercise of stock options                                                    35,689               
Payment of dividends                                                       (347,996)              
---------------------------------------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1996                (1,190,250)     (458,173)        41,493,631     
                                                                            
Net income                                                                1,303,544               
Net change in unrealized                                                    
 gain (loss) on securities                                                  
 available for sale                                                      (1,492,220)           
ESOP shares earned                         238,050                          443,521      
Vesting of restricted                                                       
 stock awards                                            178,070            178,070               
Cancellation of restricted                                                  
 stock awards                                             12,140                               
Purchase of treasury stock                                               (2,286,925)                
Issuance of restricted                                                      
 stock awards                                            (10,500)                           
Exercise of stock options                                                    63,645               
Payment of dividends                                                       (608,639)              
---------------------------------------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1997                 $(952,200)    $(278,463)       $39,094,627       
===========================================================================================================================
See notes to consolidated financial statements.
</TABLE>
                                     - 21 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                     Years Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                              1997           1996            1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                $ 1,303,544     $ 1,249,305    $ 1,243,767
Adjustments to reconcile net income to net cash provided by
   operating activities:
   Depreciation                                                               488,930         478,535        451,027
   Amortization and accretion                                                 (49,563)        (43,445)       (70,612)
   Vesting of restricted stock awards                                         178,070         135,740        252,360
   Provisions for loan and real estate owned losses                          (142,153)        257,689        410,478
   (Gain) Loss on sale of securities and mortgage-backed securities            51,120           5,808         (5,273)
   (Gain) Loss on sale of loans                                               (22,771)        (18,233)        16,080
   Loss on sale of building and improvements                                   61,766
   Gain on sale of real estate owned                                          (13,289)        (34,014)      (378,566)
   ESOP shares earned                                                         205,471         265,528
Changes in assets and liabilities:
   Proceeds from the sales of loans held for sale                             984,756       3,268,671      1,470,088
   Origination of loans for resale                                           (961,985)     (2,984,456)    (1,027,236)
   Other investments                                                         (422,734)                      (103,302)
   Interest receivable                                                       (664,723)       (971,623)       (75,310)
   Deferred income taxes                                                     (113,861)        169,691        438,678
   Other assets                                                                79,790         241,695       (205,793)
   Interest payable                                                           127,092         206,775        123,462
   Other liabilities                                                           36,942        (226,637)       (49,412)
---------------------------------------------------------------------------------------------------------------------------
         Net cash provided by operating activities                          1,126,402       2,001,029      2,490,436
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated                                                          (61,791,343)    (61,639,620)   (50,398,543)
Loan principal repayments                                                  76,390,492      55,018,039     45,229,546
Proceeds from :
   Maturities of:
      Securities available for sale                                        18,000,000       9,000,000
      Securities held to maturity                                                          15,626,930     16,033,333
   Sales of:
      Securities available for sale                                        25,430,978                      1,000,000
      Securities held to maturity                                                           6,988,301      3,483,124
      Mortgage-backed securities available for sale                        11,142,858
      Mortgage-backed securities held to maturity                                             741,183
      Real estate owned                                                        27,224         132,629      2,077,863
Purchases of:
   Securities available for sale                                          (56,954,923)    (31,486,644)    (1,970,344)
   Securities held to maturity                                                            (24,394,086)   (19,378,373)
   Mortgage-backed securities available for sale                          (34,490,516)    (12,465,990)      (973,875)
   Mortgage-backed securities held to maturity                                            (17,709,959)   (10,081,040)
   Loans                                                                  (17,741,292)     (5,260,316)    (3,049,481)
   FHLB stock                                                              (1,689,000)       (932,300)
   Office properties and equipment                                           (305,595)       (482,009)      (735,629)
Payments on mortgage-backed securities                                     15,416,207      12,594,721      9,811,755
Increase in cash surrender value of life insurance                           (599,676)       (121,812)      (130,387)
Other                                                                          49,499          33,534         12,884
---------------------------------------------------------------------------------------------------------------------------
         Net cash used in investing activities                            (27,115,087)    (54,357,399)    (9,069,167)
---------------------------------------------------------------------------------------------------------------------------

                                     - 22 -
<PAGE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                                                                     Years Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                              1997           1996            1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid                                                               (608,639)       (347,996)
Purchase of treasury stock                                                 (2,286,925)     (3,465,463)
Net change in deposits                                                        745,291      12,488,154    (17,659,743)
Proceeds from FHLB advances                                               142,900,000      76,731,824     16,066,627
Payments on FHLB advances                                                (112,719,231)    (34,117,384)    (8,377,850)
Principal repayments of ESOP borrowing                                        238,050         238,050        238,050
Advance payments by borrowers for taxes and insurance                          (7,665)       (120,411)        48,808
Net change in other borrowed funds                                           (887,786)        256,985    (14,398,473)
Net proceeds from issuance of common stock                                     63,645          35,689
---------------------------------------------------------------------------------------------------------------------------
         Net cash provided by (used in) financing activities               27,436,740      51,699,448    (24,082,581)
---------------------------------------------------------------------------------------------------------------------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                   1,448,055        (656,922)   (30,661,312)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                            4,916,421       5,573,343     36,234,655
---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                $ 6,364,476     $ 4,916,421    $ 5,573,343
===========================================================================================================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
   Interest                                                              $ 13,272,862     $13,386,480    $13,228,158
   Income taxes                                                             1,097,000         547,508        602,500
Noncash transactions:
   Transfers from loans to real estate owned                                   39,307         123,151        455,179



See notes to consolidated financial statements.

</TABLE>
                                     - 23 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         General - On September  21,  1993,  the Board of Directors of Permanent
Federal Savings Bank (the "Bank") adopted a Plan of Conversion to convert from a
mutual  savings bank to a stock  savings bank with the  concurrent  formation of
Permanent Bancorp,  Inc. (the "Company"),  a holding company, to be incorporated
in the State of Delaware  for the purpose of  acquiring  all of the stock of the
Bank.

         Basis of the  Company - Permanent  Bancorp,  Inc. is a savings and loan
holding  company  incorporated  to hold all of the  outstanding  common stock of
Permanent  Federal  Savings  Bank,  a  federally  chartered  savings  bank  with
principal  offices in Evansville,  Indiana and branch  locations in Fort Branch,
Jasper, Newburgh and Oakland City, Indiana.

         Basis of Presentation - The consolidated  financial  statements include
the accounts of Permanent Bancorp,  Inc. its wholly owned subsidiary,  Permanent
Federal Savings Bank (the "Bank"),  its wholly owned  subsidiary,  Perma-Service
Corp and its wholly  owned  subsidiary,  Permanent  Family  Insurance,  Inc. All
significant intercompany accounts and transactions have been eliminated.

         Use  of  Estimates  -  The  preparation  of  financial   statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities and disclosures of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting  period.  Actual results could differ from those estimates.
Estimates most  susceptible to change in the near term include the allowance for
loan losses and the fair value of securities.

         Securities  - Statement of Financial  Accounting  Standards  (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities" requires
securities to be classified as held to maturity,  available for sale or trading.
Only those securities  classified as held to maturity,  which management has the
intent  and  ability  to hold to  maturity,  are  reported  at  amortized  cost.
Available for sale securities are reported at fair value with  unrealized  after
tax gains and losses  included in  shareholders'  equity.  The Company  does not
maintain any  securities  classified as trading.  Realized  securities  gains or
losses are  reported  in the  Consolidated  Statements  of  Income.  The cost of
securities sold is based on the specific identification method.

         In November 1995, the Financial  Accounting  Standards  Board allowed a
one time  reclassification  of securities.  In December  1995,  the  Corporation
reclassified  approximately  $101 million of securities from held to maturity to
available for sale, and recognized an unrealized loss in stockholder's equity of
approximately $77,000.

         Premium and discounts are amortized over the  contractual  lives of the
related  securities  using the level yield  method.  Gains or losses on sales of
these securities are based on the specific identification method.

         Other  Investments - The Bank has an investment in an insurance company
partnership  through  its  subsidiary,  Perma-Service  Corp,  which  underwrites
various types of life and disability insurance and annuity programs.  The Bank's
investment is recorded using the equity method.
<PAGE>
         Loans and Loans Held for Sale - The Bank originates loans for portfolio
investment  or  for  sale  in  the  secondary  market.   During  the  period  of
origination,  loans are designated as held for sale or for investment  purposes.
Loans held for sale are carried at the lower of cost or market value, determined
on an individual loan basis.

                                     - 24 -
<PAGE>
         The Company  adopted SFAS 114 and 118,  "Accounting  by  Creditors  for
Impairment  of a Loan and  Income  Recognition  and  Disclosures",  as  amended,
effective  April 1,  1995.  These  statements  require  that  impaired  loans be
measured based on the present value of expected future cash flows  discounted at
the  loan's  effective  interest  rate  or the  fair  value  of  the  underlying
collateral, and specifies alternative methods for recognizing interest income on
loans that are impaired or for which there are credit concerns.  For purposes of
applying  this  standard,  impaired  loans have been  defined as all  nonaccrual
loans.

         In  accordance  with  SFAS  114,  the  Bank  reclassified  to the  loan
portfolio $4,008,158 of loans which were classified as in-substance  foreclosure
at April 1,  1995  but for  which  the  Bank  had not  taken  possession  of the
collateral.  The  Company's  policy for income  recognition  was not affected by
adoption  of the  standard.  The  adoption  of SFAS 114 and 118 did not have any
effect on the total reserve, credit losses, or related provision.

         The  Company  adopted  SFAS 122,  "Accounting  for  Mortgage  Servicing
Rights" (MSRs),  on April 1, 1996. SFAS 122 requires that the Company  recognize
as separate  assets,  rights to service mortgage loans for others that have been
acquired  through either the purchase or  origination  of loans.  An entity that
sells or securitizes  those loans with servicing rights retained should allocate
the total cost of the  mortgage  loans to the MSRs and the loans  based on their
relative fair values.  These costs are initially  capitalized  and  subsequently
amortized in proportion  to, and over the period of estimated net loan servicing
income.

         Additionally,   SFAS  122  requires   that  MSRs  be  reported  on  the
Consolidated  Balance  Sheet at the lower of cost or fair value.  The Company is
required to assess its capitalized MSRs for impairment based upon the fair value
of the rights.  MSRs are  stratified  based upon one or more of the  predominant
risk  characteristics  of underlying loans.  Impairment is recognized  through a
valuation  allowance for each impaired stratum.  The provisions of SFAS 122 were
applied  prospectively  beginning in the fiscal year ended March 31,  1997.  The
ongoing impact of SFAS 122 is dependent upon, among other things,  the volume of
loan  originations,  the general levels of market interest rates and the rate of
estimated loan  prepayments.  Accordingly,  management is unable to predict with
any reasonable  certainty what effect SFAS 122 will have on the Company's future
results  of  operations  or its  financial  conditions.  However,  based  on the
Company's limited mortgage banking activities,  the adoption of SFAS 122 did not
have  a  material  impact  on  the  Company's  financial  position,  results  of
operations or cash flows.

         Loan  Servicing - The Company  services  mortgage  loans for  permanent
investors  under servicing  contracts.  Fees earned for servicing loans owned by
investors  are based on the  outstanding  principal  balances of the loans being
serviced,  and are recognized as income when the related  mortgage  payments are
received. Loan servicing costs are charged to expense as incurred.

         Cash and cash  equivalents  - All  highly  liquid  investments  with an
original maturity of three months or less are considered to be cash equivalents.
<PAGE>
         Office  Properties  and Equipment are carried at cost less  accumulated
depreciation.  Depreciation  is computed on the  straight-line  and  accelerated
methods over estimated useful lives that range from three to thirty-five years.

         Real  Estate  Owned  includes   property   acquired  in  settlement  of
foreclosed  loans which are carried at the lower of cost or estimated fair value
less  estimated cost to sell.  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 against the allowance for loan losses.
Any subsequent  deterioration of the property is charged directly to real estate
owned expense.  Costs relating to the development and improvement of real estate
owned are  capitalized,  whereas costs relating to holding and  maintaining  the
property are charged to expense.

                                     - 25 -
<PAGE>
         Goodwill  represents the fair market value of  liabilities  assumed and
cash consideration paid over the fair market value of intangible assets acquired
in the  purchase  of  another  savings  institution  and  the  purchase  of four
different insurance agencies. The intangibles are principally being amortized to
expense  at a  constant  rate  applied to the  anticipated  remaining  principal
balance  of the  long-term  interest-earning  assets  acquired  over a period no
longer than the estimated  remaining  life of those assets ranging from seven to
ten years.  Amortization  expense for the years ended March 31,  1997,  1996 and
1995 was $218,603, $ 223,972 and $248,829 respectively.

         Allowance  for Losses - The balance in the  allowance and the amount in
the annual provision charged to expenses are judgmentally  determined based upon
a number of factors.  The  allowance  is  maintained  by  management  at a level
considered  adequate to cover  possible  losses that are  currently  anticipated
based on past loss experience,  general economic  conditions,  information about
specific borrower situations,  including their financial position and collateral
values,  and other  factors that are  particularly  susceptible  to changes that
could result in material adjustment in the near term. While management endeavors
to use  the  best  information  available  in  making  the  evaluations,  future
allowance   adjustments   may  be  necessary  if  economic   conditions   change
substantially  from  the  assumptions  used in  making  the  evaluations.  While
management  may  periodically  allocate  portions of the  allowance for specific
problem  loan  situations,  the  entire  allowance  is  available  for any  loan
charge-offs which occur.  Increases to the allowance are recorded by a provision
for possible loan losses charged to expense. A loan is charged off by management
as a loss when deemed  uncollectible,  although  collection efforts continue and
future recoveries may occur.

         Uncollected  Interest - The Bank  provides an allowance for the loss of
uncollected  interest  on  loans  which  are more  than 90 days  past  due.  The
allowance is  established  by a charge to interest  income equal to all interest
previously  accrued,  and income is  subsequently  recognized only to the extent
that cash payments are received until, in management's  judgment, the borrower's
ability to make periodic  interest and principal  payments returns to normal, in
which case the loan is returned to accrual status.

         Loan Origination  Fees - Nonrefundable  origination fees net of certain
direct  origination  costs are deferred and recognized,  as a yield  adjustment,
over the life of the  underlying  loan. Any  unamortized  fees on loans sold are
credited to income in the year such loans are sold.

         Federal  Income  Taxes - Deferred  income  tax  assets and  liabilities
reflect  the  impact of  temporary  differences  between  amounts  of assets and
liabilities  for  financial  reporting  purposes  and basis of such  assets  and
liabilities as measured by tax laws and regulations. (See Note 10)
<PAGE>
         Changes In  Presentation - Certain  amounts and items  appearing in the
1995 and 1996 financial  statements  have been  reclassified to conform with the
fiscal 1997 presentation.

         Stock-Based Compensation - Effective April 1, 1996, the Company adopted
the provisions of Financial Accounting  Standards Board,  Statement of Financial
Accounting   Standards  No.  123  (SFAS  123),   "Accounting   for   Stock-Based
Compensation."The  accounting  requirements of this pronouncement are applicable
to all new  employee  awards  granted  after the  adoption of SFAS 123.  The new
standard  provides for the  adoption,  at the option of the  Company,  of a fair
value method of accounting for stock options and similar equity instruments. The
Company  has  elected  to  continue  to  account  for  such  transactions  under
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees."  The adoption of SFAS 123 has no effect on the net income,  earnings
per share or the cash flows of the Company.

                                     - 26 -
<PAGE>
         New Accounting  Pronouncements  -SFAS 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities",  is effective
for  transactions  after  December 15, 1996.  SFAS 125 provides  accounting  and
reporting  standards  for  transfers  and  servicing  of  financial  assets  and
extinguishments  of  liabilities.  The adoption of SFAS 125 had no impact on the
financial position, results of operations or cash flows of the Company.

         SFAS 128,  "Earnings per Share,"  applies to financial  statements  for
public  companies  for fiscal years  beginning  after  December  15, 1997.  This
statement  establishes  new  accounting  standards for the  calculation of basic
earnings per share as well as diluted  earnings per share.  Management  does not
believe  the  adoption  of this  statement  will have a  material  effect on the
Company's calculation of earnings per share.

         Earnings per Share - Primary and fully  diluted  earnings per share are
based on the weighted  average number of shares  outstanding  during the period,
adjusted for the effect of common  stock  equivalents,  if  dilutive.  The stock
options outstanding are considered common stock equivalents.  Unallocated shares
held by ESOP are not considered to be outstanding  while shares awarded pursuant
to the Recognition and Retention Plan (RRP) are considered to be outstanding. 
 
2.   SECURITIES

         The  amortized  cost  and  estimated  fair  values  of  securities  are
summarized as follows:
<TABLE>
<CAPTION>

                                                                                  March 31, 1997
---------------------------------------------------------------------------------------------------------------------------
                                                             Amortized           Gross Unrealized            Fair
                                                               Cost             Gains        Losses          Value
---------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                <C>         <C>            <C> 
Securities held to maturity:
  Other                                                     $    25,000                                   $    25,000
===========================================================================================================================

Securities available for sale:
  U.S. Treasury                                             $ 7,029,449        $ 9,691     $   30,390     $ 7,008,750
  U.S. Agency                                                79,990,805          4,723      1,823,965      78,171,563
---------------------------------------------------------------------------------------------------------------------------
                                                            $87,020,254        $14,414     $1,854,355     $85,180,313
===========================================================================================================================

<CAPTION>
                                                                                  March 31, 1996
---------------------------------------------------------------------------------------------------------------------------
                                                             Amortized           Gross Unrealized            Fair
                                                               Cost             Gains        Losses          Value
---------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                <C>         <C>            <C>    
Securities held to maturity:
  Other                                                     $    25,000                                   $    25,000
===========================================================================================================================

Securities available for sale:
  U.S. Treasury                                             $16,925,301       $114,179       $ 10,925     $17,028,555
  U.S. Agency                                                54,979,241         71,881        402,684      54,648,438
  ARM Mutual Fund                                             1,504,144                        10,502       1,493,642
---------------------------------------------------------------------------------------------------------------------------
                                                            $73,408,686       $186,060       $424,111     $73,170,635
===========================================================================================================================
</TABLE>
                                     - 27 -
<PAGE>
         The amortized  cost and estimated fair value of securities at March 31,
1997 by contractual maturity are as follows:
<TABLE>
<CAPTION>

                                                                 Available for Sale            Held to Maturity
---------------------------------------------------------------------------------------------------------------------------
                                                              Amortized         Fair       Amortized         Fair
                                                                Cost            Value        Cost            Value
---------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>             <C>             <C>    
Due in 1 year or less                                        $ 5,995,309    $ 5,955,000     $25,000         $25,000
Due after 1 year through 5 years                              16,037,348     15,905,000
Due after 5 years through 10 years                            60,988,076     59,448,750
Due after 10 years through 15 years                            3,999,521      3,871,563
---------------------------------------------------------------------------------------------------------------------------
                                                             $87,020,254    $85,180,313     $25,000         $25,000
===========================================================================================================================
</TABLE>
         Activities  related  to the  sales  of  securities  are  summarized  as
follows:
<TABLE>
<CAPTION>
                                                                                        Years Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                               1997 (1)       1996 (1)        1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>            <C>           <C>
Proceeds from sales                                                           $25,430,978    $6,988,301    $4,483,124
Gross gains on sales                                                               77,581         1,971        16,184
Gross losses on sales                                                             128,794        10,227        10,911

         (1)  Includes  sales of temporary  ARM Mutual Funds  (included in Other
Securities) of $1 million, and $6 million for the years ended March 31, 1997 and
March 31, 1996, respectively.
</TABLE>
<PAGE>
3.   MORTGAGE-BACKED SECURITIES

         The  amortized  cost  and  estimated  fair  values  of  mortgage-backed
securities are summarized as follows:
<TABLE>
<CAPTION>

                                                                                  March 31, 1997
---------------------------------------------------------------------------------------------------------------------------
                                                             Amortized           Gross Unrealized            Fair
                                                               Cost             Gains        Losses          Value
---------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>          <C>            <C>
Mortgage-backed securities held to maturity:
  FHLMC certificates                                        $ 5,390,009                    $   83,862     $ 5,306,147
  FNMA certificates                                           4,787,009       $ 14,782         63,052       4,738,739
  GNMA certificates                                          17,003,873        228,213         79,902      17,152,184
---------------------------------------------------------------------------------------------------------------------------
                                                            $27,180,891       $242,995     $  226,816     $27,197,070
===========================================================================================================================

Mortgage-backed securities available for sale:
  FHLMC certificates                                        $37,269,433        $43,186     $  739,907     $36,572,712
  FNMA certificates                                          27,483,089          3,919        251,080      27,235,928
  GNMA certificates                                          10,093,656        164,711         14,754      10,243,613
---------------------------------------------------------------------------------------------------------------------------
                                                            $74,846,178       $211,816     $1,005,741     $74,052,253
===========================================================================================================================
</TABLE>
                                     - 28 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                  March 31, 1996
---------------------------------------------------------------------------------------------------------------------------
                                                             Amortized           Gross Unrealized            Fair
                                                               Cost             Gains        Losses          Value
---------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>          <C>            <C>
Mortgage-backed securities held to maturity:
  FHLMC certificates                                        $ 6,066,825       $ 12,046       $  2,146     $ 6,076,725
  FNMA certificates                                           5,898,647         79,134         18,141       5,959,640
  GNMA certificates                                          20,188,123        216,060        121,139      20,283,044
---------------------------------------------------------------------------------------------------------------------------
                                                            $32,153,595       $307,240       $141,426     $32,319,409
===========================================================================================================================

Mortgage-backed securities available for sale:
  FHLMC certificates                                         34,893,133       $141,831        238,552    $ 34,796,412
  FNMA certificates                                          15,241,419         76,513         32,733      15,285,199
  GNMA certificates                                          11,754,033        146,927         29,329      11,871,631
---------------------------------------------------------------------------------------------------------------------------
                                                            $61,888,585       $365,271       $300,614     $61,953,242
===========================================================================================================================
</TABLE>
<PAGE>
         The  amortized  cost  and  estimated  fair  values  of  mortgage-backed
securities at March 31, 1997 by contractual  maturity are shown below.  Expected
maturities will differ from contractual  maturities  because  borrowers may have
the right to call or  prepay  obligations  with or  without  call or  prepayment
penalties.
<TABLE>
<CAPTION>

                                                                 Available for Sale            Held to Maturity
---------------------------------------------------------------------------------------------------------------------------
                                                              Amortized         Fair       Amortized         Fair
                                                                Cost            Value        Cost            Value
---------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>           <C>            <C>
Due in one year or less:
 FHLMC certificates                                          $   605,410    $   585,021
Due after one year through five years:
 FNMA and FHLMC certificates                                  11,319,523     11,082,766
Due after five years through ten years:
 FNMA and FHLMC certificates                                   4,368,533      4,268,980   $ 1,848,761    $ 1,859,636
Due after ten years:
 FHLMC certificates                                           22,226,180     21,870,208     5,390,009      5,306,147
 FNMA certificates                                            26,232,876     26,001,665     2,938,248      2,879,103
 GNMA certificates                                            10,093,656     10,243,613    17,003,873     17,152,184
---------------------------------------------------------------------------------------------------------------------------
                                                             $74,846,178    $74,052,253   $27,180,891    $27,197,070
===========================================================================================================================
</TABLE>
         Activities  related  to the  sale  of  mortgage-backed  securities  are
summarized as follows:
<TABLE>
<CAPTION>

                                                                                        Years Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                 1997           1996          1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>              <C>            <C>
Proceeds from sales                                                           $11,142,858      $744,220       None
Gross gains on sales                                                               47,318         5,952
Gross losses on sales                                                              47,225         3,504
</TABLE>
                                     - 29 -
<PAGE>
4.   LOANS

         Approximately  93% of the Bank's  loans are to  customers  in  Indiana,
although  certain  mortgage-banking  and commercial  lending  activities  extend
outside Indiana. The portfolio of loans consists of residential, commercial real
estate, commercial construction, consumer and other loans.

         Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
                                                                                                 March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                         1997               1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                <C>
First mortgage:
  Secured by one-to-four family residences                                           $152,480,578       $143,969,801
  Secured by other properties                                                          12,075,643         16,609,560
  Construction loans                                                                    1,832,266          2,570,200
  Land                                                                                     56,064            129,320
Automobile                                                                             31,394,332         31,055,752
Consumer                                                                                9,692,035          8,016,636
Mobile home                                                                             1,239,973          1,595,083
Loans on savings accounts                                                                 940,324          1,148,065
Credit card                                                                               623,196            707,051
Second mortgage                                                                           195,195            215,972
Home improvement                                                                        1,083,982          1,080,592
Loan contracts                                                                             28,211             31,525
FHA improvement                                                                             4,270              6,893
Bankers acceptances                                                                                          299,287
Commercial paper                                                                          978,922          1,996,630
---------------------------------------------------------------------------------------------------------------------------
Subtotal                                                                              212,624,991        209,432,367

Allowance for loan losses                                                              (2,126,225)        (2,237,804)
Deferred loan fees, net                                                                  (284,028)          (155,527)
Undisbursed loan proceeds                                                                  24,213            (66,593)
Unearned interest and unearned discounts                                                  (49,529)           (62,822)
---------------------------------------------------------------------------------------------------------------------------
Loans, net                                                                           $210,189,422       $206,909,621
===========================================================================================================================
</TABLE>
         The  principal   balance  of  loans  on  nonaccrual   status   totalled
approximately   $2,463,000   and   $4,705,000   at  March  31,  1997  and  1996,
respectively. For the years ended March 31, 1997 and 1996, gross interest income
which would have been  recorded had the Bank's  non-accruing  loans been current
with their original terms amounted to $240,756 and $447,430,  respectively.  The
amounts included in interest income on such loans were $105,038 and $381,314 for
the years ended March 31, 1997 and 1996, respectively.

         The Bank  originates  commercial  real estate  loans.  Such loans had a
carrying  value of  approximately  $12 million and $17 million at March 31, 1997
and 1996,  respectively.  These  loans are  considered  by  management  to be of
somewhat greater risk of uncollectibility than other loans due to the dependency
on income  production.  Of the commercial  real estate loans, $8 million and $12
million are  collateralized  by multi-family  residential  property at March 31,
1997 and 1996,  respectively;  and $4 million, and $5 million by hotel and other
property at March 31, 1997 and 1996, respectively.
<PAGE>
         The Bank had  commitments to make loans,  approximating  $1,550,000 and
$4,037,000 excluding  undisbursed portions of loans in-process at March 31, 1997
and  1996,  respectively.   Additionally,  the  Bank  had  commitments  to  sell
fixed-rate loans of approximately $104,000 at March 31, 1997, and no commitments
to sell loans, at March 31, 1996.


                                     - 30 -
<PAGE>
         The Bank originates both adjustable and fixed interest rate loans.  The
composition of these loans was as follows:
<TABLE>
<CAPTION>
                    Fixed Rate                                                     Adjustable Rate
---------------------------------------------------------------------------------------------------------------------------
                               Book Value                                                       Book Value
---------------------------------------------------------------------------------------------------------------------------
 Term to            March 31,             March 31,             Term to Rate          March 31,            March 31,
 Maturity              1997                 1996                 Adjustment             1997                 1996
---------------------------------------------------------------------------------------------------------------------------
<S>                 <C>                  <C>                     <C>                 <C>                  <C>    
1mo.-1yr.           $  6,095,000         $  6,934,000            1mo.-1yr.           $ 31,629,000         $38,708,000
1yr.-3yr.             12,657,000           13,816,000            1yr.-3yr.              1,355,000           4,426,000
3yr.-5yr.             29,882,000           26,455,000            3yr.-5yr.                453,000                   0
5yr.-10yr.            25,755,000           25,319,000            5yr.-10yr.            29,420,000           9,130,000
10yr.-20yr.           70,494,000           78,086,000            10yr.-20yr.            1,119,000           2,214,000
Over 20 years          3,339,000            4,344,000                                     427,000                   0
---------------------------------------------------------------------------------------------------------------------------
                    $148,222,000         $154,954,000                                $ 64,403,000         $54,478,000
===========================================================================================================================
</TABLE>
         The adjustable rate loans have interest rate adjustment limitations and
are  generally  indexed on a weekly  average yield of U.S.  Treasury  securities
adjusted to a constant  maturity of one year.  Future market  factors may affect
the  correlation of the interest rate adjustment with the rates the Bank pays on
the short-term deposits that have been primarily utilized to fund these loans.

         Aggregate loans to officers and directors totaled $676,855 and $733,107
at March 31, 1997 and March 31,  1996,  respectively.  For the years ended March
31, 1997 and 1996 loans of $124,899 and $157,350,  respectively,  were disbursed
to officers and directors  and  repayments of principal of $181,150 and $194,514
respectively, were received from officers and directors.

         The  amount  of  loans  serviced  for  others  totalled   approximately
$34,298,000 and $37,872,000 at March 31, 1997 and 1996, respectively.  Servicing
loans for others generally consists of collecting mortgage payments, maintaining
escrow amounts,  disbursing payments to investors and foreclosure processing. In
connection  with loans  serviced  for others,  the Bank held  borrower's  escrow
balances  of  approximately  $249,000  and  $278,000 at March 31, 1997 and 1996,
respectively.  The Bank is obligated  to  repurchase  certain  loans sold to and
serviced  for  others  which  become   delinquent  as  defined  by  the  various
agreements.  At March 31,  1997 and 1996,  these  obligations  were  limited  to
approximately $610,000 and $821,000, respectively.
 
         Loan servicing fee income for the years ended March 31, 1997,  1996 and
1995 was $100,824, $104,184 and $123,128 respectively.

         At March 31, 1997 and 1996, the Bank's loan portfolio  included certain
loans to customers who were  experiencing  financial  difficulties for which the
Bank agreed to modify the  original  loan terms in a prior  year.  Modifications
included  forgiveness of interest,  reduced interest rates and/or  extensions of
the  loan  term.  The  principal  balance  at March  31,  1997 and 1996 on these
restructured   loans   totalled   approximately   $2,127,700   and   $2,165,400,
respectively. For the years ended March 31, 1997 and 1996, gross interest income
which would have been  recorded  had the Bank's  modified  loans been current in
accordance with their original terms amounted to $165,000 each year. The amounts
that were included in interest income on such loans were $151,000 during each of
the years ended March 31, 1997 and 1996.
                                     - 31 -
<PAGE>
         An analysis of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
                                                                                    Years Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                            1997            1996             1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>              <C>
Beginning balance                                                       $2,237,804       $2,093,492       $2,110,273
Provision for losses charged to operations                                 113,256          206,923          410,479
Charge-offs                                                               (370,519)        (104,335)        (583,382)
Recoveries                                                                 145,684           41,724          156,121
---------------------------------------------------------------------------------------------------------------------------
Ending balance                                                          $2,126,225       $2,237,804       $2,093,491
===========================================================================================================================
</TABLE>
         The recorded investment in loans considered impaired at March 31, 1997,
under SFAS 114 and 118, was $1,578,914 of which $1,061,876 related to loans with
a specific  valuation  reserve of $27,632 and $517,038  related to loans with no
valuation  reserve.  For the year ended March 31,  1997,  the  average  recorded
investment in impaired  loans was  approximately  $3,002,257.  Cash received for
interest on impaired  loans was  $294,091 and $313,024 for the years ended March
31, 1997 and March 31, 1996.

         As a federally-chartered savings bank, aggregate commercial real estate
loans may not exceed 400% of capital as determined  under the capital  standards
provisions of FIRREA.  This limitation was  approximately  $134 million and $133
million as of March 31, 1997, and 1996, respectively.

         Also, under FIRREA, the loans-to-one  borrower  limitation is generally
15% of unimpaired  capital and surplus which,  for the Bank,  was  approximately
$5.0 million at both March 31, 1997 and 1996.  This is a  substantial  reduction
from the previous loans-to-one borrower limitation. At March 31, 1997 there were
no loans exceeding this  limitation,  however,  aggregate loans of approximately
$7.6  million  made  prior to  FIRREA  to six  related  borrowers  (all  limited
partnerships  with  the same  general  partner)  were in  excess  of the  FIRREA
limitation  at March 31, 1996.  Additional  loans to these  borrowers  have been
curtailed and the existing loans are being reduced through principal  repayment.

5.   INTEREST RECEIVABLE

         Interest receivable is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                 March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                         1997                1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                <C>
Loans (less allowance for uncollectibles - $42,528 and $37,245)                        $1,123,458         $1,092,937
Interest-bearing deposits and securities                                                1,729,034          1,190,395
Mortgage-backed securities                                                                686,593            591,030
---------------------------------------------------------------------------------------------------------------------------
Interest receivable, net                                                               $3,539,085         $2,874,362
===========================================================================================================================
</TABLE>
                                     - 32 -
<PAGE>
6.   OFFICE PROPERTIES AND EQUIPMENT

         Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
                                                                                                 March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                         1997                1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                <C>
Land                                                                                  $ 1,726,939        $ 1,758,408
Office buildings                                                                        7,166,672          7,304,979
Furniture and equipment                                                                 3,102,854          3,149,905
Leasehold improvements                                                                    365,201            365,201
Automobiles                                                                                52,728             45,404
---------------------------------------------------------------------------------------------------------------------------
      Total                                                                            12,414,394         12,623,897
Less accumulated depreciation                                                           5,445,807          5,367,310
---------------------------------------------------------------------------------------------------------------------------
Office properties and equipment, net                                                  $ 6,968,587        $ 7,256,587
===========================================================================================================================
</TABLE>
         Depreciation  expense  included  in  operations  during the years ended
March  31,  1997,  1996 and  1995  totalled  $489,002,  $478,535  and  $451,027,
respectively.
 
7.   DEPOSITS

         Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
                                                                                      March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                          1997                           1996
---------------------------------------------------------------------------------------------------------------------------
                                                                               Weighted                      Weighted
                                                                                Average                       Average
                                                                  Amount         Rate           Amount         Rate
---------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>               <C>         <C>              <C>           
Noninterest-bearing                                             $    902,835                  $    993,584
NOW and MMDA's                                                    35,588,164      2.2%          36,570,790     2.4%
Passbook savings                                                  54,244,569      3.8           54,796,081     3.8
---------------------------------------------------------------------------------------------------------------------------
Total                                                             90,735,568                    92,360,455
---------------------------------------------------------------------------------------------------------------------------
Certificates of deposit:
  1.50 - 3.49%                                                       157,572      2.9              389,485     2.9
  3.50 - 5.49%                                                    81,947,155      5.0           85,123,998     5.0
  5.50 - 7.49%                                                   104,618,045      6.1           98,265,612     6.2
  7.50 - 9.49%                                                     3,295,013      8.0            3,868,512     8.0
---------------------------------------------------------------------------------------------------------------------------
Total certificates of deposit                                    190,017,785                   187,647,607
---------------------------------------------------------------------------------------------------------------------------
Total                                                           $280,753,353                  $280,008,062
===========================================================================================================================
</TABLE>
         Certificates  of  deposit  in the  amount  of  $100,000  or more  total
approximately $21 million at March 31, 1997, and $18 million at March 31, 1996.
                                     - 33 -
<PAGE>
         A summary of certificate  accounts by scheduled maturities at March 31,
1997, is as follows:
<TABLE>
<CAPTION>

                          1998           1999          2000         2001         2002       Thereafter       Total
---------------------------------------------------------------------------------------------------------------------------
<S>                    <C>            <C>           <C>          <C>          <C>          <C>            <C>
Less than 3.49%        $    157,572                                                                       $    157,572
3.50 - 5.49%             57,675,516   $20,198,379   $ 2,466,177  $1,009,788   $  416,437   $  180,857       81,947,154
5.50 - 7.49%             42,024,394    25,246,507     9,333,401   3,552,181    2,828,076    21,633,486     104,618,045
7.50 - 9.49%                739,461        28,257                 1,216,369    1,310,927                     3,295,014
---------------------------------------------------------------------------------------------------------------------------
                       $100,596,943   $45,473,143   $11,799,578  $5,778,338   $4,555,440   $21,814,343    $190,017,785
===========================================================================================================================
</TABLE>
 
         Interest expense on deposits is as follows:
<TABLE>
<CAPTION>
                                                                                        Years Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                 1997          1996           1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>           <C>           <C>         
NOW and MMDA's                                                                $   780,027   $   968,605   $ 1,179,360
Passbook savings                                                                2,056,077     1,567,719       973,292
Certificates of deposit                                                        10,496,483    10,905,305     9,861,661
---------------------------------------------------------------------------------------------------------------------------
                                                                              $13,332,587   $13,441,629   $12,014,313
===========================================================================================================================
</TABLE>
<PAGE>
8.   FEDERAL HOME LOAN BANK ADVANCES

         Advances from the Federal Home Loan Bank of Indianapolis  (FHLB) are as
follows:
<TABLE>
<CAPTION>
                                                   Average Rate                           March 31,
---------------------------------------------------------------------------------------------------------------------------
                Fiscal Year                     1997          1996               1997                1996
---------------------------------------------------------------------------------------------------------------------------
<S>          <C>                                <C>           <C>            <C>                  <C>
Fixed Rate:        1997                                       6.10%                               $27,000,000
                   1998                         5.67          5.56           $35,950,000           13,500,000
                   1999                         5.51          5.43            17,500,000           15,500,000
                   2000                         5.51          4.89             2,286,958            1,597,688
                   2001                         5.68                           1,478,037
                Thereafter                      6.91          6.39             2,518,991            4,473,705
---------------------------------------------------------------------------------------------------------------------------
             Total Fixed Rate                                                $59,733,986          $62,071,393
---------------------------------------------------------------------------------------------------------------------------
Variable Rate:
                   1997                                       5.42                                $ 6,231,824
                   1998                         5.61                         $38,750,000
---------------------------------------------------------------------------------------------------------------------------
             Total Variable Rate                                             $38,750,000          $ 6,231,824
---------------------------------------------------------------------------------------------------------------------------
             Total advances                                                  $98,483,986          $68,303,217
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

         The Bank has pledged  mortgage  loans and FHLB stock as  collateral  on
these  advances.  The Bank may receive  advances  from the FHLB up to 50% of the
Bank's adjusted assets which was  approximately  $163 million at March 31, 1997.
The variable rate advances at March 31, 1996 include  $231,824  advanced against
the Bank's overdraft line of credit.

                                     - 34 -
<PAGE>
9.   OTHER BORROWED FUNDS

         Other borrowed funds are as follows:
<TABLE>
<CAPTION>

                                                                                                    March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                               1997           1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>           <C>
Federal Home Loan Bank, funds due
  April 1, 1997 and April 1, 1996                                                            $1,186,818    $2,126,981
Securities sold under agreement to purchase                                                     607,149       554,772
---------------------------------------------------------------------------------------------------------------------------
Total                                                                                        $1,793,967    $2,681,753
===========================================================================================================================
</TABLE>

         The FHLB  funds  represent  checks  written  by the Bank on its  demand
account at the FHLB of Indianapolis.

         An analysis of  securities  sold under  agreements  to repurchase is as
follows:
<TABLE>
<CAPTION>
                                                                                              March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                  1997         1996          1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>           <C>         <C>
Highest month-end balance                                                      $3,955,494    $982,868    $1,434,814
Average balance                                                                $1,484,957    $530,189    $1,203,640
Weighted average interest rate at end of period                                       5.2%        4.8%          4.6%
Weighted average interest rate during the period                                      4.8%        4.8%          3.7%
</TABLE>


         At March 31, 1997,  securities  sold under  agreement to repurchase had
maturities ranging from April 1, 1997 to June 30, 1997.

         Assets pledged to secure securities sold under agreements to repurchase
are as follows:
<TABLE>
<CAPTION>

                                                   Amortized Cost                               Fair Value
---------------------------------------------------------------------------------------------------------------------------
                                                      March 31,                                  March 31,
---------------------------------------------------------------------------------------------------------------------------
                                            1997                  1996                   1997                1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                   <C>                    <C>                 <C>
U.S. Agency Securities                   $4,079,341            $4,011,405             $3,910,000          $3,851,250
</TABLE>
<PAGE>
10.  INCOME TAXES

         An analysis of the income tax provision is as follows:
<TABLE>
<CAPTION>
                                                                                        Years Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                  1997          1996          1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>           <C>
Current:
  Federal                                                                      $  862,572     $437,317      $284,159
  State                                                                           254,275      123,341       147,322
Deferred                                                                         (113,861)     100,788       443,060
---------------------------------------------------------------------------------------------------------------------------
                                                                               $1,002,986     $661,446      $874,541
===========================================================================================================================
</TABLE>
                                     - 35 -
<PAGE>
         The difference  between the financial  statement  provision and amounts
computed by using the statutory rate of 34% is reconciled as follows:
<TABLE>
<CAPTION>
                                                                                        Years Ended March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                  1997          1996          1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>           <C>
Income tax provision at federal statutory rate                                 $  784,221     $649,655      $720,225
State tax, net of federal tax benefit                                             167,822      127,056        97,233
Nondeductible expenses                                                             50,347      135,248        69,976
Bad debt deduction                                                                126,723     (211,689)
Other                                                                            (126,127)     (38,824)      (12,893)
---------------------------------------------------------------------------------------------------------------------------
Total income tax provision                                                     $1,002,986     $661,446      $874,541
===========================================================================================================================
</TABLE>
 
         The  Company's  deferred  income  tax  assets  and  liabilities  are as
follows:
<TABLE>
<CAPTION>

                                                                                                     March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                                1997          1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>             <C>
Deferred tax assets:
  Bad debt reserves                                                                         $  635,090      $603,987
  Unrealized loss on securities available for sale                                           1,043,274        64,521
  Accrued employee benefits                                                                    107,624        61,646
  Other                                                                                         64,317        19,542
---------------------------------------------------------------------------------------------------------------------------
                                                                                            $1,850,305      $749,696
---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
  Depreciation                                                                              $  119,405      $ 95,307
  Deferred loan fees                                                                           277,883       163,387
  Restricted stock awards                                                                       78,908       110,314
  Other                                                                                                       99,193
---------------------------------------------------------------------------------------------------------------------------
                                                                                            $  476,196      $468,201
---------------------------------------------------------------------------------------------------------------------------

Deferred income taxes, net                                                                  $1,374,109      $281,495
===========================================================================================================================
</TABLE>
<PAGE>
        Retained earnings at March 31, 1997 and 1996 includes  approximately $6
million of income that has not been subject to tax because of deductions for bad
debts allowed for Federal  income tax purposes.  Deferred  income taxes have not
been provided on such bad debt  deductions  since the Company does not intend to
use the  accumulated  bad debt deductions for purposes other than to absorb loan
losses.  If, in the future,  this  portion of retained  earnings is used for any
purpose  other  than to absorb  bad debt  losses,  federal  income  taxes may be
imposed on such amounts at the then current corporate income tax rate.

         In August 1996,  the "Small  Business Job  Protection  Act of 1996" was
passed into law.  One  provision of the act repeals the special bad debt reserve
method for thrift institutions currently provided for in Section 593 of the IRC.
The provision  requires thrifts to recapture any reserve  accumulated after 1987
but  forgives  taxes  owed  on  reserves   accumulated  prior  to  1988.  Thrift
institutions  will be given  six  years to  account  for the  recaptured  excess
reserves,  beginning  with  the  first  taxable  year  after  1995,  and will be
permitted to delay the timing of this recapture for one or two years, subject to
whether they meet certain  residential loan test  requirements.  The adoption of
the act  will  have no  impact  on the  Company's  results  of  operations. 









                                     - 36 -
<PAGE>
 11. REGULATORY CAPITAL REQUIREMENTS

         The  Bank  is  subject  to  various  regulatory  capital   requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements   can  initiate   certain   mandatory   and   possibly   additional
discretionary  actions by regulators  that, if  undertaken,  could have a direct
material  effect  on  the  Corporation's   financial  position  and  results  of
operations.  The regulations  require the Bank to meet specific capital adequacy
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain  off-balance-sheet  items as calculated under regulatory  accounting
practices.  The Bank's  capital  classification  is also subject to  qualitative
judgments  by the  regulators  about  components,  risk  weightings,  and  other
factors.

         Quantitative  measures  established  by  regulation  to ensure  capital
adequacy require the Bank to maintain minimum amounts and ratios as set forth in
the following  tables of tangible,  core and total  risk-based  capital.  Prompt
Corrective  Action  provisions   contained  in  the  Federal  Deposit  Insurance
Corporation  Improvement  Act of  1991  (FDICIA)  require  specific  supervisory
actions as capital levels decrease. To be considered  well-capitalized under the
regulatory  framework for Prompt Corrective Action provisions under FDICIA,  the
Bank  must  maintain  minimum  Tier 1  leverage,  Tier 1  risk-based  and  total
risk-based  capital ratios as set forth in the following tables.  March 31, 1997
and 1996, the Bank exceeded the minimum  requirements  for the  well-capitalized
category.

         The following  presents the Bank's regulatory capital levels and ratios
relative  to its  minimum  capital  levels and ratios  relative  to its  minimum
capital requirements.
<TABLE>
<CAPTION>
                                                                          As of March 31, 1997
---------------------------------------------------------------------------------------------------------------------------
                                                             Actual Capital                      Required Capital
---------------------------------------------------------------------------------------------------------------------------
                                                       Amount             Ratio             Amount             Ratio
---------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                 <C>              <C>                 <C>
OTS capital adequacy
   Tangible capital                                  $34,701,101          8.27%           $ 6,291,923          1.50%
   Core capital                                       34,701,101          8.27             12,583,846          3.00
   Risk-based capital                                 36,480,827         20.80             14,034,819          8.00
FDICIA regulations to be
  classified well-capitalized
   Tier 1 leverage capital                            34,701,101          8.27             20,980,109          5.00
   Tier 1 risk-based capital                          34,701,101         19.78             10,526,117          6.00
   Total risk-based capital                           36,480,827         20.80             17,538,859         10.00

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                          As of March 31, 1996
---------------------------------------------------------------------------------------------------------------------------
                                                             Actual Capital                      Required Capital
---------------------------------------------------------------------------------------------------------------------------
                                                       Amount             Ratio             Amount             Ratio
---------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                 <C>              <C>                 <C>
OTS capital adequacy
   Tangible capital                                  $32,786,108          8.40%           $ 5,857,874          1.50%
   Core capital                                       32,786,108          8.40             11,715,748          3.00
   Risk-based capital                                 34,579,204         22.50             12,292,374          8.00
FDICIA regulations to be
  classified well-capitalized
   Tier 1 leverage capital                            32,786,108          8.40             19,515,540          5.00
   Tier 1 risk-based capital                          32,786,108         21.34              9,218,212          6.00
   Total risk-based capital                           34,034,403         22.15             15,365,419         10.00
</TABLE>

 

                                     - 37 -
<PAGE>
12.  STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

         Dividend  Restrictions  - Under  current  regulations,  the Bank is not
permitted to pay dividends on its stock after the  Conversion if its  regulatory
capital  would  thereby  reduce  below  (i) the  amount  then  required  for the
aforementioned  liquidation  account  or  (ii)  the  Bank's  regulatory  capital
requirements.  As a "Tier 1" institution (an institution  with capital in excess
of its  fully  phased-in  capital  requirements,  both  immediately  before  the
proposed  capital  distribution  and on a pro forma basis after giving effect to
such distribution),  the Bank may make capital  distributions after prior notice
to the OTS in any  calendar  year up to 100% of its net  earnings to date during
such  calendar  year plus the amount that would  reduce by one-half  its capital
surplus ratio at the beginning of such calendar year.  Any additional  amount of
capital distributions would require prior regulatory approval.

         Preferred Stock - The Company is authorized to issue  1,000,000  shares
of preferred stock,  $.01 par value which remains unissued at March 31, 1997. In
the event any preferred shares are issued,  the Board of Directors is authorized
to fix and state the voting powers, designations,  preferences and rights of the
shares of each such series and the  qualifications,  limitations and restriction
thereof.

         Recapitalization  of SAIF - On September 30, 1996, the President signed
into law an omnibus appropriations act for fiscal year 1997 that included, among
other things,  the  recapitulation  of the Savings  Association  Insurance  Fund
(SAIF) in a section  entitled  "The  Deposit  Insurance  Funds Act of 1996" (the
Act).  The Act included a provision  where all insured  depository  institutions
would be charged a one-time special assessment on their SAIF assessable deposits
as of March 31, 1995. The Company recorded a pre-tax charge of $1,766,185 during
the year ended March 31, 1997, which  represented 65.7 basis points of the March
31, 1995, assessable deposits.
 
13.  EMPLOYEE BENEFIT PLANS

         Multi-employer   Pension   Plan   -   The   Bank   participates   in  a
noncontributory  multi-employer  pension plan covering all qualified  employees.
The  plan  is  administered  by  the  trustees  of the  Financial  Institutions'
Retirement  Fund.  There  is no  separate  valuation  of the plan  benefits  nor
segregation  of plan  assets  specifically  for the Bank  because  the plan is a
multi-employer plan and separate actuarial  valuations are not made with respect
to each employer.

         Pension  expense  amounted to $40,000,  $142,028,  and $208,483 for the
years ended March 31, 1997, 1996 and 1995, respectively.

         Employee  Stock  Ownership  Plan - The Company  established an Employee
Stock  Ownership  Plan (ESOP) which  purchased 7% or 166,635 shares of the stock
offered  in the  conversion.  The funds used by the ESOP to  purchase  the stock
offered  by a  $1,666,350  loan  from  the  Company  which  will  be  repaid  by
contributions  to the ESOP by the Company in the  future.  Pursuant to the ESOP,
the shares are to be allocated to participants annually,  over an 8 year period.
The ESOP covers  substantially all employees and shares are allocated based upon
employee  compensation levels during the year. ESOP expense is based on the fair
value of shares earned,  and totaled $479,046 and $503,579 during 1997 and 1996,
respectively.  During  fiscal years ended March 31,  1997,  1996 and 1995 24,864
shares,  25,890 shares and 26,867 shares were earned by  participants.  At March
31, 1997, 89,014 shares with a fair value of $1,847,000 were held in suspense by
the ESOP.  These shares are not considered to be outstanding  for the purpose of
computing earning per share.
                                     - 38 -
<PAGE>
         Recognition  and  Retention  Plan  - The  Company  also  established  a
Recognition and Retention Plan (RRP) as a method of providing executive officers
and employees with a proprietary interest in the Company in a manner designed to
encourage such  individuals to remain with the Bank. At March 31, 1994, 3.48% or
82,952 shares were awarded to certain  employees  with such shares  vesting at a
rate of 20% per year,  with the first  installment  vesting March 31, 1995.  The
cost of the RRP is being  reflected as  compensation  expense as vesting occurs.
This  amounted to $149,873 and  $147,217  and  $252,360  during the fiscal years
ended March 31, 1997, 1996 and 1995.

         Stock Option and Incentive Plan - The Company has granted stock options
to existing stockholders,  officers,  directors and other affiliated individuals
to purchase shares of the Company's stock. At March 31, 1997,  outstanding stock
options of 220,836 vest at a rate of 25% per year and are exercisible in the ten
years  immediately  following  vesting.  During the fiscal years ended March 31,
1997 and 1996,  options to purchase an  additional  4,761 and 16,000 shares were
awarded with the first vesting to occur September 1, 1997 and November 21, 1996,
respectively. Employee terminations resulted in options to purchase 2,976, 5,356
and 1,190 shares being cancelled  during fiscal years ended March 31, 1997, 1996
and 1995 respectively.
 
         The  following is an analysis of stock option  activity for each of the
three  years  in the  period  ending  March  31,  1997  and  the  stock  options
outstanding at the end of the respective years:
<TABLE>
<CAPTION>
                                                                                                      Weighted
                                                                                                       Average
         Options                                                                  Shares                Price
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                   <C>
         Outstanding April 1, 1994                                                214,234               10.00
         Granted                                                                    4,761               12.25
         Forfeited or expired                                                      (1,190)              10.00
-------------------------------------------------------------------------------------------------------------------
         Outstanding March 31, 1995                                               217,805               10.05
         Granted                                                                   16,000               16.44
         Exercised                                                                 (3,569)              10.00
         Forfeited or expired                                                      (5,356)              10.00
-------------------------------------------------------------------------------------------------------------------
         Outstanding March 31, 1996                                               224,880               10.51
         Granted                                                                    4,761               16.25
         Exercised                                                                 (5,829)              10.92
         Forfeited or expired                                                      (2,976)              10.00
-------------------------------------------------------------------------------------------------------------------
         Outstanding March 31, 1997                                               220,836               10.63
</TABLE>
         The number of shares  exercisable  at March 31,  1997,  1996,  and 1995
were:  220,836,  224,880 and 217,805,  respectively  and had a weighted  average
exercised price of $10.63, $10.51 and $10.05, respectively. The weighted average
remaining contractual life of the options outstanding at March 31, 1997 and 1996
was 8.1 years and 7.2 years, respectively.

         APB Opinion  No. 25,  "Accounting  for Stock Issued to  Employees," and
related  interpretations  in  accounting  for the  stock-based  plans  have been
applied by the Company.  No compensation  cost has been recognized for the stock
option and  incentive  plan  because the stock option price is equal to the fair
value of the underlying common stock at the date of grant.
                                     - 39 -
<PAGE>
         The Company estimated the SFAS 123 fair value by utilizing the binomial
options  pricing  model  based upon  estimated  values for the  risk-free  rate,
volatility  rate and life  ranges.  The pro forma  compensation  effects of this
calculation were insignificant.

         Deferred  Compensation  (401K)  Plan -  Effective  January  1, 1995 the
Company  adopted an Employee  Deferred  Compensation  (401K)  Plan  administered
through  the  financial   institution's   retirement  fund.  Each  employee  may
contribute  up to  6% of  compensation.  Employee  contributions  of up to 4% of
compensation are matched by the Company at a rate of $.25 per dollar of employee
contribution.  The  Company  matching  expense was  $19,203,  $19,386 and $6,249
during the fiscal year ended March 31, 1997, 1996 and 1995 respectively.
 
         Directors  Deferred  Compensation  Plan - The  Bank  has  entered  into
deferred  compensation  agreements with certain directors.  Benefits under these
agreements are paid over a ten year period upon retirement. The present value of
the  benefit  to be paid is  accrued  over the active  period of  employment  of
individual participants and is funded by life insurance policies.

14.  COMMITMENTS

         Lease  commitments - The Company has future minimum rental  commitments
for noncancelable operating leases as follows:
<TABLE>
<CAPTION>

       Fiscal year ended March 31:
-------------------------------------------------------------------------------- 
<S>                                        <C>
                   1998                    $73,516
                   1999                     66,516
                   2000                     66,516
                   2001                     53,724
                   2002                      3,724
</TABLE>
         Rental expense for long-term leases for the years ended March 31, 1997,
1996 and 1995 was $70,265 $57,851 and $101,452, respectively.

         Rental  income from  noncancelable  subleases for the years ended March
31, 1997, 1996 and 1995 was $103,306, $93,883, and $66,807, respectively.

         Financial Instruments with Off-Balance Sheet Risk - The Bank is a party
to  financial  instruments  with  off-balance-sheet  risk of loss as part of its
normal  business  operations  to meet the  financing  needs of its  customers by
providing  commitments to extend credit.  These instruments  involve, to varying
degrees,  elements  of credit  and  interest  rate risk in excess of the  amount
recognized  in the  balance  sheet.  The  contract  amount of these  instruments
reflects  the extent of  involvement  the Company has in this class of financial
instruments.

         Exposure  to credit  loss in the event of  nonperformance  by the other
party  to  the  financial   instrument  for  commitments  to  extend  credit  is
represented by the contract  amount of those  instruments.  The Company uses the
same  credit  policies  in making  commitments  as it does for  on-balance-sheet
instruments.  Unless noted otherwise, the Company does not require collateral or
other security to support financial instruments with credit risk.
<PAGE>

         Real estate loan commitments  whose contract  amounts  represent credit
risk were approximately  $1,930,000,  $3,963,100 and $743,000 at March 31, 1997,
1996 and 1995, respectively.

                                     - 40 -
<PAGE>
         Commitments  to extend  credit  are  agreements  to lend to a  customer
provided  there is no violation of any  condition  established  in the contract.
Commitments  generally have fixed expiration dates or other termination  clauses
and may require  payment of a fee. Some  commitments  will expire without a loan
disbursement;  thus, the total commitment does not necessarily  represent future
cash  requirements.  The Bank evaluates each  customer's  creditworthiness  on a
case-by-case  basis. The amount of collateral  obtained,  if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the borrower.
<PAGE>
         The collateral  consists  predominantly  of  residential  family units,
commercial residential or non-residential real estate, and personal property.

         Employment   agreement  -  The  Company  has  entered  into  employment
agreements with two executive officers.  Under certain circumstances provided in
the agreement, the Company may be obligated to continue the officer's salary for
a period of three years.

15.  PERMANENT BANCORP, INC. FINANCIAL INFORMATION
         (PARENT COMPANY ONLY)

         The following  condensed  statement of financial  condition as of March
31, 1997 and 1996 and condensed  statement of operations  and cash flows for the
three years ended March 31, 1997 for Permanent  Bancorp,  Inc. should be read in
conjunction with the consolidated financial statements and notes thereto.


                                     - 41 -
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF FINANCIAL CONDITION
                                                                                                   March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                              1997           1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>            <C>         
Cash                                                                                      $   328,249    $ 1,705,271
Securities available for sale                                                               2,979,375      4,995,635
Securities held to maturity
Loans                                                                                         978,922
Loans receivable from ESOP                                                                    952,200      1,190,250
Fixed assets                                                                                  467,441        474,600
Interest receivable                                                                            65,200         82,038
Other assets                                                                                    4,687          4,687
Investment in subsidiary                                                                   35,027,299     33,330,909
---------------------------------------------------------------------------------------------------------------------------
  Total assets                                                                            $40,803,373    $41,783,390
---------------------------------------------------------------------------------------------------------------------------

Deferred income taxes                                                                     $    63,867    $   129,367
Accrued expenses                                                                               66,314         45,466
---------------------------------------------------------------------------------------------------------------------------
  Total liabilities                                                                           130,181        174,833
---------------------------------------------------------------------------------------------------------------------------
Common stock                                                                                   24,590         24,602
Additional paid-in capital                                                                 24,042,843     23,849,500
Treasury stock                                                                             (5,555,753)    (3,361,279)
Retained earnings                                                                          23,393,601     22,727,602
Unrealized gain on securities available for sale                                              (11,926)        16,555
ESOP borrowing                                                                               (952,200)    (1,190,250)
Unearned compensation - restricted stock awards                                              (267,963)      (458,173)
---------------------------------------------------------------------------------------------------------------------------
  Total stockholders' equity - net                                                        $40,673,192    $41,608,557
---------------------------------------------------------------------------------------------------------------------------
  Total liabilities and stockholders' equity                                              $40,803,373    $41,783,390
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                            March 31,
                                                                              1997            1996           1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>             <C>            <C>
CONDENSED STATEMENTS OF INCOME
INCOME:
 Interest income from securities held to maturity and available for sale   $  293,929      $  438,368     $  490,392
 Interest on loans                                                             66,991          81,681        114,232
 Other income                                                                  81,094          77,771             --
---------------------------------------------------------------------------------------------------------------------------
  Total income                                                             $  442,014      $  597,820     $  604,624
---------------------------------------------------------------------------------------------------------------------------
EXPENSES:
 Salaries and benefits                                                     $  223,192      $  200,118     $  277,295
 Legal and professional fees                                                   67,433          94,590         69,069
 Other expenses                                                                79,418          80,436        107,440
---------------------------------------------------------------------------------------------------------------------------
  Total expenses                                                              370,043         375,144        453,804
---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS                                $71,971      $  222,676     $  150,820
---------------------------------------------------------------------------------------------------------------------------
INCOME TAX PROVISION                                                           21,296          67,170         59,740
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY                              1,252,869       1,093,799      1,152,686
---------------------------------------------------------------------------------------------------------------------------
NET INCOME                                                                 $1,303,544      $1,249,305     $1,243,766
===========================================================================================================================
</TABLE>
                                     - 42 -
<PAGE>
<TABLE>
<CAPTION>
                                                                                            MARCH 31,
                                                                              1997            1996           1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>            <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                                                $1,303,544     $ 1,249,305    $ 1,243,766
 Equity in undistributed earnings of subsidiary                            (1,252,869)     (1,093,799)    (1,152,686)
  Adjustments to reconcile net income to net cash provided
    by operating activities
   Vesting of restricted stock awards                                         178,070         135,740        252,360
   Amortization and accretion                                                  28,238         (38,296)      (110,266)
   (Gain) Loss on sale of investments                                          (5,790)         (1,015)         2,709
  Changes in assets and liabilities:
   Interest receivable                                                         16,838          34,054       (116,092)
   Deferred income tax                                                        (46,817)        (59,786)       178,293
   Other assets                                                                                               (4,688)
   Other liabilities                                                           20,848          40,575        (96,257)
---------------------------------------------------------------------------------------------------------------------------
    Net cash provided by operating activities                                 242,062         266,778        197,139
---------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from:
  Maturities of:
   Securities held to maturity                                                                600,000
   Securities available for sale                                            2,974,688       2,000,000
   Commercial paper                                                         5,500,000
 Principal repayments on loans                                                238,050         238,050      1,338,050
 Sale of:
  Securities held to maturity                                                               2,979,063      1,492,968
  Securities AFS                                                            2,934,384
 Purchase of:
  Loans                                                                    (6,438,563)                    (1,081,721)
  Securities held to maturity                                              (3,995,625)     (1,000,000)   (10,908,082)
  Purchase land and improvements                                                                            (478,180)
---------------------------------------------------------------------------------------------------------------------------
    Net cash provided by (used in) investment activities                    1,212,934       4,817,113     (9,636,965)
---------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Dividends paid                                                              (608,737)       (347,996)
 Purchase of stock treasury                                                (2,286,926)     (3,465,463)
 Sale of common stock                                                          63,645          35,689
---------------------------------------------------------------------------------------------------------------------------
    Net cash used in financing activities                                  (2,832,018)     (3,777,770)
---------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                        1,377,022       1,306,121     (9,439,826)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                              1,705,271         399,150      9,838,976
---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                   $  328,249      $1,705,271     $  399,150
===========================================================================================================================
</TABLE>
                                     - 43 -
<PAGE>
16.  FAIR VALUE OF FINANCIAL INSTRUMENTS

         The  following  disclosure  of the  estimated  fair value of  financial
instruments  is made  in  accordance  with  the  requirements  of  Statement  of
Financial Accounting Standards No. 107 (SFAS 107), "Disclosures about Fair Value
of Financial Instruments":
<TABLE>
<CAPTION>
                                                              March 31, 1997                   March 31, 1996
---------------------------------------------------------------------------------------------------------------------------
                                                        Carrying           Fair           Carrying           Fair
                                                          Value            Value            Value            Value
---------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>             <C>              <C>              
Assets:
 Cash                                                  $  3,211,091     $  3,211,091    $  4,900,671     $  4,900,671
 Interest-bearing deposits                                3,153,385        3,153,385          15,750           15,750
 Securities available for sale                           85,180,313       85,180,313      73,170,635       73,170,635
 Mortgage-backed securities available   for sale         74,052,253       74,052,253      61,953,242       61,953,242
 Securities held to maturity                                 25,000           25,000          25,000           25,000
 Mortgage-backed securities held to maturity             27,180,891       27,197,070      32,153,595       32,319,409
 Loans, net                                             210,219,994      206,062,560     206,909,621      206,016,286
 Interest receivable                                      3,539,085        3,539,085       2,874,362        2,874,362
 Federal Home Loan Bank stock                             5,192,600        5,192,600       3,503,600        3,503,600
 Cash surrender value of life insurance                   1,552,875        1,552,875         953,199          953,199
Liabilities:
 Deposits                                               280,753,353      275,017,173     280,008,062      284,071,916
 Federal Home Loan Bank advances                         98,483,986       98,084,186      68,303,217       68,074,701
 Advance payments by borrowers
    for taxes and insurance                               1,014,598        1,014,598       1,022,263        1,022,263
 Other borrowed funds                                     1,793,967        1,793,967       2,681,753        2,681,753
 Interest Payable                                         2,049,727        2,049,727       1,922,635        1,922,625
</TABLE>
         The estimated fair value amounts are  determined by the Company,  using
available market information and appropriate valuation  methodologies.  However,
considerable  judgment is required  in  interpreting  market data to develop the
estimates of fair value.  Accordingly,  the estimates  presented  herein are not
necessarily  indicative  of the amounts the Company  could  realize in a current
market  exchange.  The use of different  market  assumptions  and/or  estimation
methodologies may have a material effect on the estimated fair value amounts.

         Cash,  interest-bearing deposits, interest receivable and payable, cash
surrender  value of life insurance  advance  payments by borrowers for taxes and
insurance and other borrowed  funds - The carrying  amounts of these items are a
reasonable estimate of their fair value.

         Investment securities and mortgage-backed  securities - Fair values are
based on prices obtained from independent pricing services.

         Loans - The fair value of mortgage loans is estimated  using  published
loan buy rates for similar loans and quoted  market  prices for  mortgage-backed
securities  backed by loans  with  similar  characteristics.  The fair  value of
non-mortgage  loans is estimated by discounting  the future cash flows using the
current rates for loans of similar credit risk and maturities.

         Federal  Home Loan Bank stock - The fair value is  estimated  to be the
carrying  value  which is par.  All  transactions  in the  capital  stock of the
Federal Home Loan Bank of Indianapolis are executed at par.
                                     - 44 -
<PAGE>
         Deposits  - The fair value of demand  deposits,  savings  accounts  and
money market  deposit  accounts is the amount payable on demand at the reporting
date. The fair value of  fixed-maturity  certificates of deposit is estimated by
discounting  future  cash flows using rates  offered on the  reporting  date for
deposits of similar remaining maturities.

         Federal  Home Loan  Bank  advances  - The fair  value is  estimated  by
discounting  future cash flows using rates  currently  available to the bank for
advances of similar maturities.

         Commitments  - The  commitments  to originate  and purchase  loans have
terms that are consistent with current market conditions.  Accordingly, the Bank
estimated  that the face  amounts  of these  commitments  approximates  carrying
value.

         The fair value  estimates  presented  herein  are based on  information
available to  management as of March 31, 1997 and 1996.  Although  management is
not aware of any factors  that would  significantly  affect the  estimated  fair
value amounts, such amounts have not been comprehensively  revalued for purposes
of these  consolidated  financial  statements  since that date,  and  therefore,
current  estimates  of fair  value  may  differ  significantly  from the  amount
presented herein.

                                     - 45 -
<PAGE>
BOARD OF DIRECTORS AND
EXECUTIVE OFFICERS

PERMANENT BANCORP INC.

BOARD OF DIRECTORS

Donald P. Weinzapfel                                             John W. Forster
James W. Vogel                                             James A. McCarty, Jr.
Jack H. Kinkel                                                    Daniel F. Korb
Robert L. Northerner                                               John R. Stone
James D. Butterfield                                             Murray J. Brown


EXECUTIVE OFFICERS

Donald P. Weinzapfel
   Chairman of the Board, President and
   Chief Executive Officer
Murray J. Brown
   Executive Vice President and
   Chief Operating Officer
Carl E. Root
   Vice President and Secretary
Joseph M. Schnapf
   Chief Financial Officer


PERMANENT FEDERAL SAVINGS BANK

BOARD OF DIRECTORS

Donald P. Weinzapfel                                             John W. Forster
James W. Vogel                                             James A. McCarty, Jr.
Jack H. Kinkel                                                    Daniel F. Korb
Robert L. Northerner                                               John R. Stone
James D. Butterfield                                             Murray J. Brown

Louis H. Boink, Jr. (Director Emeritus)
Carl F. Bernhardt (Director Emeritus)
Kenneth F. Allen  (Director Emeritus)

JASPER ADVISORY BOARD

Stephen A. Habig                                                  Roger W. Brown
G. Earl Metzger

WHOLLY OWNED SUBSIDIARY

PERMA SERVICE CORP.

PERMANENT INSURANCE AGENCY, INC.

Perma Service Corp.  provides brokerage  services,  on an agency basis,  through
INVEST(R), Donald R. Woehler, Manager
<PAGE>
CORPORATE STAFF

Donald P. Weinzapfel
   Chairman of the Board, President
   & Managing Officer
Murray J. Brown
   Executive Vice President &
   Chief Operating Officer
Carl E. Root
   Sr. Vice President & Secretary
George E. Orr
   Senior Vice President
Seth P. Allen
   Senior Vice President
Kevin M. Moore
   Vice President


Dean E. Smith
   Vice President
Richard A. Condi
   Vice President
Joseph M. Schnapf
   Vice President & Treasurer
Barbara O. Bolin
   Vice President & Auditor
Linda K. Hoover
   Vice President
Glenna J. Kirsch
   Vice President


ASSISTANT VICE PRESIDENTS

Karen S. Miller
Michael B. Stuckey
Gregory E. Matheis
Daniel T. Denton


ASSISTANT SECRETARIES

Phillip D. Effinger
Robert D. Stone
Timothy F. Robinson
Robert A. Baumgart


                                     - 46 -
<PAGE>
CORPORATE INFORMATION


ANNUAL MEETING

The Annual Meeting of Stockholders  will be held Tuesday,  July 22, 1997 at 4:00
p.m. Central Daylight Time at the Company's Main office,  101 S.E. Third Street,
Evansville, Indiana

CORPORATE OFFICE

Permanent Bancorp, Inc.
101 S.E. Third Street
Evansville, IN 47708

BRANCH OFFICES

University Heights
4615 University Drive
Evansville, Indiana

Town Center
201 Diamond Avenue
Evansville, Indiana

Green River Road
123 South Green River Road
Evansville, Indiana

North Brook
3820 First Avenue
Evansville, Indiana

West Franklin Street
2131 West Franklin Street
Evansville, Indiana

Ross Center
2521 Washington Avenue
Evansville, Indiana

Fort Branch
810 East Locust Street
Fort Branch, Indiana

Jasper
771 West Second Street
Jasper, Indiana

Newburgh
4855 Highway 261 North
Newburgh, Indiana

Oakland City
410 West Morton Street
Oakland City, Indiana
<PAGE>

FORM 10-K

The  Company's  Annual  Report on Form 10-K,  as  required  to be filed with the
Securities and Exchange Commission,  is available,  without charge, upon written
request to:

Carl E. Root
Secretary
Permanent Bancorp, Inc.
101 S.E. Third Street
Evansville, IN 47708



STOCK INFORMATION

The Company's  stock is traded  over-the-counter  on the NASDAQ  National Market
System under the symbol PERM. At March 31, 1997, the Company's stock was held by
approximately 1,246 holders of record. The stock transfer agent is:

REGISTRAR AND TRANSFER COMPANY
10 Commerce Drive
Cranford, New Jersey 07016

The Company's stock began trading on April 4, 1994.



STOCK TRADING DATA
                                                  Volume
                         High          Low        (000's)
--------------------------------------------------------------------------------
June 30, 1996           $16 1/4      $14 1/4      187.0
September 30, 1996       17 1/8       15 3/4      160.3
December 31, 1996        21           16 1/2      288.8
March 31, 1997           22 3/4       20 1/4      205.9

June 30, 1995           $16 1/2      $14 3/4      554.9
September 30, 1995       19           14 1/2      494.9
December 31, 1995        17 1/4       16          255.8
March 31, 1996           16 3/4       14          399.4




                                     - 47 -
<PAGE>
REGISTERED MARKET MAKERS

The following firms make a market in Permanent Bancorp Inc.'s stock:
Capital Resources, Inc.
The Chicago Corporation
Herzog, Heine, Geduld, Inc.
J.J.B. Hilliard, W.L. Lyons
NatCity Investments, Inc.
Sandler, O'Neill & Partners
Friedman Billings Ramsey &Co.

GENERAL BANK COUNSEL

Bowers, Harrison, Kent and Miller
25 Northwest Riverside Dr.
Evansville, IN 47708

SPECIAL COUNSEL

Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005

INDEPENDENT AUDITORS

Deloitte & Touche LLP
Suite 3000
Market Tower
10 West Market Street
Indianapolis, IN46204-2985



                                     - 48 -