SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB

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

                  For the fiscal year ended December 31, 1998

                                       OR

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

                  For the transition period from _______ to _______

                         Commission file number 0-23182

                               AMB FINANCIAL CORP.
        (Exact Name of Small Business Issuer as Specified in its Charter)

                    Delaware                                35-1905382
         (State or other jurisdiction of                  (I.R.S. Employer
         incorporation or organization)                  Identification No.)

8230 Hohman Avenue, Munster, Indiana                          46321-1578
     (Address of principal executive offices)                  (Zip Code)

Issuer's telephone number, including area code: (219) 836-5870

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

                                      None

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

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

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

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

         The Issuer had $7.9 million in gross income for the year ended December
31, 1998.

         The aggregate  market value of the voting stock held by  non-affiliates
of the  Registrant,  computed by  reference  to the average of the bid and asked
price of such stock as of December  31, 1998 was $7.7  million.  (The  exclusion
from such amount of the market value of the shares owned by any person shall not
be deemed an admission by the Registrant that such person is an affiliate of the
Registrant.)
<PAGE>
                       DOCUMENTS INCORPORATED BY REFERENCE

         PARTS II and IV of Form  10-KSB--1998  Annual  Report to  Stockholders.
         PART III of Form 10-KSB--Proxy Statement for the 1999 Annual Meeting of
         Stockholders.


                                        1
<PAGE>
                                     PART I

Item  1. Description of Business
--------------------------------

General

         AMB Financial  Corp.  (the  "Company"),  was formed in 1993 by American
Savings, FSB (the "Bank") under the laws of Delaware for the purpose of becoming
a savings and loan holding company. The Bank, headquartered in Munster, Indiana,
was founded in 1957 as a  federally  chartered  institution.  Its  deposits  are
insured up to applicable  limits by the FDIC. In March 1996,  the Bank converted
to the stock form of  organization  through the sale and  issuance of  1,124,125
shares of its common stock to the Company. The principal asset of the Company is
the  outstanding  stock of the Bank,  its wholly owned  subsidiary.  The Company
presently  has no separate  operations  and its  business  consists  only of the
business of the Bank. All references to the Company, unless otherwise indicated,
at or before March 29, 1996 refer to the Bank.

         The Bank has been,  and intends to  continue  to be, a  community-based
financial  institution that offers a variety of selected  financial  services to
meet the needs of the community it serves.  The Bank attracts  deposits from the
general  public  and  uses  such  deposits  to  originate  and  purchase  one-to
four-family  residential  mortgage  and,  to a lesser  extent,  non-residential,
multi-family real estate, commercial business, consumer and land loans. The Bank
also invests in mortgage-backed  securities,  investment  securities  consisting
primarily of U.S. government  obligations and various types of short-term liquid
assets. See "--Lending Activities" and "--Investment Activities."

         The Bank serves the financial needs of families and local businesses in
its primary market area, northwest Lake County, Indiana, through its main office
located in Munster, Indiana and two branch offices located in the communities of
Dyer and Hammond,  Indiana.  Its deposits are insured up to applicable limits by
the Federal Deposit Insurance  Corporation  ("FDIC").  At December 31, 1998, the
Company  had total  assets of $116.9  million,  deposits  of $79.0  million  and
stockholders' equity of $13.4 million (or 11.47% of total assets).

         The executive  office of the Company is located at 8230 Hohman  Avenue,
Munster,  Indiana  46321-1578 and its telephone  number at that address is (219)
836-5870.

Lending Activities

         General. The principal lending activity of the Bank is originating and,
to a lesser extent, purchasing for its portfolio first mortgage loans secured by
owner-occupied one- to four-family residential properties located in its primary
market  areas.  In addition,  in order to increase the yield and/or the interest
rate  sensitivity  of its portfolio  and in order to provide more  comprehensive
financial  services to families and community  businesses in the Bank's  primary
market area, the Bank also originates and purchases non-residential real estate,
multi-family, commercial business, consumer and land loans.



                                        2
<PAGE>
Loan Portfolio Composition

         The following table sets forth  information  concerning the composition
of the Bank's  loan  portfolio  in dollar  amounts  and in  percentages  (before
deductions for loans in process,  deferred fees and discounts and allowances for
losses) as of the dates indicated.
<TABLE>
<CAPTION>
                                                                                 December 31,
                                                1998                     1997                    1996                   1995        
                                         -------------------      ------------------     --------------------    ----------------- 
                                         Amount      Percent      Amount     Percent     Amount       Percent    Amount    Percent  
                                         ------      -------      ------     -------     ------       -------    ------    -------  
                                                                         (Dollars in Thousands)
<S>                                     <C>            <C>       <C>           <C>       <C>            <C>      <C>          <C>   
Real Estate Loans:
 One- to four-family.................   $63,369        69.69%    $51,567       64.71%    $43,669        63.41%   $38,056      68.60%
 Multi-family........................     2,446         2.69       4,010        5.03       3,259         4.73      3,419       6.16 
 Non-residential.....................    10,370        11.40       8,376       10.51       8,806        12.79      4,146       7.47 
 Construction........................     2,522         2.77       4,450        5.59       4,406         6.40      3,194       5.76 
 Land................................     1,227         1.35       1,264        1.59         217          .32        223       .40  
                                        -------        -----     -------       -----     -------        -----    -------      ----- 
     Total real estate loans.........    79,934        87.90      69,667       87.43      60,357        87.65     49,038     88.39  
                                        -------        -----     -------       -----     -------        -----    -------      ----- 

Other Loans:
 Consumer Loans:
  Deposit account....................       172          .19         165         .21         185          .27        223        .40 
  Credit Card........................       414          .46         405       .51           430          .63        368        .67 
  Home improvement...................        10          .01          11         .01          15          .01         12        .01 
  Line of credit.....................     3,552         3.91       3,259        4.09       2,968         4.31      2,745       4.96 
  Other .............................     1,244         1.37       1,264        1.58       1,391         2.02        673      1.21  
                                        -------        -----     -------       -----     -------        -----    -------      ----- 
     Total consumer loans............     5,392         5.93       5,104        6.40       4,989         7.24      4,021      7.25  
                                        -------        -----     -------       -----     -------        -----    -------      ----- 
 Commercial business loans...........     5,607         6.17       4,916        6.17       3,519         5.11      2,420      4.36  
                                        -------        -----     -------       -----     -------        -----    -------      ----- 

     Total loans receivable..........    90,933       100.00%     79,687      100.00%     68,865       100.00%    55,479    100.00% 
                                                      ======                  ======                  =======               ======  

Less:
 Loans in process....................       569                    1,975                     910                     268            
 Deferred fees and discounts.........        95                      209                     234                     213            
 Allowance for losses................       507                      410                     355                     359            
                                        -------                  -------                 -------                 -------     
 Total loans receivable, net.........   $89,762                  $77,093                 $67,366                 $54,639            
                                        =======                  =======                 =======                 =======            

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                        1994         
                                                -----------------------   
                                                Amount          Percent  
                                                ------          -------  
<S>                                             <C>                <C>     
Real Estate Loans:                    
 One- to four-family.................           $37,050            69.02%     
 Multi-family........................             3,445             6.42      
 Non-residential.....................             3,971             7.40      
 Construction........................             3,580             6.67      
 Land................................               736             1.37      
                                                -------            -----      
     Total real estate loans.........            48,782            90.88      
                                                -------            -----      
                                                                              
Other Loans:                                                                  
 Consumer Loans:                                                              
  Deposit account....................               263              .49      
  Credit Card........................               316              .59      
  Home improvement...................                21              .04      
  Line of credit.....................             2,873             5.35      
  Other .............................               513              .96      
                                                -------            -----      
     Total consumer loans............             3,986             7.43      
                                                -------            -----      
 Commercial business loans...........               905             1.69      
                                                -------            -----      
                                                                              
     Total loans receivable..........            53,673           100.00%     
                                                                  ======      
                                                                              
Less:                                                                         
 Loans in process....................             1,245                       
 Deferred fees and discounts.........               248                       
 Allowance for losses................               331                       
                                                -------                 
 Total loans receivable, net.........           $51,849                       
                                                =======                       
</TABLE>
 
                                        3

<PAGE>
         The following table shows the composition of the Bank's loan portfolios
by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
                                                                               December 31, 1998   
                                               1998                     1997                    1996                   1995        
                                         -------------------      ------------------     --------------------    ----------------- 
                                         Amount      Percent      Amount     Percent     Amount       Percent    Amount    Percent  
                                         ------      -------      ------     -------     ------       -------    ------    -------  
                                                                         (Dollars in Thousands)
<S>                                     <C>            <C>       <C>           <C>       <C>            <C>      <C>        <C>   
Fixed-Rate Loans:
 Real estate:
  One- to four-family...............    $39,243         43.16%   $38,967        48.90%   $33,248         48.28%  $30,512     55.00% 
  Multi-family......................        688           .76      1,847         2.32      1,999          2.90     2,102      3.79  
  Non-residential...................      2,685          2.95      3,364         4.22      2,917          4.24     2,021      3.64  
  Construction......................      1,242          1.37      2,893         3.63        ---           ---       ---       ---  
  Land..............................        338           .37        211          .27        ---           ---       ---       ---  
                                        -------        ------    -------       ------   --------        ------   --------    ------ 
     Total real estate loans........     44,196         48.60     47,282        59.34     38,164         55.42     34,635     62.43 
                                         -------        ------    -------       ------   --------        ------   --------    ------
 Consumer...........................      1,840          2.02      1,845         2.31      1,588          2.31      1,272      2.29 
 Commercial business................      5,026          5.53      3,828         4.80      3,252          4.72      2,089      3.76 
                                        -------        ------    -------       ------   --------        ------   --------    ------ 
     Total fixed-rate loans.........     51,062         56.15     52,955        66.45     43,004         62.45     37,996     68.48 
                                        -------        ------    -------       ------   --------        ------   --------    ------ 

Adjustable-Rate Loans:
 Real estate:
  One- to four-family...............     24,126         26.53     12,600        15.81     10,421         15.13      7,544     13.60 
  Multi-family......................      1,758          1.93      2,163         2.71      1,260          1.83      1,317      2.37 
  Non-residential...................      7,685          8.45      5,012         6.29      5,889          8.55      2,125      3.83 
  Construction......................      1,280          1.41      1,557         1.96      4,406          6.40      3,194      5.76 
  Land .............................        889           .98      1,053         1.32        217           .32        223       .40 
                                        -------        ------    -------       ------   --------        ------   --------    ------ 
     Total real estate loans........     35,738         39.30     22,385        28.09     22,193         32.23     14,403     25.96 
                                        -------        ------    -------       ------   --------        ------   --------    ------ 
 Consumer...........................      3,552          3.91      3,259         4.09      3,401          4.93      2,749      4.96 
 Commercial business................        581           .64      1,088         1.37        267           .39        331       .60 
                                         -------        ------    -------       ------   --------        ------   --------    ------
     Total adjustable-rate loans....     39,871         43.85     26,732        33.55     25,861         37.55     17,483     31.52 
                                        -------        ------    -------       ------   --------        ------   --------    ------ 

     Total loans receivable.........     90,933        100.00%    79,687       100.00%    68,865        100.00%   55,479     100.00%
                                                       ======                  ======                   =======              ====== 

Less:
 Loans in process...................        569                    1,975                     910                     268            
 Deferred fees and discounts........         95                      209                     234                     213            
 Allowance for loan losses..........        507                      410                     355                     359            
                                       --------                 --------                --------               ---------            
    Total loans receivable, net.....    $89,762                  $77,093                 $67,366                 $54,639            
                                        =======                  =======                 =======                 =======            

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                          1994         
                                                -----------------------   
                                                Amount          Percent  
                                                ------          -------  
<S>                                           <C>               <C>   
Fixed-Rate Loans:                    
 Real estate:                        
  One- to four-family...............          $30,657            57.12%     
  Multi-family......................            2,220             4.14      
  Non-residential...................            2,168             4.04      
  Construction......................              ---              ---       
  Land..............................              ---              ---       
                                              -------            ------      
     Total real estate loans........            35,045            65.30     
                                              --------           ------     
 Consumer...........................             1,108             2.06     
 Commercial business................               644             1.20     
                                              --------          -------     
     Total fixed-rate loans.........            36,797            68.56     
                                              --------          -------     
                                                                            
Adjustable-Rate Loans:                                                      
 Real estate:                                                               
  One- to four-family...............             6,393            11.91     
  Multi-family......................             1,225             2.28     
  Non-residential...................             1,803             3.36     
  Construction......................             3,580             6.67     
  Land .............................               736             1.37     
                                              --------          --------     
     Total real estate loans........            13,737            25.59     
                                              --------          -------      
 Consumer...........................             2,878             5.36     
 Commercial business................               261              .49     
                                              --------          -------    
     Total adjustable-rate loans....            16,876            31.44     
                                              --------          -------     
                                                                            
     Total loans receivable.........           53,673           100.00%     
                                                                ======      
                                                                            
Less:                                                                       
 Loans in process...................            1,245                       
 Deferred fees and discounts........              248                       
 Allowance for loan losses..........              331                       
                                              -------                      
    Total loans receivable, net.....          $51,849                       
                                              =======                       
</TABLE>

                                        4
<PAGE>
         The following table  illustrates  the interest rate  sensitivity of the
Bank's loan portfolio at December 31, 1998.  Mortgages  which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract requires the final payment to be made,  without regard to interest rate
adjustments.  The table does not reflect the effects of possible  prepayments or
enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
                                                          Real Estate
                                                       Multi-family and                                                             
                               One- to Four-Family      Non-residential        Construction           Land              Consumer    
                              ---------------------    -------------------   -------------------  ------------------  --------------
                                           Weighted               Weighted             Weighted            Weighted         Weighted
                                           Average                Average              Average              Average          Average
                               Amount        Rate      Amount       Rate     Amount     Rate      Amount     Rate     Amount   Rate 
                           -------------------------------- ---------- ----------------------- ---------- ---------- ---------------
                                                                     (Dollars in Thousands)
Due During
Period Ending December 31,
              ------------
<S>                           <C>            <C>      <C>           <C>      <C>         <C>      <C>         <C>     <C>      <C>  
1999.......................   $  2,014       8.65%    $  629        8.58%    $2,096      8.69%    $  585      8.84%   $4,196   9.71%
2000 to 2001...............      1,953       7.75      1,092        8.34        ---       ---        387      8.32       656   8.24 
2002 and 2003..............      4,354       7.64        948        8.68        ---       ---         94      7.67       487   8.10 
2004 to 2008...............     13,491       7.40      1,825        8.74        ---       ---        127      8.28        53   8.66 
2009 to 2018...............     22,057       7.29      4,896        8.86        426      7.33         34      8.50       ---   ---  
2019 and following.........     19,500       7.34      3,426        8.19        ---       ---        ---       ---       ---   ---  
                                ------               -------                 ------     -----     ------      ----    ------   ----
   Total...................    $63,369       7.41    $12,816        8.59%    $2,522      8.46%    $1,227      8.52%   $5,392   9.38%
                               =======               =======                 ======               ======              ======        
<CAPTION>
                                   Commercial                      
                                    Business                 Total          
                                -------------------  ---------------------    
                                           Weighted               Weighted    
                                           Average                Average    
                                Amount      Rate       Amount      Rate     
                               -------      -----    ---------     ----- 
<S>                            <C>           <C>     <C>            <C>      
1999.......................     $2,113       8.13%    $11,633       8.95%    
2000 to 2001...............      1,831       8.21       5,919       8.09       
2002 and 2003..............        372       9.36       6,255       7.93       
2004 to 2008...............        308       9.62      15,804       7.61       
2009 to 2018...............        983       5.93      28,396       7.52     
2019 and following.........     ------       ----      22,926       7.47      
                                                                                 
   Total...................     $5,607       7.93%    $90,933       7.77%   
                                ======                =======                
                              
</TABLE>
         The total  amount  of loans due after  December  31,  1999  which  have
predetermined  interest rates is $44.1 million,  while the total amount of loans
due after such dates which have floating or adjustable  interest  rates is $35.2
million.


                                        5

<PAGE>
         Under  federal  law,  the  aggregate  amount of loans  that the Bank is
permitted to make to any one borrower is generally  limited to 15% of unimpaired
capital  and  surplus  (25%  if  the  security  for  such  loan  has a  "readily
ascertainable"  value or 30% for  certain  residential  development  loans).  At
December  31,  1998,  based on the  above,  the  Bank's  regulatory  loan-to-one
borrower limit was approximately $1.3 million. On the same date, the Bank had no
borrowers with outstanding balances in excess of this amount. As of December 31,
1998,  the largest  dollar  amount of  indebtedness  to one borrower or group of
related borrowers was $1.1 million in loans secured by non-residential property.
Such loans are performing in accordance with their terms.

         Loan  applications  are  initially  considered  and  approved  by  Bank
officers with various  levels of lending  authority  depending on the collateral
type and loan  amount.  Loans that exceed  individual  or combined  loan officer
authority are referred to the Loan  Committee.  Loans greater than $500,000 must
be approved by the Board of Directors after review and  preliminary  approval by
the Loan Committee.

         All of the  Bank's  lending  is  subject  to its  written  underwriting
standards and to loan origination  procedures.  The Bank is an equal opportunity
lender.  Decisions  on loan  applications  are  made on the  basis  of  detailed
applications  and  property  valuations  (consistent  with  the  Bank's  written
appraisal policy) by qualified independent appraisers. The loan applications are
designed  primarily to determine  the  borrower's  ability to repay and the more
significant items on the application are verified through use of credit reports,
financial statements, tax returns and/or confirmations.

         Generally,  the Bank requires title  insurance on its mortgage loans as
well as fire and extended coverage casualty  insurance in amounts at least equal
to the  principal  amount  of the  loan  or the  value  of  improvements  on the
property,  depending on the type of loan. The Bank also requires flood insurance
to protect the property  securing its interest when the property is located in a
flood plain or otherwise deemed prudent by management.

One- to Four-Family Residential Real Estate Lending

         The  cornerstone  of the  Bank's  lending  program  has  long  been the
origination of long-term  permanent loans secured by mortgages on owner-occupied
one- to four-family  residences.  At December 31, 1998, $63.4 million, or 69.69%
of the Bank's loan portfolio consisted of permanent loans on one- to four-family
residences.  At that date, the average outstanding  residential loan balance was
$69,400 and the largest outstanding  residential loan had a principal balance of
$708,000.  Virtually  all of the  residential  loans  originated by the Bank are
secured by properties located in the Bank's market area.  However,  the Bank has
purchased a number of one-to-four family residential loans secured by properties
located elsewhere in the United States. See "- Originations, Sales and Purchases
of Loans."

         Historically,  the Bank  originated  for retention in its own portfolio
30-year fixed-rate loans secured by one- to four-family residential real estate.
Beginning in 1982, in order to reduce its exposure to changes in interest rates,
the Bank began to originate ARMs and balloon loans, subject to market conditions
and consumer preference. As a result of continued consumer demand,  particularly
during periods of relatively low interest rates, for fixed-rate  loans, the Bank
has

                                        6

<PAGE>
continued to originate  for retention in its  portfolio  fixed-rate  residential
loans in amounts and at rates which are monitored for compliance with the Bank's
asset/liability management policy.

         All ARMs and balloon  loans  originated  by the Bank are  retained  and
serviced by it. At December 31, 1998,  the Bank had $21.0  million of fixed-rate
residential  loans  with  less  than 10  years to  maturity,  $11.4  million  of
fixed-rate  residential  loans with maturities  between 10 and 20 years and $6.8
million of fixed-rate residential loans with maturities in excess of 21 years in
its portfolio.  See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Asset/Liability  Management" in the Company's Annual
Report to Stockholders filed as Exhibit 13 hereto (the "Annual Report").

         The Bank has offered ARM loans at rates, terms and points determined in
accordance  with market and  competitive  factors.  The Bank's  current  one- to
four-family  residential  ARMs  are  fully  amortizing  loans  with  contractual
maturities of up to 30 years.  The interest rates on the ARMs  originated by the
Bank are generally  subject to adjustment  at  three-year  intervals  based on a
margin  over  the  Three  Year  Treasury  Securities  Constant  Maturity  Index.
Decreases or increases  in the  interest  rate of the Bank's ARMs are  generally
limited  to 5% above or below  the  initial  interest  rate over the life of the
loan. The Bank also  originates  balloon  payment loans normally due seven years
from date of origination  and amortized  over 30 years.  The Bank's ARMs are not
convertible into fixed-rate  loans, do not contain  prepayment  penalties and do
not produce negative amortization. ARM loans may be assumed provided home buyers
meet the Bank's  underwriting  standards  and the  applicable  fees are paid. At
December  31,  1998,  the total  balance of one- to  four-family  ARMs was $24.1
million.

         The Bank  evaluates  both the  borrower's  ability  to make  principal,
interest and escrow  payments and the value of the property that will secure the
loan. The Bank originates  residential  mortgage loans with loan-to-value ratios
up to 95%. On mortgage loans exceeding an 80% loan-to-value ratio at the time of
origination,  the Bank will generally  require private mortgage  insurance in an
amount  intended to reduce the Bank's  exposure to 80% or less of the  appraised
value of the underlying property.

          As of  December  31,  1998,  the  Bank  had  28  one-  to  four-family
residential  mortgage  loans  having an  aggregate  balance of $8.6 million with
current balances in excess of the 1998 FHLMC maximum,  $227,150 ("jumbo loans").
The  Bank's  delinquency  experience  on its  jumbo  residential  loans has been
similar to its experience on its other residential loans.

         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 that,  among other things,  the borrower sells or otherwise
disposes of the  property  subject to the  mortgage  and the loan is not repaid.
During 1998, the Bank  purchased  $11.5 million  adjustable  one- to four-family
first mortgage loans.



                                        7

<PAGE>
Multi-Family and Non-Residential Real Estate Lending

         The Bank has long made and,  to a lesser  extent  purchased,  permanent
multi-family and  non-residential  real estate loans in its primary market area.
However,  the Bank has increased these  portfolios in recent years in accordance
with its  asset/liability  management policy.  See "Management's  Discussion and
Analysis  of  Financial  Condition  and Results of  Operations  -Asset/Liability
Management"  in the Annual  Report.  At December  31,  1998,  the Bank had $12.8
million in  multi-family  and  non-residential  real estate loans,  representing
14.09% of the Bank's gross loan portfolio.

         The Bank's  multi-family loan portfolio  includes loans secured by five
or more unit  residential  buildings  located  primarily  in the Bank's  primary
market area. The Bank's  non-residential  real estate loan portfolio consists of
loans on a variety of  non-residential  properties  including retail facilities,
small office buildings and motel/hotels.

         The Bank has originated and purchased both  adjustable-  and fixed-rate
multi-family  and  non-residential  real  estate  loans.  Rates  on  the  Bank's
adjustable-rate  multi-family  and  non-residential  real estate loans generally
adjust in a manner  consistent  with the Bank's one- to four-family  residential
ARMs.   Multi-family  and  non-residential   real  estate  loans  are  generally
underwritten  in amounts of up to 80% of the appraised  value of the  underlying
property and normally have terms up to 25 years.

         Appraisals on properties securing multi-family and non-residential real
estate loans  originated  by the Bank are  performed by a qualified  independent
appraiser  at the time the loan is made.  In addition,  the Bank's  underwriting
procedures  generally  require  verification  of the borrower's  credit history,
income and financial statements,  banking  relationships,  references and income
projections for the property. Personal guarantees are generally obtained for the
Bank's multi-family and non-residential real estate loans.

         Substantially all of the multi-family  residential and  non-residential
real  estate  loans  originated  by the Bank are secured by  properties  located
within 50 miles of one or more of the Bank's offices.


                                        8

<PAGE>
         The table below sets forth by type of security  property the  estimated
number,  loan  amount and  outstanding  balance of the Bank's  multi-family  and
non-residential real estate loans at December 31, 1998.
<TABLE>
<CAPTION>
                                                                            Outstanding
                                  Number of          Original                Principal
                                   Loans             Loan Amount               Balance
                                   -----             -----------               -------
                                             (Dollars in Thousands)

<S>                                 <C>               <C>                     <C>     
Multi-family.................       10                $  3,521                $  2,446
Office.......................        5                   1,390                   1,214
Retail.......................        1                   1,050                   1,050
Commercial building..........        9                   1,626                   1,544
Auto service/repair..........        1                     244                     239
Restaurants..................        4                     777                     482
Hotel........................        6                   4,453                   4,238
Nursing home.................        1                     500                     486
Other........................       11                   1,204                   1,117
                                   ---                  ------                   -----

   Total.....................       48                 $14,765                 $12,816
                                   ===                 =======                 =======
</TABLE>
         At December  31,  1998,  the Bank's  largest  multi-family  and largest
non-residential   real  estate  loans   totaled   $509,000  and  $1.1   million,
respectively.  As of December 31, 1998 one non-residential loan totaling $32,000
was 60 days or more  delinquent  while all others were  performing in accordance
with their terms.

         Multi-family and non-residential  real estate loans generally present a
higher level of 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  effects 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  residential and  non-residential  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 obtained or renewed),  the  borrower's  ability to repay the loan may be
impaired. At December 31, 1998, the Bank had no multi-family loans which were 90
days or more delinquent.

Construction Lending

         The Bank makes  construction  loans to individuals for the construction
of their primary or secondary residences and loans to builders or developers for
the construction of single-family and multi-family properties.

         Loans to individuals for the construction of their residences typically
run for six months.  The borrower  pays  interest  only during the  construction
period.  Residential  construction loans are generally  underwritten pursuant to
the same  guidelines  used  for  originating  permanent  residential  loans.  At
December  31,  1998,  the  Bank  had two  construction  loans  with  outstanding
aggregate balances of $372,000  (including an additional $159,000 in undisbursed
loan proceeds) secured by one- to four- family residential property to borrowers
intending to live in the properties upon

                                        9
<PAGE>
completion  of  construction.  Subject  to future  market  conditions,  the Bank
intends to continue its construction  lending activities to persons intending to
be owner occupants.

         The  Bank  makes  loans to  builders  and  developers  to  finance  the
construction  of residential  property.  Such loans  generally  have  adjustable
interest  rates  based upon  prime  with terms from six months to one year.  The
proceeds of the loan are advanced during  construction based upon the percentage
of  completion  as  determined  by an  independent  inspector.  The loan  amount
normally  does not exceed 80% of projected  completed  value for homes that have
been  pre-sold  to  the  ultimate  occupant.  For  loans  to  builders  for  the
construction  of homes not yet  pre-sold,  which may  carry a higher  risk,  the
loan-to value ratio is generally  limited to 75%. Whether the Bank is willing to
provide  permanent  takeout financing to the purchaser of the home is determined
independently of the construction loan by a separate underwriting process.

         At,  December  31,  1998,  the Bank had five  construction  loans  with
outstanding  aggregate balances of $448,000  (including an additional $82,000 in
undisbursed loan proceeds) secured by one- to four-family  residential  property
built on speculation.

         The Bank also provides construction  financing on multi-family housing.
However,  there were no loans of this type  outstanding as of December 31, 1998.
Additionally,  the Bank does on occasion participate with other lenders in loans
to developers and builders to finance family housing  construction.  At December
31, 1998, the Bank was involved in three  participation  construction loans with
an  outstanding  aggregate  balance of $1.7  million  (including  an  additional
$323,000 in undisbursed loan proceeds).

         Construction  lending  generally  affords  the Bank an  opportunity  to
receive interest at rates higher than those obtainable from residential  lending
and to receive higher  origination and other loan fees. In addition,  such loans
are  generally  made for  relatively  short  terms.  Nevertheless,  construction
lending to persons other than owner-occupants is generally considered to involve
a higher level of credit risk than one- to four-family  residential  lending due
to the concentration of principal in a limited number of loans and borrowers and
the effects of general economic conditions on construction projects, real estate
developers  and  managers.  In addition,  the nature of these loans is such that
they are more  difficult to evaluate  and monitor.  The Bank's risk of loss on a
construction loan is dependent largely upon the accuracy of the initial estimate
of the  property's  value upon  completion of the project and the estimated cost
(including  interest)  of the  project.  If the  estimate of value  proves to be
inaccurate, the Bank may be confronted, at or prior to the maturity of the loan,
with a project  with a value  which is  insufficient  to assure  full  repayment
and/or the possibility of having to make substantial investments to complete and
sell the  project.  Because  defaults  in  repayment  may not occur  during  the
construction  period,  it may be difficult to identify problem loans at an early
stage. When loan payments become due, the cash flow from the property may not be
adequate to service the debt. In such cases,  the Bank may be required to modify
the  terms  of the  loan.  The  Bank had no  non-performing  construction  loans
outstanding as of December 31, 1998.

Land Lending

         Land loans,  which include vacant land and developed  lots, are made to
various  builders  and  developers  with  whom the  Bank  has had  long-standing
relationships.  All of such  loans are  secured  by land  zoned for  residential
developments and located within the Bank's market area.

                                       10
<PAGE>
Disbursements  related to acquisition and  development  land loans are typically
based on the construction cost estimate of an independent  architect or engineer
who inspects the project in connection with significant  disbursement  requests.
At December 31, 1998,  the Bank had $1.2  million in loans  secured by land,  or
1.35% of its entire gross loan portfolio.

         Land  lending  generally  affords  the Bank an  opportunity  to receive
interest at rates higher than those  obtainable  from  residential  lending.  In
addition,  land loans are  limited to a maximum 75%  loan-to-value  and are made
with adjustable rates of interest and for relatively short terms.  Nevertheless,
land  lending is generally  considered  to involve a higher level of credit risk
due to the fact that funds are advanced upon the security of the land,  which is
of  uncertain  value  prior to its  development.  Because  of the  uncertainties
inherent in estimating land development costs as well as the market value on the
completed  project and the effects of governmental  regulation of real property,
it is relatively  difficult to evaluate  accurately  the total funds required to
complete a development project and the related loan-to-value ratio.

         As of  December  31,  1998,  the Bank has not  experienced  significant
losses  in  connection   with  its  land   lending.   See   "Delinquencies   and
Non-Performing Assets."

Consumer Lending

         Management  believes  that offering  consumer  loan  products  helps to
expand the Bank's  customer  base and to create  stronger  ties to its  existing
customer base. In addition,  because consumer loans generally have shorter terms
to maturity  and carry  higher rates of interest  than do  residential  mortgage
loans, they can be valuable asset/liability management tools. The Bank currently
originates  substantially  all of its  consumer  loans in its  market  area.  At
December 31, 1998,  the Bank's  consumer  loans totaled $5.4 million or 5.93% of
the Bank's gross loan portfolio.

         The Bank offers a variety of secured  consumer  loans,  including  home
equity  lines of  credit,  home  improvement  loans,  loans  secured  by savings
deposits and automobile loans.  Although the Bank primarily  originates consumer
loans secured by real estate,  deposits or other  collateral,  the Bank also, on
occasion, makes unsecured personal loans.

         The Bank's home equity loans are  generally  limited to  $100,000.  The
Bank uses the same underwriting  standards for home equity lines of credit as it
uses for one- to four-family  residential mortgage loans. The Bank's home equity
lines of credit are originated in amounts which, together with the amount of the
first  mortgage,  generally  do not  exceed  80% of the  appraised  value of the
property  securing the loan.  The interest rate for all home equity loans floats
at a stated margin over the prime rate. At December 31, 1998,  the Bank had $3.6
million  of home  equity  lines of credit  and an  additional  $2.4  million  of
additional funds committed, but undrawn, under such lines.

         The Bank also offers a Visa credit card program.  At December 31, 1998,
approximately  384 credit cards had been issued,  with an aggregate  outstanding
loan balance of $414,000  and unused  credit  available  of  $765,000.  The Bank
presently  charges no annual  membership fee and a fixed annual rate of interest
on these credit cards.

         The terms of other types of consumer  loans vary  according to the type
of collateral,  length of contract,  and  creditworthiness of the borrower.  The
underwriting standards employed by the

                                       11
<PAGE>
Bank for consumer  loans  include a  determination  of the  applicant's  payment
history  on other  debts and an  assessment  of the  borrower's  ability to meet
payments on the proposed loan along with his existing  obligations.  In addition
to the creditworthiness of the applicant, the underwriting process also includes
a comparison of the value of the  security,  if any, in relation to the proposed
loan amount.  Unsecured  personal  loans are made to borrowers  for a variety of
personal needs and are usually limited to 20% of the borrower's net worth not to
exceed $15,000, with a minimum loan amount of $2,500.

         Consumer loans may entail greater risk than residential mortgage loans,
particularly  in the case of consumer  loans which are  unsecured  or secured by
rapidly  depreciable assets such as automobiles.  In such cases, any repossessed
collateral  for defaulted  consumer  loans may not provide  adequate  sources of
repayment  for  the  outstanding  loan  balances  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
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans.  At December 31, 1998,  $310,000,  or  approximately
5.75% of the consumer loan portfolio, was 60 days or more delinquent.  There can
be no assurance that delinquencies will not increase in the future.

Commercial Business Lending

         In order to increase the yield and  interest  rate  sensitivity  of its
loan  portfolio  and in order to  satisfy  the  demand  for  financial  services
available to  individuals  and  businesses in its primary  market area, the Bank
maintains a portfolio of commercial business loans. Unlike residential  mortgage
loans,  which generally are made on the basis of the borrower's  ability to make
repayment from his or her employment and other income,  and which are secured by
real  property  whose value tends to be more  easily  ascertainable,  commercial
business  loans are generally of higher risk and typically are made on the basis
of the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business  loans may be  substantially  dependent  on the success of the business
itself (which, in turn, may be dependent upon the general economic environment).
During the past five years,  the Bank has  originated  and purchased  commercial
business   loans  to  businesses   such  as  small  retail   operations,   small
manufacturing  concerns and professional  firms. The Bank's commercial  business
loans almost always include personal guarantees and are usually, but not always,
secured by business assets, such as accounts  receivable,  equipment,  inventory
and real estate.  However, the collateral securing the loans may depreciate over
time,  may be  difficult  to appraise  and may  fluctuate  in value based on the
success of the business.

         Most of the Bank's  commercial  business  loans have terms ranging from
six months to five years and carry  adjustable  interest rates. The underwriting
process for commercial  business loans generally  includes  consideration of the
borrower's  financial  statements,  tax returns,  projections of future business
operations and inspection of the subject collateral, if any.

         Since 1995, the Bank has purchased  seasoned  commercial leases million
covering  various types of  office/commercial  equipment from another  financial
institution  with  expertise in  originating  and acquiring  such leases.  As of
December 31, 1998, the outstanding balance on these leases was

                                       12
<PAGE>
$1.5 million. In general, the leases are full-payout finance leases in which the
lease  payments  effectively  repay the  lessor  for the  purchase  price of the
equipment,  plus an  acceptable  yield.  The selling  institution  continues  to
service the leases for the Bank and provides  limited recourse in the event of a
default  by the  lessor.  The Bank  purchased  these  leases  because  they were
available at relatively high yields at a time when investment  alternatives were
generating  much lower  yields and  because  they had  relatively  short  terms,
consistent with the Bank's asset/liability  management strategy.  Although, like
other commercial business financings, commercial leases involve higher risk than
residential mortgage loans, management believes that these purchases are prudent
in furtherance of the Bank's lending strategy and in light of the higher yields,
personal  guarantees  on most of the leases and the  limited  additional  credit
recourse  provided  by the  seller.  These  leases are  classified  as loans for
financial statement  purposes.  As of December 31, 1998, all of such leases were
performing in accordance with their terms.

Originations, Purchases and Sales of Loans

         The Bank  originates  real  estate and other  loans  through  employees
located at each of the Bank's offices. Walk-in customers and referrals from real
estate brokers and builders are also important sources of loan originations. The
Bank occasionally utilizes the services of mortgage brokers.

         In order to supplement its loan  production,  the Bank purchases  loans
from third parties.  In particular,  the Bank may purchase loans of a type which
are not available or attractive terms in its own market area. The Bank generally
uses the same underwriting  standards in evaluating loan purchases as it does in
originating   loans.   The  Bank  will   continue  to  evaluate   loan  purchase
opportunities as they arise and make purchases in the future depending on market
conditions.

         The Bank occasionally  sells long-term  fixed-rate loans. To date, most
of the Bank's  loan  sales  have been made on a  servicing  released  basis.  At
December 31, 1998,  approximately $20.4 million of the Bank's loan portfolio was
serviced by others and the Bank did not service any loans for others.

         In periods of rising  interest  rates,  the Bank's ability to originate
large  dollar  volumes  of real  estate  loans may be  substantially  reduced or
restricted,  with a  resultant  decrease  in related  fee  income and  operating
earnings.  In  addition,  the Bank's  ability  to sell  loans may  substantially
decrease if potential buyers reduce their purchasing activities.



                                       13
<PAGE>
         The  following  table shows the loan  origination,  purchase,  sale and
repayment activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                           -----------------------------------
                                                             1998         1997          1996
                                                           --------      -------      --------
<S>                                                        <C>           <C>          <C>     
Originations by type:
 Adjustable rate:
  Real estate - one- to four-family..................      $  1,979      $ 3,444      $  4,027
                - multi-family.......................           ---          ---           ---
                - non-residential....................         1,884        1,014         2,880
                - construction.......................           ---          772         2,778
                - land...............................           370          ---           ---
  Non-real estate - consumer.........................         4,261        3,565         4,485
                     - commercial business...........         1,608          677           158
                                                            --------      -------      --------
         Total adjustable-rate.......................        10,102        9,472        14,328
                                                           --------      -------      --------
 Fixed rate:
  Real estate - one- to four-family..................        10,243        7,096         8,219
                - multi-family.......................           ---           35           101
                - non-residential....................         1,050          160            17
                - construction.......................           664        2,707           ---
                - land...............................           176          192           ---
  Non-real estate - consumer.........................         1,568        1,543           793
                     - commercial business...........         2,118          531            85
                                                           --------      -------      --------
         Total fixed-rate............................        15,819       12,264         9,215
                                                           --------      -------      --------
         Total loans originated......................        25,921       21,736        23,543
                                                           --------      -------      --------

Purchases:
  Real estate - one- to four-family..................     11,539(1)        3,797           ---
                - multi-family.......................           459          491           ---
                - non-residential....................           ---          500         2,079
                - construction.......................         1,306          272           ---
  Non-real estate - consumer.........................           483          ---           503
                     - commercial business...........           700        1,813         2,066
                                                           --------      -------       -------
         Total loans purchased.......................        14,487        6,873         4,648
                                                           --------      -------      --------
         Total additions.............................        40,408       28,609        28,191
                                                           --------      -------      --------

         Total loans sold............................           ---          ---           ---
  Principal repayments...............................        27,756       18,851        14,801
                                                           --------      -------      --------
         Net before other items......................        12,652        9,758        13,390
Increase (decrease) in other items, net..............            17          (31)         (663)
                                                           --------      -------      --------
         Net increase................................       $12,669      $ 9,727       $12,727
                                                           ========      =======       =======
</TABLE>
-----------
<PAGE>
(1)      Consisted  primarily of conforming ARM's secured by one-to-four  family
         properties located out of the Bank's market area.


Delinquencies and Non-Performing Assets

         Delinquency  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,  a late  notice is sent on all
loans over 30 days  delinquent.  Another  late  notice  along with any  required
demand  letters as set forth in the loan contract are sent 60 days after the due
date.  Additional written and verbal contacts are made with the borrower between
45 and 90 days after the due date.

                                       14
<PAGE>
         If the  delinquency  is not  cured by the 90th  day,  the  customer  is
normally  provided 10 days  written  notice that the account will be referred to
counsel for collection and foreclosure,  if necessary.  A drive-by  appraisal is
normally  obtained  at this time and a title  search is  ordered.  A good  faith
effort by the  borrower  at this time will defer  foreclosure  for a  reasonable
length of time  depending  on  individual  circumstances.  The Bank may agree to
accept a deed in lieu of foreclosure.  If it becomes necessary to foreclose, the
property is sold at public sale and the Bank may bid on the  property to protect
its interest. The decision to foreclose is made by the Senior Loan Officer after
discussion with the members of the Loan Committee.

         Consumer  loans are charged off if they remain  delinquent for 120 days
unless the borrower and lender agree on a payment plan. If terms of the plan are
not met,  they are then  subject  to  charge  off.  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 the Bank 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  by  foreclosure  or deed in lieu of  foreclosure,  it is
recorded at the lower of cost or estimated fair value,  less  estimated  selling
costs, at the date of  acquisition,  and any write-down  resulting  therefrom is
charged to the allowance for loan losses.  Subsequent  decreases in the value of
the  property  are charged to  operations  through  the  creation of a valuation
allowance. After acquisition, all costs incurred in maintaining the property are
expensed.  Costs relating to the  development  and  improvement of the property,
however,  are  capitalized  to the extent of estimated fair value less estimated
costs to sell.

         Loan  Delinquencies.  The  following  table sets forth the Bank's  loan
delinquencies by type, by amount and by percentage of type at December 31, 1998.
<TABLE>
<CAPTION>
                                                                     Loans Delinquent For:
                                            60-89 Days                   90 Days and Over               Total Delinquent Loans
                                  ------------------------------   -----------------------------    --------------------------------
                                                         Percent                         Percent                           Percent
                                                        of Loan                         of Loan                            of Loan
                                  Number    Amount      Category   Number    Amount     Category     Number   Amount       Category
                                  ------    ------      --------   ------    ------     --------     ------   ------       --------
                                                                     (Dollars in Thousands)
Real Estate:
<S>                                <C>       <C>        <C>         <C>        <C>        <C>         <C>       <C>          <C>  
  One- to four-family......          7       $562         .89%         4       $314         .49%        11       $876         1.38%
  Multi-family.............        ---        ---         ---        ---        ---         ---        ---        ---          ---
  Non-residential..........          1         32         .31%       ---        ---         ---          1         32          .31%
  Construction.............        ---        ---         ---        ---        ---         ---        ---        ---          ---
  Land.....................        ---        ---         ---        ---        ---         ---        ---        ---          ---
Consumer...................          8        141        2.62%        11        169        3.13%        19        310         5.75%
Commercial business........        ---        ---         ---        ---        ---         ---        ---        ---          ---
                                 -----     ------                  -----      -----                   ----      -----

     Total.................         16       $735         .81%        15       $483         .53%        31     $1,218         1.34%
                                 =====       ====                  =====       ====                   ====     ======
</TABLE>
<PAGE>
         Classification of Assets. Federal regulations require that each savings
institution  classify  its own  assets  on a  regular  basis.  In  addition,  in
connection  with  examinations of savings  institutions,  OTS and FDIC examiners
have authority to identify  problem assets and, if appropriate,  require them to
be classified.  There are three classifications for problem assets: Substandard,
Doubtful and Loss.  Substandard  assets have one or more defined  weaknesses and
are characterized by the distinct  possibility that the savings institution will
sustain some loss if the  deficiencies  are not corrected.  Doubtful assets have
the weaknesses of Substandard assets, with the additional

                                       15
<PAGE>
characteristics  that the weaknesses  make  collection or liquidation in full on
the basis of currently existing facts,  conditions and values questionable,  and
there is a high  possibility  of loss.  An asset  classified  Loss is considered
uncollectible  and of such  little  value  that  continuance  as an asset on the
balance sheet of the  institution is not warranted.  The  regulations  have also
created a Special Mention category,  consisting of assets which do not currently
expose  a  savings  institution  to a  sufficient  degree  of  risk  to  warrant
classification, but do which possess credit deficiencies or potential weaknesses
deserving  management's  close attention.  As of December 31, 1998, the Bank had
classified  $486,000  of its loans as  special  mention.  Assets  classified  as
Substandard or Doubtful  require the  institution to establish  prudent  general
allowances  for loan losses.  If an asset or portion  thereof is  classified  as
Loss, the institution must either establish specific  allowances for loan losses
in the amount of 100% of the portion of the asset classified Loss, or charge off
such amount. If an institution does not agree with an examiner's  classification
of an asset, it may appeal this  determination  to the District  Director of the
OTS. On the basis of  management's  review of its assets,  at December 31, 1998,
the Bank had  classified  a total of $506,000  of its loans and other  assets of
concern, as follows:
<TABLE>
<CAPTION>
                             One- to Four-
                                Family         Multi-family        Consumer            Total
                                 -----         ------------        --------             ----    
                                                        (In Thousands)

<S>                               <C>           <C>                  <C>               <C> 
Substandard............           $337          $   ---              $169              $506
Doubtful...............            ---              ---               ---               ---
Loss...................            ---              ---               ---               ---
                                  ----          -------              ----              ---- 
                                  $337          $   ---              $169              $506
                                  ====          =======              ====              ====

</TABLE>

         The Bank's  classified assets consist of the (i)  non-performing  loans
and (ii) loans and other  assets of  concern  discussed  herein.  As of the date
hereof,  these asset  classifications  are consistent  with those of the OTS and
FDIC.

         Non-Performing  Assets.  The following table sets forth the amounts and
categories  of  non-performing  assets in the Bank's loan  portfolio.  Loans are
reviewed  quarterly and any loan whose  collectibility  is doubtful is placed on
non-accrual status. Loans are placed on non-accrual status when either principal
or interest is 90 days or more past due, unless,  in the judgment of management,
the loan is well  collateralized  and in the  process  of  collection.  Interest
accrued and unpaid at the time a loan is placed on non-accrual status is charged
against  interest  income.   Subsequent  payments  are  either  applied  to  the
outstanding  principal balance or recorded as interest income,  depending on the
assessment of the ultimate  collectibility of the loan. For all years presented,
the Bank has had no troubled debt  restructurings  (which  involved  forgiving a
portion  of  interest  or  principal  on any  loans  or  making  loans at a rate
materially  less than that of market  rates).  Foreclosed  assets include assets
acquired in settlement of loans. Except as noted, the loans and foreclosed asset
amounts shown are stated  without  giving effect to the specific  reserves which
have been established against such assets. See "- Loan Loss Reserve Analysis."

                                       16
<PAGE>
<TABLE>
<CAPTION>
                                                                              December 31,
                                                         -------------------------------------------------------  
                                                          1998       1997         1996         1995         1994
                                                          ----       ----         ----         ----         ----
                                                                          (Dollars in Thousands)
<S>                                                      <C>         <C>           <C>          <C>      <C>    
Non-accruing loans:
  One- to four-family............................        $ 314       $ 263         $269         $318     $   344
  Multi-family...................................          ---         ---          ---          ---         ---
  Non-residential................................          ---         ---          ---          ---         ---
  Construction...................................          ---         ---          ---          ---         109
  Consumer.......................................          161          45           36           51          47
  Commercial business............................          ---         ---          ---          ---         ---
                                                         -----       -----         ----         ----     -------
     Total.......................................          475         308          305          369         500
                                                         -----       -----         ----         ----     -------

Accruing loans delinquent more than 90 days:
  Consumer.......................................            8         ---          ---          ---         ---
                                                         -----       -----         ----         ----     -------

Foreclosed assets:
  One- to four-family............................           23          27          ---          ---         ---
  Multi-family...................................          ---         ---          ---          ---         ---
  Non-residential................................          ---         ---          ---          ---         ---
  Construction...................................          ---         ---          ---          ---         ---
  Consumer.......................................          ---         ---          ---          ---         ---
  Commercial business............................          ---         ---          ---          ---         ---
                                                         -----       -----         ----         ----     -------
     Total.......................................           23          27           --          ---         ---
                                                         -----       -----         ----         ----     -------

Total non-performing assets......................        $ 506       $ 335         $305         $369     $   500
                                                         =====       =====         ====         ====     =======
Total as a percentage of total assets............          .43%        .34%         .35%         .53%        .76%
                                                         =====       =====         =====        =====    =======

</TABLE>

         For the year ended December 31, 1998, gross interest income which would
have been recorded had the  non-accruing  loans been current in accordance  with
their original terms amounted to $17,000.

         At December  31,  1998,  there were no other loans not  included on the
table or  discussed  above where known  information  about the  possible  credit
problems of borrowers caused management to have serious doubts as to the ability
of the borrower to comply with present loan repayment terms and which may result
in disclosure of such loans in the future.
<PAGE>
         Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses  charged to earnings  based on  management's
evaluation of the risk inherent in its entire loan  portfolio and changes in the
nature and volume of its loan activity. Such evaluation, which includes a review
of all  loans  of  which  full  collectibility  may not be  reasonably  assured,
considers the  estimated  net  realizable  value of the  underlying  collateral,
economic  conditions,  historical  loan loss  experience  and other factors that
warrant  recognition in providing for an adequate  allowance for loan losses. In
determining the general  reserves under these policies,  historical  charge-offs
and recoveries, changes in the mix and levels of the various types of loans, net
realizable  values,  the current loan portfolio and current economic  conditions
are  considered.  Management  also considers the Bank's  non-performing  and "of
concern"  assets in  establishing  its  allowance  for loan  losses.  The Bank's
policies have had the effect of increasing the Bank's allowance for loan losses.


                                       17

<PAGE>
         While management  believes that it uses the best information  available
to determine the allowance for loan losses,  unforeseen  market conditions could
result in adjustments  to the allowance for loan losses,  and net earnings could
be  significantly  affected,  if  circumstances  differ  substantially  from the
assumptions used in making the final determination.

         The following table sets forth an analysis of the Bank's  allowance for
loan losses.
<TABLE>
<CAPTION>
                                                                    Year Ended December 31
                                                  ------------------------------------------------------
                                                  1998        1997         1996         1995        1994
                                                  ----        ---          -----        ----        ---- 
                                                              (Dollars in Thousands)

<S>                                              <C>         <C>          <C>          <C>          <C>  
Balance at beginning of period...........        $ 410       $ 355        $ 360        $ 331        $ 291

Charge-offs:
  One- to four-family....................          ---         ---          ---          ---            2
  Multi-family...........................          ---         ---          ---          ---          ---
  Non-residential........................          ---         ---          ---          ---          ---
  Construction...........................          ---         ---          ---          ---          ---
  Consumer...............................            5          33            5           10            5
  Commercial business....................          ---         ---          ---          ---           15
                                               -------     -------        -----        -----        -----
         Total charge-offs...............            5          33            5           10           22
                                               -------      ------        -----         ----        -----

Recoveries:
  One- to four-family....................          ---         ---          ---          ---          ---
  Multi-family...........................          ---         ---          ---          ---          ---
  Non-residential........................          ---         ---          ---          ---          ---
  Construction...........................          ---         ---          ---          ---          ---
  Consumer...............................          ---          14          ---          ---          ---
  Commercial business....................          ---         ---          ---          ---          ---
                                               -------      ------        -----        -----      -------
        Total recoveries.................          ---          14          ---          ---          ---
                                               -------       -----        -----        -----      -------

Net charge-offs..........................            5          19            5           10           22
Additions charged to operations..........          102          74          ---           39           62
                                                 -----       -----        -----        -----      -------
Balance at end of period.................        $ 507       $ 410        $ 355        $ 360       $  331
                                                 =====       =====        =====        =====       ======

Ratio of net charge-offs during the
 period to average loans outstanding
during the period........................         .01%        .03%         .01%         .02%         .06%
                                                  ===         ===          ===          ===         ====

Ratio of net charge-offs during the
 period to average non-performing
 assets..................................        1.70%       4.15%        1.48%        2.30%        3.96%
                                                 =====       ====         ====         ====        =====
</TABLE>

                                       18
<PAGE>
         The  distribution  of the Bank's  allowance  for losses on loans at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
                                                                  December 31      
                           -------------------------------------------------------------------------------------------    
                                      1998                           1997                           1996               
                           ----------------------------   -----------------------------  ----------------------------- 
                                                 Percent                        Percent                        Percent 
                                                of Loans                       of Loans                       of Loans 
                                        Loan     in Each               Loan     in Each               Loan     in Each 
                           Amount of   Amounts  Category  Amount of   Amounts  Category  Amount of   Amounts  Category 
                           Loan Loss     by     to Total  Loan Loss     by     to Total  Loan Loss     by     to Total 
                           Allowance  Category    Loans   Allowance  Category    Loans   Allowance  Category    Loans  
                           ---------  --------    -----   ---------  --------    -----   ---------  --------    -----  
                                                              (Dollars In Thousands)

One- to four-family.....      $ 110    $63,369     69.69%  $  97    $51,567      64.71%   $  89    $43,669      63.41%   
Multi-family............         12      2,446      2.69      12      4,010       5.03       10      3,259       4.73    
Non-residential.........         26     10,370     11.40      25      8,376      10.51       26      8,806      12.79    
Construction and land...         19      3,749      4.12      28      5,714       7.18       23      4,623       6.72    
Consumer................         71      5,392      5.93      45      5,104       6.40       45      4,989       7.24    
Commercial business.....         56      5,607      6.17      49      4,916       6.17       35      3,519       5.11    
Unallocated.............        212         --       ---     154        ---        ---      127        ---        ---    
                            
     Total..............      $ 506    $90,933    100.00%   $410    $79,687     100.00%    $355    $68,865     100.00%   
                              =====    =======    ======    ====    =======     ======     ====    =======     ======    

<CAPTION>
                                                     December 31,
                            -----------------------------------------------------------                                   
                                         1995                           1994    
                            -----------------------------  ----------------------------    
                                                 Percent                        Percent  
                                                 of Loans                       of Loans  
                                        Loan      in Each               Loan     in Each  
                             Amount of  Amounts  Category  Amount of   Amounts  Category  
                             Loan Loss    by     to Total  Loan Loss     by     to Total  
                            Allowance  Category    Loans   Allowance  Category    Loans   
                            ---------  --------    -----   ---------  --------    -----   
<S>                           <C>      <C>           <C>    <C>       <C>           <C>      
One- to four-family.....      $  93    $38,056       68.60% $   89    $37,050       69.02%   
Multi-family............         10      3,419        6.16      10      3,445        6.42   
Non-residential.........         13      4,146        7.47      72      3,971        7.40   
Construction and land...         17      3,417        6.16      38      4,316        8.04   
Consumer................         23      4,021        7.25      29      3,986        7.43   
Commercial business.....         24      2,420        4.36       9        905        1.69   
Unallocated.............        180        ---       ---        84        ---        ---    
                                                                                            
     Total..............       $360    $55,479   100.00%     $ 331    $53,673      100.00%  
                               ====    =======   ======      =====    =======      ======   
</TABLE>
 

                                       19
<PAGE>
Investment Activities

         As part of its asset/liability management strategy, the Company invests
in U.S.  government and agency obligations to supplement its lending activities.
The Company  regularly uses First American Asset Management as  non-commissioned
investment  adviser.  The Company is also  authorized by its general  investment
policy to purchase  investment  grade  municipal  securities  and,  depending on
market  conditions,  may purchase such securities from time to time. The Company
also invests,  to a limited  degree,  in equity  securities  of other  financial
companies.  At December 31, 1998,  the Company did not own any  securities  of a
single issuer which exceeded 10% of the Company's retained earnings,  other than
U.S. government or federal agency obligations.  See "Management's Discussion and
Analysis of Financial Condition and Results of Operation" in the Annual Report.

         The Bank is  required  by  federal  regulations  to  maintain a minimum
amount of liquid assets that may be invested in specified securities and is also
permitted  to make  certain  other  securities  investments.  See  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Liquidity and Capital" in the Annual Report. Cash flow projections are regularly
reviewed  and updated to assure  that  adequate  liquidity  is  provided.  As of
December 31, 1998, the Bank's  liquidity ratio (liquid assets as a percentage of
net withdrawable  savings and current  borrowings) was 16.06% as compared to the
OTS requirement of 4.0%.

         All of the Company's investment and mortgage-backed securities,  except
for equity  securities  held for trade noted above,  are classified as available
for sale in accordance with SFAS 115.  Unrealized  gains and losses in available
for sale securities,  net of tax effect, are reported as a separate component of
stockholders'  equity. The Company may elect to classify  investment  securities
acquired in the future as held to maturity,  instead of as  available  for sale,
but there are no current plans to do so.


                                       20

<PAGE>
         The  following  table  sets  forth  the  composition  of the  Company's
investment securities at the dates indicated.
<TABLE>
<CAPTION>
                                                                                      December 31,
                                                        -----------------------------------------------------------------------
                                                                 1998                    1997                     1996
                                                        ---------------------    -------------------      ---------------------
                                                           Book        % of       Book         % of        Book          % of
                                                          Value        Total      Value        Total       Value         Total
                                                         -------       ------     -------      ------      -------       ------   
                                                                          (Dollars in Thousands)
<S>                                                      <C>            <C>       <C>         <C>  <C>             <C>  
Investment securities held to maturity:
  FHLB Stock........................................     $ 1,334        13.52%    $   725        6.39%     $   546         5.45%  
                                                         -------       ------     -------      ------      -------       ------   
                                                                                                                                   
Investment securities available for sale:                                                                                         
  U.S. government securities.........................      5,901        59.82      8,090        71.27        8,283        82.62   
  Municipal obligations..............................        102         1.03        ---          ---          ---        ---     
  Government securities mutual fund..................        134         1.36        124         1.09          656         6.54   
                                                         -------       ------     -------      ------      -------       ------   
                                                           6,137        62.21      8,214        72.36        8,939        89.16   
                                                         -------       ------     -------      ------      -------       ------   
                                                                                                                                   
Investment securities held for trade:                                                                                             
  Thrift common stock mutual fund....................        964         9.77      1,325        11.67          ---        ---     
  General equity mutual fund.........................         57         0.58        ---          ---          ---        ---     
  Common stock of other financial institutions.......      1,277        12.94      1,088         9.58          540         5.39   
  Corporate debt securities..........................         96          .98        ---          ---          ---        ---     
                                                         -------       ------     -------      ------      -------       ------   
                                                           2,394        24.27      2,413        21.25          540         5.39   
                                                         -------       ------     -------      ------      -------       ------   
     Total investment securities.....................     $9,865       100.00%   $11,352       100.00%     $10,025       100.00%  
                                                          ======       ======    =======       ======      =======       ======   
                                                                                                                                  
Average remaining life of debt investment                                        
 securities..........................................     3.9 years              1.8 years                 2.3 years

Other interest-earning assets:
  Interest-bearing deposits with banks...............     $5,887       100.00%   $ 3,119        98.21%     $ 1,093       100.00%
  Money market mutual fund...........................        ---          ---       ---           ---          ---          ---
                                                         -------       ------     -------      ------      -------       ------   
     Total...........................................     $5,887       100.00%   $ 3,176       100.00%     $ 1,093       100.00%
                                                          ======       ======    =======       ======      =======       ======   
                                                          ======       ======    =======       ======      =======       ====== 
</TABLE>
<PAGE>
         The composition and maturities of the investment  securities portfolio,
excluding FHLB stock and equity securities are indicated in the following table.
<TABLE>
<CAPTION>


                                                                               December 31, 1998
                                                 --------------------------------------------------------------------------------
                                                  Less Than     1 to 5        5 to 10       Over
                                                   1 Year        Years         Years      10 Years     Total Investment Securities
                                                 Book Value    Book Value    Book Value   Book Value    Book Value    Fair Value
                                                 ----------    ----------    ----------   ----------    ----------    ----------
                                                                           (Dollars in Thousands)
<S>                                                 <C>          <C>           <C>         <C>            <C>            <C>   
U.S. government securities..................        $  514       $4,435        $  952      $   ---        $5,901         $5,901
Municipal obligation........................           ---          ---           ---          102           102            102
Corporate debt securities...................           ---          ---           ---           96            96             96
                                                   -------       ------        ------      ------         ------         ------ 

Total investment securities (excluding
FHLB stock and equity securities)...........        $  514       $4,435         $ 952        $ 198        $6,099         $6,099
                                                    ======       ======         =====        =====        ======         ======

Weighted average yield......................          7.75%        5.91%         6.69%        6.85%         6.22%

</TABLE>

                                       21

<PAGE>
         Mortgage-Backed   Securities.  The  Company  purchases  mortgage-backed
securities from time to time to supplement residential loan production. The type
of  securities  purchased  is based upon the Bank's  asset/liability  management
strategy and balance sheet objectives. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -Asset/Liability Management" in
the Annual  Report.  In  connection  with SFAS 115,  the Bank's  mortgage-backed
securities  are held in its  available  for sale  portfolio  in order to  retain
investment  flexibility and accordingly are included in its financial statements
at fair value.

         All of the Company's  mortgage-backed  securities at December 31, 1998,
are  backed  by  federal  agencies  or  government  corporations.   Accordingly,
management believes that the Company's mortgage-backed  securities are generally
resistant to credit problems.

         The  following  table  sets  forth  the  composition  of the  Company's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
                                                                                December 31,
                                                   ---------------------------------------------------------------------
                                                            1998                     1997                  1996
                                                   ----------------------   -------------------   ----------------------
                                                    Book           % of        Book       % of      Book          % of
                                                    Value         Total       Value       Total     Value        Total
                                                                            (Dollars in Thousands)
Mortgage-backed securities available for sale:
<S>                                                <C>             <C>     <C>            <C>      <C>            <C>         
  GNMA...................................          $   489         18.46%  $   639        18.29%   $  762         18.96%      
  FNMA...................................               53          2.00        70         2.00        82          2.04       
  FHLMC..................................            2,107         79.54     2,785        79.71     3,175         79.00       
                                                     -----         -----     -----       ------    ------        ------       
                                                                                                                              
     Total mortgage-backed                                                                                                    
       securities........................           $2,649        100.00%   $3,494       100.00%   $4,019        100.00%      
                                                     =====        ======    ======       ======    ======        ======       
</TABLE>
<PAGE>
         The  following  table  shows  mortgage-backed  and  related  securities
purchase,  sale  and  repayment  activities  of  the  Company  for  the  periods
indicated.
<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                       -----------------------------------
                                                        1998          1997          1996
                                                        ----          ----          ----
                                                                (In Thousands)
<S>                                                    <C>           <C>          <C>    
Purchases:
  Adjustable-rate................................      $   ---       $   ---      $   ---
  Fixed-rate.....................................          ---           ---        3,034
                                                        ------        ------       ------
         Total purchases.........................          ---           ---        3,034
                                                        ------        ------       ------

Sales and Repayments:
         Total sales.............................          ---           ---          ---
                                                        ------        ------    ---------
  Principal repayments...........................          847           570          482
                                                          ----          ----      -------
         Total reductions........................         (847)         (570)        (482)
  Increase (decrease) in other items, net........            2            45          (12)
                                                         -----        ------     ---------
         Net increase (decrease).................        $(845)        $(525)      $2,540
                                                         =====         =====       ======
</TABLE>

                                       22
<PAGE>
         The  following  table  sets  forth the  contractual  maturities  of the
Company's mortgage-backed  securities at December 31, 1998. These securities are
anticipated to be repaid in advance of their contractual  maturities as a result
of mortgage  loan  payments.  The amounts  set forth below  represent  principal
balances only and do not include premiums, discounts and fair value adjustments.

<TABLE>
<CAPTION>
                                                                                                   December 31, 1998
                                                                       Due in                     Balance Outstanding
                                                          1 to        5 to 10      10 to 20
                                                         5 Years       Years         Years        Fixed      Adjustable
                                                         -------       -----         -----        -----      ----------
                                                                             (In Thousands)
<S>                                                        <C>          <C>          <C>          <C>          <C>    
Federal Home Loan Mortgage Corporation............         $ 253        $ 156        $1,660       $2,069       $   ---

Federal National Mortgage Association.............           ---          ---            53          ---            53

Government National Mortgage Association..........           ---          ---           482          ---           482
                                                          ------       ------          ----       ------          ----

     Total........................................         $ 253        $ 156        $2,195       $2,069         $ 535
                                                           =====        =====        ======       ======         =====
</TABLE>


Sources of Funds

         General. The Bank's primary sources of funds are deposits,  borrowings,
amortization  and  prepayment  of  loan  principal,   maturities  of  investment
securities, short-term investments and funds provided from operations.

         Deposits.  American Savings offers a variety of deposit accounts having
a wide  range of  interest  rates and  terms.  The  Bank's  deposits  consist of
passbook  accounts,  demand and NOW accounts,  and money market and  certificate
accounts. The Bank relies primarily on advertising, competitive pricing policies
and customer service to attract and retain these 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,  profitability and growth objectives.  Based on its experience,  the
Bank believes that its passbook,  demand and NOW accounts are relatively  stable
sources of deposits as compared to certificate deposits. However, the ability of
the Bank to  attract  and  maintain  all  deposits,  and the rates paid on these
deposits,  has been and will  continue  to be  significantly  affected by market
conditions.


                                       23
<PAGE>
         The following table sets forth the savings flows at the Bank during the
periods indicated.
<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                  ------------------------------------
                                                     1998         1997          1996
                                                     ----         ----          ----
                                                      (Dollars in Thousands)

<S>                                                <C>         <C>           <C>     
Opening balance.............................       $71,700     $ 60,411      $ 59,588
Deposits....................................       151,006      142,882       122,369
Withdrawals.................................      (143,774)    (134,005)     (123,874)
Sale of deposit accounts                            (2,703)         ---           ---
Interest credited...........................         2,768        2,412         2,328
                                                   -------   ----------     ---------

Ending balance..............................       $78,997     $ 71,700      $ 60,411
                                                   =======     ========      ========

Net increase................................       $ 7,297     $ 11,289     $     823
                                                   =======     ========     =========

Percent increase............................        10.18%       18.69%         1.38%
                                                    =====        =====         =====

</TABLE>
                                       24

<PAGE>
         The following table sets forth the dollar amount of savings deposits in
the  various  types of  deposit  programs  offered  by the Bank as of the  dates
indicated.
<TABLE>
<CAPTION>
                                                                                   December 31,
                                                 -----------------------------------------------------------------------------
                                                         1998                         1997                      1996
                                                 ------------------------      --------------------     ----------------------
                                                                  Percent                   Percent                   Percent
                                                  Amount         of Total      Amount      of Total       Amount      of Total
                                                  ------         --------      ------      --------       ------      --------
                                                                              (Dollars in Thousands)
<S>                                               <C>             <C>          <C>          <C>         <C>             <C>
Transactions and Savings Deposits:

Commercial Demand 0.00%(1)..................      $   794            1.01      $   698        .97%      $    731          1.21%    
Passbook Accounts 2.75%(1)..................       15,143           19.17       16,407      22.88         16,311         27.00     
NOW Accounts 1.90%(1).......................        6,610            8.37        6,560       9.15          5,981          9.90     
Money Market Accounts 3.25%(1)..............        3,773            4.78        2,878       4.01          2,454          4.06     
                                                  -------         -------      -------      -----        -------       -------     
                                                                                                                                   
Total Non-Certificates......................       26,320           33.32       26,543      37.02         25,477         42.17     
                                                   ------          ------       ------      -----        -------       -------     
                                                                                                       
Certificates:

 3.01 -  4.00%..............................          ---             ---         257         .36            416           .69
 4.01 -  6.00%..............................       48,242           61.07      26,232       36.59         29,691         49.15
 6.01 -  8.00%..............................        4,429            5.61      18,663       26.03          4,822          7.98
 8.01 -  9.00%..............................            6             .01           5         .01              5           .01
                                                ---------         -------     -------      ------        -------      --------

Total Certificates..........................       52,677           66.68      45,157       62.98         34,934         57.83
                                                 --------          ------     -------      ------        -------       -------
Total Deposits..............................      $78,997          100.00%    $71,700      100.00%       $60,411        100.00%
                                                  =======          ======     =======      ======        =======        ======
</TABLE>

------------------------
(1) Rates in effect at December 31, 1998.



                                       25
<PAGE>
         The following table shows rate and maturity  information for the Bank's
certificates of deposit as of December 31, 1998
<TABLE>
<CAPTION>
                                                        4.01-        6.01-        8.01-                  Percent
                                                       6.00%         8.00%        9.00%       Total     of Total
                                                      --------     ------     ---------    -------        ------- 
                                                                       (Dollars in Thousands)
Certificate account maturing in quarter ending:
<S>                                                   <C>          <C>        <C>          <C>             <C>           
March 31, 1999.................                       $10,023      $2,574     $    ---     $12,597         23.91%        
June 30, 1999..................                         8,159         163          ---       8,322         15.80         
September 30, 1999.............                        19,250         540          ---      19,790         37.57         
December 31, 1999..............                         4,183         442          ---       4,625          8.78         
March 31, 2000.................                         1,506         225          ---       1,731          3.29         
June 30, 2000..................                           857         304          ---       1,161          2.20         
September 30, 2000.............                         1,182         ---          ---       1,182          2.24         
December 31, 2000..............                           814         117          ---         931          1.77         
March 31, 2001.................                           278         ---          ---         278           .53         
June 30, 2001..................                           404          56          ---         460           .87         
September 30, 2001.............                            83         ---          ---          83           .16         
December 31, 2001..............                           252         ---          ---         252           .48         
Thereafter.....................                         1,251           8            6       1,265          2.40         
                                                        -----     -------       ------      ------         -----         
                                                                                                                         
   Total.......................                       $48,242     $ 4,429      $     6     $52,677        100.00%        
                                                      =======     =======      =======     =======        ======         
                                                                                                                         
   Percent of total............                        91.58%       8.41%         .01%     100.00%                       
                                                       =====       =====       ======      ======                        
</TABLE>
         The following table indicates the amount of the Bank's  certificates of
deposit and other deposits by time  remaining  until maturity as of December 31,
1998.
<TABLE>
<CAPTION>
                                                                             Maturity
                                                      --------------------------------------------------
                                                                       Over        Over
                                                      3 Months       3 to 6       6 to 12        Over
                                                       or Less       Months       Months       12 months      Total
                                                       -------       ------       ------       ---------      -----
                                                                           (In Thousands)
<S>                                                   <C>             <C>         <C>            <C>         <C>    
Certificates of deposit less than $100,000.......     $  9,424        $6,925      $20,408        $6,315      $43,072

Certificates of deposit of $100,000 or more......        3,173         1,397        4,007         1,028        9,605
                                                         -----         -----        -----         -----        -----

Total certificates of deposit....................      $12,597        $8,322      $24,415        $7,343      $52,677
                                                       =======        ======      =======        ======      =======

</TABLE>
<PAGE>
         Borrowings.  American Savings' other available sources of funds include
advances from the FHLB of Indianapolis and other borrowings.  As a member of the
FHLB of  Indianapolis,  the Bank is required to own capital stock in the FHLB of
Indianapolis  and  is  authorized  to  apply  for  advances  from  the  FHLB  of
Indianapolis.  Each FHLB credit program has its own interest rate,  which may be
fixed or  variable,  and  range of  maturities.  The  FHLB of  Indianapolis  may
prescribe the acceptable uses for these advances,  as well as limitations on the
size of the advances and repayment provisions. During recent years, the Bank has
utilized short-term borrowings (most of which have

                                       26

<PAGE>
maturities of 12 to 36 months) in order to fund loan demand.  See -- "Management
Discussion and Analysis - Asset/Liability Management."

         The  following  table  sets forth the  maximum  month-end  balance  and
average balance of FHLB advances, securities sold under agreements to repurchase
and other borrowings for the periods indicated.
<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                   -------------------------------------
                                                                    1998            1997            1996
                                                                    ----            ----            ----
                                                                           (In Thousands)
Maximum Balance:
<S>                                                                <C>             <C>              <C>   
  FHLB advances...........................................         $25,683         $12,000          $9,500
  Securities sold under agreements to repurchase..........             ---             ---             ---
  Other borrowings........................................             ---             ---             ---

Average Balance:
  FHLB advances...........................................         $18,663         $11,629          $3,186
  Securities sold under agreements to repurchase..........             ---             ---             ---
  Other borrowings........................................             ---             ---             ---
</TABLE>

         The  following  table sets forth certain  information  as to the Bank's
borrowings at the dates indicated.
<TABLE>
<CAPTION>
                                                                                December 31,
                                                                   ---------------------------------------
                                                                    1998            1997            1996
                                                                    ----            ----            ----
                                                                       (Dollars in Thousands)

<S>                                                                <C>             <C>              <C>   
FHLB advances.............................................         $21,683         $12,000          $9,500
Securities sold under agreements to repurchase............             ---             ---             ---
Other borrowings..........................................             ---             ---             ---
                                                                   -------         --------         ------- 

     Total borrowings.....................................         $21,683         $12,000          $9,500
                                                                   =======         =======          ======

Weighted average interest rate of FHLB advances...........           5.65%           5.89%           5.91%

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

Weighted average interest rate of other borrowings........            ---%            ---%            ---%
</TABLE>

Service Corporations

         As a federally chartered savings association,  the Bank is permitted by
OTS  regulations  to invest up to 2% of its assets,  or $2.3 million at December
31, 1998, in the stock of, or loans to, service corporation subsidiaries.  As of
such  date,  the  net  book  value  of the  Bank's  investment  in  its  service
corporations was approximately  $50,000. The Bank may invest an additional 1% of
its assets in service  corporations  where  such  additional  funds are used for
inner-city or community  development  purposes.  In addition to  investments  in
service corporations, federal institutions are

                                       27
<PAGE>
permitted to invest an unlimited amount in operating subsidiaries engaged solely
in activities which a federal association may engage in directly.

         The Bank has one wholly owned subsidiary  service  corporation,  NIFCO,
Inc.  ("NIFCO"),  and one second  tier  subsidiary  service  corporation,  Ridge
Management,  Inc.  ("Ridge  Management")  which is owned by NIFCO.  NIFCO  sells
annuities and securities to the Bank's  customers and to the general public.  At
December 31, 1998,  the Bank had an equity  investment in NIFCO of $50,000.  For
the year ended December 31, 1998,  NIFCO  recorded net income of $1,000.  In the
past, Ridge Management engaged in lending and investment  activity,  although it
is currently essentially  inactive.  For the year ended December 31, 1998, Ridge
Management had no activity.

Competition

         The Bank faces strong competition both in originating real estate loans
and in attracting  deposits.  Competition in originating  loans comes  primarily
from other savings  institutions,  credit unions,  commercial banks and mortgage
bankers who also make loans secured by real estate located in the Bank's primary
market  area.  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  all of its  deposits  through  its branch  offices,
primarily  from the  communities  in which those  branch  offices  are  located;
therefore,  competition  for those  deposits is  principally  from other savings
institutions,  commercial banks, securities firms, money market and mutual funds
and credit unions  located in the same  communities.  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,  convenient locations and other factors. The Bank competes for
these deposits by offering a variety of deposit  accounts at competitive  rates,
convenient  business  hours and a customer  oriented  staff.  As of December 31,
1998,  the  Bank  estimated  its  market  share  of  savings   deposits  in  the
Gary-Hammond, Indiana MSA market area to be approximately 1.3%.

         The authority to offer money market deposits,  and expanded lending and
other powers  authorized for savings  institutions  by federal  legislation  has
resulted in increased  competition  for both deposits and loans between  savings
institutions and other financial institutions such as commercial banks.

Regulation

         General.  The Bank is a federally  chartered savings  association,  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  ("Federal  Reserve
Board").  As the savings and loan holding  company of the Bank, the Company also
is subject to federal regulation and oversight. The purpose of the regulation of
the  Company  and other  holding  companies  is to  protect  subsidiary  savings
associations.  The Bank is a member of the Savings  Association  Insurance  Fund
("SAIF"), which together with the Bank Insurance Fund (the "BIF") are

                                       28
<PAGE>
the two deposit  insurance  funds  administered by the FDIC, 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 the Bank were as of March,
1998 and November, 1991, respectively. Under agency scheduling guidelines, it is
likely that another examination will be initiated in the near future. When these
examinations  are  conducted by the OTS and the FDIC,  the examiners may require
the Bank to provide  for higher  general or  specific  loan loss  reserves.  All
savings  associations  are subject to  semi-annual  assessments,  based upon the
savings  association's  total  assets,  to fund the  operations  of the OTS. The
Bank's OTS assessment for the fiscal year ended December 31, 1998, was $33,000.

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

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

         The Bank's general permissible lending limit for  loans-to-one-borrower
is equal to the  greater of $500,000  or 15% of  unimpaired  capital and surplus
(except for loans fully secured by certain  readily  marketable  collateral,  in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 1998,  the Bank's  lending  limit under this  restriction  was $1.3
million. The Bank is in compliance with the loans-to-one-borrower limitation.

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

                                       29
<PAGE>
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 FDIC.  The FDIC
also  has  the  authority  to  initiate   enforcement  actions  against  savings
associations,  after giving the OTS an opportunity to take such action,  and may
terminate  the deposit  insurance  if it  determines  that the  institution  has
engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

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

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

         Effective  January  1,  1997,  the  premium  schedule  for BIF and SAIF
insured  institutions  ranged from 0 to 27 basis points.  However,  SAIF-insured
institutions are required to pay a Financing  Corporation (FICO) assessment,  in
order to fund the  interest on bonds  issued to resolve  thrift  failures in the
1980s,  equal to 6.48 basis  points for each $100 in  domestic  deposits,  while
BIF-insured  institutions  pay an assessment equal to 1.52 basis points for each
$100 in  domestic  deposits.  The  assessment  is expected to be reduced to 2.43
basis points no later than January 1, 2000, when BIF insured  institutions fully
participate in the  assessment.  These  assessments,  which may be revised based
upon the level of BIF and SAIF  deposits,  will  continue  until the FICO  bonds
mature in the year 2017.

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

                                       30
<PAGE>
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 December  31, 1998,  the Bank did not have any  intangible
assets.

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

         At December 31, 1998, the Bank had tangible capital of $8.5 million, or
7.52% of adjusted total assets,  which is  approximately  $6.8 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.

         The capital standards also require core capital equal to at least 3% of
adjusted total assets.  Core capital generally consists of tangible capital plus
certain intangible  assets,  including a limited amount of purchased credit card
relationships.  As a result of the prompt corrective action provisions discussed
below,  however, a savings  association must maintain a core capital ratio of at
least  4%  to  be  considered  adequately  capitalized  unless  its  supervisory
condition is such to allow it to maintain a 3% ratio.

         At December 31, 1998,  the Bank had core capital equal to $8.5 million,
or 7.52% of  adjusted  total  assets,  which is $5.1  million  above the minimum
leverage ratio requirement of 3% as in effect on that date.

          The OTS risk-based  requirement  requires savings associations to have
total capital of at least 8% of risk-weighted  assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain  permanent  and  maturing  capital  instruments  that do not
qualify as core capital and general  valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based  requirement  only to the extent of core capital.  The
OTS is  also  authorized  to  require  a  savings  association  to  maintain  an
additional  amount of total capital to account for  concentration of credit risk
and the risk of non-traditional  activities.  At December 31, 1998, the Bank had
no capital  instruments  that qualify as  supplementary  capital and $506,000 of
general loss, which was less than 1.25% of risk-weighted assets.

         Certain  exclusions from capital and assets are required to be made for
the purpose of calculating  total  capital.  Such  exclusions  consist of equity
investments  (as  defined  by  regulation)  and that  portion  of land loans and
nonresidential  construction  loans in excess of an 80% loan-to-value  ratio and
reciprocal holdings of qualifying capital  instruments.  The Bank had $15,000 of
such exclusions from capital and assets at December 31, 1998.


                                       31
<PAGE>
         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,  such as the  Bank,  with  less than $300
million in assets and a total capital ratio in excess of 12% is exempt from this
requirement unless the OTS determines otherwise.

         On  December  31,  1998,  the Bank had total  capital  of $9.0  million
(including $8.5 million in core capital and $506,000 in qualifying supplementary
capital) and risk-weighted assets of $63.8 million or total capital of 14.06% of
risk-weighted  assets.  This amount was $3.9 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

                                       32
<PAGE>
tangible  capital  ratio  of  2%  or  less)  is  subject  to  further  mandatory
restrictions on its activities in addition to those  applicable to significantly
undercapitalized  associations. In addition, the OTS must appoint a receiver (or
conservator  with the concurrence of the FDIC) for a savings  association,  with
certain  limited  exceptions,   within  90  days  after  it  becomes  critically
undercapitalized.  Any  undercapitalized  association  is  also  subject  to the
general enforcement authority of the OTS and the FDIC, including the appointment
of a conservator or a receiver.

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

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

Limitations on Dividends and Other Capital Distributions

         OTS regulations  impose various  restrictions  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.

         Generally,  savings  associations,  such as the 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 its 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. The Bank 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  notice  period  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

                                       33
<PAGE>
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

         The Bank is required to maintain an average  daily balance of specified
liquid assets equal to a monthly average of not less than a specified percentage
of its net  withdrawable  deposit  accounts  plus  short-term  borrowings.  This
liquidity  requirement  is subject to change from time to time by the OTS to any
amount within the range of 4% to 10% depending upon economic  conditions and the
savings  flows of member  institutions.  Monetary  penalties  may be imposed for
failure  to meet  these  liquidity  requirements.  In 1997 the OTS  lowered  the
liquidity  requirement  from 5% to 4% and  eliminated  the 1% short term  liquid
asset  requirement.  The Bank's liquidity ratio for December 31, 1998 was 16.06%
which exceeded the applicable  requirements.  The Bank has never been subject to
monetary penalties for failure to meet its liquidity requirements.

Accounting

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

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

Qualified Thrift Lender Test

         All savings  associations,  including the Bank,  are required to meet a
qualified  thrift  lender  ("QTL") test to avoid certain  restrictions  on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly  average  for nine out of every 12  months  on a  rolling  basis.  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 December 31, 1998, the Bank met the test and has always met
the test since its effectiveness.


                                       34
<PAGE>
         Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
the BIF.  If such an  association  has not yet  requalified  or  converted  to a
national  bank,  its  new  investments  and  activities  are  limited  to  those
permissible  for both a  savings  association  and a  national  bank,  and it is
limited to national bank branching  rights in its home state.  In addition,  the
association is immediately  ineligible to receive any new FHLB borrowings and is
subject to national  bank limits for payment of dividends.  If such  association
has not requalified or converted to a national bank within three years after the
failure,  it must divest itself of all  investments and cease all activities not
permissible  for a  national  bank.  In  addition,  it must repay  promptly  any
outstanding FHLB borrowings,  which may result in prepayment  penalties.  If any
association  that fails the QTL test is  controlled by a holding  company,  then
within one year after the failure,  the holding  company must register as a bank
holding  company  and  become  subject  to  all  restrictions  on  bank  holding
companies. See "- Holding Company Regulation."

Community Reinvestment Act

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

         The federal banking agencies,  including the OTS, have recently revised
the CRA  regulations  and  the  methodology  for  determining  an  institution's
compliance with the CRA. Due to the heightened  attention being given to the CRA
in the past few years,  the Bank may be required to devote  additional funds for
investment  and lending in its local  community.  The Bank was  examined for CRA
compliance in March 1998 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

                                       35
<PAGE>
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 information, proxy solicitation, insider trading restrictions and
other requirements of the SEC under the Exchange Act.

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


                                       36
<PAGE>
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  December  31,  1998,   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,  that  administers the home financing credit function of savings
associations.  Each FHLB  serves as a reserve  or central  bank for its  members
within its assigned  region.  It is funded  primarily from proceeds derived from
the sale of  consolidated  obligations  of the FHLB  System.  It makes  loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal  Housing  Finance  Board.  All advances from the FHLB are required to be
fully secured by  sufficient  collateral as determined by the FHLB. In addition,
all  long-term  advances  are  required to provide  funds for  residential  home
financing.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of  Indianapolis.  At December 31, 1998,  The Bank had $1.3 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 calendar years such dividends have averaged 7.49% and
were 8.01% for calendar year 1998.

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

         For the year ended  December  31, 1998,  dividends  paid by the FHLB of
Indianapolis to the Bank totaled $81,200,  which  constitutes a $28,500 increase
from the  amount of  dividends  received  in  calendar  year 1997.  The  $26,900
dividend received for the quarter ended December 31, 1998 reflects an annualized
rate of 8.00%, or .01% below the average rate for calendar 1998.


                                       37
<PAGE>
Federal and State Taxation

         General. The Company and the Bank report their income on a consolidated
basis and the accrual  method of  accounting,  and are subject to federal income
taxation  in the  same  manner  as  other  corporations  with  some  exceptions,
including  particularly  the Bank' reserve for bad debts  discussed  below.  The
following  discussion  of tax matters is intended only as a summary and does not
purport to be a  comprehensive  description  of the tax rules  applicable to the
Bank or the Company.  The Bank has not been audited by the IRS since 1996, which
covered the tax years  through  1995.  For its 1998  taxable  year,  the Bank is
subject to a maximum federal income tax rate of 34%.

         Bad Debt  Reserves.  Prior to the Small  Business Job Protection Act of
1996 (the "1996  Act"),  the Bank was  permitted  to establish a reserve for bad
debts and to make annual additions to the reserve. These additions could, within
specified formula limits, be deducted in arriving at taxable income. As a result
of the 1996 Act,  savings  associations  must now use the  specific  charge  off
method in computing bad debt  deductions  beginning  with their 1996 Federal tax
return, subject to the residential loan requirement provision.

         Under  the  residential  loan  requirement  provision,   the  recapture
required by the 1996 Act was suspended for each of two successive taxable years,
beginning  with the  Bank's  1996  taxable  year,  due to the fact that the Bank
originated a minimum number of certain  residential loans based upon the average
of the principal  amounts of such loans made by the Bank during its six previous
taxable years preceding.

         Under the 1996 Act, for its current and future taxable years,  the Bank
is not permitted to make  additions to its tax bad debt  reserves.  In addition,
the Bank is required to recapture  (i.e.,  take into taxable  income) over a six
year  period  the  excess  of the  balance  of its tax bad debt  reserves  as of
December 31, 1995 other than its  supplemental  reserve for losses on loans,  if
any,  over the balance of such  reserves as of December 31, 1998. As a result of
such recapture, the Bank will incur an additional tax liability of approximately
$114,000 beginning in 1998 which will be incurred over a six-year period.

         Distributions.  Under the 1996  Act,  if the Bank  makes  "non-dividend
distributions"  to the Company,  such  distributions  will be considered to have
been made from the Bank's  unrecaptured  tax bad debt  reserves  (including  the
balance of its reserves as of December 31, 1998) to the extent thereof, and then
from the Bank's supplemental reserve for losses on loans, to the extent thereof,
and an amount based on the amount  distributed  (but not in excess of the amount
of  such  reserves)  will  be  included  in  the  Bank's  income.   Non-dividend
distributions  include  distributions  in  excess  of  the  Bank's  current  and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock,  and  distributions in partial or complete
liquidation.  Dividends paid out of the Bank's  current or accumulated  earnings
and profits will not be so included in the Bank's income.

         The amount of additional  taxable income triggered by a non-dividend is
an amount that, when reduced by the tax attributable to the income,  is equal to
the  amount  of  the  distribution.  Thus,  if the  Bank  makes  a  non-dividend
distribution to the Company,  approximately one and one-half times the amount of
such  distribution  (but not in excess of the amount of such reserves)  would be
includable  in income for federal  income tax  purposes,  assuming a 35% federal
corporate income tax

                                       38
<PAGE>
rate. The Bank does not intend to pay dividends that would result in a recapture
of any portion of its bad debt reserves.

         Under the residential loan requirement provision,  the recapture Bank's
1996  required  by the  1996 Act will be  suspended  for each of two  successive
taxable  years,  beginning  with the Bank's 1996 taxable year, in which the Bank
originates a minimum of certain  residential loans based upon the average of the
principal  amounts of such loans made by the Bank during its six  taxable  years
preceding its current taxable year.

         Indiana Taxation. The State of Indiana imposes an 8.5% franchise tax on
the net income of financial (including thrift) institutions.  Taxable income for
franchise  tax  purposes  will  constitute  federal  taxable  income  before net
operating loss  deductions and special  deductions,  adjusted for certain items,
including  the addition of Indiana  income  taxes,  property  taxes,  tax exempt
interest and bad debts.  Other  applicable  Indiana taxes include sales, use and
property taxes.

         Delaware Taxation. As a Delaware holding company, the Company is exempt
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  Holding  Company is also
subject to an annual franchise tax imposed by the State of Delaware.

Competition

         The Bank faces strong competition both in originating real estate loans
and in attracting  deposits.  Competition in originating  loans comes  primarily
from  commercial  banks,  credit  unions,  mortgage  bankers  and other  savings
institutions,  which also make loans secured by real estate located in the Bank'
market  area.  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.

         Competition for those deposits is principally  from  commercial  banks,
credit unions,  mutual funds,  securities  firms and other savings  institutions
located in the same  communities.  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,
convenient  locations and other factors. The Bank competes for these deposits by
offering  competitive rates,  convenient  business hours and a customer oriented
staff.

Executive Officers

         The following information as to the business experience during the past
five years is supplied with respect to executive officers of the Company. Except
as otherwise indicated, the persons named have served as officers of the Company
since it became  the  holding  company of the Bank and all  positions  described
below are with the Bank. There are no arrangements or understandings between the
persons  named  and any  other  person  pursuant  to which  such  officers  were
selected.

         Clement B. Knapp,  Jr. Mr. Knapp, age 56, has served as Chairman of the
Board,  President  and Chief  Executive  Officer  of the Bank since 1977 and has
acted in all of such  capacities  with the Company  since its  incorporation  in
1993. Since joining the Bank in 1968 he has served in various

                                       39
<PAGE>
capacities and attended many banking  schools and seminars.  He is a graduate of
Georgetown University and Indiana University  Indianapolis Law School. Mr. Knapp
is also active in several community  organizations.  Mr. Knapp is the husband of
Denise L. Knapp, Secretary of the Bank.

         Louis A. Green.  Mr. Green, age 55, joined the Bank in 1967. He has had
various  positions  including  Controller  and Vice  President.  Mr.  Green  was
appointed  as Senior  Vice  President  of the Bank in 1985 and of the Company in
1993 and is responsible for coordinating  the Bank's loan  activities.  Prior to
joining the Bank, Mr. Green was an accountant in the Chicago Office of Ernst and
Ernst. He is also an active member in several trade and community organizations.

         Daniel T. Poludniak.  Mr.  Poludniak,  age 57, has been Vice President,
Treasurer  and Chief  Financial  Officer of The Bank since 1983 and the  Company
since 1993. As Chief Financial Officer of the Bank, Mr. Poludniak is responsible
for the  establishment  and  supervision of the  accounting and data  processing
activities  of the Bank.  Prior to joining the Bank in 1983,  Mr.  Poludniak had
twenty years experience in both local and Chicago banks.

         Denise L. Knapp.  Mrs. Knapp, age 51, was appointed as the Secretary of
the  Bank in 1987 and of the  Company  in 1993.  She has also  served  as a loan
officer since 1985 and as the Dyer branch manager since 1989.  Since joining the
Bank in 1975,  Mrs.  Knapp has served in various  capacities  and is a member of
several  executive  committees of the Bank. Mrs. Knapp is also active in several
charitable organizations in the area. Mrs. Knapp is the wife of President Knapp.

Employees

         At  December  31,  1998,  the  Company  had a  total  of 31  employees,
including four part-time employees.  The Company's employees are not represented
by any collective bargaining group.
Management considers its employee relations to be good.

Year 2000 Readiness Disclosure

         General.  The year 2000 ("Y2K") issues  confronting the Company and its
suppliers,  customers,  customers'  suppliers  and  competitors  centers  on the
inability of computer systems to recognize the year 2000. Many existing computer
programs  and  systems  originally  were  programmed  with six digit  dates that
provided only two digits to identify the calendar year 1900 rather than the year
2000.

         Financial  institution  regulators  recently have increased their focus
upon  Y2K   compliance   issues  and  have  issued   guidance   concerning   the
responsibilities  of senior  management  and  directors.  The Federal  Financial
Institutions  Examination  Council (the "FFIEC") has issued several  interagency
statements  on  Y2K  Project  Management  Awareness.  These  statements  require
financial  institutions to, among other things,  examine the Y2K implications of
their  reliance on vendors and with respect to date  exchange and the  potential
impact of the Y2K  issue on their  customers,  suppliers  and  borrowers.  These
statements also require each federally regulated financial institution to survey
its exposure,  measure its risk and prepare a plan to address the Y2K issue.  In
addition,  the  federal  banking  regulators  have issued  safety and  soundness
guidelines to be followed by insured depository institutions,  such as the Bank,
to assure  resolution of any Y2K  problems.  The federal  banking  agencies have
asserted that Y2K testing and  certification is a key safety and soundness issue
in

                                       40
<PAGE>
conjunction with regulatory  exams and, thus, that an  institution's  failure to
address  appropriately  the  Y2K  issue  could  result  in  supervisory  action,
including the reduction of the institution's  supervisory ratings, the denial of
applications  for approval of mergers or acquisitions or the imposition of civil
money penalties.

         The Bank  understands the importance of the Y2K issue,  and the Bank is
currently  taking steps to insure a smooth  transition into the next millennium.
The Senior  Management  Team of the Bank has  decided  to follow the  guidelines
established by the FFIEC for Y2K preparation.  The Bank has intended to meet all
deadlines  established  by the FFIEC,  and  to-date the Bank has  satisfied  all
requirements.

         A  Steering  Committee  comprised  of the Bank's  department  heads was
established  in 1998 to oversee and report all the events  pertaining to the Y2K
project.  These individuals are under the direct supervision of the Bank's Chief
Executive Officer and prepare regular reports to the Board of Directors.

         Risks. Like most financial service providers,  the Y2K issue due to its
dependence on technology and  date-sensitive  data may significantly  affect the
Company and its operations.  Computer software and hardware and other equipment,
both within and outside the  Company's  direct  control,  and third parties with
whom the Company  electronically or operationally  interfaces (including without
limitation its customers and third party vendors) are likely to be affected.  If
computer systems are not modified in order to be able to identify the year 2000,
many computer  applications could fail or create erroneous results. As a result,
many  calculations  which  rely on date  field  information,  such as  interest,
payment or due dates and other operation functions, could generate results which
are  significantly  misstated,  and the Company could experience an inability to
process  transactions,  prepare  statements or engage in similar normal business
activities.  Likewise,  under  certain  circumstances,  a failure to  adequately
address the Y2K issue could  adversely  affect the  viability  of the  Company's
suppliers and creditors and the creditworthiness of its borrowers.  Thus, if not
adequately addressed, the Y2K issue could result in a significant adverse impact
on the Company's operations and, in turn, its financial condition and results of
operations.

         The Bank  has  adopted  a  five-phase  plan to  insure  Y2K  processing
success.  Many aspects required for the plan's success have been completed,  and
are currently undergoing minor improvement  adjustments.  The main categories of
the five-phase plan are as follows:

         1.       Awareness  During  this phase of the Bank's  Y2K  program  the
                  senior  management  members  attempted  to gather  information
                  relevant to the Bank's Y2K scenario.  Information was gathered
                  from  a  variety  of  sources  including  seminars,   numerous
                  publications and external consultants.

         2.       Assessment  During  the  assessment  phase of the  Banks'  Y2K
                  program each  department of the Bank submitted  information on
                  areas that  presented  a  potential  risk to the  institution.
                  Members of the Y2K  Steering  Committee  identified  the "date
                  sensitive"   systems  and   assigned  a  risk  rating  to  the
                  individual  items. The areas classified as "mission  critical"
                  receive a higher priority rating from the committee.


                                       41
<PAGE>
         3.       Renovation  Throughout the renovation  phase of the Bank's Y2K
                  program,  systems  were  replaced  or  upgraded  to insure Y2K
                  compliance.  The costs  associated  with this  phase  were not
                  material  during 1998 and a substantial  change in 1999 is not
                  expected.

         4.       Testing The Bank  performed  internal  testing on all in-house
                  systems  and  some  systems   under  the  control  of  service
                  providers.  Proxy tests were used to test the integrity of the
                  Bank's core application  system.  The senior management of the
                  Bank is  currently  satisfied  with the  progress  of the test
                  results.

         5.       Contingency  The Bank has begun  the  process  of  contingency
                  planning for all mission critical systems of the bank. Members
                  of the Steering  Committee  intend to complete the contingency
                  planning  process prior to the FFIEC  deadline in June for all
                  mission critical  systems.  Including those systems  dependent
                  upon third party vendors or service providers.

         The  Company  is  expensing  all costs  associated  with  training  and
software as those costs are  incurred,  and such costs are being funded  through
operating cash flows.  Hardware costs will be capitalized and expensed under our
fixed asset  guidelines.  The total cost of the Y2K  conversion  project for the
Company is  estimated  to be $65,000.  Expenses of  approximately  $40,000  were
incurred and expensed by the Company through December 31, 1998. The Company does
not expect significant  increases in future data processing costs related to Y2K
compliance.  While we believe  this amount will be  sufficient  to complete  the
requirements  of becoming  Y2K  compliant,  it is an  estimate.  As such we will
review  our budget  monthly to help  ensure  that we have  allocated  sufficient
resources to this  project.  Any  deviations to the  preliminary  budget will be
reported to the Board of Directors.



                                       42
<PAGE>
Item 2. Description of Property
-------------------------------

         The  Company  conducts  its  business  at its main  office  located  in
Munster, Indiana. The following table sets forth information relating to each of
the Company's properties as of December 31, 1998.
<TABLE>
<CAPTION>
                                                                              Total
                                             Owned       Approximate      December 31,
                              Year            or            Square         1998 Book
Location                    Acquired        Leased         Footage            Value
--------                    --------        ------         -------            -----
                                                 (In Thousands)
<S>                           <C>           <C>              <C>             <C>    
Main Office:

8230 Hohman Avenue            1963           Owned           8,400           $72,000
Munster, Indiana

Branch Offices:

1001 Main Street              1990          Leased           2,800            86,000
Dyer, Indiana

4521 Hohman Avenue            1983           Owned           1,600            46,000
Hammond, Indiana
</TABLE>

         The Company  believes that its current  facilities are adequate to meet
the  present  and  foreseeable  needs of The Bank and the  Company,  subject  to
possible future expansion.

         The  Company  maintains  an  on-line  data base  with a service  bureau
servicing financial institutions.  The net book value of the data processing and
computer equipment utilized by the Company at December 31, 1998 was $106,000.

Item 3.  Legal Proceedings
--------------------------

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

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

         During the quarter ended  December 31, 1998,  the Company  submitted no
matters to a vote of security holders, through the solicitation of proxies.


                                       43

<PAGE>
                                     PART II


Item  5.  Market for Common Equity and Related Stockholder Matters
------------------------------------------------------------------

         Page 49 of the Company's 1998 Annual Report to  Stockholders  is herein
incorporated by reference.


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

         Pages 5 through 16 of the Company's 1998 Annual Report to  Stockholders
is herein incorporated by reference.


Item  7.  Financial Statements
------------------------------

         Pages 17 through 48 of the Company's 1998 Annual Report to Stockholders
are herein incorporated by reference.


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

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

                                    PART III

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

         Information  concerning  directors of the  Registrant  is  incorporated
herein by reference from the Company's  definitive  Proxy Statement for the 1999
Annual Meeting of Stockholders, a copy of which will be filed not later than 120
days after the close of the fiscal year.

Item 10.  Executive Compensation
--------------------------------

         Information concerning executive compensation is incorporated herein by
reference  from the  Company's  definitive  Proxy  Statement for the 1999 Annual
Meeting of  Stockholders,  a copy of which will be filed not later than 120 days
after the close of the fiscal year.


                                       44

<PAGE>
Item 11.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

         Information  concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's definitive
Proxy  Statement for the 1999 Annual  Meeting of  Stockholders,  a copy of which
will be filed not later than 120 days after the close of the fiscal year.

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

         Information   concerning  certain  relationships  and  transactions  is
incorporated  herein by reference from the Company's  definitive Proxy Statement
for the 1999 Annual Meeting of  Stockholders,  a copy of which will be filed not
later than 120 days after the close of the fiscal year.

                                       45

<PAGE>
                                     PART IV


Item 13.  Exhibits and Reports on 8-K
-------------------------------------

         (a) Exhibits:

<TABLE>
<CAPTION>
                                                                                              Reference to
                                                                                              Prior Filing
      Regulation                                                                               or Exhibit
      S-K Exhibit                                                                            Number Attached
        Number                                     Document                                      Hereto
        ------                                     --------                                      ------

<S>                   <C>                                                                    <C> 
             2        Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation            None
                      or Succession.....................................................
             3        Articles of Incorporation and Bylaws..............................            *
             4        Instruments defining the rights of security holders,
                      including indentures:
                       Common Stock Certificate.........................................            *
             9        Voting Trust Agreement............................................          None
            10        Material contracts:
                      1996 Stock Option and Incentive Plan..............................           ***
                      Recognition and Retention Plan....................................           ***
                      Employee Stock Ownership Plan.....................................            *
                      Employee Severance Compensation Plan..............................            *
                      Employment Agreements.............................................           **
                      Second Executive Deferred Compensation Plan.......................          10.1
                      Trust Agreement for the Compensation Agreement....................          10.2
            11        Statement re computation of per share earnings....................          None
            13        Annual Report to Security Holders for the last fiscal year, Form
                      10-Q or 10QSB or quarterly report to security holders.............           13
            16        Letter on change in certifying accountant.........................           *
            18        Letter on Change in Accounting Principles.........................          None
            21        Subsidiaries of Registrant........................................           21
            22        Published Report Regarding Matters Submitted to Vote..............          None
            23        Consent of Experts and Counsel....................................           23
            24        Power of Attorney.................................................      Not required
            27        Financial Data Schedule...........................................           27
            99        Additional Exhibits...............................................          None
</TABLE>
--------------------

*        Filed on December 29, 1995 as exhibits to the Registrant's Registration
         Statement  No.  33-80991  on Form  S-1.  All of such  previously  filed
         documents  are hereby  incorporated  herein by reference in  accordance
         with Item 601 of Regulation S-B.
**       Filed  on  December  29,  1995  as  Exhibits   10.2  and  10.3  to  the
         Registrant's  Registration  Statement No.  33-80991 on Form S-1. All of
         such previously filed documents are hereby incorporated by reference in
         accordance with Item 601 of Regulation S-B.
***      Filed on September  12, 1996,  under  Schedule  14A, as  appendices  to
         definitive proxy materials.  All of such previously filed documents are
         hereby  incorporated herein by reference in accordance with Item 601 of
         Regulation S-B.
<PAGE>

         (b) Reports on Form 8-K:

         No reports on Form 8-K have been filed  during the  three-month  period
ended December 31, 1998.

                                       46

<PAGE>
                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
Registrant  caused  this  Report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                      AMB FINANCIAL CORPORATION


Date: March 31, 1999                  By:  /s/ Clement B. Knapp, Jr.
                                           ---------------------------
                                           Clement B. Knapp, Jr., 
                                           Chairman of the Board
                                           President and Chief Executive Officer
                                          (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.


/s/ Clement B. Knapp, Jr.                        /s/ Ronald W. Borto
-------------------------                        --------------------
Clement B. Knapp, Jr., Chairman of the Board     Ronald W. Borto, Director
 President and Chief Executive Officer
(Principal Executive and Operating Officer)

Date: March 31, 1999                             Date: March 31, 1999


/s/ Donald L. Harle                              /s/ John C. McLaughlin
-------------------                              ----------------------
Donald L. Harle, Director                        John C. McLaughlin, Director

Date: March 31, 1999                             Date: March 31, 1999


/s/ John G. Pastrick                             /s/ Robert E. Tolley
--------------------                             --------------------
John G. Pastrick, Director                       Robert E. Tolley, Director

Date: March 31, 1999                             Date: March 31, 1999


/s/ Daniel T. Poludniak
-----------------------
Daniel T. Poludniak, Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and Accounting Officer)

Date: March 31, 1999

                                       47

<PAGE>
                                  Exhibit Index




   Exhibit No.                                Document
   -----------                                --------

     10.1              Second Executive Deferred Compensation Plan
     10.2              Trust Agreement for the Compensation Agreement
     13                Annual Report
     21                Subsidiaries of the Registrant
     23                Consent of Cobitz, VandenBerg & Fennessy
     27                Financial Data Schedule