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

                                    FORM 10-K

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

                    For the fiscal year ended March 31, 1999

                                       OR

[X]      TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the  transition  period from
                   to
         ----------  ---------

                         Commission file number 0-23370

                             PERMANENT BANCORP, INC.
             (Exact name of registrant as specified in its charter)

          Delaware                                       35-1908797
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation  or organization)

              101 Southeast Third Street, Evansville, Indiana 47708
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (812) 428-6800
                                                           --------------

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

                                      None

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

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

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was required to file such  reports) and (2) has been subject to such
requirements for the past 90 days. YES X . NO ___.

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

         The aggregate  market value of the voting stock held by  non-affiliates
of the  registrant,  computed by reference to the closing price of such stock on
the NASDAQ  National  Market System as of June 22, 1999, was  $26,049,378.  (The
exclusion from such amount of the market value of the shares owned by any person
shall  not be deemed  an  admission  by the  registrant  that such  person is an
affiliate of the registrant.)

         As of June 22, 1999, there were 3,994,222 issued and outstanding shares
of the Registrant's Common Stock

                       DOCUMENTS INCORPORATED BY REFERENCE
       Parts I, II and IV of Form 10-K - Portions of the Annual Report to
             Stockholders for the fiscal year ended March 31, 1999.

     Part III of Form 10-K - Portions of the Proxy Statement for 1999 Annual
                            Meeting of Stockholders.
<PAGE>
                                     PART I
Item 1.  Business

General

         Permanent Bancorp, Inc. (the "Company"),  a Delaware  corporation,  was
organized in December  1993 as a savings and loan holding  company for Permanent
Federal Savings Bank ("Permanent  Federal" or the "Bank") in connection with the
Bank's  conversion  from mutual to stock form which was  completed  on March 31,
1994  (the  "Conversion").  Permanent  Federal,  the  predecessor  of which  was
originally   organized  in  1885,   is  a  federally   chartered   savings  bank
headquartered in Evansville,  Indiana. The Bank's deposits are insured up to the
maximum  allowable  amount by the Federal  Deposit  Insurance  Corporation  (the
"FDIC").  Through  its main  office and network of twelve  branch  offices,  the
Company serves Vanderburgh, Gibson, Warrick, Posey and Dubois Counties, Indiana.
At March 31, 1999, the Company had total assets of $492.3  million,  deposits of
$345.3 million,  and total stockholders' equity of $40.9 million (8.31% of total
assets).

         Permanent   Federal  has  been,  and  intends  to  continue  to  be,  a
community-oriented   financial  institution  offering  a  variety  of  financial
services  to meet the needs of the  communities  it  serves.  The Bank  attracts
deposits  from  the  general  public  and uses  these  deposits,  together  with
borrowings  and  other  funds,   primarily  to  originate  one-  to  four-family
residential  mortgage  loans  as well  as  loans  secured  by  multi-family  and
commercial real estate, automobile and other consumer loans. To a lesser extent,
the Bank  also  originates  a  limited  number of  construction  and  commercial
business loans. The Bank also invests in  mortgage-backed  and other securities.
See "Lending Activities" and "Investment Activities."

         Through its service  corporation,  Perma Service  Corp.,  the Bank also
offers various types of insurance products and provides brokerage services.  See
"Service Corporation Activities."

         The executive  office of the Company is located at 101 Southeast  Third
Street, Evansville, Indiana 47708. Its telephone number at that address is (812)
428-6800.

Lending Activities

         General.   Historically,   the  Bank  originated  fixed-rate,  one-  to
four-family mortgage loans. In the early 1980s,  however, the Bank began to also
originate, subject to market conditions,  adjustable-rate mortgage ("ARM") loans
for  retention in its  portfolio.  At March 31,  1999,  74.5% of the Bank's loan
portfolio   was   fixed-rate   and  24.1%  was   adjustable-rate.   The   Bank's
adjustable-rate  loan  portfolio as a percentage of the total loan portfolio has
decreased  from 42.9% at March 31,  1992 to 25.5% at March 31,  1999 as consumer
demand for fixed-rate loans  increased.  See also  "Management's  Discussion and
Analysis of Financial  Condition and Results of  Operations  --  Asset/Liability
Management" in the Company's  Annual Report to Stockholders  for the fiscal year
ended March 31, 1999, attached hereto as Exhibit 13 (the "Annual Report").

                                        2
<PAGE>
         The Bank focuses its lending  activities  on the  origination  of loans
secured by first mortgages on owner-occupied,  one-to four-family  residences as
well as  multi-family  and  commercial  real estate loans,  automobile and other
consumer loans. To a lesser extent, the Bank also originates a limited number of
construction and commercial  business loans. At March 31, 1999, the Bank's total
loan portfolio,  including  commercial paper,  totaled $324.1 million,  of which
$171.3 million,  or 52.8%, were one- to four-family  mortgage loans. At the same
date,  consumer loans (including  indirect and direct  automobile loans) totaled
$86.1 million,  or 26.6%,  multi-family and commercial real estate loans totaled
$31.9 million,  or 9.9%,  construction loans totaled $8.2 million,  or 2.5%, and
there  was $9.3  million  of  commercial  paper,  representing  2.9% of the loan
portfolio.  Other  business  loans  totaled  $17.3  million  or 5.3% of the loan
portfolio.

         The Bank also invests in mortgage-backed securities. At March 31, 1999,
mortgage-backed  securities,  net,  totaled  $54.8  million,  or  11.1% of total
assets. See "Investment Activities -- Mortgage-Backed Securities."

         Loan  applications  are initially  underwritten and approved at various
levels  of  authority,  depending  on  the  type  and  amount  of the  loan,  as
established by the Board of Directors.  Residential loans in excess of $350,000,
commercial  real estate loans in excess of $1,000,000  and  commercial  business
loans in excess of $1,000,000  require the approval of the Board of Directors or
the  Senior  Loan  Committee   consisting  of  three  Bank  officers  and  three
non-employee  directors.  All unsecured loans in excess of $250,000 are reviewed
by this committee.

         Prior to the enactment of the Financial Institutions Reform,  Recovery,
and Enforcement Act of 1989  ("FIRREA"),  the aggregate amount of loans that the
Bank was  permitted  to make under  applicable  federal  regulations  to any one
borrower,  including  related  entities,  or the aggregate  amount that the Bank
could  have  invested  in  any  one  real  estate  project,  was,  with  certain
exceptions,  limited to the lesser of 10% of the Bank's  deposits or 100% of its
regulatory capital.  Effective August 9, 1989, the Bank's  loans-to-one-borrower
limit was reduced in accordance with FIRREA,  generally to the greater of 15% of
unimpaired capital and surplus or $500,000.  See "Regulation  Federal Regulation
of Savings  Associations."  At March 31, 1999, the maximum amount which the Bank
could have lent to any one  borrower  and the  borrower's  related  entities was
approximately  $4.9  million.  At March  31,  1999,  the Bank had no loans  with
aggregate outstanding balances in excess of this amount.

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

                                        3
<PAGE>
         Portfolio  Composition.  The following table sets forth the composition
of the Bank's loan and mortgage-backed  securities  portfolios  (including loans
held for sale) in dollar amounts and in percentages at the dates indicated.



<TABLE>
<CAPTION>
                                                            1995                       1996                       1997
                                                             -----                      -----                      -----
                                                        Amount      Percent        Amount      Percent       Amount      Percent
                                                        ------      -------        ------      -------       ------      -------
<S>                                                   <C>             <C>         <C>             <C>      <C>            <C>
Real Estate Loans:
 One- to four-family...........................       $133,864        67.62%      $144,155        68.85%   $152,655       71.82%
 Multi-family..................................         15,712         7.94         11,823         5.65       8,041        3.78
 Commercial real estate........................          5,052         2.55          4,787         2.29       4,034        1.90
 Construction or development...................          2,406         1.22          2,700         1.29       1,888         .89
                                                      --------       ------       --------       ------    --------       -----
     Total real estate loans...................       $157,034        79.33       $163,465        78.08    $166,618       78.39
                                                     ---------       ------       --------       ------    --------      ------
Other Loans:
 Consumer Loans:
  Deposit account..............................          1,011         0.51          1,148         0.55         940         .44
  Automobile...................................         28,005        14.14         31,056        14.83      31,394       14.77
  Home improvement.............................          1,201         0.61          1,088         0.52       1,084         .51
  Retail mobile home loans.....................          1,984         1.00          1,595         0.76       1,240         .58
  Home equity and other........................          8,137         4.11          8,666         4.14      10,269        4.83
                                                      --------       ------       --------       ------    --------      ------
     Total consumer loans......................         40,338        20.37         43,553        20.80      44,927       21.13
 Commercial business loans.....................             96         0.05             57         0.03          52         .02
 Bankers' acceptances..........................            489         0.25            299         0.14         ---         ---
 Commercial paper..............................            ---       ---             1,997         0.95         979        .46
                                                      --------       ------       --------       ------    --------       -----
     Total other loans.........................         40,923        20.67         45,906        21.92      45,958       21.61
                                                      --------       ------       --------      -------    --------      ------
     Total loans...............................       $197,957       100.00%      $209,371       100.00%   $212,576      100.00%
                                                      ========       ======       ========       ======    ========      ======
Less:
 Loans in process..............................             62                      67                      (24)
 Deferred fees and discounts...................            319                        156                       284
 Allowance for losses..........................          2,093                      2,238                     2,126
                                                      --------                     ------                  --------
 Total loans ..................................       $195,483                   $206,910                  $210,190
                                                      ========                   ========                  ========

Mortgage-Backed Securities:
 FNMA..........................................        $16,684           21.61%   $21,286           22.62%  $31,793           31
 GNMA..........................................         35,692           46.24     31,949           33.96    27,160           26
 FHLMC.........................................         24,812           32.14     40,852           43.42    41,832           41
                                                      --------          ------     ------           -----  --------          ---
    Total mortgage-backed

      securities...............................         77,188          100.00%    94,087          100.00%  100,785          100
                                                                        ======                     ======                    ===

Net premiums and discounts.....................             55                         20                       448
                                                      --------                    -------                  --------

Net mortgage-backed securities.................        $77,243                    $94,107                  $101,233
                                                       =======                    =======                  ========
</TABLE>
<TABLE>
<CAPTION>
                                                               1998                      1999
                                                              ------                    -----
                                                         Amount      Percent        Amount      Percent
                                                         ------      -------        ------      -------
<S>                                                    <C>                <C>     <C>                <C>
Real Estate Loans:
 One- to four-family...........................        $158,750           69.67%  $171,250           52.84%
 Multi-family..................................           4,092            1.80      4,838            1.49
 Commercial real estate........................           4,795            2.10     27,060            8.35
 Construction or development...................           3,435            1.51      8,208            2.53
                                                       --------          ------   --------          ------
     Total real estate loans...................        $171,072           75.08   $211,356           65.21
                                                       --------           -----   --------           -----
Other Loans:
 Consumer Loans:
  Deposit account..............................             892            0.39        868             .27
  Automobile...................................          31,436           13.80     56,766           17.52
  Home improvement.............................             839            0.37        570             .18
  Retail mobile home loans.....................             935            0.41        724             .22
  Home equity and other........................           9,718            4.26     27,199            8.39
                                                        -------         ------- ----------          ------
     Total consumer loans......................          43,820           19.23     86,127           26.58
 Commercial business loans.....................           3,861            1.69     17,328            5.35
 Bankers' acceptances..........................             ---          ---           ---             ---
 Commercial paper..............................           9,116         4.00         9,275            2.86
                                                       --------          ------   --------          ------
     Total other loans.........................          56,797           24.92    112,730           34.79
                                                         ------           -----   --------         -------
     Total loans...............................        $227,869          100.00%  $324,086          100.00%
                                                       --------          ======   --------          ======
Less:
 Loans in process..............................              149                         52
 Deferred fees and discounts...................                 398                        310
 Allowance for losses..........................               1,973                     2 ,706
                                                            -------                -----------
 Total loans ..................................            $225,349                   $321,018
                                                           ========                   ========

Mortgage-Backed Securities:
 FNMA..........................................       .55%  $25,730           31.76%   $17,464           32.09%
 GNMA..........................................       .95    27,116           33.47     20,105           36.94
 FHLMC.........................................       .50    28,163           34.77     16,858           30.97
                                                      ---    ------         -------  ---------       ---------
    Total mortgage-backed                                    81,009                     54,427              00%
                                                                                                            ==
      securities...............................       .00%                   100.00%                    100.
                                                      ===                    ======                     ====

Net premiums and discounts.....................                 505                        422
                                                          ---------                    -------

Net mortgage-backed securities.................             $81,514                    $54,849
                                                            =======                    =======
</TABLE>
                                        4


<PAGE>
         The  following  table sets  forth the  composition  of the Bank's  loan
portfolio by fixed and adjustable rates at the dates indicated.
<TABLE>
<CAPTION>
                                                      1995                      1996                      1997
                                                     ------                    ------                    ------
                                                Amount     Percent       Amount      Percent        Amount      Percent
                                                ------     -------       ------      -------        ------      -------
<S>                                              <C>         <C>         <C>           <C>             <C>        <C>
Fixed-Rate Loans:
-----------------
 Real estate:
  One- to four-family.......................     $ 96,379    48.67%      $ 99,568      47.56%      $ 94,842    44.45%
  Multi-family..............................        7,029      3.55         3,271        1.56         2,687      1.26
  Commercial real estate....................        3,803      1.92         3,634        1.74         3,357      1.58
  Construction or development...............        2,392      1.21         2,686        1.28         1,855       .87
                                                  -------  -------        -------    -------        -------   -------
     Total real estate loans................      109,603    55.35        109,159      52.14        102,741     48.16

  Consumer..................................       38,343    19.37         43,405      20.73         44,450     20.91
  Commercial business.......................           74     0.04             57        0.03            52       .02
  Term federal funds........................          ---      ---            ---        ---            ---      ---
  Bankers' acceptances......................          489     0.25            299        0.14           ---      ---
  Commercial paper..........................          ---      ---          1,997        0.95           979      .46
                                                  -------  -------        -------    -------        -------   -------
     Total fixed-rate loans.................      148,509    75.01        154,917      73.99        148,222     69.55
                                                  -------  -------        -------    -------        -------   -------
Adjustable-Rate Loans:
 Real estate:
  One- to four-family.......................       37,485    18.94         44,588      21.30         57,813      27.36
  Multi-family..............................        8,683      4.39         8,552        4.08         5,354       2.52
  Commercial real estate....................        1,249      0.63         1,153        0.55           677        .32
  Construction or development...............           14      0.01            13        0.01            33        .02
                                                  -------  -------        -------    -------        -------   -------
     Total real estate loans................       43,431    23.97         54,306      25.94         63,877      30.22
 Consumer...................................        1,995      1.01           148        0.07           477        .23
 Commercial business........................           22      0.01           ---        --           ---         ---
                                                  -------  -------        -------    -------        -------   -------
     Total adjustable-rate
      loans.................................       49,448    24.99         54,454      26.01         64,354    30.45
                                                ----------   -----      ---------      -----      ---------    -----
     Total loans............................      197,957   100.00%       209,371    100.00%        212,576   100.00%
                                                            ======                   ======                   ======
Less:
 Loans in process...........................           62                      67                       (24)
 Deferred fees and discounts................          319                     156                       284
 Allowance for loan losses..................        2,093                   2,238                     2,126
                                                  -------                 -------                   -------
     Total loans and loans held for sale, net    $195,483                $206,910                  $210,190
                                                 ========                ========                  ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                        1998                     1999
                                                       ------                    -----
                                                 Amount     Percent         Amount    Percent
                                                 ------     -------         ------    -------
<S>                                                  <C>          <C>       <C>       <C>
Fixed-Rate Loans:
-----------------
 Real estate:
  One- to four-family.......................      $ 95,432     41.88%    $110,140      33.98%
  Multi-family..............................         2,346       1.03       3,396        1.05
  Commercial real estate....................         3,386       1.49      17,054        5.26
  Construction or development...............         3,423       1.50       8,196        2.53
                                                   -------    -------     -------     -------
     Total real estate loans................       104,587      45.90     138,786      42.82%

  Consumer..................................        42,324      18.57      76,132       23.49
  Commercial business.......................           581       0.25      17,203        5.31
  Term federal funds........................           ---        ---         ---         ---
  Bankers' acceptances......................           ---        ---         ---         ---
  Commercial paper..........................         9,116       4.00       9,275        2.87
                                                   -------    -------     -------     -------
     Total fixed-rate loans.................       156,608      68.72     241,396       74.49
                                                   -------    -------     -------     -------
Adjustable-Rate Loans:
 Real estate:
  One- to four-family.......................         63,318     27.79     61,110      18.86
  Multi-family..............................          1,746      0.77      1,442       0.44
  Commercial real estate....................          1,409      0.62     10,006       3.09
  Construction or development...............            12       ---          12        ---
                                                   -------    -------     -------     -------
     Total real estate loans................        66,485     29.18      72,570      22.39
 Consumer...................................         1,496      0.66       9,995       3.08
 Commercial business........................         3,280      1.44         125       0.04
                                                   -------    -------     -------     -------
     Total adjustable-rate
      loans.................................        71,261      31.28     82,690      25.51
                                                  --------     ------  ----------   ---------
     Total loans............................       227,869    100.00%    324,086     100.00%
                                                              ======                  ======
Less:
 Loans in process...........................           149                    52
 Deferred fees and discounts................           398                   310
 Allowance for loan losses..................         1,973                 2,706
                                                   -------                -------
     Total loans and loans held for sale, net     $225,349              $321,018
                                                  ========               ========
</TABLE>

                                        5
<PAGE>
            The  following  table sets forth the  maturities  of the Bank's loan
portfolio  (excluding  commercial  paper) at March  31,  1999.  Loans  that have
adjustable or  renegotiable  interest  rates are shown as maturing in the period
during  which the  contract  is due.  The  table  reflects  scheduled  principal
amortization,  but does not  reflect  possible  prepayments  or  enforcement  of
due-on-sale clauses.
<TABLE>
<CAPTION>
                                                             Real Estate
                                                             Multi-family
                                                                 and
                                                             Commercial                 Construction
                              One- to four-family            Real Estate               or Development
                            ----------------------      --------      ------       --------      ------
                                           Weighted                   Weighted                   Weighted
                                            Average                   Average                    Average
                             Amount          Rate        Amount        Rate         Amount        Rate
                            --------        ------      --------      ------       --------      ------
<S>                           <C>                 <C>   <C>                 <C>     <C>                <C>
                                                                                       (Dollars in Thousands)
  Due During Years
   Ending March 31,
2000(1)                       $   13,284          8.05% $     2,979         8.44%   $     6,761        8.04%
2001 to 2004                      16,156          7.09       11,384          7.64         1,230         8.83
2005 to 2009                      66,662          7.38        6,997          7.91           217         8.25
2010 to 2019                      68,863          7.18       10,539          7.80         - - -        - - -
2019 and following                 6,285          6.56        - - -         - - -         - - -        - - -
                                --------                -----------                 -----------
Total                           $171,250                $    31,898                 $     8,208
                                ========                ===========                 ===========
</TABLE>
<PAGE>




<TABLE>
<CAPTION>
                                                              Commercial
                                    Consumer                   Business                  Total
                             --------------------      ---------------------      -------------------
                                           Weighted                  Weighted                  Weighted
                                           Average                    Average                   Average
                              Amount        Rate        Amount         Rate        Amount        Rate
                             --------      ------      --------       ------      --------      -----
<S>                            <C>               <C>    <C>                 <C>    <C>               <C>
                               (Dollars in Thousands)
  Due During Years
   Ending March 31,
2000(1)                        $   13,849        8.20%  $     5,248         8.18%  $   42,121        8.14%
2001 to 2004                       59,968         8.72        7,603          6.69      96,341         8.16
2005 to 2009                        9,374         9.71        2,747          6.86      85,997         7.67
2010 to 2019                        2,865        10.56          798          5.94      83,065         7.36
2019 and following                     71         9.56          931          7.75       7,287         6.74
                               ----------                ----------                ----------
Total                          $   86,127                $   17,328                $  314,811
</TABLE>
                               ==========                ===
----------
(1) Includes demand loans, loans having no stated maturity and overdraft loans.

                                                                     6
<PAGE>
         At March 31,  1999,  the total amount of loans due after March 31, 1999
which had fixed  interest  rates was $241.4  million,  while the total amount of
loans due after such date which had floating or  adjustable  interest  rates was
$82.7 million.

         One- to Four-Family  Residential  Mortgage Lending.  The Bank's primary
lending activity consists of the origination of one- to four-family  residential
mortgage  loans  secured  primarily  by property  located in the Bank's  primary
market area.  At March 31, 1999,  the Bank had $171.2  million,  or 52.8% of its
loan portfolio invested in these loans.

         The Bank  presently  offers  fixed-rate  conventional  mortgage  loans,
Federal Housing Administration  ("FHA"),  Veterans  Administration ("VA") loans,
and ARM loans. During fiscal 1995, the Bank introduced a 10-year adjustable-rate
loan which features an initial  10-year  fixed-rate  that converts to a one-year
adjustable-rate  loan upon  expiration  of the initial  fixed-rate  period.  The
Bank's  origination  of  fixed-rate  mortgage  loans as compared to ARM loans is
determined on an on-going basis and is based on changes in market interest rates
and consumer  preference.  Many  borrowers  have selected  shorter-term  15-year
fixed-rate mortgages or ten-year adjustable rate loans recently.  Interest rates
charged on fixed-rate loans are  competitively  priced according to local market
conditions. The Bank's current policy is to sell all newly originated fixed-rate
loans  with  terms of more than 20 years,  as well as ARM loans  converted  to a
fixed rate with a remaining term to maturity in excess of 20 years,  and all FHA
and VA loans. See "- Originations,  Purchases,  Sales and Servicing of Loans and
Mortgage-Backed Securities."

         The  Bank  currently   makes   adjustable-rate,   one-  to  four-family
residential  mortgage  loans in amounts of up to 100% of the appraised  value or
selling  price of the  security  property,  whichever  is less.  For loans  with
loan-to-value  ratios of greater than 80%, the Bank typically  requires  private
mortgage  insurance to reduce the Bank's  exposure to 75% of the appraised value
or selling price of the security property.  Adjustable-rate loans generally have
interest rate adjustment  limitations consisting of 2% annual adjustments and 6%
lifetime  adjustments,  and are generally indexed to the weekly average yield of
U. S. Treasury securities adjusted to a constant maturity of one year.
<PAGE>
         The retention of ARM loans in the Bank's loan portfolio  helps the Bank
to manage its exposure to changes in the  interest  rates.  There are,  however,
unquantifiable  credit risks relating to such loans resulting from the potential
of  increased  costs  due to  changed  rates to be paid by the  customer.  It is
possible that during periods of rising  interest  rates,  the risk of default on
ARM loans may increase as a result of repricing and the  increased  costs to the
borrower.  Furthermore,  the ARM loans originated by the Bank generally provide,
as a marketing  incentive,  for initial rates of interest  below the rates which
would   apply   were  the   adjustment   index   used  for   pricing   initially
("discounting").  These  loans are  subject  to  increased  risk of  default  or
delinquency due to this discounting.  In addition,  although ARM loans allow the
Bank to increase the sensitivity of its asset base to changes in interest rates,
the extent of this  interest  rate  sensitivity  is limited by the  periodic and
lifetime  interest rate  adjustment  limits,  and by the ability of borrowers to
refinance their loans if they perceive that the interest rate they are paying is
too high.  Accordingly,  there can be no assurance that yields on ARM loans will
be sufficient to offset increases in the Bank's cost of funds.

         In underwriting  residential real estate loans, the Bank evaluates both
the borrower's  ability to make monthly  payments,  employment  history,  credit
history and the value of the property securing

                                        7
<PAGE>
the loan.  Potential borrowers are qualified for fixed-rate loans based upon the
initial or stated rate of the loan. Borrowers on one year adjustable-rate  loans
are currently  qualified at an 8% rate or the fully-indexed rate after one year,
whichever is higher.  Borrowers on other  adjustable-rate loans are qualified at
the note rate.

         An appraisal of the security property from  Board-approved  independent
fee appraisers is obtained prior to mortgage loan approvals.  In connection with
origination of residential real estate loans,  the Bank currently  requires that
the  borrower  obtain  title  insurance,  and fire,  flood (if  applicable)  and
casualty insurance to protect the Bank's interest.

         The Bank's residential  mortgage loans customarily  include due-on-sale
clauses  giving  the Bank the  right to  declare  the loan  immediately  due and
payable in the event,  among  other  things,  the  borrower  sells or  otherwise
disposes of the property subject to the mortgage and the loan is not repaid. The
Bank on occasion has enforced due-on-sale clauses in its mortgage contracts.

         From  1991 to 1993,  Permanent  Federal  increased  its  investment  in
mortgage-backed  securities,  while in fiscal 1994 and 1995,  the amount of such
securities  remained  relatively constant and again increased during fiscal 1996
and 1997.  Mortgage-backed securities decreased $19.7 million in 1998, and $26.7
million  in  fiscal  1999.  Although  such  securities  are  generally  held for
investment,  they can  serve  as  collateral  for  borrowings.  For  information
regarding the carrying and market values of Permanent Federal's  mortgage-backed
securities  portfolio,  see  Note  3 of  the  Notes  to  Consolidated  Financial
Statements   in  the  Annual   Report.   See  also   "Investment   Activities  -
Mortgage-Backed Securities."

         Consumer  Lending.  The Bank  considers  consumer  lending an  integral
component of its lending operations and has during the last fiscal year expanded
its consumer loan  portfolio  particularly  in the  automobile  and home lending
areas.  Consumer  loans  generally have shorter terms to maturity (thus reducing
Permanent Federal's exposure to changes in interest rates) and historically have
carried  higher  rates  of  interest  than do one-  to  four-family  residential
mortgage loans. In addition,  management  believes that the offering of consumer
loan products helps to expand and create stronger ties to its existing  customer
base  by  increasing  the  number  of  customer   relationships   and  providing
cross-marketing  opportunities.  At March 31,  1999,  the Bank's  consumer  loan
portfolio  totaled  $86.1  million,  or 26.6% of its loan  portfolio.  The chief
component  of such loans  consists  of  indirect  and direct  automobile  paper,
accounting for $56.8 million,  or 65.9%, of the consumer loan portfolio at March
31, 1999. Under  applicable  federal law, the Bank is authorized to invest up to
35% of its assets in consumer loans.

         Permanent Federal offers a variety of secured consumer loans, including
automobile,  boat,  home  equity,  home  improvement,  mobile home loans,  loans
secured by savings deposits and other consumer collateral.  The Bank also offers
a limited  amount of unsecured  loans.  The Bank generally  originates  consumer
loans in its market area.  Although it has not done so in recent years, the Bank
may also purchase  consumer loans,  generally  within its market area.  Consumer
loan terms vary according to the type of collateral and length of contract.  The
Bank's consumer loans generally have fixed rates of interest.

         The  Bank  is  actively   engaged  in  indirect  dealer   financing  of
automobiles.  Such  indirect  dealer  loans are  originated  through  automobile
dealers located in, or in counties contiguous to, the

                                        8
<PAGE>
Bank's market area and  underwritten  by the Bank's  lending staff in accordance
with the Bank's general standards for underwriting  consumer loans.  These loans
are originated at fixed interest rates and are typically for terms of up to five
years. At March 31, 1999, indirect dealer loans totaled $46.1 million, or 53.6%,
of the Bank's consumer loan portfolio.

         5 At March 31, 1999, $23.4 million of the Bank's consumer loans
consisted of home equity loans,  including home equity lines of credit. The home
equity loans are typically collateralized by second mortgages on owner-occupied,
single-family mortgage loans.

         The Bank has also purchased  loans secured by mobile homes.  Such loans
were originated  through a subsidiary of the Bank in association  with two other
savings  institutions.  The  subsidiary  created  pools of mobile  home loans it
originated,  and  Permanent  Federal and the other  participating  lenders  each
purchased  a  one-third  interest  in the  pools.  The Bank's  mobile  home loan
portfolio  as of  March  31,  1999  was  $724,000,  or .22% of the  Bank's  loan
portfolio.  Mobile  home  loans are  typically  made at higher  yields and for a
shorter maturity than one- to four-family residential mortgage loans. The Bank's
mobile home loans were  typically  made for terms of up to 15 years and all were
one-year  ARMs. At March 31, 1999,  $54,000,  or 7.5%, of the Bank's mobile home
loan portfolio was non-performing.

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

         Consumer  loans may  entail  greater  credit  risk than do  residential
mortgage loans,  particularly in the case of consumer loans which are unsecured,
such as checking  account  overdraft  privilege loans, or are secured by rapidly
depreciable assets, such as automobiles, mobile homes and recreational vehicles.
In such cases, any repossessed  collateral for a defaulted consumer loan may not
provide an adequate  source of  repayment of the  outstanding  loan balance as a
result of the greater likelihood of damage,  loss or depreciation.  In addition,
consumer loan collections are dependent on the borrower's  continuing  financial
stability  and  thus  are  more  likely  to  be  affected  by  adverse  personal
circumstances.  Furthermore,  the application of various federal and state laws,
including  bankruptcy  and  insolvency  laws,  may limit the amount which can be
recovered on such loans.

         Multi-Family and Commercial Real Estate Lending.  An increasing part of
the Bank's  portfolio  as a  percentage  of the total,  the Bank has  originated
multi-family  and  commercial  real estate  loans in its lending  area,  and has
purchased whole loan and  participation  interests in loans from other financial
institutions in Indiana,  and to a lesser extent, in Kentucky and Tennessee.  At
March 31,  1999,  the Bank had  multi-family  and  commercial  real estate loans
totaling $31.9 million, representing 9.8% of its loan portfolio.

         The  majority of the Bank's  multi-family  and  commercial  real estate
loans are secured by  apartment  buildings,  as well as other types of property,
including nursing homes, office buildings, hotels and shopping centers.

                                        9
<PAGE>
         The table  below sets  forth by type of  security  property  the Bank's
multi-family  and  commercial  real estate  (including  land) loans at March 31,
1999.
<TABLE>
<CAPTION>
                                                                                                      Amount of
                                                                                Outstanding        Non-Performing
                                                             Number of            Principal        or Of Concern
                                                               Loans              Balance              Loans
                                                               -----              -------              -----
                                                                           (Dollars in Thousands)

<S>                                                               <C>                 <C>             <C>
Apartment buildings....................................                    3          $      268      $       ---
Church.................................................                    6               2,628              ---
Small business facilities and office
  buildings............................................                   78              22,388              ---
Hotels                                                                     3               5,801              ---
Shopping centers.......................................                    2                 813              ---
                                                                  ----------           ---------     ------------

  Total commercial and multi-family
   real estate loans...................................                  92            $  31,898     $        ---
                                                                  ==========           =========     ============
</TABLE>
         At  March  31,  1999,  the  Bank  had a total  of 13  multi-family  and
commercial real estate loans with  outstanding  principal  balances in excess of
$1.0 million. Each of these loans was performing in accordance with its terms at
March 31, 1999.

         Multi-family  and commercial  real estate loans  originated by the Bank
generally  have terms ranging from 5 to 20 years and up to 30 year  amortization
schedules.  Rates on such loans generally  either (i) adjust  (subject,  in some
cases, to specified  interest rate caps) at one, three or five year intervals to
specified  spreads  over an  index,  (ii)  float  (subject,  in some  cases,  to
specified  interest  rate caps) with changes in a specified  prime rate or (iii)
carry fixed  rates.  Under the Bank's  current  loan  policy,  multi-family  and
commercial  real estate  loans (other than loans to  facilitate)  are written in
amounts of up to 80% of the appraised value of the properties.

         Appraisals on properties  securing  multi-family  and  commercial  real
estate  property  loans  originated by the Bank are performed by an  independent
appraiser  approved  by the  Bank  prior  to the  time  the  loan is  made.  All
appraisals on multi-family  and commercial real estate loans are reviewed by the
Bank's management.  In addition,  the Bank's underwriting  procedures  generally
require  verification  of the borrower's  credit  history,  income and financial
statements,  banking  relationships  and income  projections  for the  property.
Historically,  personal  guarantees  were not generally  obtained for the Bank's
multi-family  and  commercial  real estate  loans.  While the Bank  continues to
monitor  multi-family  and commercial real estate loans on a regular basis after
origination,  updated  appraisals are not normally obtained after closing unless
the Bank believes that there are questions regarding the progress of the loan or
the value of the collateral.

         Multi-family  and  commercial  real estate  loans  generally  present a
higher  level  of  credit  risk  than  loans  secured  by  one-  to  four-family
residences.  This  greater  risk  is  due  to  several  factors,  including  the
concentration  of  principal  in a limited  number of loans and  borrowers,  the
effect of general  economic  conditions on  income-producing  properties and the
increased  difficulty  of  evaluating  and  monitoring  these  types  of  loans.
Furthermore,  the repayment of loans secured by multi-family and commercial real
estate is typically dependent upon the successful  operation of the related real
estate  project.  If the cash flow from the project is reduced (for example,  if
leases are not
                                       10
<PAGE>
obtained or renewed,  or a bankruptcy  court  modifies a lease term,  or a major
tenant is unable to fulfill its lease  obligations),  the borrower's  ability to
repay the loan may be impaired.

         Construction or Development Lending. The Bank makes a limited number of
construction loans to individuals for the construction of their residences.  The
Bank generally  requires that the customer have a general  contractor.  The Bank
also  makes  loans  to  builders  for  presold  and  speculative   single-family
construction  purposes  and a limited  number  of  multi-family  and  commercial
construction  loans. At March 31, 1999, the Bank's  construction  loan portfolio
totaled  $8.2  million  (including  a  $155,000  loan  on a  low-income  housing
project),  or 2.5% of its total loan  portfolio.  As of that date,  all of these
loans were secured by property located within the Bank's market area.

         Construction loan terms to individuals are generally made under the ARM
program,  although at a rate higher  than that for a  permanent  ARM loan,  with
provisions  for  converting  to  a  fixed-rate   loan  upon  completion  of  the
construction.  Fixed-rate  loans for  construction  purposes  are  limited  to a
maximum term of 15 years.  During the  construction  phase,  the  borrower  pays
interest  only.  Residential   construction  loans  are  generally  underwritten
pursuant to the same guidelines used for originating permanent residential loans
except that the record of the builder is also considered.
<PAGE>
         Construction loans to builders are written for a term of 18 months at a
fixed  rate of  interest.  Construction  loans are  obtained  primarily  through
continued business from builders who have previously  borrowed from the Bank, as
well as referrals from existing  customers.  The application  process includes a
submission  of  accurate  plans,  specifications  and costs of the project to be
constructed.  These items are also used as a basis for determining the appraised
value of the  subject  property.  Loans are based on the  lesser of the  current
appraised value or the cost of construction  (land plus building).  From time to
time,  the Bank has lent  funds for the  development  and  subdivision  of lots,
although the Bank had no such loans in its portfolio at March 31, 1999.

         Commercial Business Lending.  Federally chartered savings institutions,
such as Permanent Federal, are authorized to make secured or unsecured loans and
issue letters of credit for  commercial,  corporate,  business and  agricultural
purposes and to engage in commercial leasing activities,  up to a maximum of 10%
of total assets.

         A small but increasing part of the Bank's loan portfolio,  at March 31,
1999,   Permanent  Federal  had  $17.3  million  in  commercial  business  loans
outstanding (representing 5.3% of the Bank's total loan portfolio). At March 31,
1999, Permanent Federal had $136,000 of standby letters of credit outstanding.

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

         The Bank originates real estate loans through  marketing  efforts,  the
Bank's  customer  base,  walk-in  customers  and  referrals  from  realtors  and
builders.  The Bank originates both  adjustable-rate  and fixed-rate  loans. Its
ability to originate  loans is dependent upon the relative demand for fixed-rate
or ARM loans in the origination market,  which is affected by the term structure
(short-term compared to long-term) of interest rates, as well as the current and
expected future level of interest rates and competition.

                                       11
<PAGE>
         During fiscal 1999,  the Bank  originated a total of $168.8  million in
loans.  Of the loans  originated  during the year,  $55.9  million  were one- to
four-family real estate loans,  $76.9 million were consumer loans, $27.7 million
were commercial loans, and $3.9 million were construction loans.

         The Bank's current policy is to sell all fixed-rate  conventional loans
that are originated or converted with terms of more than 15 years. Likewise, all
FHA and VA loans are sold,  irrespective  of term.  In contrast,  all ARM loans,
regardless of the term, are retained and other loans  (generally  non-conforming
loans) are also retained in the Bank's  portfolio.  Servicing is retained on all
loan sales,  except for FHA and VA mortgage loans.  During fiscal 1997, 1998 and
1999,  the Bank sold $1.0  million,  $5.1  million  and $12.7  million of loans,
respectively.

         With respect to the loans that the Bank sells,  it is the policy of the
Bank to sell  current  production  of such  loans as  quickly  as the  loans are
originated,  unless it is determined to temporarily  hold these loans until more
favorable rates are available. However, it is the Bank's policy that in no event
shall a loan  continue  to be held for sale if the price to be  received on that
loan drops below net 98 (98 cents on the dollar). In addition, the Bank's policy
provides  that any loan held for sale which bears a rate too high to sell in the
secondary market without having to accept a discounted  premium will continue to
be held until such time as market conditions allow the loan to be sold without a
premium discount.

         Government  loans are  committed  for sale with a private  investor the
same day an  application  is received.  The  requirements  for delivery are on a
"best effort"  basis,  providing that if for any reason the loan does not close,
there is no financial exposure to the Bank.

         The Board of Directors receives a monthly report identifying the number
and  dollar  amount of  mortgage  loans not sold  which  present  any  potential
interest rate risk exposure to the Bank. The report further  details the current
secondary  market buy rates and the  estimated  gain or loss at such rates.  The
Bank attempts to limit any interest rate risk exposure created by commitments to
make or sell loans by limiting  the number of days  between the  commitment  and
closing,  charging fees for commitments and managing the amount of its uncovered
commitments outstanding at any one time.

         The Bank occasionally  purchases loans and loan participations for one-
to four-family,  multi-family and commercial real estate loans. Such loans had a
carrying value of approximately $7.1 million, $5.5 million, and $14.3 million at
March 31, 1997, 1998 and 1999, respectively.

         During  the  past  three   fiscal   years,   the  Bank  has   purchased
mortgage-backed  securities in order to supplement loan demand.  In fiscal 1996,
the Bank  purchased  $30.2 million of  mortgage-backed  securities and purchased
$34.5  million  and $18.5  million of such  securities  in fiscal 1997 and 1998,
respectively.  In fiscal  1999,  the Bank  purchased  $20.9  million of mortgage
backed securities.  The mortgage-backed securities purchased generally had fixed
rates and maturities of up to 15 years and adjustable  rates up to 30 years. See
"Investment Activities."

         The Bank had commitments to make loans,  including  participations,  of
approximately   $1.6  million,   $4.9  million  and  $23.4  million   (excluding
undisbursed  portions  of loans in process)  at March 31,  1997,  1998 and 1999,
respectively. In addition, the Bank had approximately $104,000,

                                       12
<PAGE>
$100,000 and $106,000 in commitments  to sell loans at March 31, 1997,  1998 and
1999, respectively.

         The  amount of loans  serviced  by the Bank for  others  totaled  $34.3
million,  $32.5  million  and $36.3  million at March 31,  1997,  1998 and 1999,
respectively.

         The  Bank  generally  earns  servicing  fees  of 25  basis  points  for
servicing  loans for others.  For the years ended March 31, 1997,  1998 and 1999
such fees amounted to approximately $101,000, $84,000 and $82,000, respectively.

                                       13
<PAGE>
         The  following  table sets  forth the loan  origination,  purchase  and
repayment activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
                                                              1997         1998        1999
                                                          ------------ --------------------
<S>                                                            <C>          <C>         <C>
cOriginations by type:
  Real estate - one- to four-family.......................     $32,020      $39,373     $55,948
              - multi-family..............................         ---          ---         ---
              - commercial real estate....................         ---        3,144       4,308
              - construction..............................       6,070        3,634       3,943
  Non-real estate ........................................
                  -consumer...............................      24,647       24,829      76,933
                  -commercial business....................          16        5,192      27,676
                                                                ------       ------      ------
         Total loans originated ..........................      62,753       76,172     168,808
                                                                ------       ------      ------
Purchases:
  Real estate - one- to four-family.......................      $  ---       $  ---       $ ---
              - multi-family..............................         ---          ---         ---
              - commercial real estate....................         ---          ---         ---
              - construction..............................         ---          ---         ---
  Non-real estate - consumer..............................         ---          ---         ---
              - commercial business.......................         ---          ---         ---
              - commercial paper..........................      17,741       17,257      43,552
              - bankers' acceptances......................         ---           ---         ---
                                                                ------       ------      ------
         Total loans purchased............................      17,741       17,257      43,552
 Mortgage-backed securities...............................      34,491      18,485       20,919
                                                                ------       ------      ------
         Total purchases..................................      52,232       35,742      64,471
                                                                ------       ------      ------
Sales and Principal Repayments:
Sales:
Real estate - adjustable-rate one- to four-family......... $       ---  $        ---$        ---
   - fixed-rate one- to four-family.......................         962        5,078      12,721
              - multi-family..............................         ---          ---         ---
              - commercial real estate....................         ---          ---         ---
              - construction..............................         ---          ---         ---
  Non-real estate - consumer..............................         ---          ---         ---
        - commercial business.............................         ---          ---         ---
                                                                ------       ------      ------
         Total loans sold.................................         962        5,078      12,721
  Mortgage-backed securities..............................      11,143       15,083      18,223
                                                                ------       ------      ------
         Total sales......................................      12,105       20,161      30,944
Principal repayments......................................      91,807       97,399     187,707
                                                                ------       ------      ------
         Total reductions.................................     103,912      117,560     218,651
Increase (decrease) in other items, net...................         ---          ---         ---
                                                                ------       ------      ------
         Net increase (decrease)..........................     $11,073    $ (5,646)    $ 14,628
                                                                ======       ======    ========
</TABLE>
                                                        14
<PAGE>
  Asset Quality

         Loan  Monitoring  Procedures.  When a borrower fails to make a required
payment on a loan,  the Bank  attempts to cause the  delinquency  to be cured by
contacting  the borrower.  In the case of loans  secured by real estate,  a late
notice is sent 10 to 15 days after the scheduled payment date,  depending on the
type of loan, and a second notice is sent after 16 days. In the case of consumer
loans,  a late notice is sent five days after the  scheduled  payment date and a
second  notice is sent after ten days. If the  delinquency  is not cured by this
time, contact with the borrower is made by phone.  Additional written and verbal
contacts or meetings  with the borrower are made to the extent  necessary.  With
respect to mortgage  loans,  if the  delinquency is not cured by the 90th day, a
30-day default letter is sent and, once that period lapses,  appropriate  action
to  foreclose  on the property is  initiated.  Interest  income on loans at this
point is reduced by the full  amount of accrued  and  uncollected  interest.  If
foreclosed,  the property is sold at a sheriff's sale and typically is purchased
by the Bank. Delinquent consumer loans are handled in a similar manner. If these
efforts  fail to bring  the loan  current,  appropriate  action  may be taken to
collect any loan payment  that remains  delinquent.  The Bank's  procedures  for
repossession and sale of consumer collateral are subject to various requirements
under Indiana consumer protection laws.

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

         Prior to the  consummation of commercial  real estate loans,  financial
information on the project and its  principals are reviewed,  and appraisals are
obtained and reviewed.  Subsequent  balance sheets and operating  statements are
obtained  and  reviewed  on at least an annual  basis.  On loans  that  indicate
potential weaknesses, more frequent reviews are made.

         A  committee  of senior  officers  and  outside  directors  of the Bank
periodically reviews large loans (generally,  those unsecured loans in excess of
$250,000,  residential  real estate loans in excess of $350,000  and  commercial
credits  in  excess  of  $1,000,000).  The  committee  examines  the  borrower's
financial  statements and position,  prior loan  performance and any industry or
economic  trends which would  potentially  affect the  borrower's  operations or
collateral values.

         Appraisals  are obtained on  properties  that are  transferred  to real
estate  owned.  The  Bank  performs  periodic  fair  value   computations  using
methodology  consistent with that of an appraiser.  Appraisals are assigned only
to  qualified  appraisers  located  within or familiar  with the location of the
subject  property.  Net  realizable  value  calculations  are  performed  on all
properties  in either real estate owned or loans  classified  as  impaired.  The
result of these  calculations  may indicate a writedown of the asset or specific
reserve allowance.

         Classified Assets.  Federal  regulations provide for the classification
of loans and other assets, such as debt and equity securities  considered by the
OTS to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the

                                       15
<PAGE>
current  net worth and  paying  capacity  of the  obligor  or of the  collateral
pledged,  if  any.  "Substandard"  assets  include  those  characterized  by the
"distinct  possibility" that the insured institution will sustain "some loss" if
the deficiencies are not corrected.  Assets classified as "doubtful" have all of
the  weaknesses  inherent  in those  classified  "substandard,"  with the  added
characteristic  that the weaknesses  present make  "collection or liquidation in
full," on the basis of currently existing facts,  conditions and values, "highly
questionable and improbable."  Assets  classified as "loss" are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without the  establishment  of a specific loss reserve is not warranted.  Assets
which do not currently  expose the insured  institution  to  sufficient  risk to
warrant  classification  in one of the  aforementioned  categories  but  possess
weaknesses are required to be designated "special mention" by management.

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

         In connection with the filing of its periodic  reports with the OTS and
in accordance  with its  classification  of assets  policy,  the Bank  regularly
reviews  problem  loans and real  estate  acquired  through  foreclosure  in its
portfolio to determine whether such assets require  classification in accordance
with applicable  regulations.  Classified  assets of the Bank at March 31, 1999,
(without deduction for specific  valuation  allowances of $236,000) all of which
are included in the table of non-performing assets.
<TABLE>
<CAPTION>
                                                               At March 31,
                                                     1997          1998         1999
                                                              (In Thousands)
<S>                                                     <C>           <C>          <C>
Substandard (including real
 estate owned)...................................       $2,965        $1,372       $2,606
Doubtful.........................................           87           141          975
Loss.............................................          ---           ---          ---
                                                    ----------    ----------   ----------
     Total classified assets
      (including real estate
      owned).....................................       $3,052        $1,513      $3,581
                                                        ======        ======      ======
Special mention..................................       $4,587        $2,753      $4,633
                                                        ------        ------      ======
     Total classified assets                                                       $8,214
                                                                                   ======
      (including real estate
      owned) and special
      mention....................................       $7,639        $4,266
                                                        ======        ======
</TABLE>

         The specific reserves established with respect to classified assets are
included in the allowance for loan losses.

                                       16
<PAGE>
         Allowance for Loan Losses. The distribution of the Bank's allowance for
losses on loans at the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
                                                                                                         At March 31,
                                          1995                            1996                              1997
                              ----------------------------- --------------------------------- --------------------------------
                                               Percent                  Percent                          Percent
                                              of Loans                 of Loans                         of Loans
                                               in Each                  in Each                          in Each
                                              Category                 Category                         Category
                                              to Total                 to Total                         to Total
                                 Amount         Loans        Amount      Loans          Amount            Loans           Amount
                              ------------- ----------- --------------------------- --------------- ---------------- ---------------
<S>                            <C>            <C>      <C>             <C>         <C>                  <C>         <C>
One- to four-
 family......................  $       1      68.2%    $       90      69.4%       $      90            71.7%       $      ---
Multi-family.................        210        7.9           166        5.5             183              3.8              ---
Commercial real
 estate......................        ---        2.9           ---        2.4             ---              1.9              ---
Construction or
 development.................        ---        1.2           ---        1.3             ---              1.0              ---
Consumer.....................         18       19.7            50       20.3              68             21.1               50
Commercial business..........        107        0.1           ---        ---             ---               --              ---
Bankers' acceptances.........        ---         --           ---        0.1             ---               --              ---
Commercial paper.............        ---         --           ---        1.0             ---               .5              ---
Unallocated
  Consumer...................        382        N/A           456        N/A             454              N/A              520
  One- to four-family........        630        N/A           647        N/A             876              N/A              435
 Multi-family and
    commercial
    real estate..............        734        N/A           829        N/A             455              N/A              968
  Construction or
    development..............         11        N/A         ---          N/A             ---              N/A              ---
                                  ------      -----      --------      -----          ------            -----       ----------
     Total...................     $2,093    100.00%        $2,238    100.00%          $2,126          100.00%           $1,973
                                  ======    ======         ======    ======           ======          ======            ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                       1998                             1999
                              --------------------------- ------------------
                                    Percent                           Percent
                                   of Loans                          of Loans
                                    in Each                           in Each
                                   Category                          Category
                                   to Total                          to Total
                                     Loans           Amount            Loans
                              ------------- ---------------- -----------
<S>                                <C>        <C>                    <C>
One- to four-
 family......................      69.7%      $           3          52.8%
Multi-family.................        1.8              ---              1.5
Commercial real
 estate......................        2.1              ---              8.4
Construction or
 development.................        1.5              ---              2.5
Consumer.....................       19.2              256             26.6
Commercial business..........        1.7              ---              8.2
Bankers' acceptances.........         --              ---
Commercial paper.............        4.0              ---
Unallocated
  Consumer...................        N/A              997              N/A
  One- to four-family........        N/A              749              N/A
 Multi-family and
    commercial
    real estate..............        N/A              643              N/A
  Construction or
    development..............        N/A               58              N/A
                                   -----        ---------            -----
     Total...................    100.00%           $2,706          100.00%
                                 ======            ======          ======
</TABLE>
                                       17
<PAGE>
         The  distribution  of the allowance for loan losses is consistent  with
the Bank's accounting  policy.  See also "Lending  Activities - Multi-Family and
Commercial Real Estate Lending."

         Additional  information  concerning the quality of the Company's assets
and  allowance  for  loan  losses  is   incorporated   herein  by  reference  to
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" contained in the Annual Report.

Investment Activities

         General.  Permanent Federal must maintain minimum levels of investments
that qualify as liquid assets under OTS  regulations.  Liquidity may increase or
decrease  depending upon the  availability  of funds and  comparative  yields on
investments  in  relation  to the  return on loans.  Historically,  the Bank has
maintained liquid assets at levels above the minimum requirements imposed by the
OTS  regulations  and at levels  believed  adequate to meet the  requirements of
normal operations,  including  repayments of maturing debt and potential deposit
outflows.  Cash flow  projections  are regularly  reviewed and updated to assure
that adequate  liquidity is maintained.  At March 31, 1999, the Bank's liquidity
ratio (liquid assets as a percentage of net  withdrawable  savings  deposits and
current  borrowings)  was 40.5%.  See  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
in the Annual Report and "Regulation - Liquidity."

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

         Generally,  the investment  policy of the Bank is to invest funds among
various categories of investments and maturities based upon the Bank's liquidity
needs, asset/liability management policies, investment quality and marketability
and performance objectives.

         Securities.   At  March  31,  1999,   Permanent  Federal's   securities
(including mortgage-backed securities) totaled $124.2 million, or 14.1% of total
assets.  As of such date,  the Bank also had a $5.5 million  investment  in FHLB
stock, satisfying its requirement for membership in the FHLB of Indianapolis.

         OTS and accounting guidelines regarding investment portfolio accounting
require  institutions  to categorize  all securities and certain other assets as
"held to  maturity",  "available  for sale" or  "trading."  The  portion  of the
investment  portfolio  which is held  with the  intent  to hold to  maturity  is
accounted  for on an  amortized  cost basis.  Assets  which are  categorized  as
available for sale are carried at estimated  fair value.  At March 31, 1999, the
Company had $117.3  million in securities  "available for sale," $6.9 million of
securities  which  are  held  to  maturity,  and  no  securities  identified  as
"trading."  The  securities  available  for  sale  at  March  31,  1999  had net
unrealized  gains of $9,869.  At March 31, 1998,  the Bank had $168.3 million in
securities  available  for  sale,  $18.9  of  securities  classified  as held to
maturity and no securities identified as "trading." The securities available for
sale at March 31, 1998 had net unrealized gains of $372,373.

                                       18
<PAGE>
         The following table sets forth the composition of the Bank's securities
portfolio (including  securities held to maturity and available for sale) at the
dates indicated.
<TABLE>
<CAPTION>
                                                                        At March 31,
                                        -----------------------------------------------------------------------------
                                                        1997                      1998                   1999
                                        -----------------------------------------------------------------------------
                                                 Book        % of         Book         % of        Book          % of
                                                Value       Total        Value        Total       Value         Total
                                                                   (Dollars in Thousands)
Available for sale securities at fair value:
<S>                                           <C>           <C>       <C>             <C>       <C>             <C>
  U.S. government securities                  $ 7,009       3.66%     $  4,033        2.09%     $ - - -         - - - %
  Federal agency securities ............       78,171       40.79      100,972        52.43      62,478         48.18
  Mortgage backed securities............       74,052       38.64       62,652        32.53      54,811         42.27
  Municipal bonds & other...............       - - -        - - -          614         0.32       - - -         - - -
                                        -------------------------   ----------   -------------------------------------
     Subtotal...........................      159,232      83.09%      168,271       87.37%     117,289        90.45%

Held to maturity securities at amortized cost:
   Municipal bonds & other..............           25         0.1        - - -             - - -  6,920          5.34
   Mortgage backed securities...........       27,181       14.18       18,861        9.79%       - - -         - - -
   FHLB stock...........................        5,193        2.71        5,466         2.84       5,466          4.22
      Subtotal..........................       32,399    16.91          24,327     12.63         12,386          9.55
                                               ------   ---------       ------     --------      ------
         Total securities...............     $191,631    100.00%      $192,598      100.00%    $129,674   100.00%
                                             ========   =========     ========      =======    ========   =======

Other interest earning deposits with banks     $3,154   100.00%         $1,808     100.00%       $6,361   100.00%
                                               ======  ==========       ======     =======       ======   =======
</TABLE>
         The following table sets forth as of March 31, 1999 the composition and
maturities of the securities portfolio, excluding FHLB stock.

<TABLE>
<CAPTION>
                                                                  At March 31, 1999
                                        Less Than        1 to 5        Over 5               Total Investment
                                          1 Year         Years         Years                         Securities
                                        Fair Value     Fair Value    Fair Value       Fair Value   Amortized Cost
                                                                  (Dollars in Thousands)

<S>                                       <C>           <C>              <C>           <C>               <C>
Federal agency obligations..........      $1,965,000    $14,916,329      $45,596,667   $62,477,996       $62,947,099
Mortgage backed securities..........         123,859       2,858,532      51,828,699    54,811,090        54,332,118
State and local government
   obligations and other............       1,008,722                       5,618,513     6,627,235         6,919,793
                                         ----------- -------------------------------   -----------      ------------
Total investment securities.........      $3,097,581    $17,774,861     $103,043,879  $123,916,321      $124,199,010
                                          ==========    ===========     ============  ============      ============
</TABLE>

<PAGE>
         At March 31,  1999 the  Bank's  securities  portfolio  did not  contain
securities  of any issuer with an  aggregate  book value in excess of 10% of the
Bank's  retained  earnings,  excluding  securities  issued by the United  States
Government or its agencies.

         The Bank's securities portfolio is managed in accordance with a written
investment policy adopted by the Board of Directors.  Investments may be made by
authorized Bank officers within specified  limits.  See also Note 2 of the Notes
to Consolidated Financial Statements in the Annual Report.

         Mortgage-Backed Securities. The Bank has a portfolio of mortgage-backed
securities and has utilized such  investments to complement its mortgage lending
activities.  See "Lending  Activities -One-to Four-Family  Residential  Mortgage
Lending." At March 31, 1999, the Bank's mortgage-backed securities totaled $54.8
million.  At such  date,  the  mortgage-backed  securities  portfolio  consisted
entirely of securities  backed by loans insured or guaranteed by the  Government
National   Mortgage   Association   ("GNMA"),   the  Federal  National  Mortgage
Association ("FNMA")

                                                        19

<PAGE>



or the Federal Home Loan Mortgage Corporation ("FHLMC").  At March 31, 1999, the
Bank's  portfolio  consisted of $54.8 million  available for sale. At such date,
the portfolio had a weighted average interest rate of 6.33%.

         For  information  regarding the carrying and market values of Permanent
Federal's  mortgage-backed  securities  portfolio,  see  Note 2 of the  Notes to
Consolidated Financial Statements in the Annual Report.

         Under the OTS risk-based  capital  requirements,  GNMA  mortgage-backed
securities  have a zero  percent  risk  weighting  and FNMA,  FHLMC and AA-rated
mortgage-backed  securities  have a 20% risk  weighting,  in contrast to the 50%
risk weighting carried by one- to four-family  performing  residential  mortgage
loans.

Sources of Funds

         General. The Bank's primary sources of funds are deposits, amortization
and  repayment  of  loan  principal  and  interest  (including   mortgage-backed
securities), maturities of securities, mortgage-backed securities and short-term
investments, FHLB advances and funds provided from operations.

         Borrowings are used to compensate  for seasonal  reductions in deposits
or deposit  inflows  at less than  projected  levels,  to  purchase  investments
(including  mortgage-backed  securities) and to support lending  activities.  At
March 31, 1999, the Bank's borrowings  consisted of FHLB advances totaling $96.5
million. See Notes 6, 7 and 8 of the Notes to Consolidated  Financial Statements
in the Annual Report.
<PAGE>
         Deposits. Permanent Federal offers a variety of deposit accounts having
a wide  range of  interest  rates and  terms.  The  Bank's  deposits  consist of
passbook accounts, NOW, money market and other checking accounts and certificate
accounts. The Bank relies primarily on advertising, competitive pricing policies
and customer  service to attract and retain these  deposits.  Permanent  Federal
solicits  deposits  from its  market  area only and does not  solicit  or accept
brokered deposits.

         The flow of deposits is influenced  significantly  by general  economic
conditions,   changes  in  money  market  and  prevailing   interest  rates  and
competition.  The variety of deposit accounts offered by the Bank has allowed it
to be competitive in obtaining funds and to respond with  flexibility to changes
in  consumer  demand.  The  Bank  has  become  more  susceptible  to  short-term
fluctuations  in deposit  flows as  customers  have  become more  interest  rate
conscious.  The Bank  manages  the pricing of its  deposits in keeping  with its
asset/liability management and profitability objectives. The ability of the Bank
to attract and  maintain  certificates  of deposit,  and the rates paid on these
deposits,  has been and will  continue  to be  significantly  affected by market
conditions.  The Bank  believes  that the  recent  trends in  deposit  migration
represents an industry  phenomenon and are not unique to the Bank. The Bank will
continue to remain rate  competitive  on maturing  deposits  and to utilize FHLB
advances as a funding alternative when necessary. During fiscal years 1997, 1998
and 1999, the Bank experienced a net inflow as a result of branch  acquisitions.
The FHLB has  recently  introduced  several  new  advance  programs  that  offer
variable rates or amortizing principal amounts specifically tied to funding one-
to four-family residential loans. These advances have proven to be a less costly
funding source after  consideration of the cost of deposit insurance  associated
with traditional deposits.
                                       20
<PAGE>
         The following table sets forth the dollar amount of savings deposits in
the  various  types of  deposit  programs  offered  by the Bank for the  periods
indicated.
<TABLE>
<CAPTION>
                                                                   At March 31,
                                    ---------------------------------------------------------------------------
                                              1997                     1998                      1999
                                             ------                   ------                    -----
                                            Percent                   Percent                  Percent
                                       Amount     of Total      Amount      of Total      Amount     of Total
                                                                  (In Thousands)
<S>                                       <C>          <C>          <C>             <C>     <C>         <C>

Transactions and Savings Deposits:

Commercial Demand                         $  902       0.32%        $1,755          0.62%   $12,268     3.53%
Passbook Accounts (2.75-5.59%)            54,245       19.20        52,051         18.27     59,482    17.13
NOW Accounts (2.00-2.60%)                 24,046        8.51        22,468          7.89     30,889     8.89
Money Market Accounts (2.75-3.00%)        11,542        4.08        11,542          4.05     26,755     7.70
                                       ---------   ---------      --------      --------   -------- --------

Total Non-Certificates                    90,736      32.11         87,816         30.83    129,394    37.25
                                       ---------   ---------      --------      --------   -------- --------

Certificates:

 0.00 -  3.49%                               158        0.06            66          0.02         40      .01
 3.50 -  5.49%                            81,947       29.00        61,523         21.59    120,750    34.77
 5.50 -  7.49%                           104,618       37.02       130,864         45.93     92,404    26.60
 7.50 -  9.49%                             3,295        1.17         2,673          0.94      2,753      .80
                                       ---------   ---------      --------      --------   -------- --------

Total Certificates                       190,018       67.24       195,126         68.48    215,947    62.18
                                       ---------   ---------      --------      --------   -------- --------
Accrued Interest                           1,809         0.65        1,971          0.69      1,985      .57
                                       ---------   ---------      --------      --------   -------- --------
Total Deposits                          $282,563     100.00%      $284,913        100.00%  $347,326   100.00%
                                        ========   =========      ========      ========   ======== ========
</TABLE>
         The following table sets forth the savings flows at the Bank during the
periods indicated.
<TABLE>
<CAPTION>
                                                      Year Ended March 31,
                                            ----------------------------------------
                                              1997            1998          1999
                                            --------       ---------    ------------
                                                      (Dollars in Thousands)
<S>                                         <C>             <C>           <C>
Opening balance....                         $280,008        $280,753      $  282,942
Deposits...........                          566,909         585,093       1,097,472(1)
Withdrawals........                          575,977         592,939       1,046,582
Interest credited..                            9,813          10,035          11,509
                                            --------       ---------    ------------
Ending balance.....                         $280,753        $282,942       $ 345,341
                                            ========        ========       =========
Net increase.......                         $    745       $   2,189      $   62,399
                                            ========       =========      ==========
Percent increase..                              0.26%           0.78%          22.1 %
                                            ========      ==========      ==========
</TABLE>
       (1) includes $78,749 of deposits acquired in branch acquisition

                                       21
<PAGE>
         The following  table sets forth the rate and maturity  information  for
the Bank's certificates of deposit as of March 31, 1999.
<TABLE>
<CAPTION>
                                 0.00-         3.50-        5.50-         7.50-                     Percent
                                 3.49%         5.49%        7.49%         9.49%        Total       of Total
                                ------        ------       ------        ------       -------      --------
Certificate accounts maturing                            (Dollars in Thousands)
in quarter ending
<S>                                     <C>       <C>          <C>         <C>            <C>        <C>
June 30, 1999....................       40        21,764       17,370                     39,174     18.14%
September 30, 1999...............                 25,522       13,554            13       39,089      18.10
December 31, 1999................                 11,959        7,611             7       19,578       9.07
March 31, 2000...................                 13,061        6,914            45       20,020       9.27
June 30, 2000....................                 10,882        4,969                     15,851       7.34
September 30, 2000...............                 11,962        8,286                     20,248       9.38
December 31, 2000................                  4,043        2,948           204        7,195       3.33
March 31, 2001...................                  5,419        1,253         1,112        7,784       3.60
June 30, 2001....................                  4,520          785           567        5,871       2.72
September 30, 2001...............                  1,537          648           718        2,903       1.34
December 31, 2001................                    497          757            87        1,341       0.62
March 31, 2002...................                  1,099        1,876                      2,975       1.38
Thereafter.......................                  8,485       25,433                     33,918      15.71
                                 ---------       -------     --------    ----------     --------    -------
   Total.........................   $   40      $120,750     $ 92,404     $   2,753     $215,947    100.00%
                                   =======      ========     ========     =========     ========    ======
   Percent of total..............    0.02%       55.92 %       42.79%         1.27%     100.00 %
                                   ======     =========      =======       =======      =======
</TABLE>
         The following table indicates the amount of the Bank's  certificates of
deposit and public funds by time remaining until maturity as of March 31, 1999.
<TABLE>
<CAPTION>
                                                                           Maturity
                                                                 Over         Over
                                                  3 Months      3 to 6       6 to 12         Over
                                                   or Less      Months        Months       12 months       Total
                                                 ----------  ------------   ----------  --------------  ------------
                                                                          (In thousands)
<S>   <C>                                           <C>           <C>          <C>             <C>          <C>
Certificates of deposit less
 than $100,000..............................        $34,499       $35,451      $31,167         $84,538      $185,655

Certificates of deposit of
 $100,000 or more...........................          3,798         3,246        5,911          13,542        26,497

Public funds(1).............................            877           392        2,520               6         3,795
                                                 ----------  ------------   ----------  --------------  ------------
Total certificates of                               $39,174       $39,089      $39,598         $98,086      $215,947
                                                    =======      ========      =======        ========      ========
 deposit....................................
</TABLE>
---------------
      (1) Deposits from governmental and other public entities.

         Borrowings.  Although  deposits are the Bank's primary source of funds,
the Bank's  policy has been to utilize  borrowings  when they are a less  costly
source of funds or can be invested at a positive rate of return.

         Permanent  Federal may obtain  advances  from the FHLB of  Indianapolis
upon the  security of its FHLB capital  stock and certain of its mortgage  loans
and  mortgage-backed  securities.  Such advances may be made pursuant to several
different credit programs,  each of which has its own interest rate and range of
maturities.  At March 31, 1999 the Bank's FHLB advances  totaled $96.5  million.
See also Note 6 of the Notes to Consolidated  Financial Statements in the Annual
Report.

                                       22
<PAGE>
         The following table sets forth the Bank's maximum month-end balance and
average balance of FHLB advances and other borrowings for the periods indicated.
<TABLE>
<CAPTION>
                                                                   Year Ended March 31,
                                                           1997           1998            1999
                                                        -----------    -----------  --------------
                                                                   (In Thousands)
<S>                                                        <C>            <C>             <C>
Maximum Balance:
  FHLB advances....................................        $100,141       $107,778        $102,003
  Securities sold under agreements to repurchase...           2,945            445             ---
  FHLB overnight borrowings........................           1,710          3,201             ---
                                                        -----------    -----------  --------------
                                                           $104,796       $111,424        $102,003
                                                           ========       ========        ========
Average Balance:
  FHLB advances....................................        $ 92,604       $101,711         $94,462
  Securities sold under agreements to repurchase...           1,485            103              10
  FHLB overnight borrowings........................             208             30              19
                                                        -----------  -------------    ------------
                                                           $ 94,297       $101,844        $ 94,491
                                                           ========       ========        ========
</TABLE>
         The  following  table sets forth certain  information  as to the Bank's
FHLB advances and FHLB overnight borrowings at the dates indicated.
<TABLE>
<CAPTION>
                                                                  Year Ended March 31,
                                                            1997           1998         1999
                                                        -----------    -----------  --------------
                                                                     (In Thousands)
<S>                                                         <C>             <C>            <C>
FHLB advances........................................       $ 98,484        $ 99,353       $ 96,504
Securities sold under agreements to repurchase.......            607             ---            ---
FHLB overnight borrowings............................          1,187             ---            ---
                                                          ----------   -------------   ------------
     Total borrowings................................       $100,278        $ 99,353       $ 96,504
                                                            ========        ========       ========

Weighted average interest rate of FHLB advances......          5.64%           5.39%          5.10%

Weighted average interest rate of securities sold
 under agreements to repurchase......................          5.19%            ---%           ---%

Weighted average interest rate
 of FHLB overnight borrowings........................           ---%            ---%           ---%
</TABLE>
                                       23
<PAGE>
Service Corporation Activities

         Federal  associations  generally may invest up to 2% of their assets in
service corporations, plus an additional 1% of assets if for community purposes.
In  addition,  federal  associations  may  invest up to 50% of their  regulatory
capital in conforming loans to service  corporations in which they own more than
10% of the capital stock.  In addition to  investments in service  corporations,
federal  associations  are permitted to invest an unlimited  amount in operating
subsidiaries engaged solely in activities which a federal association may engage
in directly.

         Permanent Federal has one first-tier service corporation, Perma Service
Corp.  ("Perma  Service"),  located in  Evansville,  Indiana.  Perma Service has
approximately a 12.5% interest,  along with seven other financial  institutions,
in Family Financial Life Insurance Company ("FFLIC"),  which underwrites various
types of life and disability  insurance and annuity programs.  FFLIC reinsures a
majority  of the risk it  underwrites  with  other  insurers.  The Bank uses the
equity  method to account  for its  investment  and in fiscal  1990,  recognized
$89,400 in income from FFLIC.

         Perma Service also has one wholly owned subsidiary, Permanent Insurance
Agency  Inc.  ("PIAI"),  which  offers,  on an  agency  basis,  casualty,  life,
accident, health, mortgage,  disability, and consumer credit insurance. PIAI had
net income of $10,300 for the year ended March 31, 1999.

         Through Perma Service, the Bank also provides brokerage services, on an
agency basis, through INVESTTM.

Competition

         Permanent  Federal faces strong  competition,  both in originating real
estate and other loans and in attracting  deposits.  Competition  in originating
real estate loans comes  primarily  from  commercial  banks,  other  thrifts and
mortgage companies.  The Bank competes for loans principally on the basis of the
interest  rates and loan fees it charges,  the types of loans it originates  and
the quality of services it provides to borrowers.

         The  Bank  attracts  most of its  deposits  from  Vanderburgh,  Gibson,
Warrick,   Posey  and  Dubois  Counties.   Competition  for  those  deposits  is
principally  from  commercial  banks,  other  thrifts,  credit  unions and other
financial  intermediaries  doing business in the same community.  The ability of
the Bank to attract  and retain  deposits  depends on its  ability to provide an
investment  opportunity  that satisfies the requirements of investors as to rate
of  return,  liquidity,  risk and other  factors.  The Bank  competes  for these
deposits by  offering a variety of deposit  accounts  at  competitive  rates and
convenient business hours.

Regulation

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

                                       24
<PAGE>
holding companies is to protect subsidiary savings  associations.  The Bank is a
member of the Savings  Association  Insurance Fund (the "SAIF") and the deposits
of the Bank  are  insured  by the  FDIC.  As a  result,  the  FDIC  has  certain
regulatory and examination authority over the Bank.

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

         Federal  Regulation  of  Savings  Associations.  The OTS has  extensive
authority  over  the  operations  of  savings  associations.  As  part  of  this
authority,  the Bank is required to file  periodic  reports  with the OTS and is
subject to periodic  examinations  by the OTS and the FDIC. The last regular OTS
and FDIC examinations of Permanent Federal,  for which reports have been issued,
were as of December 1997 and April 1991,  respectively.  When these examinations
are  conducted by the OTS and the FDIC,  the  examiners  may require the Bank to
provide  for  higher   general  or  specific  loan  loss   reserves.   Financial
institutions  in various  regions of the United  States have been called upon by
examiners  to write down assets and to establish  increased  levels of reserves,
primarily as a result of perceived  weaknesses  in real estate values and a more
restrictive regulatory climate.

         All savings associations are subject to a semi-annual assessment, based
upon the savings  association's total assets, to fund the operations of the OTS.
Permanent  Federal's OTS assessment for the fiscal year ended March 31, 1999 was
$100,000.

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

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

         The Bank's general permissible lending limit for  loans-to-one-borrower
is equal to 15% of  unimpaired  capital  and  surplus  (except  for loans  fully
secured by certain readily  marketable  collateral,  in which case this limit is
increased to 25% of  unimpaired  capital and  surplus).  At March 31, 1999,  the
Bank's lending limit under this restriction was $4.9 million. At March 31, 1999,
the Bank had no loans in excess of this limit.  The Bank is in  compliance  with
the loans-to-one-borrower limitation.

         The OTS, as well as the other  federal  banking  agencies,  has adopted
guidelines  establishing  safety and soundness standards on matters such as loan
underwriting and  documentation,  asset quality,  earnings  standards,  internal
controls and audit systems, interest rate risk exposure and

                                       25
<PAGE>
compensation and other employee benefits.  Any institution which fails to comply
with these  standards must submit a compliance  plan. A failure to submit a plan
or to comply  with an approved  plan will  subject  the  institution  to further
enforcement action. The Bank has not been required to submit a compliance plan.

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

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

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

Legislative Action

         On September 30, 1996,  President  Clinton signed into law the Economic
Development  and  Regulatory  Paperwork  Reduction Act of 1996 (the "Act").  The
Act's  principal  provisions  relate to  recapitalization  of SAIF,  but it also
contains  numerous  regulatory  relief  measures,  some of  which  are  directly
applicable to the Bank.

         Pursuant  to the Act, as of January 1, 1997,  commercial  banks will be
required  to share in the  payment  of  interest  due on  Financial  Corporation
("FICO")  bonds used to rescue the  savings  and loan  industry  in the  1980's.
Annual FICO assessments to be added to deposit  insurance  premiums are expected
to equal  approximately  6.4 basis  points for SAIF members and 1.3 basis points
for  BIF  members  from  January  1,  1997  through   December  31,  1999,   and
approximately 2.4 basis points for both BIF and SAIF members thereafter.

                                       26
<PAGE>
         Although  this  provision of the Act  establishes  a time frame for the
eventual elimination of the thrift charter, it contains no provisions concerning
the form the current  thrift  charter  may be required to take.  The Bank cannot
determine  at this time  what  effect  this  provision  will  have on  financial
position or operations.

         Finally,  the Act contains several other provisions  designed to reduce
regulatory  burdens  associated with compliance with various  consumer and other
laws applicable to the Company,  including for example,  provisions  designed to
coordinate the disclosure and other requirements under the  Truth-in-Lending and
Real  Estate   Settlement   Procedures   Act,  modify  certain  insider  lending
restrictions,  permit OTS to allow  exemptions  to anti-tying  prohibitions  and
exempt  certain   transactions  and  simplify  certain   disclosures  under  the
Truth-in-Lending Act.

         In addition,  the United  States  Department  of the Treasury  recently
released a form of proposed legislation that would restructure the regulation of
the financial services industry, by among other things,  eliminating the various
restrictions  on the ability of banks to  affiliate  with  companies  engaged in
lines of business not generally  currently  permissible,  such as securities and
insurance activities. Although the Company believes that the form of legislation
currently  under  consideration  will not have a material  adverse effect on the
Company, the Company cannot determine, whether or in what form, such legislation
will eventually be enacted or its effect on the Bank.

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

         The capital  regulations  require  tangible capital of at least 1.5% of
adjusted total assets (as defined by  regulation).  Tangible  capital  generally
includes  common   stockholders'   equity  and  retained  income,   and  certain
noncumulative  perpetual  preferred stock and related income.  In addition,  all
intangible  assets,  other than a limited amount of purchased mortgage servicing
rights,  must be deducted from tangible capital for calculating  compliance with
the requirement. At March 31, 1999, the Bank had no purchased mortgage servicing
rights.

         The OTS regulations establish special  capitalization  requirements for
savings associations that own subsidiaries.  In determining  compliance with the
capital requirements,  all subsidiaries engaged solely in activities permissible
for national  banks or engaged in certain other  activities  solely as agent for
its customers are  "includable"  subsidiaries  that are consolidated for capital
purposes in proportion to the association's  level of ownership.  For excludable
subsidiaries the debt and equity  investments in such  subsidiaries are deducted
from assets and capital.  At March 31,  1999,  the Bank's  service  corporation,
Perma Service, was an includable subsidiary; however, Perma Service's investment
in FFLIC was not considered an includable investment and, accordingly,  the Bank
was required to deduct 100% of its  investment in FFLIC from  capital.  At March
31, 1999, the non- includable  portion of the Bank's investment in FFLIC totaled
$723,000. See also "Service Corporation Activities."

                                       27
<PAGE>
         At March 31, 1999, the Bank had core capital of $32.8 million, or 6.76%
of adjusted total assets, which is approximately $13.4 million above the minimum
requirement of 4% of adjusted total assets in effect on that date.

         The capital standards also require core capital equal to at least 4% of
adjusted  total  assets  (as  defined by  regulation).  Core  capital  generally
consists of tangible capital plus certain intangible assets, including a limited
amount  of  purchased  credit  card  relationships.  As a result  of the  prompt
corrective action provisions  discussed below,  however,  a savings  association
must maintain a core capital  ratio of at least 4% to be  considered  adequately
capitalized  unless its supervisory  condition is such to allow it to maintain a
3% ratio.  At March 31, 1999, the Bank had no intangibles  which were subject to
these tests.

         The OTS risk-based  requirement  requires savings  associations to have
total capital of at least 8% of risk-weighted  assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain  permanent  and  maturing  capital  instruments  that do not
qualify as core capital and general  valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets.

         Certain  exclusions from capital and assets are required to be made for
the purpose of calculating  total  capital.  Such  exclusions  consist of equity
investments  (as  defined  by  regulation)  and that  portion  of land loans and
nonresidential  construction  loans in excess of an 80% loan-to-value  ratio and
reciprocal holdings of qualifying capital instruments.  Other than goodwill, the
Bank's  only  exclusion  from  capital  and  assets  at March  31,  1999 was its
investment in FFLIC.

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

         OTS Regulations  also require that every savings  association with more
than normal  interest rate risk exposure to deduct from its total  capital,  for
purposes of determining compliance with such requirement, an amount equal to 50%
of its  interest-rate  risk  exposure  multiplied  by the  present  value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings  association,  greater  than 2% of the  present  value of its
assets,  based upon a  hypothetical  200 basis  point  increase  or  decrease in
interest rates (whichever results in a greater decline).  Net portfolio value is
the  present  value  of  expected  cash  flows  from  assets,   liabilities  and
off-balance  sheet  contracts.  The rule will not become effective until the OTS
evaluates the process by which savings  associations may appeal an interest rate
risk deduction determination.  It is uncertain as to when this evaluation may be
completed.  Any savings  association with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement  unless the
OTS determines otherwise.  Until the rule is finalized,  no determination can be
made of what, if any, impact this rule may have on the Bank.

                                     28
<PAGE>
         At March  31,  1999,  the  Bank  had  total  capital  of $34.3  million
(including  $32.8  million in core capital) and  risk-weighted  assets of $280.1
million (including $9.7 million in converted off- balance sheet assets) or total
capital of 12.2% of  risk-weighted  assets.  This amount was $11.9 million above
the 8% requirement in effect on that date.

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

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

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

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

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

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

                                       29
<PAGE>
         Generally,  savings  associations,  such as the  Subsidiary  Bank  that
before and after the proposed distribution meet their capital requirements,  may
make capital distributions during any calendar year equal to the greater of 100%
of net income for the year-to-date plus 50% of the amount by which the lesser of
the  association's  tangible,  core or  risk-based  capital  exceeds its capital
requirement  for such  capital  component,  as measured at the  beginning of the
calendar  year,  or 75% of their net income  for the most  recent  four  quarter
period.  However,  an  association  deemed  to be in need of  more  than  normal
supervision  by the OTS may have its dividend  authority  restricted by the OTS.
Permanent Federal may pay dividends in accordance with this general authority.

         Savings  associations  proposing to make any capital  distribution need
only  submit  written  notice  to the OTS 30 days  prior  to such  distribution.
Savings  associations  that do not,  or would  not meet  their  current  minimum
capital requirements  following a proposed capital  distribution,  however, must
obtain OTS approval prior to making such distribution. The OTS may object to the
distribution  during that 30-day  period  notice  based on safety and  soundness
concerns. See "- Regulatory Capital Requirements."

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

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

         Penalties may be imposed upon associations for violations of the liquid
asset ratio requirement.  At March 31, 1999, the Bank was in compliance with the
requirements, with an overall liquid asset ratio of 40.5%.

         Accounting.   An  OTS  policy  statement   applicable  to  all  savings
associations  clarifies and  reemphasizes  that the  investment  activities of a
savings   association  must  be  in  compliance  with  approved  and  documented
investment policies and strategies, and must be accounted for in accordance with
GAAP. Under the policy statement, management must support its classification of

                                      30
<PAGE>
and accounting for loans and securities (i.e., whether held for investment, sale
or trading) with appropriate documentation. The Bank is in compliance with these
amended rules.

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

         Qualified Thrift Lender Test. All savings  associations,  including the
Bank,  are  required to meet a qualified  thrift  lender  ("QTL")  test to avoid
certain  restrictions  on  their  operations.   This  test  requires  a  savings
association  to have  at  least  65% of its  portfolio  assets  (as  defined  by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. As an alternative,  the savings  association
may maintain 60% of its assets in those assets specified in Section  7701(a)(19)
of the Internal Revenue Code.  Under either test, such assets primarily  consist
of residential  housing  related loans and  investments.  At March 31, 1999, the
Bank met the test and has always met the test since it has been in effect.

         Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
BIF. If such an association  has not yet  requalified or converted to a national
bank, its new  investments  and activities are limited to those  permissible for
both a savings  association  and a national  bank, and it is limited to national
bank  branching  rights in its home  state.  In  addition,  the  association  is
immediately  ineligible  to receive  any new FHLB  borrowings  and is subject to
national  bank  limits for payment of  dividends.  If such  association  has not
requalified  or  converted  to a national  bank  within  three  years  after the
failure,  it must  divest  of all  investments  and  cease  all  activities  not
permissible  for a  national  bank.  In  addition,  it must repay  promptly  any
outstanding FHLB borrowings,  which may result in prepayment  penalties.  If any
association  that fails the QTL test is  controlled by a holding  company,  then
within one year after the failure,  the holding  company must register as a bank
holding  company  and  become  subject  to  all  restrictions  on  bank  holding
companies. See "- Holding Company Regulation."

Community Reinvestment Act

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

         The federal banking agencies,  including the OTS, have recently revised
the CRA  regulations  and  the  methodology  for  determining  an  institution's
compliance with the CRA. Due to the heightened  attention being given to the CRA
in the past few years, the Bank may be required to

                                       30
<PAGE>
devote  additional funds for investment and lending in its local community.  The
Bank was examined for CRA  compliance  in November 1997 and received a rating of
satisfactory.

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

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

         Holding Company  Regulation.  The Company is a unitary savings and loan
holding company subject to regulatory oversight by the OTS. As such, the Company
is  required  to  register  and  file  reports  with the OTS and is  subject  to
regulation  and  examination  by the OTS. In addition,  the OTS has  enforcement
authority over the Company and its non-savings  association  subsidiaries  which
also permits the OTS to restrict or prohibit  activities  that are determined to
be a serious risk to the subsidiary savings association.

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

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

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

         Federal Securities Law. The stock of the Company is registered with the
SEC under the Securities  Exchange Act of 1934, as amended (the "Exchange Act").
The Company is subject to the

                                       32
<PAGE>
information,   proxy  solicitation,   insider  trading  restrictions  and  other
requirements of the SEC under the Exchange Act.

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

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking  accounts).  At March 31, 1999,  the Bank was in compliance  with these
reserve  requirements.  The balances maintained to meet the reserve requirements
imposed  by  the  Federal  Reserve  Board  may  be  used  to  satisfy  liquidity
requirements that may be imposed by the OTS. See "- Liquidity."

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

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

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of  Indianapolis.  At March 31,  1999,  the Bank had $5.5  million  in FHLB
stock,  which was in compliance with this  requirement.  In past years, the Bank
has received substantial  dividends on its FHLB stock. Over the past five fiscal
years,  such dividends have averaged  approximately 8% and were 8.03% for fiscal
year ended March 31, 1999.  Under  federal law the FHLBs are required to provide
funds for the resolution of troubled  savings  associations and to contribute to
low- and  moderately  priced housing  programs  through direct loans or interest
subsidies  on  advances   targeted  for  community   investment   and  low-  and
moderate-income  housing projects.  These  contributions have affected adversely
the level of FHLB  dividends  paid and could  continue  to do so in the  future.
These contributions could also have an adverse effect on the value of FHLB stock
in the future. A reduction in value of Permanent Federal's FHLB stock may result
in a corresponding reduction in Permanent Federal's capital. For the fiscal year
ended March 31, 1999,  dividends  paid by the FHLB of  Indianapolis  to the Bank
totaled  $437,696,  which  constitute  a  $4,873  increase  over the  amount  of
dividends received in the fiscal year ended March 31, 1998.

                                       33
<PAGE>
Federal and State Taxation

         Savings  associations  such as the Bank that meet certain  definitional
tests relating to the composition of assets and other  conditions  prescribed by
the Internal  Revenue Code of 1986, as amended (the "Code"),  had been permitted
to establish  reserves for bad debts and to make annual additions  thereto which
could,  within  specified  formula limits,  be taken as a deduction in computing
taxable  income  for  federal  income tax  purposes.  The amount of the bad debt
reserve deduction for  "non-qualifying  loans" was computed under the experience
method.  The  amount of the bad debt  reserve  deduction  for  "qualifying  real
property  loans"  (generally  loans  secured by improved  real estate)  could be
computed under either the experience  method or the percentage of taxable income
method (based on an annual election).

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

         In August  1996,  legislation  was enacted  that  repealed  the reserve
method of accounting (including the percentage of taxable income method) used by
many  thrifts,  including  the Bank,  to  calculate  their bad debt  reserve for
federal income tax purposes. As a result, thrifts must recapture that portion of
the reserve  that  exceeds  the amount  that could have been under the  specific
charge-off method for post-1987 tax years. The legislation also requires thrifts
to account  for bad debts for federal  income tax  purposes on the same basis as
commercial  banks for tax years beginning after December 31, 1995. The recapture
will occur over a six-year  period,  the  commencement  of which will be delayed
until the first taxable year  beginning  after  December 31, 1997,  provided the
institution meets certain  residential lending  requirements.  The management of
the company does not believe that the legislation will have a material impact on
the Company or the Bank.

         In addition to the regular income tax, corporations,  including savings
associations  such as the Bank,  generally  are  subject  to a minimum  tax.  An
alternative  minimum tax is imposed at a minimum tax rate of 20% on  alternative
minimum  taxable  income,  which is the sum of a  corporation's  regular taxable
income (with certain  adjustments) and tax preference  items, less any available
exemption.  The alternative  minimum tax is imposed to the extent it exceeds the
corporation's  regular  income tax, and net operating  losses can offset no more
than 90% of alternative  minimum  taxable  income.  For taxable years  beginning
after 1986 and before 1996, corporations, including savings associations such as
the Bank, are also subject to an environmental  tax equal to 0.12% of the excess
of alternative  minimum taxable income for the taxable year (determined  without
regard to net operating losses and the deduction for the environmental tax) over
$2 million.

         To the extent earnings appropriated to a savings association's bad debt
reserves for  "qualifying  real property  loans" and deducted for federal income
tax purposes  exceed the allowable  amount of such reserves  computed  under the
experience method and to the extent of the association's  supplemental  reserves
for  losses on loans  ("Excess"),  such  Excess  may not,  without  adverse  tax
consequences,   be  utilized  for  the  payment  of  cash   dividends  or  other
distributions   to  a  shareholder   (including   distributions  on  redemption,
dissolution or  liquidation) or for any other purpose (except to absorb bad debt
losses).  As of March 31,  1999,  the  Bank's  Excess for tax  purposes  totaled
approximately $6 million.
                                       34
<PAGE>
         The  Bank and its  subsidiary  file  consolidated  federal  income  tax
returns on a fiscal  year basis  using the  accrual  method of  accounting.  The
Company  files  consolidated  federal  income tax returns  with the Bank and its
subsidiary.

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

         Indiana  Taxation.   Indiana  imposes  a  franchise  tax  on  financial
institutions  at the  rate of 8.5%  of  modified  federal  taxable  income.  The
modifications  to  federal  taxable  income  include  an add- back of  municipal
interest and state and local property taxes and bad debt  deductions are limited
to actual net  charge-offs.  The  franchise  tax is imposed on a combined  basis
including the Company, the Bank and its subsidiary.

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


Executive Officers of the Company and the Bank

         The  following  table  sets forth  certain  information  regarding  the
executive officers of the Company and the Bank who are not also directors.
<TABLE>
<CAPTION>

       Name                  Age            Positions Held with the Company and the Bank
       ----                  ---            --------------------------------------------
<S>                          <C>            <C>
George E. Orr                57             Senior Vice President of Bank

Seth P. Allen                40             Senior Vice President of Bank

Richard A. Condi             45             Vice President of Bank

Robert A. Cern               49             Chief Financial Officer and Secretary of the Company
                                                and Senior Vice President, Secretary/Treasurer and
                                                Chief Financial Officer of Bank

Glenna J. Kirsch             49             Vice President of Bank

Charles A. Becker, Sr.       52             Vice President of Bank
</TABLE>
         Officers  are elected  annually by the Board of  Directors of the Bank.
The business  experience of each executive officer who is not also a director is
set forth below.
                                       35
<PAGE>
         George  E.  Orr.  As  Senior  Vice  President,  Mr.  Orr  is  primarily
responsible  for the  planning  and  development  of the Bank's data  processing
operations and manages the Bank's checking and proof of deposit departments. Mr.
Orr joined the Bank in 1963 and was promoted to his current position in 1990.

         Seth P. Allen. Mr. Allen joined the Bank in January 1997 as Senior Vice
President  and  Commercial  Lending  Officer.  Mr.  Allen  served as Senior Vice
President and Senior Lending Officer at Nashoba Bank in Memphis,  Tennessee from
October 1994 to January 1997.  Prior to that,  Mr. Allen was Vice  President and
Commercial  Lending  Officer  at  Deposit  Guaranty  National  Bank in  Jackson,
Mississippi from January 1991 to October 1994.

         Richard A. Condi.  Mr. Condi is Vice President in charge of residential
mortgage  lending.  Mr.  Condi joined the Bank in 1979 and has served in various
capacities in the Bank's lending department before being promoted to his current
position in January 1991.

         Robert A.  Cern.  Mr.  Cern  joined  the  Company  in May 1999 as Chief
Financial  Officer  and  Secretary.  Mr.  Cern is also  Senior  Vice  President,
Secretary/Treasurer  and Chief Financial  Officer of the Bank.  Prior to joining
the Company,  Mr. Cern was an independent  financial  consultant.  From December
1995 to December 1996, Mr. Cern was Vice President and Chief  Financial  Officer
of Associated  Bank in Milwaukee,  Wisconsin.  Prior to this,  Mr. Cern was Vice
President of Marshall & Ilsey Corporation in Milwaukee, Wisconsin.

         Glenna  J.  Kirsch.  Ms.  Kirsch  joined  the Bank in 1980 and has held
several positions at the institution, including Training Officer from 1991 until
1992. In 1992, Ms. Kirsch was appointed Savings Officer and in 1995 was promoted
to Vice President.  Currently, Ms. Kirsch is in charge of Deposit Operations and
is  responsible  for  managing  checking,  savings  and  certificate  of deposit
processing for the Bank.

         Charles A. Becker,  Sr. From 1973-1991 Mr. Becker was  responsible  for
Retail  Banking at Peoples  Savings Bank in  Evansville,  Indiana as Senior Vice
President.  In 1991 Peoples  Savings  Bank was acquired by INB Banking  Company,
Indianapolis,  Indiana.  As Vice  President of Retail  Banking for the Southwest
Region his responsibilities continued to be in the areas of consumer lending and
branch banking. In 1994 NBD Bank, N.A., Detroit,  Michigan purchased INB and Mr.
Becker  continued in the same  capacity.  Mr.  Becker joined  Permanent  Federal
Savings Bank as Vice President,  Branch Administration in June 1998 as Permanent
acquired the four Evansville branch locations from NBD Bank, N.A.

Employees

         At  March  31,  1999,  the Bank  had a total  of 158  full-time  and 26
part-time employees.  The Bank's employees are not represented by any collective
bargaining group. Management considers its employee relations to be good.

                                       36
<PAGE>
Item 2. Properties

         The following table sets forth  information  concerning the main office
and each branch  office of the Bank at March 31, 1999.  At March 31,  1999,  the
Bank's premises,  office properties and equipment had an aggregate book value of
approximately $8.7 million.
<TABLE>
<CAPTION>
                                      Year     Owned or      Lease Expiration             Net Book
         Location                   Acquired    Leased            Date                      Value
         --------                   --------    ------            ----                      -----
<S>                                   <C>        <C>              <C>                     <C>
Main (Downtown) Office
----------------------
 101 Southeast Third Street           1963       Owned            N/A                     $2,986
 Evansville, Indiana

Branch Offices
--------------

 University Heights
 4615 University Drive                1988       Owned            N/A                         413
 Evansville, Indiana

 Town Center
 201 Diamond Avenue                   1981       Owned            N/A                          345
 Evansville, Indiana

 Green River Road
 123 South Green River Road           1978       Owned            N/A                          243
 Evansville, Indiana

 North Brook
 3820 First Avenue                    1978      Leased       November 2002                     74 (1)
 Evansville, Indiana

 West Franklin Street
 2131 West Franklin Street            1960       Owned            N/A                         102
 Evansville, Indiana

 Ross Center
 2521 Washington Avenue               1994       Owned            N/A                         721
 Evansville, Indiana

 Fort Branch
 810 East Locust Street               1987       Owned            N/A                         357
 Fort Branch, Indiana

 Jasper
 771 West Second Street               1991       Owned            N/A                         495
 Jasper, Indiana

 Newburgh
8533 Bell Oaks Drive                  1997       Owned            N/A                         818
 Newburgh, Indiana
</TABLE>
                                       36
<PAGE>
<TABLE>
<CAPTION>
                                                 Year     Owned or      Lease Expiration             Net Book
         Location                              Acquired    Leased            Date                      Value
         --------                              --------    ------            ----                      -----
                                                                                                   (In Thousands)
<S>                                             <C>        <C>              <C>                         <C>
 Oakland City
 410 West Morton Street                         1984       Owned            N/A                         230
 Oakland City, Indiana


Fourth Street Office
19 N.W 4th Street                               1998       Leased            December 2001               27
Evansville, Indiana


Bellemeade Office
4601 Bellemeade                                 1998       Owned             N/A                        567
Evansville, Indiana


Buena Vista Office
1010 W. Buena Vista                             1998       Leased            September 2013              36
Evansville, Indiana


St. Joe Office
530 N. St. Joseph Avenue                        1998       Owned             N/A                        406
Evansville, Indiana
</TABLE>

         (1) The Bank owns this branch's building and leases the land.

         The Bank maintains  depositor and borrower customer files on an on-line
basis with BISYS,  Inc. The net book value of the data  processing  and computer
equipment utilized by the Bank at March 31, 1999 was $479,000.

Item 3.  Legal Proceedings

         Permanent  Federal is involved as  plaintiff  or  defendant  in various
legal actions  arising in the normal course of its business.  While the ultimate
outcome of these  proceedings  cannot be  predicted  with  certainty,  it is the
opinion of management,  after consultation with counsel  representing  Permanent
Federal in the proceedings,  that the resolution of these proceedings should not
have a material effect on Permanent Federal's results of operations.

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

         No matter was  submitted  to a vote of  security  holders,  through the
solicitation of proxies or otherwise, during the quarter ended March 31, 1999.

                                       37
<PAGE>
                                     PART II
                                     -------

Item 5.  Market for the Registrant's Common Stock and Related
           Security Holder Matters

         Page 47 and 48 of the attached  1999 Annual Report to  Stockholders  is
herein incorporated by reference.


Item 6.  Selected Financial Data

         Pages 5 and 6 of the attached  1999 Annual  Report to  Stockholders  is
herein incorporated by reference.

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

         Pages 8 through 20 of the attached 1999 Annual  Report to  Stockholders
are herein incorporated by reference.


Item 8.  Financial Statements and Supplementary Data

         Page  7 and 21  through  46 of  the  attached  1999  Annual  Report  to
Stockholders are herein incorporated by reference.


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

         There has been no  Current  Report  on Form 8-K filed  within 24 months
prior to the date of the most recent financial  statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
                                       38
<PAGE>
                                    PART III

Item 10.  Directors and Executive Officers of the Registrant; Compliance with
          Section 16(a) of the Exchange Act

         Information  concerning  Directors of the  Registrant  is  incorporated
herein by reference from the  Corporation's  definitive  Proxy Statement for the
Annual Meeting of Stockholders scheduled to be held on July 27, 1999, except for
information  contained  under the  headings  "Compensation  Committee  Report on
Executive  Compensation" and "Stock Performance  Presentation",  a copy of which
will be filed  not later  than 120 days  after  the  close of the  fiscal  year.
Information  concerning the business experience of the executive officers of the
Company  and  the  Bank  contained  in Part I of this  10-K is  incorporated  by
reference herein.

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Companys' directors and executive officers,  and person who own moew than 10% of
a registered  class of the Company's  equity  securities,  to file with the SERC
initial reports of ownership and reports of changes in ownership of Common Sotkc
and other equity  securities  of the Company.  Officvers,  directors and greater
than 10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.

         To the Company's  knowledge,  based solely on a review of the copies of
such reports furnished to the company and written  representations that no other
reports were required,  during the fiscal year ended March 31, 1999, all Section
16(a) filing  requirements  applicable to its officers,  directors  amnd greater
than 10 percent  beneficial  owners were complied with except that Mr. Allen and
Ms. Kirsch inadvertently failed to timely file Form 4s to report one transaction
each.  Mr. Allen  reporeted his  transaction on a Form 4 dated June 5, 1998, and
Ms. Kirsch reported her transaction on a Form 4 dated June 4, 1998. In addition,
Mr.  Korb  failed to timely  file a Form 4 to report one  transaction.  Mr. Korb
reported the transaction on a Form 4 dated December 22, 1998.

Item 11.  Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference  from the  Corporation's  definitive  Proxy  Statement  for the Annual
Meeting  of  Stockholders  scheduled  to be held on July 27,  1999,  except  for
information  contained  under the  headings  "Compensation  Committee  Report on
Executive  Compensation" and "Stock Performance  Presentation",  a copy of which
will be filed not later than 120 days after the close of the fiscal year.

Item 12.  Security Ownership of Certain Beneficial Owners and
             Management

         Information  concerning security ownership of certain beneficial owners
and  management  is  incorporated  herein by  reference  from the  Corporation's
definitive  Proxy Statement for the Annual Meeting of Stockholders  scheduled to
be held on July 27, 1999,  except for  information  contained under the headings
"Compensation Committee Report on Executive Compensation" and "Stock Performance
Presentation",  a copy of which  will be filed not later than 120 days after the
close of the fiscal year.


Item 13.  Certain Relationships and Related Transactions

         Information   concerning  certain  relationships  and  transactions  is
incorporated  herein  by  reference  from  the  Corporation's  definitive  Proxy
Statement for the Annual  Meeting of  Stockholders  scheduled to be held on July
27, 1999,  except for  information  contained  under the headings  "Compensation
Committee   Report   on   Executive   Compensation"   and   "Stock   Performance
Presentation",  a copy of which  will be filed not later than 120 days after the
close of the fiscal year.
                                       39
<PAGE>
                                     PART IV
Item 14.  Exhibits, Financial Statement Schedules, and Reports on
                Form 8-K

         (a) (1)  Financial Statements:

         The following  information  appearing in the Registrant's Annual Report
to Shareholders  for the year ended March 31, 1999, is incorporated by reference
in this Form 10-K Annual Report as Exhibit 13.
<TABLE>
<CAPTION>
                                                                                                      Pages in
                                                                                                       Annual
               Annual Report Section                                                                   Report

<S>                                                                                                      <C>
Independent Auditors' Report..........................................................................   21
Consolidated Statements of Financial Condition
  at March 31, 1999 and 1998..........................................................................   22

Consolidated Statements of Income for the Years Ended
  March 31, 1999, 1998 and 1997.......................................................................   23

Consolidated Statements of Stockholders' Equity for the
  Years Ended March 31, 1999, 1998 and 1997...........................................................   24

Consolidated Statements of Cash Flows for Years Ended
  March 31, 1997, 1998 and 1999.....................................................................    25 - 26

Notes to Consolidated Financial Statements...........................................................   27 - 46

         (a) (2)  Financial Statement Schedules:

         All financial  statement schedules have been omitted as the information
is not required under the related instructions or is inapplicable.
</TABLE>
                                       41
<PAGE>
         (a) (3)  Exhibits:
                                                         Reference to Prior
   Regulation                                            Filing or Exhibit
   S-K Exhibit                                           Number Attached
     Number                  Document                        Hereto

       2      Plan of acquisition, reorganization,              None
              arrangement, liquidation or
              succession

       3 (i)  Articles of Incorporation                         *
       3 (ii) Bylaws                                            *

       4      Instruments defining the rights of                *
              security holders, including                    See also Exhibit 3
              indentures

       9      Voting trust agreement                            None

      10      Material contracts:

              (a) 1993 Stock Option and                         *
                    Incentive Plan

              (b) Recognition and Retention Plan                *

              (c) Employment Agreement with                     10(c)
                    Donald P. Weinzapfel dated
                    October 6, 1998

              (d) Director Deferred Compensation                **
                    Agreement

              (e) Employment Agreement with                     ***
                   Murray T. Brown

      11      Statement re computation of                       None
              per share earnings

      12      Statements re computation of                      Not required
              ratios

      13      Annual Report to security holders                 13

      16      Letter re change in certifying                    Not required
              accountant

      18      Letter re change in accounting                    None
              principles

      19      Previously unfiled documents                      None

      21      Subsidiaries of the registrant                    21

      22      Published report regarding matters                None
              submitted to vote of security holders

                                       42
<PAGE>
      23      Consents of experts and counsel                    23

      24      Power of Attorney                                  Not required

      27      Financial Data Schedule                            Not required

      28      Information from reports                           Not required
              furnished to state insurance
              regulatory authorities

      99      Additional Exhibits                                Not applicable

         *Filed as exhibits to the Company's  Registration Statement on Form S-1
under  the  Securities  Act of 1933,  filed  with the  Securities  and  Exchange
Commission  on  December  23,  1993  (Registration  No.  33-73394).  All of such
previously  filed  documents  are hereby  incorporated  herein by  reference  in
accordance with Item 601 of Regulation S-K.

         **Filed as Exhibit  10(d) to the  Company's  Annual Report on Form 10-K
under the Securities Exchange Act
of 1934 on June 29, 1995 (File No. 0-23370).

         ***Filed as Exhibit 10(e) to the Company's Annual Report on   Form 10-K
under the Securities Exchange Act of 1934 on June 27, 1996 (File No. 0-23370)


         (b)  Reports on Form 8-K:

         No reports on Form 8-K were filed  during the three month  period ended
         March 31, 1999.

                                       43
<PAGE>
                                   SIGNATURES

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

                                                        PERMANENT BANCORP, INC.


Date:    June 29, 1999
By: /s/ Donald P. Weinzapfel
----------------------------
                                                         Donald P. Weinzapfel
                                                (Duly Authorized Representative)


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


By: /s/ Donald P. Weinzapfel              By: /s/ John R. Stone
     ----------------------------             ----------------------------
           Donald P. Weinzapfel               John R. Stone, Director
           Chairman of the Board              Date:    June 29, 1999
              and Chief Executive Officer
              (Principal Executive Officer)
Date:    June 29, 1999

By: /s/ Daniel F. Korb                    By: /s/ Daniel L. Schenk
     ----------------------------             ----------------------------

       Daniel F. Korb, Director                  Daniel L. Schenk, Director
     ----------------------------             ----------------------------

Date:    June 29, 1999                    Date:    June 29, 1999
     ----------------------------              -----------------

By: /s/ Murray J. Brown                   By: /s/ Jack H. Kinkel
     ----------------------------             ----------------------------
       Murray J. Brown, Director                 Jack H. Kinkel, Director
Date:    June 29, 1999                    Date:    June 29, 1999
     ----------------------------              -----------------

By: /s/ James D. Butterfield              By: /s/ James W. Vogel
     ----------------------------             ----------------------------
       James D. Butterfield, Director            James W. Vogel, Director
Date:    June 29, 1999                    Date:    June 29, 1999
     ----------------------------              -----------------

By: /s/ James A. McCarty, Jr.             By: /s/ Robert L. Northerner
     ----------------------------             ----------------------------
        James A. McCarty, Jr., Director          Robert L. Northerner, Director
Date:   June 29, 1999                     Date:   June 29, 1999
     ----------------------------              ----------------

                                          By: /s/ Robert A. Cern
                                              ----------------------------
                                                 Robert A. Cern, Chief Financial
                                                    Officer (Principal Financial
                                                     and Accounting Officer)
                                          Date:    June 29, 1999


                                       43