EXHIBIT 13

Managements Discussion and Analysis of
Financial Condition and Results of Operations


INTRODUCTION AND OVERVIEW OF OPERATIONS

Lafayette  Bancorporation  ("Corporation") is a one-bank holding company located
in Lafayette, Indiana. The Corporation's wholly-owned subsidiary, Lafayette Bank
and Trust Company  ("Bank"),  conducts  business in thirteen  offices located in
Tippecanoe  and White  Counties,  Indiana.  The Bank is  engaged in a variety of
financial services, including accepting deposits; making commercial and consumer
loans;  originating  mortgage  loans;  providing  personal and  corporate  trust
services;  providing  investment advisory and brokerage services;  and providing
auto, homeowners, and other insurance products.

The major components of the  Corporation's  operating  results for the past five
years are summarized in Table 1 - Five Year Financial Summary.

(insert table 1)

The Corporation  earned  $4,808,000,  or $2.22 per share, for 1997,  compared to
$4,091,000,  or $1.89 per share,  for 1996. The 17.5% earnings  increase in 1997
compared to 1996 is largely due to an increase in net interest income.  Realized
gains on the sale of mortgage loans along with improved earnings from the Bank's
investment  brokerage  department  were also  positive  factors in the  earnings
increase.  The  increase in the loan loss  provision  and  salaries and employee
benefits were partially responsible for offsetting 1997 profits.

Earnings  in 1996 were  21.2%  higher  than the  $3,375,000,  or $1.56 per share
recorded  in 1995.  The first full year of  operation  of the  secondary  market
mortgage  department  along with the decrease of the federal  deposit  insurance
requirement  were  factors in the  earnings  increase.  Items  having a negative
effect  on  earnings  included  increases  in the  required  level of loan  loss
provision  and in salaries and employee  benefits,  primarily as a result of the
two supermarket banking facilities opened, in addition to the added personnel in
the Monticello branch acquisition.

Return on  average  assets  (ROA) was  1.15%  and 1.08% for the  periods  ending
December 31, 1997 and 1996,  respectively,  while return on average equity (ROE)
was 13.16% and 12.35% for those same time periods.


NET INTEREST INCOME

Net  interest  income is the most  significant  component  of the  Corporation's
earnings.  Net  interest  income is the  difference  between  interest  and fees
realized on earning assets, primarily loans and securities, and interest paid on
deposits and other borrowed  funds.  The net interest  margin is this difference
expressed as a percentage  of average  earning  assets.  Net interest  income is
determined  by several  factors,  including  the  volume of  earning  assets and
liabilities, the mix of earning assets and liabilities, and the overall level of
interest  rates.  Although there are a certain number of these factors which can
be controlled by management policies and actions, certain other factors, such as
the general level of credit demand,  Federal Reserve Board monetary policy,  and
changes in tax laws are beyond the control of management. Tables 1 through 4 are
an integral  part in analyzing  the  components  of net interest  income and the
changes which have occurred  between the time periods  presented.  Table 1 shows
the  Corporation's net interest income from 1993 through 1997. Table 2 - Average
Balance   Sheets  and  Interest   Rates   represent  the  major   components  of
interest-earning  assets  and  interest-bearing   liabilities.   For  analytical
purposes,  interest  income  presented  in the table has been  adjusted to a tax
equivalent  basis  assuming  a 34% tax rate for all  years.  The tax  equivalent
adjustment  recognizes  the  income  tax  savings  when  comparing  taxable  and
tax-exempt assets.

(insert table 2)

<PAGE> 2

Table 3 - Net Interest Earning Assets  illustrates net  interest-earning  assets
and liabilities for 1997, 1996 and 1995.

(insert table 3)

Table 4 - Volume and Rate Analysis  depicts the dollar effect of volume and rate
changes  from  1995  through  1997.   Variances  which  were  not   specifically
attributable to volume or rate were allocated  proportionately  between rate and
volume  using  the  absolute  values  of each  for a basis  for the  allocation.
Nonaccrual  loans were included in the average loan balances used in determining
the yields.

Interest  income on tax-exempt  securities  and loans has been adjusted to a tax
equivalent basis using a marginal tax rate of 34%. Loan interest income includes
loan  fees of  $912,000,  $928,000,  and  $703,000  for  1997,  1996,  and 1995,
respectively.

(insert table 4)

Net interest  income on a tax  equivalent  basis for 1997 was 14.69% higher than
that for 1996,  while the net  interest  margin for 1997 was 4.36%,  or 13 basis
points higher than the prior year. Tax equivalent net interest income was 11.98%
higher in 1996 compared to 1995, as the net interest  margin  increased 16 basis
points to 4.23% from that of 1995.

The increase in 1997 net interest income was  predominately  due to the increase
in the  volume of  earning  assets,  in  addition  to the  continued  shift from
securities  to loans in the earning  asset mix.  Increases  in  interest-bearing
liabilities,  primarily time deposits and long-term debt,  partially  offset the
earning asset  increases.  The average  earning  asset yield  increased 12 basis
points to 8.37% in 1997  compared to the prior  year,  mainly as a result of the
increased loan portfolio  activity.  This loan volume  increase  during the year
more than  adequately  compensated for the decline in the overall loan yields to
augment  net  interest  income.  Although  the average  yield on the  securities
portfolio  increased  11 basis  points  to 6.26%  during  the  year,  management
enhanced  overall  earnings  through  the  higher  yields  gained  in  the  loan
portfolio.  Total average  interest-bearing  liabilities  increased  during 1997
mainly as a result  of the full year  effect  of the  deposits  acquired  in the
September 1996  Monticello  branch  acquisition,  along with the increase in the
Corporation's   long-term   debt.   Although   the  average   balance  of  total
interest-bearing  liabilities  increased  during the year,  lower interest rates
paid on those  deposits  resulted in a reduction  in the total  interest-bearing
rate of 4.58% for the year.

Net interest income in 1996 increased  significantly compared to 1995 due to the
combination  of loan growth  experienced  by the  Corporation in addition to the
beginning of the shift in earning asset mix from  securities to higher  yielding
loans.  Management was able to effectively  employ the deposits  acquired in the
Monticello  branch  transaction  by lending  those funds in a rather  short time
period after the branch transaction occurred.  The earning asset yield increased
13 basis  points to 8.25% in 1996  predominately  as a result of this  strategy.
Like  earning  assets,   interest-bearing  liabilities  increased  during  1996,
primarily  as a  result  of  the  deposits  acquired  in the  Monticello  branch
transaction.  The deposit growth realized coupled with lower interest rates paid
on certain  deposits  resulted  in a 4.62%  average  interest-bearing  liability
yield, a decrease of 4 basis points from the prior year.


PROVISION FOR LOAN LOSSES AND ASSET QUALITY

The provision for loan losses represents charges made to earnings to maintain an
adequate  allowance  for loan losses.  The  allowance is maintained at an amount
believed to be sufficient to absorb  possible  losses that may be experienced in
the  credit  portfolio.   Factors  considered  in  establishing  an  appropriate
allowance  include:  a careful  assessment  of the  financial  condition  of the
borrower;  a realistic  determination  for the value and adequacy of  underlying
collateral; the condition of the local economy and the condition of the specific
industry of the borrower;  a comprehensive  analysis of the levels and trends of
loan categories; and a review of delinquent and classified loans.

<PAGE> 3

The  Corporation  maintains a comprehensive loan review program to evaluate loan
administration,  credit  quality,  and loan  documentation.  This  program  also
includes  a  regular  review  of  problem  loan  reports,   delinquencies,   and
charge-offs.  The  adequacy of the  allowance  for loan losses is evaluated on a
quarterly basis.  This evaluation  focuses on specific loan reviews,  changes in
the type and  volume of the loan  portfolio  given the  current  and  forecasted
economic  conditions,  and historical loss experience.  Any one of the following
conditions  may  necessitate  a review of a specific  loan:  a question has been
raised whether the customer's cash flow or net worth are sufficient to repay the
loan; the loan has been criticized in a regulatory  examination;  the accrual of
interest  has been  suspended;  or  other  reasons  where  either  the  ultimate
collectibility  of the loan is in  question,  or the loan has other  special  or
unusual characteristics which require special monitoring.

Activity in the  allowance for loan losses is reflected in Table 5 - Analysis of
Allowance  for Loan  Losses.  The recorded  values of loans and leases  actually
removed from the consolidated balance sheets are referred to as charge-offs and,
after  netting out  recoveries  on  previously  charged-off  assets,  become net
charge-offs.  The  Corporation's  policy  is  to  charge  off  loans,  when,  in
management's  opinion,  the loan is  deemed  uncollectible,  although  concerted
efforts are made to maximize recovery.

(insert table 5)

Nonperforming  assets and relative percentages to loan balances are presented in
Table 6 - Nonperforming  Assets. The level of nonperforming  loans and leases is
an important  element in assessing  asset  quality and the relevant  risk in the
credit portfolio.  Nonperforming  loans include  nonaccrual loans,  restructured
loans and loans  delinquent 90 days or more.  Loans are classified as nonaccrual
when management believes that collection of interest is doubtful, typically when
payments  are past due over 90 days,  unless well  secured and in the process of
collection.  Another element  associated with asset quality is other real estate
owned (OREO),  which represents  properties  acquired by the Corporation through
loan defaults by customers.

(Insert Table 6)


The consolidated provision for loan losses was $620,000,  $240,000, and $180,000
for 1997, 1996, and 1995,  respectively.  Management  believes the overall asset
quality of the loan  portfolio  continues  to improve,  as evidenced by the fact
that  total  nonperforming  loans  were at a five  year low in 1997,  while  the
average loan portfolio increased 44.64% over that same five year period.  Though
management  considers the level of net  charge-offs to be  manageable,  the 1997
level is at its highest point since 1994,  primarily as a result of the indirect
lending  function.  Management  plans to  control  and  monitor  growth  of this
particular area in an effort to reduce future charge-offs.

While overall asset quality continued to improve,  the allowance as a percent of
loans has declined over the last five years due to the  combination of increased
loan volume and the  increase in the 1997 net  charge-off  amount as  previously
explained.  The  provision  for loan  losses  was raised to  $620,000  for 1997,
primarily to keep pace with the Corporation's continued loan growth.

The $60,000  increase in the 1996 provision was attributed  solely to the 10.07%
average growth  experienced in the overall loan portfolio.  The amount of future
year  provisions  for loan  losses  will be subject to  adjustment  based on the
future evaluations of the loan loss reserve adequacy.

Total  nonperforming  loans and nonperforming  loans as a percent of total loans
have declined over the past five years, which has caused  significant  increases
in the allowance as a percent of nonperforming loans. Although each component of
nonperforming  loans  decreased as of December 31, 1997 from the prior year-end,
nonaccrual and restructured  loans have had the most significant  reduction over
the past five years,  due in large part to by the rising farm prices and overall
healthy farm economy.

<PAGE> 4

Statements  of Financial  Accounting  Standard No. 114 and 118,  AAccounting  by
Creditors for  Impairment of a Loan,@ became  effective  January 1, 1995.  These
statements  change the way loan loss  allowance  estimates  are made for problem
loans.  In general,  when it is  determined  that all principal and interest due
under the contractual terms of a loan are not fully collectible, management must
value the loan using discounted future expected cash flows.

Management believes three credits totaling approximately $127,000 as of December
31, 1997 met the criteria for an impaired  loan. A specific  reserve  allocation
has been  made in the  allowance  for loan  losses  for the  excess  of the loan
balance over the estimated future cash flows.  Application of this statement has
not had a material effect on Corporation's financial statements

The $114,000 increase in other real estate owned (AOREO@) relates to a valuation
allowance  account  established  in 1995 as a result of  certain  infrastructure
obligations  the Corporation  agreed to pay on an existing OREO property.  These
obligations  were  honored  and paid  in-full  during  the  course of 1997 which
reversed  the  valuation  allowance  account,   and  ultimately   increased  the
outstanding  principal  balance.  As of  December  31,  1997  there are only two
parcels of other real estate held by the Corporation.

Management believes loans classified for regulatory purposes as loss,  doubtful,
substandard,  or special  mention  that are not  included  in  nonperforming  or
impaired  loans do not  represent or result from trends or  uncertainties  which
will have a material impact on future operating results,  liquidity,  or capital
resources.

In  addition  to loans  classified  for  regulatory  purposes,  management  also
designates certain loans for internal  monitoring  purposes in a watch category.
Loans may be placed on management's watch list as a result of delinquent status,
concern about the borrower's financial condition, or the value of the collateral
securing the loan, substandard classification during regulatory examinations, or
simply as a result of  management's  desire to monitor more closely a borrower's
financial condition and performance. Watch category loans may include loans with
loss  potential  that are still  performing  and  accruing  interest  and may be
current under the terms of the loan  agreement;  however,  management may have a
significant  degree of  concern  about the  borrowers'  ability to  continue  to
perform  according  to the terms of the loan.  Loss  exposure  on these loans is
typically evaluated based primarily upon the estimated  liquidation value of the
collateral  securing the loan.  Also,  watch category loans may include  credits
which,  although  adequately secured and performing,  reflect a past delinquency
problem or unfavorable financial trends exhibited by the borrower.

All watch list loans are subject to  additional  scrutiny  and  monitoring.  The
Corporation's  philosophy  encourages  loan officers to identify  borrowers that
should be monitored in this fashion and believes this process ultimately results
in the identification of problem loans in a more timely fashion.

At December 31, 1997, the  Corporation had a total of $2,577,000 of loans on its
watch list which were not included in impaired or nonperforming loans.



                         NONINTEREST INCOME AND EXPENSE

A  listing  of  noninterest  income  and  expense  from  1995  through  1997 and
percentage  changes between years is included in Table 7 Noninterest  Income and
Expense.

(insert table 7)

Noninterest income increased 21.80% to $4,168,000 in 1997 compared to $3,422,000
in 1996. The primary  sources of  noninterest  income were income from fiduciary
activities,  service  charges on  deposit  accounts,  and net gain on  secondary
market loan sales.

<PAGE> 5

Income from fiduciary  activities  increased 8.99% due to the combination of new
accounts opened and an increase in the fee structure. Service charges on deposit
accounts increased 12.37%,  primarily as a result of a higher volume of accounts
being  assessed  fees,  in addition to an increase in the deposit fee  structure
which was implemented  November 1, 1997.  Other  operating  income also posted a
24.98%  increase  over the prior  year  predominately  as a result of two items.
First, the Investment Center, a full service brokerage operation offered through
Robert Thomas Securities,  Inc., member NASD/SIPC,  recorded an increase in fees
of  $104,000,  or 64.28% over the prior year mainly due to an increase in volume
during  another  exceptional  year in the stock  market.  Also,  ATM fee  income
increased  $161,000,  or  75.78% as a result of  surcharges  that were  assessed
beginning in May,  1997 on all non-bank  customers  conducting  transactions  at
various ATM locations.

Net gain on secondary market loan sales posted an 84.92% increase over the prior
year.  Additional  loan  originators and support staff were added which led to a
71.16% increase in loan  originations and a 86.15% increase in the dollar amount
of loans sold during the year.  Any increase from the  origination  and sales of
mortgage loans is extremely dependent upon the current interest rate environment
as well as customer  demand.  The Corporation has been developing  relationships
with  builders  and real  estate  agents,  and,  provided a stable or  declining
interest  rate  environment,  management  expects  this area of activity to be a
continued  source  of  significant  income.  The  statements  in this  paragraph
relating to the secondary  market  mortgage  department  and its  operations are
forward-looking  statements  which  may  or  may  not  be  accurate  due  to the
impossibility of predicting  future economic and business events,  and the level
of future interest rates.

Noninterest  income  during 1996  increased  22.65%  compared  to 1995.  Service
charges on deposit accounts grew 11.94% as the number of fee-generating accounts
at the supermarket  banking  facilities  increased.  Other operating income also
increased  19.04%,  attributable  to  increases  in  general  ATM  fees and fees
generated at the  Investment  Center.  Also included as part of other  operating
income was a $96,000 gain recorded on the sale of a branch facility.

Since  1996 was the  first  full year of  operations  for the  secondary  market
mortgage department, net gain on loan sales soared 192.65% in that year compared
to those recorded in 1995.

Total  noninterest  expense  increased 12.21% to $12,557,000 in 1997 compared to
$11,191,000 in 1996. As a percentage of total average assets,  total noninterest
expense  was  3.01% and 2.96%  for 1997 and  1996,  respectively.  Salaries  and
employee benefits  increased 18.21% and represent not only the largest component
of noninterest  expense, but represent the largest increase from the prior year.
The most significant reasons for this increase include the additional  personnel
added to the secondary market mortgage  department,  the addition of a marketing
manager and private banking representative,  the increase in commissions paid to
secondary  mortgage and Investment  Center personnel as a result of their record
efforts,  the full year  effect of  personnel  gained in the  Monticello  branch
transaction, and the increased value of the stock appreciation rights granted to
the executive management team.

Occupancy expense  increased 5.76% during 1997,  primarily as a result of higher
depreciation  and  maintenance  and repair costs  associated with the first full
year of the Monticello branch.

Equipment  expense  declined  for a second  straight  year  due to  depreciation
expense  decreasing  17.26% from the prior  year.  Many of the items that became
fully depreciated during 1996 were not replaced in 1997, therefore causing lower
depreciation expense for the year.

Other noninterest  expense increased 7.00% in 1997. Increase in general overhead
operating expenses such as telephone and postage, in addition to higher expenses
associated  with marketing,  repossession  and collection  expenses,  and higher
goodwill recorded account for 71.15% of the total increase for the year.

Noninterest  expense  increased  9.50% in 1996  compared  to 1995 as a result of
higher salary costs related to staffing needs  required of the secondary  market
mortgage  department,  the partial year effect of the personnel  obtained in the
Monticello branch acquisition,  and the increase in commissions paid as a result
of the  secondary  market's  first full year of  operation.  Occupancy and other
noninterest  expenses  increased in 1996  primarily due to the secondary  market
mortgage  department and the Monticello branch  acquisition.  Equipment expenses
were relatively flat, while deposit insurance  dramatically declined as a result
of the Bank Insurance Fund (BIF)  achieving its 1.25%  capitalization  level, as
mandated by Congress, during the prior year.

<PAGE> 6

                                  INCOME TAXES

The Corporation  records a provision for income taxes currently  payable,  along
with a provision  for those taxes  payable in the future.  Such  deferred  taxes
arise  from  differences  in timing of  certain  items for  financial  statement
reporting  rather than income tax reporting.  The major  difference  between the
effective tax rate applied to the Corporation's  financial  statement income and
the  federal  statutory  rate of 34% is the  result of  interest  on  tax-exempt
securities and loans.

The Corporation  has regular tax and alternative  minimum tax net operating loss
carryforwards  of $77,000 and $44,000,  respectively.  Utilization  of these tax
carryforwards are limited to $83,000 annually and expire in the year 2002.

The  Corporation's  effective tax rate was 34.82%,  33.95%,  and 34.67% in 1997,
1996, and 1995, respectively.  Further tax information regarding the Corporation
can be found in Note 1 and Note 12 to the consolidated financial statements.


                             INTERIM FINANCIAL DATA

Table 8 - Interim  Financial Data is a detailed  summary on a quarterly basis of
the results of operations  for the years ended December 31, 1997 and 1996. For a
fair  and  consistent   presentation,   these  results   contain  all  necessary
restatements  in  connection  with stock  dividends  that have  occurred  in the
periods presented.

(insert table 8)






                               FINANCIAL CONDITION


                                   SECURITIES


Securities  held-to-maturity  are  those  which  the  Corporation  has  both the
positive  intent and ability to hold to maturity,  and are reported at amortized
cost. Securities  available-for-sale  are those which the Corporation may decide
to sell if needed for liquidity,  asset/liability  management, or other reasons.
Securities  available-for-sale are reported at fair value, with unrealized gains
and  losses  included  as a  separate  component  of  equity,  net of  tax.  The
Corporation does not maintain any securities for trading purposes.

Table 9 - Securities and Securities  Maturity  Schedule  summarizes the carrying
values of  securities  from 1995 through 1997 and the maturity  distribution  at
December 31, 1997, by  classification.  Interest on tax-exempt  securities  have
been adjusted to a tax equivalent basis using a marginal federal tax rate of 34%
for all years.

<PAGE> 7

(insert table 9)


The  majority  of the  securities  portfolio  is  comprised  of U.  S.  Treasury
securities,  federal agency securities, state municipal securities (tax exempt),
mortgage-backed and asset-backed securities.

The securities  portfolio carries varying degrees of risk.  Investments in U. S.
Treasury  and  Federal  agency   securities  have  little  or  no  credit  risk.
Mortgage-backed and asset-backed  securities are substantially issues of Federal
agencies.  Obligations  of  states  and  political  subdivisions  and  corporate
securities are the areas of highest  potential credit exposure in the portfolio.
This risk is minimized  through the purchase of high quality  investments.  When
purchased,  obligations of states and political subdivisions and corporate bonds
must have a rating of A or better.  The majority of these investments were rated
A or better at December  31,  1997.  The risk of  non-rated  municipal  bonds is
minimized  by limiting the amounts  invested  and by investing in local  issues.
Management believes the non-rated securities in the Corporation's  portfolio are
of  high  quality.  No  securities  of  an  individual  issuer,  excluding  U.S.
government  and its  agencies,  exceed  10% of the  Corporation's  shareholders'
equity as of December 31, 1997. The Corporation  does not use off-balance  sheet
derivative  financial  instruments as defined in SFAS No. 119, ADisclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments.@


Total securities were $71,845,000,  $94,362,000,  and $93,042,000 as of December
31, 1997,  1996,  and 1995,  respectively.  As a result of the  redeployment  of
securities to the loan portfolio,  total investment securities in 1997 decreased
$22,517,000,  or 23.86%  from the  prior  year.  The  majority  of the  decrease
involved  two  sectors  -  U.S.  Government   agencies  declined   approximately
$14,000,000,  or 39.05%,  while states and political  subdivisions  were reduced
approximately $7,500,000, or 42.90% from the prior year.

The general level of interest rates  increased  during the first quarter of 1997
and then began to  decline  during the  latter  half of the year.  This  general
decline in interest  rates  accounted  for an increase in the  liquidity  of the
investment portfolio,  specifically with regard to callable bonds and prepayment
activity associated with mortgage-related securities.

Approximately  $9,000,000,  or  64.29%  of  the  total  1997  reduction  in  the
government  agency sector was the result of bonds called prior to maturity.  The
remaining  35.71%,  or  approximately  $5,000,000  reduction in securities  were
scheduled  maturities.  Approximately  one-half of the total state and political
subdivision  reduction  that  occurred  during  the  year  was due to  scheduled
maturities or called bonds.  Additionally,  a bond swap was executed  during the
first quarter of 1997 which involved selling  $4,100,000 of municipal bonds with
an average life of 4.7 years and reinvesting  those proceeds into government and
agency bonds.  Because  interest rates had been rising in the treasury  markets,
and  given a lag in  similar  price  declines  for the  municipal  markets,  the
Corporation took advantage of the opportunity to increase credit quality, reduce
the average life to 3.9 years, and increase the yield from 6.78% to 6.84% on the
reinvested funds.

As of December 31, 1997, 1996, and 1995, the security  portfolio held structured
notes  totaling  $1,892,000,  $3,000,000,  and  $4,000,000,   respectively.  The
investment policy has specific guidelines  describing total holdings,  maturity,
and price volatility  parameters regarding these types of security  instruments.
All structured notes are U.S. government agency issues.

Management's   security  strategy  includes  utilizing  short-term   securities,
adjustable rate instruments,  and easily marketable securities to primarily fund
the continuing growth of the loan portfolio.  Tax-free and intermediate  taxable
bonds  are  used  to  further  enhance  earnings.   As  of  December  31,  1997,
approximately 93% of the total investment  security  portfolio was classified in
the available-for-sale category, which allows flexibility in the asset/liability
management  function.  As  noted  earlier,  sell  strategies  are  executed,  on
occasion,  when the interest rate environment  provides the opportunity to boost
the overall portfolio performance.

<PAGE> 8

Although  the  change  in  equity  due  to  market  value  fluctuations  in  the
available-for-sale portfolio are not used in the regulatory capital calculation,
the change which occurred in the unrealized gain/loss on securities between 1997
and 1996 was a result of the swing in the interest rate environment  during that
time period, in conjunction with the change in the portfolio mix. Although there
was a significant change in the unrealized  gain/loss on securities between 1997
and 1996,  management  considers these changes to be temporary in nature.  It is
not likely the Corporation will realize any losses in the security  portfolio to
satisfy loan growth or liquidity needs. This paragraph includes  forward-looking
statements that are based on management's  assumptions regarding future economic
and business  conditions.  Such economic and business assumptions are inherently
uncertain and subject to risk and may prove to be invalid, causing management to
respond to the present circumstances and conditions.


                                      LOANS

The loan portfolio constitutes the major earning assets of the Corporation,  and
offers the best  alternative  for maximizing  interest  spread above the cost of
funds.  The  Corporation's  loan  personnel  have the authority to extend credit
under guidelines established and approved by the board of directors.  Any credit
which  exceeds the authority of the loan officer is forwarded to the Bank's loan
committee for approval.  The loan committee is comprised of various  experienced
loan  officers  and three  bank  directors  -- the  President,  and two  outside
directors,  one of which is the Chairman.  Each outside director participates on
this committee on a monthly  rotating  basis.  All credits which exceed the loan
committee's  lending  authority are presented to the full board of directors for
ultimate  approval or denial.  The loan  committee  not only acts as an approval
body to ensure consistent application of the Corporation's loan policy, but also
provides  valuable  insight  through  communication  and  pooling of  knowledge,
judgment, and experience of its members.

The Corporation's  primary lending area generally  includes  Northwest  Indiana,
specifically  Tippecanoe  and  White  Counties,  and  contiguous  counties.  The
Corporation  extends  out-of-area credit only to borrowers who are considered to
be low risk, and only on a very limited basis.

Table 10 - Loans Outstanding  reflects outstanding balances by loan type for the
past five years.  Additional  loan  information  is  presented  in Note 3 to the
consolidated financial statements.

(insert table 10)

The  Corporation  has  achieved  significant  loan growth in the past two years.
Specifically,  total loans increased $43,287,000,  or 16.10% in 1997, while 1996
saw a $40,297,000,  or 17.62% increase from the prior year. The most significant
loan portfolio increase in 1997 occurred in the real estate - mortgage category,
where this loan type  increased  $30,667,000,  or 29.33%  compared to 1996. On a
percentage  basis,  real  estate  -  construction  loans  increased  40.37%,  or
$4,923,000 over the prior year. Substantially all of the loan growth in the last
two years is linked to the  ongoing  development  and  expansion  of the Greater
Lafayette area. The installment  loan area grew less than 1% in 1997,  which was
by design,  as  management  did not  actively  pursue these types of loans in an
attempt  to  control  the  level of net  charge-offs  that  have  been  recently
recorded.  The loan portfolio has remained  relatively well  diversified by loan
type,  borrower,  and industry,  although loan balances have climbed in the last
few  years.  There  were no  concentrations  of credits in excess of 10% of loan
balances as of December 31, 1997.

The real estate - mortgage loans were the largest  segment of the loan portfolio
as of December 31, 1997 and also at the end of the prior three years. Management
believes  these loans carry a lower degree of risk,  as reflected by the $23,000
net recovery over the last five years.  The commercial and agricultural and real
estate - construction  loan  categories are both  associated  with a much higher
degree of risk,  simply by the  nature of the  credits.  Management  believes  a
higher  degree of risk  warrants a higher  interest  rate for assuming such risk
and, as such,  is able to receive a higher rate of return on these  credits.  At
the same time, however,  certain risks surrounding these two loan categories are
mitigated by the lending practices,  policies, and procedures that are currently
in place. The indirect lending function is a significant portion of the consumer
loan  portfolio.  A specific  policy  surrounding  these loan  types,  including
separate reporting  requirements are in place for monitoring purposes. The total
outstanding  balance  of  indirect  loans  was  approximately   $38,000,000  and
$39,000,000 as of December 31, 1997 and 1996,  respectively,  but  established a
lesser percentage of the overall loan portfolio.

<PAGE> 9

Table 11 - Loan Liquidity and  Sensitivity to Changes in Interest Rates reflects
the maturity  schedule of commercial and agricultural  loans. Also indicated are
fixed  and  variable  rate  loans  maturing  after  one year  for the same  loan
categories.

                                (insert table 11)

                                    DEPOSITS

The  Corporation  offers a wide variety of deposit  services to  individual  and
commercial customers,  such as noninterest-bearing and interest-bearing checking
accounts,  savings accounts, money market accounts, and certificates of deposit.
The deposit base provides the major  funding  source for earning  assets.  Total
deposits  have shown  steady  growth of 10.24% and 6.70%  during  1997 and 1996,
respectively.  A portion of the  current  year growth can be  attributed  to the
full-year effect of the deposits acquired in the Monticello branch  acquisition;
however,  the  Corporation  has experienced an upward trend in the number of new
deposit accounts being opened  notwithstanding  that acquisition.  Even with the
$32,118,000  growth in the  current  year  deposit  base,  the mix has  remained
relatively unchanged over the years. Time deposits,  however, continue to be the
largest single source of the Corporation's funds.

A five year schedule of deposits by type and maturities of time deposits greater
than $100,000 is presented in Table 12 - Deposit Information.

(insert table 12)


To provide temporary liquidity and as an alternative to borrowing federal funds,
the Corporation will acquire,  from time to time, large balance  certificates of
deposit, generally from public entities, for short-term time periods. There were
no funds of this nature as of December 31, 1995; however,  the December 31, 1997
and December 31, 1996 balances were $2,000,000 and $8,300,000, respectively.


                                   BORROWINGS

Aside from the core deposit base and large denomination  certificates of deposit
mentioned above, the remaining funding sources include  short-term and long-term
borrowings.  Short-term borrowings consist of federal funds purchased from other
financial institutions on an overnight basis, retail repurchase agreements which
generally mature within thirty days, and U.S. Treasury demand notes.

(insert table 13)


As  presented  in  Table  13  -  Short-term  Borrowings,   the  balance  of  the
Corporation's   short-term   borrowings  were  comprised  of  retail  repurchase
agreements  and a treasury tax open-end  note as of December 31, 1997,  1996 and
1995. For the years presented,  the retail repurchase  agreements  accounted for
substantially  the entire  outstanding  balance.  As of December 31,  1997,  the
Corporation had overnight repurchase  agreements of $5,300,000 with the Catholic
Diocese of Lafayette which were scheduled to mature in January, 1998.

The Bank became a member of the Federal Home Loan Bank of Indianapolis (AFHLBI@)
in 1992 and has the  authority  of the  Board of  Directors  to borrow up to $40
million.  Any and all borrowings are secured by a blanket  collateral  pledge of
the Bank's U.S.  Government and U.S.  Government agency  securities,  along with
one-to-four family residential loans. Long-term debt as of December 31, 1997 and
1996 was  $19,886,000  and  $9,265,000,  respectively.  Along  with  the  annual
mortgage advance principal repayments,  the Corporation increased its borrowings
from the FHLBI by  $11,500,000  during 1997 primarily to fund the continued loan
growth.  The attractive  interest rates along with the fixed rate feature of the
advances  made  this a  more  desirable  source  of  funds,  as  opposed  to the
short-term  nature  of  certain  repurchase  agreement   contracts.   Additional
information  regarding short-term  borrowings and long-term debt can be found in
Note 7 and Note 8 of the consolidated financial statements.


<PAGE> 10

           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk of the Corporation  encompasses  exposure to both liquidity risk and
interest rate risk and is reviewed  quarterly by the  asset/liability  committee
(AALCO@) and the Board of Directors.

The  liquidity  of the parent  company is  dependent on the receipt of dividends
from the banking subsidiary.  Certain  restrictions exist regarding the transfer
of  funds  from  the  subsidiary  as  explained  in Note 14 to the  consolidated
financial  statements.  Management  expects that in the  aggregate,  the banking
subsidiary  will continue to have the ability to dividend  adequate funds to the
parent company.

The  banking  subsidiary's  source of funding  is  predominantly  core  deposits
consisting of both commercial and individual deposits, maturities of securities,
repayments  of  loan  principal  and  interest,  and  federal  funds  purchased,
securities sold under  agreements to repurchase,  and long-term  borrowings from
the FHLBI.  The deposit base is  diversified  between  individual and commercial
accounts  which helps avoid  dependence on large  concentrations  of funds.  The
Corporation does not solicit  certificates of deposits from brokers.  Table 14 -
Funding Uses and Sources  details the main components of cash flows for 1997 and
1996.

(insert table 14)

The Corporation's  interest rate risk is measured by computing estimated changes
in net interest  income and the net  portfolio  value  (ANPV@) of its cash flows
from assets and liabilities in the event of adverse movements in interest rates.
Interest  rate risk  exposure is measured  using an  interest  rate  sensitivity
analysis to determine the change in NPV in the event of hypothetical  changes in
interest  rates.  Another  method also used to enhance  the  overall  process is
interest rate sensitivity gap analysis. This method is utilized to determine the
repricing characteristics of the Corporation's assets and liabilities.

NPV represents  the market value of portfolio  equity and is equal to the market
value of assets minus the market value of liabilities.  This particular analysis
assesses the risk of loss in market risk sensitive instruments in the event of a
sudden and  sustained  1% - 2% increase  and  decrease in  interest  rates.  The
Corporation's  Board of  Directors  adopted an interest  rate risk policy  which
established  a 45% minimum and maximum  increase  and decrease in the NPV in the
event of a sudden and sustained 1% - 2% increase or decrease in interest rates.

The following table represents the Corporation's projected change in NPV for the
various rate shock levels as of December 31, 1997.


       -----------------------  Net Portfolio Value --------------------

Change                Dollar                  Dollar                Percentage
in Rates              Amount                  Change                  Change
--------              ------                  ------                  -------

+ 200               $ 26,229               $ (12,275)                 (31.88) %
+ 100                 32,288                  (6,216)                 (16.14)
 Base                 38,504                       -                       -
- 100                 42,111                   3,607                    9.37
- 200                 47,090                   8,586                   22.30

<PAGE> 11

The above  table  indicates  that as of December  31,  1997,  the  Corporation's
estimated NPV would be expected to decrease in the event of sudden and sustained
increases in prevailing interest rates.  Conversely,  in the event of sudden and
sustained  decreases in prevailing  interest rates, the Corporation's  estimated
NPV would be expected to increase.  As of December 31, 1997,  the  Corporation's
estimated changes in NPV were within the approved guidelines  established by the
Board of Directors.

Computations of prospective  effects of  hypothetical  interest rate changes are
based on a number of assumptions,  including  relative levels of market interest
rates,  loan  prepayments and deposit decay rates, and should not be relied upon
as indicative of actual  results.  These  computations  do not  contemplate  any
actions  management may undertake in response to changes in interest rates.  The
NPV  calculation  is based on the net  present  value of  discounted  cash flows
utilizing certain prepayment assumptions and market interest rates.

Certain  shortcomings are inherent in the method of computing the estimated NPV.
Actual  results may differ from that  information  presented in the table above,
should market  conditions vary from the  assumptions  used in preparation of the
table  information.  If interest rates remain or decrease below current  levels,
the proportion of adjustable  rate loans in the loan portfolio could decrease in
future  periods due to refinancing  activity.  Also, in the event of an interest
rate change,  prepayment and early  withdrawal  levels would likely be different
from those assumed in the table.  Lastly, the ability of many borrowers to repay
their   adjustable   rate  debt  may  decline  during  a  rising  interest  rate
environment.

Used in conjunction  with the NPV analysis is the interest rate  sensitivity gap
analysis.  This  analysis  monitors  the  relationship  between the maturity and
repricing of interest  earning assets and interest  earning  liabilities,  while
maintaining an acceptable interest rate spread. Interest rate sensitivity gap is
defined  as the  difference  between  the amount of  maturing  or  repricing  of
interest  earning assets and interest  earning  liabilities  within specific and
defined  time  frames.  A positive  gap occurs when the amount of interest  rate
sensitive  assets  exceed the amount of  interest  rate  sensitive  liabilities.
Conversely,  a gap is  considered  negative  when the  amount of  interest  rate
liabilities exceed the interest rate sensitive assets. Generally,  during a time
of rising  interest  rates, a negative gap would  adversely  affect net interest
income,  while a positive gap would  enhance net interest  income.  On the other
hand,  during a time  period of falling  interest  rates,  a negative  gap would
increase net interest  income,  while a positive gap would decrease net interest
income. It is the ALCO's responsibility to maintain a reasonable balance between
the exposure to interest rate fluctuations and earnings.


                                CAPITAL ADEQUACY

The Corporation and Bank are subject to various regulatory capital guidelines as
required by federal and state  banking  agencies.  These  guidelines  define the
various components of core capital and assign risk weights to various categories
of assets.

Tier 1 capital consists of  shareholders'  equity less goodwill and core deposit
intangibles,  as defined by bank  regulators.  The  definition of Tier 2 capital
includes the amount of allowance  for loan losses which does not exceed 1.25% of
gross  risk  weighted  assets.  Total  capital  is the sum of Tier 1 and  Tier 2
capital.

The minimum requirements under the capital guidelines are a 4.00% leverage ratio
(Tier 1 capital divided by average assets less intangible  assets and unrealized
gains/losses),  a 4.00% Tier 1 risk-based  capital ratio (Tier 1 capital divided
by risk-weighted  assets),  and a 8.00% total capital ratio (Tier 1 capital plus
Tier 2 capital divided by risk-weighted assets).

The Federal  Deposit  Insurance  Corporation  Improvement  Act of 1991  (FDICIA)
requires  federal  regulatory  agencies  to define  capital  tiers.  These  are:
well-capitalized,   adequately  capitalized,   undercapitalized,   significantly
undercapitalized,  and critically  undercapitalized.  Under these regulations, a
Awell-capitalized@ institution must achieve a Tier 1 risk-based capital ratio of
at least 6.00%,  and a total capital  ratio of at least  10.00%,  and a leverage
ratio of at least 5.00% and not be under a capital  directive order.  Failure to
meet  capital  requirements  can  initiate  regulatory  action that could have a
direct  material  effect  on  the  Corporation's  financial  statements.  If  an
institution is only adequately  capitalized,  regulatory approval is required to
accept brokered deposits.  If  undercapitalized,  capital  distributions,  asset
growth, and expansion is limited,  in addition to the institution being required
to submit a capital restoration plan.

<PAGE> 12

Management   believes  the   Corporation  and  the  Bank  met  all  the  capital
requirements  as of  December  31,  1997,  as noted  below in Table 15 - Capital
Ratios, and was well capitalized under the guidelines established by the banking
regulators.  To be well capitalized,  the Corporation and Bank must maintain the
prompt corrective action capital guidelines described above.

Exclusive of the effect of the unrealized  gains/losses on securities component,
which  is  driven  by  the  interest   rate   environment,   the   Corporation's
shareholders'  equity  increased  $3,602,000,  or 10.30% in 1997 compared to the
$3,099,000,  or 9.73%  increase  posted in 1996. The amount of dividends paid by
the Corporation increased to $1,201,000,  or 21.44% above the prior year amount.
The higher  dividend  payout,  in  addition  to the  continued  stock  dividends
declared in the past few years,  reflects  management's  effort to increase  the
value and return of each shareholder's investment in the Corporation.

At December 31, 1997, management was not aware of any current recommendations by
banking  regulatory  authorities  which, if they were to be  implemented,  would
have, or are reasonably  likely to have, a material effect on the  Corporation's
consolidated liquidity, capital resources or operations.

(insert table 15)





                                    INFLATION

For a  financial  institution,  effects  of price  changes  and  inflation  vary
considerably from an industrial organization. Changes in the prices of goods and
services are the primary determinant of an industrial company's profit,  whereas
changes in  interest  rates  have a major  impact on a  financial  institution's
profitability. Inflation affects the growth of total assets, but it is difficult
to assess its impact because  neither timing nor the magnitude of the changes in
the consumer price index directly coincide with changes in interest rates.

During periods of high inflation there are normally  corresponding  increases in
the money supply.  During such times,  financial  institutions  often experience
above average growth in loans and deposits. Also, general increases in the price
of goods and services will result in increased operation expenses. Over the last
few years the  inflation  rate has been  relatively  low,  and its impact on the
balance sheets and increased levels of income and expense has been nominal.


                                    YEAR 2000

The  Corporation  is aware of the possible  consequences  the year 2000 may pose
with regard to the  computer  systems  utilized  to conduct  business on a daily
basis.  Management  has assembled a formal AYear 2000  Committee@ to address and
resolve  such  concerns as they relate to the  Corporation.  The  committee  has
conducted a preliminary review of the Corporation's  current systems.  While the
preliminary  findings indicate the need to resolve certain issues as they relate
to current  operating  systems,  management does not believe the necessary steps
will significantly impair the organization's ability to operate. The preliminary
costs  identified  to remedy this  situation are not expected to have a material
impact on the Corporation's earnings.


<PAGE> 13

Table 1 - FIVE YEAR FINANCIAL SUMMARY

<TABLE>

                                                               For the years ended December 31,
                                             1997              1996             1995              1994              1993
<S>                                      <C>               <C>              <C>               <C>               <C>
SUMMARY OF OPERATIONS
Interest income - tax equivalent (1)       $  32,415         $  28,739        $  26,267         $  23,981         $  23,352
Interest expense                              15,525            14,012           13,115            11,016            10,810
                                              ------            ------          -------            ------            ------
Net interest income - tax equivalent (1)      16,890            14,727           13,152            12,965            12,542
Tax equivalent adjustment (1)                   (504)             (524)            (376)             (330)             (185)
                                              -------           -------         -------            -------           ------
Net interest income                           16,386            14,203           12,776            12,635            12,357 
Provision for loan losses                       (620)             (240)            (180)             (600)           (1,136)
Noninterest income                             4,168             3,422            2,790             2,580             3,893
Noninterest expense                           12,557            11,191           10,220             9,689
                                              ------            ------           ------            ------            10,198
  Income before income taxes and cumulative
  effect of changes in accounting principles   7,377             6,194            5,166             4,926             4,916

Income tax expense                             2,569             2,103            1,791             1,693             1,736
                                              ------            ------           ------            ------            ------
Income before cumulative effect of changes 
in accounting principles                       4,808             4,091            3,375             3,233             3,180
Cumulative effect of changes in 
accounting principles                             --                --               --                --               (11)
                                              ------            ------           ------            ------             ------
NET INCOME                                  $  4,808           $ 4,091         $  3,375          $  3,233          $  3,169
                                              ======            ======           ======            ======            ======

PER SHARE DATA (2)
Income before cumulative effect of 
changes in accounting principles               $2.22            $1.89            $1.56             $1.50              $1.47
Net income                                      2.22             1.89             1.56              1.50               1.46
Cash dividends                                  0.56             0.46             0.36              0.33               0.31
Shareholders' equity, end of year              17.80            16.03            14.75             13.09              12.36


SELECTED ACTUAL YEAR-END BALANCES
Total assets                                $439,029         $414,391         $372,265          $360,221           $340,402 
Earning assets                               406,954          378,345          333,153           323,904            316,505 
Investment securities available-for-sale      66,577           88,206           90,881            41,339              3,823 
Investment securities held-to-maturity         5,268            6,156            2,161            53,554             81,287 
Loans held for sale                            7,640            5,877            2,473                -                  -
Loans                                        312,227          268,940          228,643           224,680            217,784 
Allowance for loan losses                     (3,464)          (3,198)          (3,200)           (3,309)            (3,459)
Total deposits                               355,195          341,550          308,652           296,763            285,363 
Noninterest-bearing demand deposits           42,752           43,579           43,950            37,875             34,251 
Interest-bearing demand deposits              47,054           47,945           46,940            49,081             50,039 
Savings deposits                              96,974           87,938           77,287            67,607             69,028 
Time deposits                                168,415          162,088          140,475           142,200            132,045 
Long-term borrowings                          19,886            9,265            8,905             9,738             10,351 
Shareholders' equity                          38,469           34,646           31,875            28,294             26,737 


SELECTED AVERAGE BALANCES
Total assets                                $416,957        $377,623          $351,782          $338,537           $320,913 
Earning assets                               387,277         348,218           323,495           313,684            292,102 
Securities                                    80,606          91,802            90,749            88,697             79,222 
Loans held for sale                            5,522           4,989             1,092                -                  -
Loans                                        289,197         242,286           220,117           213,722            199,943 
Allowance for loan losses                     (3,254)         (3,210)           (3,269)           (3,461)            (2,938)
Total deposits                               345,739         313,621           293,916           282,746            274,084 
Noninterest-bearing demand deposits           35,728          35,655            35,822            33,622             30,015 
Interest-bearing demand deposits              47,945          45,086            45,614            46,757             43,274 
Savings deposits                              94,360          82,535            71,406            69,558             66,883 
Time deposits                                167,706         150,345           141,074           132,809            133,912 
Long-term borrowings                          13,940           8,458             9,216            10,289              7,667 
Shareholders' equity                          36,530          33,133            30,125            27,684             25,566 

<PAGE> 14

RATIOS BASED ON AVERAGE BALANCES
Loans to deposits (3)                         83.65%          77.25%            74.89%            75.59%             72.95%
Return on average assets                       1.15%           1.08%             0.96%             0.95%              0.99%
Return on average equity                      13.16%          12.35%            11.20%            11.68%             12.40%
Dividends payout ratio                        24.98%          24.18%            23.05%            21.81%             21.11% 
Leverage capital ratio                         8.76%           8.59%             8.77%             8.27%              8.01%
Efficiency ratio (4)                          59.63%          61.66%            64.11%            62.33%             62.05%


OTHER DATA
Number of employees (FTE)                        213             205               192               185                163
Average common shares outstanding (2)      2,161,386       2,161,518         2,161,659         2,161,699          2,162,691 
Cash dividends declared                       $1,201            $989              $778              $705               $669

</TABLE>


(1)  Net interest income has been presented on both a tax equivalent and non-tax
equivalent  basis.  The tax equivalent basis was calculated using a 34% tax rate
for all  periods  presented.  The tax  equivalent  adjustment  reverses  the tax
equivalent  basis in order to present net  interest  income in  accordance  with
generally   accepted   accounting   principles   (GAAP),  as  reflected  in  the
consolidated financial statements.

(2)  Per share data has been  retroactively  adjusted to reflect stock dividends
and  splits.  Amounts  do not  consider  the  dilutive  effect of stock  options
outstanding.

(3) The loan to deposit ratio calculation excludes loans held for sale.

(4) The efficiency  ratio is calculated by dividing  noninterest  expense by the
sum of net interest  income,  on a fully tax equivalent  basis,  and noninterest
income.

<PAGE> 15

Table 2 - Average Balance Sheets and Interest Rates

<TABLE>
                                                              Years ended December 31,
                                        1997                            1996                           1995
                             Average            Average      Average           Average        Average           Average
                             Balance  Interest   Rate        Balance  Interest   Rate         Balance  Interest   Rate
                             -------  -------   -------      -------  -------- -------        -------  -------- --------
<S>                        <C>       <C>       <C>          <C>      <C>      <C>            <C>      <C>      <C>
ASSETS
Interest earning assets
  Securities
    Taxable                  $64,119  $3,857     6.02%       $71,716  $4,219    5.88%         $76,082  $4,538    5.96%
    Tax-exempt (1)            17,160   1,185     6.91%        20,805   1,424    6.84%          15,471   1,038    6.71%
    Unrealized loss on 
     AFS securities            (673)      -                    (719)      -                     (804)      -
                              ------   -----     -----        ------   -----    -----          ------   -----    -----
      Total securities        80,606   5,042     6.26%        91,802   5,643    6.15%         90,749    5,576    6.14%
  Loans (1)(2)
    Commercial               121,295  11,206     9.24%        89,545   8,493    9.48%         76,175    7,341    9.64%
    Real estate              118,156  10,173     8.61%       102,257   8,772    8.58%         89,238    7,501    8.41%
    Installment and 
     other consumer           55,254   5,311     9.61%        54,870   5,281    9.62%         55,525    5,133    9.24%
    Other                         14       1     7.14%           603      32    5.31%            271       18    6.64%
                              ------   -----     -----        ------   -----    -----         ------    -----    -----
      Total loans            294,719  26,691     9.06%       247,275  22,578    9.13%        221,209   19,993    9.04%

  Federal Home Loan 
   Bank stock                  1,210      96     7.93%         1,106      87    7.87%          1,055       83    7.87%
  Federal funds sold          10,742     586     5.46%         8,035     431    5.36%         10,482      615    5.87%
                             -------  ------     -----       -------  ------    -----        -------  -------    -----
  Total earning assets       387,277 $32,415     8.37%       348,218 $28,739    8.25%        323,495  $26,267    8.12%
                                      ======     =====                ======    =====                  ======    ====
Noninterest earning assets
  Allowance for loan losses   (3,254)                        (3,210)                          (3,269)
  Premises and equipment       6,177                          5,752                            5,325
  Cash and due from banks     15,520                         14,785                           14,515
  Accrued interest and 
   other assets               11,237                         12,078                           11,716
                             -------                        -------                          -------
  Total assets              $416,957                       $377,623                         $351,782
                            ========                       ========                         ========
LIABILITIES AND 
SHAREHOLDERS' EQUITY
Interest-bearing liabilities
  Deposits
    Interest-bearing 
     demand deposits         $47,945    $657     1.37%     $45,086      $831    1.84%       $45,614      $863    1.89%
    Savings deposits          94,360   3,702     3.92%      82,535     3,134    3.80%        71,406     2,664    3.73%
    Time deposits            167,706   9,578     5.71%     150,345     8,743    5.82%       141,074     8,271    5.86%
                             -------   -----     -----     -------     -----    -----       -------     -----    -----
     Total interest-
     bearing deposits        310,011  13,937     4.50%     277,966    12,708    4.57%       258,094     11,798   4.57%
  Borrowed funds
    Short-term borrowings     15,129     711     4.70%      16,661       781    4.69%        14,315        744   5.20%
    Long-term debt            13,940     877     6.29%       8,458       523    6.18%         9,216        573   6.22%
      Total borrowed funds    29,069   1,588     5.46%      25,119     1,304    5.19%        23,531      1,317   5.60%
                              ------   -----     -----      ------     -----    -----        ------      -----   -----
  Total interest-
  bearing liabilities        339,080 $15,525     4.58%     303,085   $14,012    4.62%       281,625    $13,115   4.66%
                                      ======     ====                 ======    ====                    ======   ====
Noninterest-bearing 
liabilities
  Noninterest-bearing 
  demand deposits            35,728                        35,655                           35,822
  Accrued interest and 
  other liabilities           5,619                         5,750                            4,210
  Shareholders' equity       36,530                        33,133                           30,125
                             ------                        ------                           ------
  Total liabilities and
    shareholders' equity   $416,957                      $377,623                         $351,782
                           ========                      ========                         ========
Interest margin recap
  Net interest income and
    interest rate spread             $16,890     3.79%               $14,727    3.63%                  $13,152  3.46%
                                     =======     =====               =======    =====                  =======  =====
  Net interest income margin                     4.36%                          4.23%                           4.07%
                                                 =====                          =====                           =====
</TABLE>
<PAGE> 16

(1)   Interest income on tax-exempt  securities and loans has been adjusted to a
      tax equivalent  basis using a marginal  federal income tax rate of 34% for
      all years.

(2)   Nonaccrual  loans are included in average loan  balances and loan fees are
      included in interest income.  Loan fees were $912 for 1997, $928 for 1996,
      and $703 for 1995.

<PAGE> 17


Table 3 - Net Interest-Earning Assets

<TABLE>

                                                            1997              1996             1995
                                                          --------          --------         --------
<S>                                                       <C>               <C>              <C>     
Average interest-earning assets                           $387,277          $348,218         $323,495
Average interest-bearing liabilities                       339,080           303,085          281,625
                                                           -------           -------          -------
Net interest-earning assets                                $48,197           $45,133          $41,870
                                                           =======           =======          =======
</TABLE>

<PAGE> 18

Table 4 - Volume/Rate Analysis

<TABLE>

                                               1997 - 1996                           1996 - 1995
                                      ------------------------------         ---------------------------
                                                 Change       Change                    Change     Change
                                      Total      Due To       Due To         Total      Due to     Due To
                                      Change     Volume        Rate          Change     Volume     Rate 
INTEREST INCOME                             

<S>                                   <C>         <C>          <C>            <C>        <C>         <C>
Loans                                 4,113       4,298        (185)          2,585      2,378       207
Securities   
  Taxable                              (362)       (457)         95            (319)      (255)      (64)
  Tax-exempt                           (239)       (252)         13             386        365        21
FHLB stock                                9           8           1               4          4         -
Federal funds sold                      155         148           7            (184)      (135)      (49)
                                      ------       -----        ----          ------     ------      ----
TOTAL INTEREST INCOME                 3,676        3,745        (69)           2,472     2,357       115
                                      =====        =====         ==            =====     =====       ===

INTEREST EXPENSE

Interest-bearing DDA                   (174)          50        (224)           (32)      (10)       (22)
Savings deposits                        568          461         107            470       422         48
Time deposits                           835          994        (159)           472       540        (68)
Short-term borrowings                   (70)         (72)          2             37       114        (77)
Long-term borrowings                    354          345           9            (50)      (47)        (3)
                                      ------        -----       -----           ----     -----       -----
TOTAL INTEREST EXPENSE                1,513         1,778       (265)           897      1,019      (122)
                                      =====         =====       =====          ====      =====       ===
NET INTEREST INCOME                   2,163         1,967        196          1,575      1,338       237
                                      =====         =====        ===          =====      =====       ===

</TABLE>


<PAGE> 19

Table 5 - Analysis of Allowance for Loan Losses

<TABLE>
                                             1997              1996             1995              1994               1993        
                                            ------            ------           ------            ------             ------
<S>                                         <C>               <C>              <C>               <C>                <C>   
Balance at beginning of year                $3,198            $3,200           $3,309            $3,459             $2,866

Loans charged-off
  Commercial and agricultural                (126)             (202)             (294)             (796)              (389)
  Real estate                                   0                 0                 0                 0                (32)
  Installment                                (424)             (343)             (262)             (172)              (326)
                                             -----             -----             -----             -----              -----
Total charge-offs                            (550)             (545)             (556)             (968)              (747)
                                             -----             -----             -----             -----              -----
Charge-offs recovered
  Commercial and agricultural                126                250               190               179                 84
  Real estate                                  0                  0                 0                 0                 55
  Installment                                 70                 53                77                39                 65
                                             ---                ---               ---               ---                ---
Total recoveries                             196                303               267               218                204
                                             ---                ---               ---               ---                ---
Net loans charged-off                       (354)              (242)             (289)             (750)              (543)
Current year provision                       620                240               180               600              1,136
                                          ------             ------            ------            ------             ------
Balance at end of year                    $3,464             $3,198            $3,200            $3,309             $3,459
                                           =====              =====             =====             =====              =====
Loans at year end, excluding
  loans held for sale                   $312,227           $268,940          $228,643          $224,680           $217,784

Ratio of allowance to loans
  at year end                              1.11%              1.19%             1.40%             1.47%              1.59%

Average loans                           $289,197           $242,286          $220,117          $213,722           $199,943

Ratio of net loans charged-off
  to average loans                         0.12%              0.10%             0.13%             0.35%              0.27%

</TABLE>

<TABLE>

                                               Allocation of allowance for loan losses at December 31,
                                   1997              1996             1995              1994              1993
                                  ------            ------           ------            ------            ------
<S>                               <C>               <C>                <C>             <C>               <C>   
Commercial and agricultural       $1,200            $1,245             $942            $1,106            $1,667
Real estate                          340                50               50                50                20
Installment                          560               550              550               550               290
Unallocated                        1,364             1,353            1,658             1,603             1,482
                                  ------            ------           ------            ------            ------
Total                             $3,464            $3,198           $3,200            $3,309            $3,459
                                  ======            ======           ======            ======            =======
</TABLE>

<PAGE> 20

Table 6 - Nonperforming Assets

<TABLE>
                                                               As of December 31,
                                      1997              1996             1995              1994             1993
                                     ------            ------           ------            ------           ------
<S>                                 <C>               <C>             <C>               <C>              <C>   
Principal balance
  Nonaccrual                          $127              $178             $381              $474            $1,179 
  Restructured                         350               482              661               761               964
  90 days or more past due             505               735              796               228               843
                                      ----            ------           ------            ------             -----
Total nonperforming loans             $982            $1,395           $1,838            $1,463             2,986 
                                      ====            ======           ======            ======             =====
Nonperforming loans as a percent
   of loans                           0.31%            0.52%            0.80%             0.65%             1.37%

Other real estate owned               $230             $116             $436             $1,092            $1,205 

OREO as a percent of loans            0.07%            0.04%            0.19%             0.49%             0.55%

Allowance as a percent of
  nonperforming loans               352.75%          229.25%           174.10%           226.18%          115.84%


For nonaccrual and restructured 
loans for the years ended December 31:
   Interest income under
      original terms                   $55              $74              $113              $95               $79
   Interest income which
      was recorded                      27               56                50               51                46

</TABLE>

<PAGE> 21

Table 7 - NONINTEREST INCOME & EXPENSE
<TABLE>
     
                                                       % change                           % change
                                       1997             from '96         1996              from '95          1995
                                      ------            --------        ------             --------         ------
<S>                                  <C>               <C>             <C>                <C>               <C>   
Noninterest Income
Income from fiduciary activities       $885               8.99%          $812                2.40%           $793
Service charges on deposit accounts   1,254              12.37%         1,116               11.94%            997
Other operating income                1,266              24.98%         1,013               19.04%            851
                                      -----             -------         -----               ------           ----

                                     3,405               15.78%         2,941               11.36%          2,641

Net gain on loan sales                 736               84.92%           398              192.65%            136
Net realized gain on securities         27              -67.47%            83              538.46%             13
                                    ------               ------          -----             ------           -----
Total noninterest income            $4,168               21.80%         $3,422              22.65%         $2,790
                                     =====               =====           =====              =====           =====
</TABLE>

<TABLE>
     
                                                       % change                           % change
                                       1997             from '96         1996              from '95          1995
                                      ------            --------        ------             --------         ------
<S>                                  <C>               <C>             <C>                <C>               <C>   
Noninterest Expense
Salaries and employee benefits        $7,484             18.21%         $6,331             13.28%            $5,589
Occupancy expenses, net                  882              5.76%            834             19.48%               698
Equipment expenses                       970             -3.87%          1,009             -1.46%             1,024
Deposit insurance                         41             -8.89%             45            -86.80%               341
Other operating expenses               3,180              7.00%          2,972             15.73%             2,568
                                      ------             -----          ------             -----             ------
Total noninterest expense            $12,557             12.21%        $11,191             9.50%            $10,220
                                     =======             =====         =======             =====             ======
</TABLE>

<PAGE> 22

Table 8 - INTERIM FINANCIAL DATA

<TABLE>

                                                                    Quarter Ended

                                            December            September         June        March
      1997                                     31                   30             30           31     
     ------                                 --------            ---------         ----        -----    
<S>                                         <C>               <C>            <C>            <C>                              
Interest income                             $   8,357         $    8,138     $    7,865     $   7,551                        
Interest expense                                4,070              3,943          3,766         3,746
                                               ------             ------          -----         ----- 
  Net interest income                           4,287              4,195          4,099         3,805    
Provision for loan losses                         350                120             90            60      
Noninterest income                              1,250              1,090            952           876                     
Noninterest expense                             3,377              3,137          3,111         2,932  
                                                -----              -----          -----         -----
  Income before income taxes                    1,810              2,028          1,850         1,689
Income taxes                                      627                723            650           569 
                                                -----              -----         ------         -----
Net income                                  $   1,183          $   1,305     $    1,200     $   1,120
                                                =====              =====          =====         =====                     

Net income per share
 Basic earnings per share                   $    0.55          $   0.60      $     0.55     $   0.52   
 Diluted earnings per share                 $    0.54          $   0.60      $     0.55     $   0.51
                                                                                                      

Weighted average shares (1)
 Weighted average shares                     2,161,386        2,161,386       2,161,386    2,161,386
 Diluted average shares                      2,182,657        2,182,657       2,182,657    2,182,657

  Stock price (2)                           $    31.75        $   27.00     $     24.09    $   21.82

   1996
  ------
Interest income                                 $7,424           $7,215          $6,841       $6,735
Interest expense                                 3,696            3,620           3,378        3,318
                                                 -----            -----           -----        -----
  Net interest income                            3,728            3,595           3,463        3,417  
Provision for loan losses                           60               60              60           60       
Noninterest income                                 990              844             761          827    
Noninterest expense                              3,064            2,787           2,686        2,654
                                                 -----            -----           -----        -----   
  Income before income taxes                     1,594            1,592           1,478        1,530    
Income taxes                                       540              530             504          529   
                                                 -----            -----           -----        -----
Net income                                      $1,054           $1,062            $974       $1,001
                                                 =====            =====             ===        =====

Net income per share
 Basic earnings per share                        $0.49           $0.49            $0.45       $0.46    
 Diluted earnings per share                      $0.49           $0.49            $0.45       $0.46

Weighted average shares (1)
 Weighted average shares                     2,161,518       2,161,518        2,161,518    2,161,518
 Diluted average shares                      2,165,068       2,165,068        2,165,068    2,165,068

  Stock price (2)                               $21.25          $19.55           $20.08       $20.64

</TABLE>

(1)   - All share amounts have been restated to reflect stock dividend  activity
      in each of the periods presented.

(2)   - The stock  price  above  represents  the sales  price of the last actual
      trade in each respective quarter as adjusted for stock dividends.

<PAGE> 23

Table 9 - SECURITIES

<TABLE>

                                                           At December 31,
                                              1997              1996             1995
                                             ------            ------           ------
<S>                                         <C>               <C>               <C>
Securities available-for-sale
  U.S. Government & agencies                $21,906           $35,938           $40,613
  States and political subdivisions           9,981            17,480            18,948
  Corporate obligations                         250             1,301             4,143
  Mortgage-backed and asset-backed           34,440            33,487            27,177
                                             ------            ------            ------
Total securities available-for-sale         $66,577           $88,206           $90,881


Securities held-to-maturity
  States and political subdivisions          $5,268            $6,156            $2,161
                                             ------            ------            ------
Total securities held-to-maturity            $5,268            $6,156            $2,161
                                             ------            ------            ------

Total securities                            $71,845           $94,362           $93,042
                                            =======           =======           =======
</TABLE>



         SECURITIES MATURITY SCHEDULE

<TABLE>

                                       1 Year and Less            1 to 5 Years           5 to 10 Years         Over 10 Years 
                                      Balance      Rate         Balance    Rate        Balance     Rate       Balance    Rate
<S>                                  <C>         <C>           <C>        <C>         <C>         <C>         <C>       <C>
Available-for-sale
  U.S. Treasury                       $5,005      5.94%         $4,044     5.50%            -        -             -       -   
  Federal agencies                     2,491      5.55%          6,368     5.95%         3,998    6.60%            0       - 
  State and municipal (1)              2,112      7.68%          1,927     6.69%         4,407    7.15%        1,535     7.05%  
  Corporate obligations                  250      6.00%              -        -            -         -             -       -
  Mortgage-backed and asset-backed         -        -            3,846     6.36%         4,869    6.07%       25,725     6.31% 
                                       -----      -----          -----     -----         -----    ----        ------     ----
Total available-for-sale              $9,858                   $16,185                 $13,274               $27,260 
                                      ======                   =======                 =======               ======= 
Held-to-maturity
  State and municipal (1)               $798      7.24%           $756     6.70%        $2,191    7.92%       $1,523     8.51% 
                                        ----                      ----                  ------                ------
Total held-to-maturity                  $798                      $756                  $2,191                $1,523     
                                        ====                      ====                  ======                ======
</TABLE>

(1) - Average rates were  calculated on a tax equivalent  basis using a marginal
federal income tax rate of 34%.

<PAGE> 24

Table 10 - Loans Outstanding

<TABLE>
    
                                                                       At December 31,

                                       1997              1996             1995              1994              1993
                                      ------            ------           ------            ------            ------
<S>                                 <C>                <C>               <C>              <C>                <C>    
Commercial and agricultural         $104,946           $96,276           $75,317          $74,303            $74,567
Real estate - construction            17,117            12,194            10,472            6,384              8,223
Real estate - mortgage               135,214           104,547            87,637           77,662             73,247
Installment                           54,950            54,924            55,217           57,337             51,964
Other                                      0               999                 0            8,994              9,783
                                     -------           -------            ------           ------             ------
  Total loans                       $312,227          $268,940          $228,643         $224,680           $217,784
                                     =======           =======           =======          =======            =======




                                                Composition of loan portfolio by type at December 31,
                                       1997              1996             1995              1994              1993
                                      ------            ------           ------            ------            ------
Commercial and agricultural           33.61%            35.80%           32.94%            33.07%            34.24%
Real estate - construction             5.49%             4.53%            4.58%             2.84%             3.78%
Real estate - mortgage                43.31%            38.87%           38.33%            34.57%            33.63%
Installment                           17.60%            20.42%           24.15%            25.52%            23.86%
Other                                  0.00%             0.37%            0.00%             4.00%             4.49%
                                      -----             -----            -----             ------             -----
  Total                               100.0%            100.0%           100.0%            100.0%            100.0%
                                      =====             =====            =====             =====             =====

</TABLE>

<PAGE> 25

Table 11 - Loan Liquidity

<TABLE>

                                           Loan Maturities at December 31, 1997
                                       1 Year             1 - 5           Over 5
                                      and Less            Years           Years            Total
                                      --------            ------          ------           -----
<S>                                    <C>               <C>              <C>             <C>     
Commercial and agricultural            $56,714           $44,014          $4,218          $104,946
Real estate - construction              15,015             1,582             520            17,117
                                       -------            ------          ------           -------
          Total selected loans         $71,729           $45,596          $4,738          $122,063
                                       =======           =======          ======          ========


</TABLE>


Sensitivity to Changes in Interest Rates

  Fixed rates                                          $11,627            $4,366
  Variable rates                                        33,969               372
                                                        ------             -----
Total selected loans                                   $45,596            $4,738




<PAGE> 26

Table 12 - Deposit Information
<TABLE>

                                       1997                               1996                               1995
                            Average           Average          Average           Average           Average         Average
                            Balance           Rate             Balance           Rate              Balance          Rate
                            -------           -------          -------           -------           -------         -------
<S>                         <C>               <C>              <C>               <C>               <C>             <C>     
Noninterest-bearing         $35,728                             $35,655                             $35,822
Interest-bearing demand      47,945            1.37%             45,086           1.84%              45,614         1.89%
Savings deposits             94,360            3.92%             82,535           3.80%              71,406         3.73%
Time deposits               167,706            5.71%            150,345           5.82%             141,074         5.86%
                            -------            ----             -------           ----              -------         -----
Total deposits             $345,739            4.03%           $313,621           4.05%            $293,916         4.01%


</TABLE>

                        Maturity Ranges of Time Deposits
                with Balances of $100,000 or More at December 31,
<TABLE>

<S>                             <C>                              <C>                              <C> 
                                1997                             1996                             1995
                               ------                           ------                           ------
3 months or less               $7,015                          $15,390                           $4,416
3 through 6 months              2,423                            3,223                            1,192
6 through 12 months             3,676                            3,777                            1,201
Over 12 months                 11,648                            4,850                            8,203
                               ------                           ------                           ------
Total                         $24,762                          $27,240                          $15,012
                               ======                           ======                           ======
</TABLE>

<PAGE> 27

Table 13 - Short-term Borrowings

<TABLE>

                                                                As of December 31,
  
                                                     1997              1996             1995
                                                    ------            ------           ------

<S>                                                <C>                <C>             <C>    
Repurchase agreements outstanding                  $17,340            $23,497         $16,818
Treasury tax and loan open-end note                  3,032              1,024           2,274
                                                    ------             ------          ------
Total short-term borrowings                        $20,372            $24,521         $19,092
                                                    ======             ======          ======
Average balance of repurchase agreements
  during year                                      $13,926            $15,143         $12,395

Maximum month-end balance of repurchase
  agreements during year                            17,621             23,497          18,581 

Weighted-average interest rate of
  repurchase agreements during year                  4.67%              4.61%           5.11%

Weighted-average interest rate of
  repurchase agreements at end of year               4.98%             4.47%            4.64%

</TABLE>

<PAGE> 28

Table 14 - Funding Uses and Sources

<TABLE>

                                                1997                                               1996
1995
                              Average           Increase/(decrease)             Average          Increase/(decrease)
                              Balance           Amount     Percent              Balance           Amount    Percent
                              -------           -------   --------              -------          -------   --------
<S>                          <C>              <C>         <C>                   <C>             <C>        <C>
FUNDING USES
  Loans, total               $294,719          $47,444     19.19%               $247,275        $26,066      11.78%   
  Taxable securities           64,119           (7,597)   -10.59%                 71,716         (4,366)     -5.74% 
  Tax-exempt securities        17,160           (3,645)   -17.52%                 20,805          5,334      34.48%
  Federal Home Loan Bank stock  1,210              104      9.40%                  1,106             51       4.83%   
  Federal funds sold           10,742            2,707     33.69%                  8,035         (2,447)    -23.34%      
                               ------           ------     -----                  ------          ------     -----
Total uses                   $387,950          $39,013     11.18%               $348,937        $24,638       7.60% 
                              =======           ======     =====                 =======         ======       ====
FUNDING SOURCES
  Noninterest-bearing 
 deposits                     $35,728             $73       0.20%               $35,655          ($167)      -0.47% 
  Interest-bearing demand      47,945           2,859       6.34%                45,086           (528)      -1.16%    
  Savings deposits             94,360          11,825      14.33%                82,535         11,129       15.59%  
  Time deposits               167,706          17,361      11.55%               150,345          9,271        6.57% 
  Short-term borrowings        15,129          (1,532)     -9.20%                16,661          2,346       16.39%
  Long-term borrowings         13,940           5,482      64.81%                 8,458          (758)       -8.22%
                              -------          ------      ------               -------         ------       ------
Total sources                $374,808         $36,068      10.65%               $338,740       $21,293        6.71%
                              =======          ======      =====                 =======        ======        ====

</TABLE>

NOTE: The other  category in the uses section has the  percnetage  change column
hard-coded as -0-.

<PAGE> 29

Table 15 - Capital Ratios

<TABLE>
                 
                                                  At December 31,                          
                                               1997             1996      
                                              ------           ------
<S>                                          <C>              <C>
Tier 1 capital
  Shareholders' equity                       $38,469           $34,646  
  Less:  Intangibles                           (908)             (948)
  Add:  Unrealized loss on securities            90               311  
                                              ------            ------
  Total Tier 1 capital                       $37,651           $34,009  
                                             =======           =======
Total risk-based capital
  Tier 1 capital                             $37,651          $34,009   
  Allowance for loan losses                    3,464            3,198
                                              ------           ------     
  Total risk-based capital                   $41,115          $37,207
                                              ======           ======

Risk weighted assets                        $310,170         $280,860   
                                             =======          =======
Average assets                              $430,555         $396,534 
                                             =======          =======

Risk-based ratios
  Tier 1                                       12.14%           12.11%  
                                               =====            ===== 
  Total risk-based capital                     13.26%           13.25%  
                                               =====            =====
Leverage Ratios                                8.76%             8.59%  
                                               ====             ====
</TABLE>


<PAGE> 30









                         REPORT OF INDEPENDENT AUDITORS




Board of Directors and Shareholders
Lafayette Bancorporation
Lafayette, Indiana


We have  audited  the  accompanying  consolidated  balance  sheets of  Lafayette
Bancorporation  as of December  31,  1997 and 1996 and the related  consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the  three  years  in the  period  ended  December  31,  1997.  These  financial
statements  are  the  responsibility  of  the  Corporation's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material   respects,   the  financial  position  of  Lafayette
Bancorporation  as of  December  31,  1997  and  1996,  and the  results  of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1997 in conformity with generally accepted accounting principles.




                                      Crowe, Chizek and Company LLP

Indianapolis, Indiana
January 29, 1998


<PAGE> 31
















                            LAFAYETTE BANCORPORATION

                              FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995





<PAGE> 32


                            LAFAYETTE BANCORPORATION
                               Lafayette, Indiana

                              FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995








                                    CONTENTS








REPORT OF INDEPENDENT AUDITORS................................................

FINANCIAL STATEMENTS

     CONSOLIDATED BALANCE SHEETS..............................................

     CONSOLIDATED STATEMENTS OF INCOME........................................

     CONSOLIDATED STATEMENTS OF CHANGES IN
       SHAREHOLDERS' EQUITY...................................................

     CONSOLIDATED STATEMENTS OF CASH FLOWS....................................

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................


<PAGE> 33


                            LAFAYETTE BANCORPORATION   
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1997 and 1996
                    (Amounts in thousands, except share data)

<TABLE>


                                                                                   1997                1996
                                                                                   ----                ----
<S>                                                                          <C>                 <C>   
ASSETS
Cash and due from banks                                                      $         16,901    $        21,330
Federal funds sold                                                                     14,000              8,050
                                                                             ----------------    ---------------
    Total cash and cash equivalents                                                    30,901             29,380
Securities available-for-sale, at market                                               66,577             88,206
Securities held-to-maturity, at cost (market value
  $5,378 and $6,147)                                                                    5,268              6,156
Loans held for sale                                                                     7,640              5,877
Loans                                                                                 312,227            268,940
    Less:  Allowance for loan losses                                                   (3,464)            (3,198)
                                                                             ----------------    ---------------
       Loans, net                                                                     308,763            265,742
Federal Home Loan Bank stock, at cost                                                   1,242              1,116
Premises, furniture and equipment, net                                                  6,183              6,355
Accrued interest receivable and other assets                                           12,455             11,559
                                                                             ----------------    ---------------

          Total assets                                                       $        439,029    $       414,391
                                                                             ================    ===============


LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
    Noninterest-bearing deposits                                             $         42,752    $        43,579
    Interest-bearing demand and savings deposits                                      144,028            135,883
    Interest-bearing time deposits                                                    168,415            162,088
                                                                             ----------------    ---------------
       Total deposits                                                                 355,195            341,550
    Short-term borrowings                                                              20,372             24,521
    Long-term debt                                                                     19,886              9,265
    Accrued interest payable and other liabilities                                      5,107              4,409
                                                                             ----------------    ---------------
       Total liabilities                                                              400,560            379,745



Shareholders' equity
    Common stock, no par value:  5,000,000 shares
      authorized; 2,173,570 and 1,975,973 shares issued;
      and 2,161,370 and 1,965,050 shares outstanding                                    2,174              1,976
    Additional paid-in capital                                                         24,555             19,368
    Retained earnings                                                                  11,927             13,705
    Unrealized loss on securities available-for-sale,
      net of tax ($(59) and $(204))                                                       (90)              (311)
    Less:  Treasury stock, at cost (12,200 and 10,923 shares)                             (97)               (92)
                                                                             ----------------    ---------------
       Total shareholders' equity                                                      38,469             34,646
                                                                             ----------------    ---------------

          Total liabilities and shareholders' equity                         $        439,029    $       414,391
                                                                             ================    ===============
</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE> 34

                            LAFAYETTE BANCORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                  Years ended December 31, 1997, 1996 and 1995
              (Dollar amounts in thousands, except per share data)



<TABLE>
                                                                     1997             1996              1995
                                                                     ----             ----              ----
<S>                                                             <C>               <C>               <C>   
Interest income
    Loans                                                       $      26,590     $      22,538    $      19,970
    Taxable securities                                                  3,857             4,219            4,538
    Tax exempt securities                                                 782               940              685
    Other                                                                 682               518              698
                                                                -------------     -------------    -------------
       Total interest income                                           31,911            28,215           25,891
Interest expense
    Deposits                                                           13,937            12,708           11,798
    Short-term borrowings                                                 711               781              744
    Long-term debt                                                        877               523              573
                                                                -------------     -------------    -------------
       Total interest expense                                          15,525            14,012           13,115
                                                                -------------     -------------    -------------
Net interest income                                                    16,386            14,203           12,776
Provision for loan losses                                                 620               240              180
                                                                -------------     -------------    -------------
Net interest income after provision for loan losses                    15,766            13,963           12,596
Noninterest income
    Income from fiduciary activities                                      885               812              793
    Service charges on deposit accounts                                 1,254             1,116              997
    Net realized gain on securities                                        27                83               13
    Net gain on loan sales                                                736               398              136
    Other service charges and fees                                        645               454              426
    Other operating income                                                621               559              425
                                                                -------------     -------------    -------------
       Total noninterest income                                         4,168             3,422            2,790
                                                                -------------     -------------    -------------
Noninterest expense
    Salaries and employee benefits                                      7,484             6,331            5,589
    Occupancy expenses, net                                               882               834              698
    Equipment expenses                                                    970             1,009            1,024
    Deposit insurance                                                      41                45              341
    Other operating expenses                                            3,180             2,972            2,568
                                                                -------------     -------------    -------------
       Total noninterest expense                                       12,557            11,191           10,220
                                                                -------------     -------------    -------------
Income before income taxes                                              7,377             6,194            5,166
Income taxes                                                            2,569             2,103            1,791
                                                                -------------     -------------    -------------
Net income                                                      $       4,808     $       4,091    $       3,375
                                                                =============     =============    =============
    Basic earnings per share                                    $        2.22     $       1.89     $        1.56
                                                                ================================================

    Diluted earnings per share                                  $        2.20     $       1.89     $        1.56
                                                                ================================================
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE> 35

                            LAFAYETTE BANCORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                  Years ended December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)


<TABLE>

                                                                           Unrealized
                                                                           Gain (Loss)
                                           Additional                     on Securities                      Total
                             Common          Paid-in        Retained       Available-       Treasury     Shareholders'
                              Stock          Capital        Earnings        for-Sale          Stock         Equity
                             ------          -------        --------        --------          -----         ------
<S>                        <C>             <C>            <C>             <C>             <C>           <C>
Balance,
  January 1, 1995          $     1,497    $     8,683     $    19,170     $      (971)    $     (85)    $    28,294

10% stock dividend
  149,695 shares                   149          3,605         (3,754)                                            -

Net income for 199                                             3,375                                          3,375

Cash dividends
  ($.36 per share)                                              (778)                                          (778)

Unrealized gain on
  transfer of securities                                                          234                           234

Change in  unrealized
  gain (loss) on securities
  available-for-sale                                                              754                           754

Purchase 141 treasury
  shares                                                                                         (4)            (4)
                           -----------    -----------     -----------     -----------    -----------     -----------

Balance,
  December 31, 1995             1,646         12,288          18,013             17             (89)         31,875

20% stock dividend
  329,329 shares                  330          7,080          (7,410)                                            -

Net income for 1996                                            4,091                                          4,091

Cash dividends
  ($.46 per share)                                              (989)                                          (989)

Change in  unrealized
  gain (loss) on securities
  available-for-sale                                                           (328)                           (328)

Purchase 141 treasury
  shares                                                                                         (3)             (3)
                           -----------    -----------     -----------     -----------    -----------     -----------

Balance,
  December 31, 1996              1,976         19,368          13,705           (311)           (92)         34,646

10% Stock dividend
  197,597 shares                   198          5,187          (5,385)                                            -

Net income for 1997                                             4,808                                         4,808

Cash dividends
  ($.56 per share)                                             (1,201)                                       (1,201)

Change in unrealized
  gain (loss) on securities
  available-for-sale                                                             221                            221

Purchase 185 treasury
  shares                                                                                         (5)             (5)
                           -----------    -----------     -----------     -----------    ------------    -----------

Balance
  December 31, 1997        $     2,174    $    24,555     $    11,927    $       (90)    $       (97)    $    38,469
                           ===========    ===========     ===========    ============    ============    ===========

</TABLE>
          See accompanying notes to consolidated financial statements.


<PAGE> 36

                            LAFAYETTE BANCORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 1997, 1996 and 1995
                          (Dollar amounts in thousands)

<TABLE>


                                                                            1997            1996           1995
                                                                            ----            ----           ----
<S>                                                                      <C>            <C>             <C>

Cash flows from operating activities
    Net income                                                           $     4,808    $     4,091     $     3,375
    Adjustments to reconcile net income to net cash
      from operating activities
       Depreciation                                                              631            693             726
       Unrealized loss on other real estate                                        -             64              90
       Premium amortization, net of discount accretion                           271            302             127
       Provision for loan losses                                                 620            240             180
       Net realized gain on securities                                           (27)           (83)            (13)
       Net realized (gain) loss on sale of :
          Fixed assets                                                             -            (96)              -
          Other real estate                                                       21              -              21
       Change in assets and liabilities:
          Loans originated for sale                                          (52,206)       (30,502)        (15,572)
          Loans sold                                                          50,443         27,098          13,099
          Accrued interest receivable and other assets                        (1,241)        (1,173)           (797)
          Accrued interest payable and other liabilities                         698            668             559
                                                                         -----------    -----------     -----------
              Net cash from operating activities                               4,018          1,302           1,795
Cash flows from investing activities
    Purchase of securities available-for-sale                                (19,798)       (41,957)        (22,512)
    Proceeds from sales of securities available-for-sale                      17,453         25,532          16,190
    Proceeds from maturities of securities available-for-sale                 24,155         18,349           5,302
    Purchase of securities held-to-maturity                                   (2,370)        (4,013)         (3,813)
    Proceeds from maturities of securities held-to-maturity                    3,242              5           8,193
    Loans made to customers, net of payments collected                       (43,641)       (40,539)         (4,252)
    Purchase of Federal Home Loan Bank stock                                    (126)           (36)            (99)
    Property and equipment expenditures                                         (459)        (1,612)           (804)
    Proceeds from sale of fixed assets                                             -            125               -
    Proceeds from sales of other real estate                                     136            300             588
                                                                         -----------    -----------     -----------
       Net cash from investing activities                                    (21,408)       (43,846)         (1,207)
Cash flows from financing activities
    Net change in deposit accounts                                            13,645         16,600          11,889
    Cash received in branch acquisition for liabilities assumed,
      net of assets acquired                                                       -         16,298               -
    Net change in short-term borrowings                                       (4,149)         5,429          (3,152)
    Proceeds from long-term debt                                              16,500          1,500               -
    Payments on long-term debt                                                (5,879)        (1,140)           (833)
    Dividends paid                                                            (1,201)          (989)           (778)
    Purchase of treasury stock                                                    (5)            (3)             (4)
                                                                         ------------   -----------     -----------
       Net cash from financing activities                                     18,911         37,695           7,122
                                                                         -----------    -----------     -----------
Net change in cash and cash equivalents                                        1,521         (4,849)          7,710
Cash and cash equivalents at beginning of year                                29,380         34,229          26,519
                                                                         -----------    -----------     -----------
Cash and cash equivalents at end of year                                 $    30,901    $    29,380     $    34,229
                                                                         ===========    ===========     ===========
Supplemental disclosures of cash flow information
    Cash paid during the period for:
       Interest                                                          $    15,477    $    13,877     $    12,952
       Income taxes                                                            2,757          1,992           1,803

Non-cash investing activity
    Loans transferred to other real estate                               $         -    $        99     $       190
    Securities transferred from held-to-maturity to available-for-sale             -              -          46,971

</TABLE>
          See accompanying notes to consolidated financial statements.

<PAGE> 37


                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description  of Business:  The  consolidated  financial  statements  include the
accounts  of  Lafayette   Bancorporation   (Corporation)  and  its  wholly-owned
subsidiary,  Lafayette  Bank and Trust  Company  (Bank),  after  elimination  of
significant intercompany transactions and accounts.

The Corporation  operates  primarily in the banking  industry which accounts for
more than 90% of its revenues,  operating income and assets. The Bank is engaged
in the  business  of  commercial  and retail  banking  and trust and  investment
services,  with  operations  conducted  through  its main office and 12 branches
located in Tippecanoe and White Counties in Indiana.  The majority of the Bank's
income is derived from  commercial and retail  business  lending  activities and
investments.  Although the overall loan portfolio is diversified, the economy of
Tippecanoe County is heavily dependent on Purdue  University,  one of the area's
largest  employers,  and the economy of White County is heavily dependent on the
agricultural  industry. The majority of the Bank's loans are secured by specific
items of  collateral  including  business  assets,  real  property  and consumer
assets.

Use of Estimates:  Management  must make estimates and  assumptions in preparing
financial   statements  that  affect  the  amounts   reported  therein  and  the
disclosures  provided.  These estimates and assumptions may change in the future
and future results could differ.  Estimates that are more  susceptible to change
in the near term  include  the  allowance  for loan  losses,  the fair  value of
certain  securities and other financial  instruments,  and the determination and
carrying value of impaired loans.

Securities:   The  Bank   classifies   securities  into   held-to-maturity   and
available-for-sale  categories.  Securities held-to-maturity are those which the
Bank has the positive  intent and ability to hold to maturity,  and are reported
at amortized cost.  Securities  available-for-sale  are those which the Bank may
decide to sell if needed for  liquidity,  asset-liability  management,  or other
reasons.  Securities   available-for-sale  are  reported  at  fair  value,  with
unrealized  gains or losses included as a separate  component of equity,  net of
tax.

Realized  gains or losses  are  determined  based on the  amortized  cost of the
specific security sold.  Interest and dividend income,  adjusted by amortization
of purchase premium or discount, is included in earnings.

Loans Held for Sale: The Bank sells certain  fixed-rate  first mortgage loans in
the secondary market on a servicing-released basis. Mortgage loans held for sale
are carried at the lower of cost or  estimated  market  value  determined  on an
aggregate  basis.  At December 31, 1997 and 1996 the  estimated  market value of
loans held for sale exceeded their cost.



<PAGE> 38

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans: Interest on real estate, commercial and most installment loans is accrued
over the term of the loans based on the principal  outstanding.  The recognition
of interest income is discontinued when, in management's  judgment, the interest
will not be  collectible  in the  normal  course  of  business,  typically  when
payments  are past due over 90 days.  The Bank defers loan fees,  net of certain
direct  loan  origination  costs.  The net amount  deferred  is  reported in the
balance sheet as part of loans and is recognized  into interest  income over the
term of the loan using a method which approximates a level-yield.

The carrying values of impaired loans are periodically  adjusted to reflect cash
payments,  revised  estimates of future cash flows, and increases in the present
value  of  expected  cash  flows  due to the  passage  of  time.  Cash  payments
representing  interest  income are  reported as such.  Other cash  payments  are
reported as reductions in carrying  value,  while  increases or decreases due to
changes  in  estimates  of future  payments  and due to the  passage of time are
reported as bad debt expense, if reductions, or otherwise as interest income.

Allowance  for Loan  Losses:  The  allowance  for  loan  losses  is a  valuation
allowance,  increased  by  the  provision  for  loan  losses  and  decreased  by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss  experience,  known and inherent risks in the portfolio,
information about specific borrower situations and estimated  collateral values,
economic conditions, and other factors. Allocations of the allowance may be made
for specific loans,  but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.

Loan  impairment is recognized if a loan's full  principal or interest  payments
are not expected to be received.  Loans considered to be impaired are reduced to
the present value of expected  future cash flows using the loans'  existing rate
or to the fair value of  collateral  if  repayment  is expected  solely from the
collateral,  by  allocating a portion of the  allowance  for loan losses to such
loans.

Smaller-balance  homogeneous  loans are evaluated for impairment in total.  Such
loans  include  residential  real estate  loans  secured by  one-to-four  family
residences and installment loans to individuals for household,  family and other
personal   expenditures.   Commercial  and  agricultural   loans  are  evaluated
individually  for impairment.  When analysis of borrower  operating  results and
financial  condition  indicates  that  underlying  cash flows of the  borrower's
business  are not adequate to meet its debt  service  requirements,  the loan is
evaluated for impairment.  Often this is associated with a delay or shortfall in
payments of more than 60 days.  Nonaccrual  loans are generally also  considered
impaired.  Impaired loans,  or portions  thereof,  are  charged-off  when deemed
uncollectible.  The present value of loans  identified as impaired in Note 3 was
determined using fair value of collateral.


<PAGE> 39

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

Premises, Furniture and Equipment:  Premises, furniture and equipment are stated
at cost less accumulated  depreciation.  Depreciation expense is recognized over
the  estimated  useful  lives of the assets,  principally  on the  straight-line
method.  These  assets are  reviewed  for  impairment  when events  indicate the
carrying amount may not be recoverable. Maintenance and repairs are expensed and
major improvements are capitalized.

Other Real Estate:  Real estate acquired through  foreclosure or acceptance of a
deed in lieu of foreclosure is recorded at the lower of cost (fair value at date
of foreclosure) or fair value less estimated selling costs. Expenses incurred in
carrying other real estate are charged to operations as incurred.

Intangibles:  Goodwill  and  core  deposit  intangibles  are  amortized  on  the
straight-line method over 15 years and are included in other assets. Intangibles
are assessed for  impairment  based on estimated  undiscounted  cash flows,  and
written down if necessary.

Stock Compensation:  Expense for employee  compensation under stock option plans
is based on Opinion 25, with expense  reported only if options are granted below
market price at grant date. Pro forma disclosures of net income and earnings per
share are provided as if the fair value method of Financial  Accounting Standard
No. 123 were used for stock-based compensation.

Income Taxes: Deferred tax liabilities and assets are determined at each balance
sheet date.  They are  measured by applying  enacted tax laws to future  taxable
income or expense resulting from differences in the financial  statement and tax
basis of assets and  liabilities.  Valuation  allowances  are  established  when
necessary to reduce  deferred tax assets to the amount  expected to be realized.
Income tax expense is the tax payable or refundable for the period plus or minus
the change during the period on deferred tax assets and liabilities.

Statement of Cash Flows:  Cash and cash  equivalents are defined to include cash
on hand, amounts due from banks, and federal funds sold. The Corporation reports
net cash  flows  for  customer  loan  transactions,  deposit  transactions,  and
short-term borrowings.



<PAGE> 40

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Values of Financial  Instruments:  Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed separately.  Fair value estimates involve uncertainties and matters of
significant  judgment regarding interest rates,  credit risk,  prepayments,  and
other factors,  especially in the absence of broad markets for particular items.
Changes in assumptions or in market  conditions could  significantly  affect the
estimates.  The fair value  estimates  of  existing  on- and  off-balance  sheet
financial  instruments does not include the value of anticipated future business
or the values of assets and liabilities not considered financial instruments.

Reclassifications:  Certain items in the prior  financial  statements  have been
reclassified to correspond with the 1997 presentation.


NOTE 2 - SECURITIES

The amortized  cost and estimated  market values of securities are as follows at
December 31, 1997:

<TABLE>
                                                                          Gross           Gross        Estimated
                                                         Amortized     Unrealized      Unrealized        Market
                                                           Cost           Gains          Losses          Value
<S>                                                    <C>             <C>            <C>            <C>    

Securities Available-for-Sale
U.S. Government and its agencies                       $    21,946     $        25    $       (65)   $    21,906
Obligations of states and political
  subdivisions                                               9,892              95             (6)         9,981
Corporate obligations                                          250               -              -            250
Mortgage-backed and other
  asset-backed securities                                    34,637             68           (265)        34,440
                                                       ------------    -----------    ------------   -----------

    Total                                              $     66,725    $       188  $        (336)   $    66,577
                                                       ============    ===========  ==============   ===========


Securities Held-to-Maturity
Obligations of states and political
  subdivisions                                         $      5,268    $       118    $        (8)   $     5,378
                                                       ============    ===========    ============   ===========

</TABLE>


<PAGE> 41

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)


NOTE 2 - SECURITIES (Continued)

The amortized  cost and estimated  market values of securities are as follows at
December 31, 1996:
<TABLE>

                                                                          Gross           Gross        Estimated
                                                         Amortized     Unrealized      Unrealized       Market
                                                           Cost           Gains          Losses          Value
<S>                                                    <C>             <C>            <C>            <C>   

Securities Available-for-Sale
U.S. Government and its agencies                       $    36,116     $        32    $      (210)   $    35,938
Obligations of states and political
  subdivisions                                              17,358             184            (62)        17,480
Corporate obligations                                        1,249              52              -          1,301
Mortgage-backed and other
  asset-backed securities                                   33,998              45           (556)        33,487
                                                       -----------     -----------    -----------    -----------

    Total                                              $    88,721     $       313    $      (828)   $    88,206
                                                       ===========     ===========    ===========    ===========


Securities Held-to-Maturity
Obligations of states and political
  subdivisions                                         $     6,156     $        34    $       (43)   $     6,147
                                                       ===========     ===========    ===========    ===========

</TABLE>

Gross  gains of $95,  $175 and $37 and  gross  losses  of $68,  $92 and $24 were
realized on sales of securities available-for-sale.

The  amortized  cost and  estimated  market value of  securities at December 31,
1997, by contractual maturity,  are shown below.  Securities not due at a single
maturity date are shown separately.
<TABLE>

                                                     Available-for-Sale                  Held-to-Maturity
                                                     ------------------                  ----------------
                                                                   Estimated                         Estimated
                                                 Amortized          Market          Amortized          Market
                                                   Cost              Value            Cost             Value
<S>                                            <C>              <C>               <C>              <C>

Due in one year or less                        $       9,857    $       9,858     $         798    $         799
Due after one year through five years                 12,371           12,339               756              760
Due after five years through ten years                 8,341            8,405             2,191            2,278
Due after ten years                                    1,519            1,535             1,523            1,541
                                               -------------    -------------     -------------    -------------
    Subtotal                                          32,088           32,137             5,268            5,378
Mortgage-backed and other asset-
  backed securities                                   34,637           34,440                 -                -
                                               -------------    -------------     -------------    -------------

    Total                                      $      66,725    $      66,577     $       5,268    $       5,378
                                               =============    =============     =============    =============

</TABLE>

<PAGE> 42

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 2 - SECURITIES (Continued)

Securities with a carrying value of $21,807 and $29,201 at December 31, 1997 and
1996,  respectively,  were pledged to secure public deposits and securities sold
under  agreements to repurchase and for other purposes  required or permitted by
law.

During  December  1995,  securities  with an  amortized  cost of $46,971  and an
unrealized   gain  of   $234   were   transferred   from   held-to-maturity   to
available-for-sale  in accordance with the Financial  Accounting Standards Board
Special Report on Implementation of Statement of Financial  Accounting Standards
No. 115 (FAS 115).

At December 31, 1997 and 1996, mortgage-backed securities include collateralized
mortgage  obligations  (CMO's)  and real  estate  mortgage  investment  conduits
(REMIC's)  with an  amortized  cost of  $15,829  and  $15,994  and fair value of
$15,658 and $15,637,  all of which are issued by U.S.  Government  agencies.  At
December 31, 1997 and 1996, approximately $11,646 and $10,606 are variable rate,
with the remainder fixed rate.


NOTE 3 - LOANS

Loans are comprised of the following as of December 31:

<TABLE>

                                                                                   1997                1996
                                                                                   ----                ----
         <S>                                                                 <C>                 <C> 

         Commercial and agricultural loans                                   $        104,946    $        96,276
         Real estate construction                                                      17,117             12,194
         Residential real estate loans                                                135,214            104,547
         Installment loans to individuals                                              54,950             54,924
         Commercial paper                                                                   -                999
                                                                             ----------------    ---------------

             Total loans                                                     $        312,227    $       268,940
                                                                             ================    ===============
</TABLE>



<PAGE> 43

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 3 - LOANS (Continued)

Nonperforming loans consist of the following at December 31:

<TABLE>
                                                                                   1997                1996
                                                                                   ----                ----
         <S>                                                                <C>                  <C>

         Loans past due 90 days or more                                      $            505    $           735
         Non accrual loans                                                                127                178
         Restructured loans                                                               350                482
                                                                             ----------------    ---------------

             Total nonperforming loans                                       $            982    $         1,395
                                                                             ================    ===============
</TABLE>


Information regarding impaired loans is as follows:

<TABLE>
                                                                                   1997                1996
                                                                                   ----                ----
<S>                                                                         <C>                   <C>   

Year end impaired loans:
         with no allowance for loan losses allocated                         $             19     $            -
         with allowance for loan losses allocated                                         108                178
Amount of the allowance allocated                                                          30                 70

Average balance of impaired loans during the year                                         153                230
Interest income recognized during impairment                                                -                  -
Cash-basis interest income recognized                                                       -                  -

</TABLE>

The  Bank had no  loans  on  nonaccrual  at  December  31,  1997 or  1996,  that
management did not deem to be impaired.

Certain directors and officers of the Corporation and Bank were customers of the
Bank in the  ordinary  course of  business.  Loan  activity  with these  related
parties is as follows:

          Balance as of January 1, 1997                     $          4,223
          New loans                                                    1,041
          Loan payments                                                 (984)
                                                            -----------------

          Balance as of December 31, 1997                   $          4,280
                                                            ================




<PAGE> 44

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 4 - ALLOWANCE FOR LOAN LOSSES

The activity in the allowance for loan losses is as follows:
<TABLE>

                                                               1997                1996                1995
                                                               ----                ----                ----
<S>                                                       <C>                <C>                 <C>    
Balance, January 1                                        $         3,198    $          3,200    $         3,309
Provision charged to operations                                       620                 240                180
Loans charged-off                                                    (550)               (545)              (556)
Recoveries on loans previously charged-off                            196                 303                267
                                                          ---------------    ----------------    ---------------

Balance, December 31                                      $         3,464    $          3,198    $         3,200
                                                          ===============    ================    ===============

</TABLE>


NOTE 5 - PREMISES, FURNITURE AND EQUIPMENT

A summary of premises, furniture and equipment by major category follows:

<TABLE>
                                                                                   1997                1996
                                                                                   ----                ----
<S>                                                                          <C>                 <C>
Land                                                                         $            789    $           789
Buildings and improvements                                                              6,484              6,543
Leasehold improvements                                                                  1,081              1,081
Furniture and equipment                                                                 6,885              7,116
                                                                             ----------------    ---------------
    Total                                                                              15,239             15,529
Accumulated depreciation                                                               (9,056)            (9,174)
                                                                             -----------------   ---------------

Premises, furniture and equipment, net                                       $          6,183    $         6,355
                                                                             ================    ===============
</TABLE>


NOTE 6 - INTEREST-BEARING TIME DEPOSITS

Interest-bearing  time deposits issued in  denominations of one hundred thousand
dollars or greater totaled $24,762 and $27,240 at December 31, 1997 and 1996.

At December 31, 1997, the scheduled maturities of time deposits are as follows:

          1998                                           $         79,511
          1999                                                     52,609
          2000                                                     22,106
          2001                                                      3,351
          2002                                                     10,654
          Thereafter                                                  184
                                                           --------------

          Total interest-bearing time deposits           $        168,415
                                                         ================


<PAGE> 45

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)


NOTE 7 - SHORT-TERM BORROWINGS

Short-term  borrowings  are  comprised  of retail  repurchase  agreements  and a
treasury tax and loan open-end note.  Repurchase agreements represent borrowings
by the Bank from its  customers.  The Bank pledges  certain of its securities as
collateral  for  those  borrowings  (see  Note  2),  for  which  securities  are
maintained  in  safekeeping  under the  Bank's  control.  Repurchase  agreements
generally mature within thirty days. The following  presents  information  about
short-term borrowings at the dates indicated:

<TABLE>

                                                                                   1997                1996
                                                                                   ----                ----
<S>                                                                          <C>                 <C>
Balance of repurchase agreements outstanding                                 $         17,340    $        23,497

Balance of treasury tax and loan open-end note                                          3,032              1,024
                                                                             ----------------    ---------------

  Total short-term borrowings                                                $         20,372    $        24,521
                                                                             ================    ===============
</TABLE>


At December 31, 1997 the  Corporation  had overnight  repurchase  agreements for
$5,300  with the  Catholic  Diocese  of  Lafayette,  and $715 in  related  party
repurchase agreements.


NOTE 8 - LONG-TERM DEBT

Long-term debt outstanding at December 31 consists of the following:

<TABLE>

                                                                                   1997                1996
                                                                                   ----                ----
<S>                                                                                <C>                 <C>
                                                                            
Federal Home Loan Bank advances;  annual principal payments;  various maturities
  with final maturity  November 15, 2006;  interest  payable  monthly at various
  fixed  interest  rates from 5.45% - 6.82%;  secured by a blanket pledge of the
  Bank's  obligations of the U.S.  Government and U.S.  Government  agencies and
  one-to-four
  family residential mortgage loans.                                              $   8,386            $  9,265

Federal Home Loan Bank  advances;  principal  payments due at maturity;  various
  maturities  during  the year 2000,  with final  maturity  December  16,  2000;
  interest  payable  monthly at various fixed interest  rates from  5.71%-6.17%;
  secured by a blanket pledge of the Bank's  obligations of the U.S.  Government
  and U.S. Government agencies
  and one-to-four family residential mortgage loans.                                 11,500                  -
                                                                                  ---------            --------


                   Total long-term debt                                           $  19,886            $  9,265
                                                                                  =========            ========
</TABLE>

Annual principal payments required on long-term debt are as follows:

          1998                                                  $       832
          1999                                                          789
          2000                                                       12,248
          2001                                                          710
          2002                                                          951
          2003 and thereafter                                         4,356
                                                                -----------

            Total long-term debt                                $    19,886
                                                                ===========

<PAGE> 46

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 9 - EMPLOYEE BENEFIT PLANS

The  Bank  has  a   noncontributory   defined   benefit  pension  plan  covering
substantially  all  employees.  The Bank's  funding  policy is to contribute the
minimum amount required by applicable regulations. Plan assets consist primarily
of investments in interest-bearing  balances with financial  institutions,  U.S.
government   bonds,   corporate  bonds  and  other  various   marketable  equity
securities.

The following  sets forth the Plan's funded status and amount  recognized in the
balance  sheet at  December 31 (amounts  computed as of  September  30, 1997 and
1996):

<TABLE>

                                                                                   1997                1996
                                                                                   ----                ----
<S>                                                                           <C>                 <C>
Actuarial present value of obligations:
    Accumulated benefit obligation, including vested
      benefits of $8,528 and $7,811 in 1997 and 1996                          $        8,778      $       8,017
                                                                              ==============      =============

Plan assets at fair value                                                     $       14,675      $      12,351
Projected benefit obligation for service rendered to date                            (11,252)           (10,091)
Unrecognized net (gain)/loss                                                            (433)               858
Prior service cost not yet recognized, amortized straight-line                            23                 25
Unrecognized transition asset                                                         (1,083)            (1,234)
                                                                              ---------------     -------------

    Prepaid pension cost included in other assets                             $        1,930      $       1,909
                                                                              ==============      =============
</TABLE>

Net pension benefit for 1997, 1996 and 1995 included the following:

<TABLE>

                                                               1997                1996                1995
                                                               ----                ----                ----
<S>                                                        <C>                <C>                 <C>
Service cost-benefits earned                               $         511      $          505      $         374
Interest cost on projected benefit obligation                        744                 691                612
Actual return on plan assets                                      (2,733)             (1,303)            (1,444)
Net amortization and deferral                                      1,457                  91                420
                                                           -------------      --------------      -------------

     Net periodic pension benefit                          $         (21)     $          (16)     $         (38)
                                                           ==============     ==============      =============
</TABLE>



Significant  assumptions made in computing pension liability and expense were as
follows:

<TABLE>

                                                              1997                1996                1995
                                                              ----                ----                ----
<S>                                                           <C>                 <C>                 <C>
Weighted average discount rate                                 7.25%              7.50%               7.50%
Increase in future compensation                                4.00               4.00                4.00
Long-term rate of return                                       9.25               9.25                9.25

</TABLE>


<PAGE> 47


                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 9 - EMPLOYEE BENEFIT PLANS (Continued)

The  Bank  maintains  a  retirement  savings  plan  covering  substantially  all
employees. The Plan requires employees to complete one year of service and be 21
years of age before entering the Plan.  Employee  contributions are limited to a
maximum  of 15% of their  salary.  The Plan  allows  for a  matching  percentage
determined annually by the Board of Directors of the first 4% of employee salary
contributions and an annual discretionary  contribution.  Participants are fully
vested in salary deferral  contributions  and employer  matching  contributions.
Total 401(k)  contributions  charged to expense were $106, $73 and $60 for 1997,
1996 and 1995.

The Bank  maintains  a  deferred  compensation  plan for the  benefit of certain
directors.  Under  the  Plan,  the Bank  agrees,  in  return  for the  directors
deferring  the  receipt of a portion  of their  current  compensation,  to pay a
retirement  benefit  computed as the amounts of the  compensation  deferred plus
accrued  interest at a variable rate.  Accrued benefits payable totaled $683 and
$525 at December 31, 1997 and 1996. Deferred  compensation  expense was $90, $84
and $84 for 1997,  1996 and 1995. In conjunction  with the Plan  formation,  the
Bank purchased life insurance on the directors. The cash surrender value of that
insurance is carried as an other asset on the  consolidated  balance sheet,  and
was approximately $3,367 and $3,210 at December 31, 1997 and 1996.


NOTE 10 - POSTRETIREMENT BENEFITS

The Bank sponsors a  postretirement  benefit plan which provides defined medical
benefits.  Employees who have medical  coverage prior to retirement are eligible
to receive  postretirement  medical  benefits for  themselves  and their spouse,
provided they have completed 10 years of service and attained age 55.

The  Plan  is  contributory.  Retirees  contribute  an  amount  equal  to  their
individual  applicable premium to provide the coverage,  less 30%, which is paid
monthly  by the  Bank.  Retirees  must  pay  100% of  medical  premiums  for all
dependent coverage.



<PAGE> 48

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 10 - POSTRETIREMENT BENEFITS (Continued)

The following sets forth the Plan's funded status and amounts  recognized in the
balance sheet at December 31:

<TABLE>

                                                                                   1997                1996
                                                                                   ----                ----
<S>                                                                           <C>                 <C> 
Accumulated postretirement benefit obligations:
    Retirees                                                                  $           83      $          64
    Fully eligible active participants                                                   124                 90
    Other active plan participants                                                       236                242
                                                                              --------------      -------------

    Accumulated postretirement benefit obligation in
      excess of plan assets                                                              443                396

Unrecognized gain due to change in assumptions                                           179                201
                                                                              --------------      -------------

    Accrued postretirement benefit obligation                                 $          622      $         597
                                                                              ==============      =============
</TABLE>


Net  periodic  postretirement  benefit  cost for the years  ended  December  31,
included the following components:

<TABLE>


                                                               1997                1996                1995
                                                               ----                ----                ----
<S>                                                        <C>                <C>                  <C>
Service cost-benefits attributed to
  service during the period                                $          24      $           22      $          37
Interest cost on accumulated
  postretirement benefit obligation                                   28                  25                 31
Net amortization and deferral                                        (15)                (16)                 -
                                                           --------------     ---------------     -------------

    Postretirement benefit cost                            $          37      $           31      $          68
                                                           =============      ==============      =============
</TABLE>


Benefit  payments  of $12 for 1997 and $11 for 1996 and $13 for 1995,  were made
for postretirement medical benefits.

For measurement purposes,  the annual rate of increase in the per capita cost of
covered health care benefits assumed was 11.5% for 1997, 1996 and 1995, with the
rate assumed to gradually decrease to 5.5% effective January 1, 2002. The health
care cost trend  assumption  has a significant  effect on the amounts  reported.
However,  an increase in the assumed  health care cost trend rates by 1% in each
year would  increase the  accumulated  postretirement  benefit  obligation as of
December 31, 1997 and the aggregate  service and interest cost components of net
periodic  postretirement  benefit  cost for the year then ended by  amounts  not
considered to be material.

The  weighted   average  discount  rate  used  in  determining  the  accumulated
postretirement benefit obligation was 7% for 1997, 1996 and 1995.




<PAGE> 49


                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 11 - STOCK APPRECIATION RIGHTS AND STOCK OPTION PLAN

The  Corporation  maintains  an  Officers'  Stock  Appreciation  Rights Plan for
granting rights to certain officers,  under which all available rights have been
granted.  Upon exercise of a stock  appreciation  right,  the holder may receive
cash equal to the excess of the fair market value of common stock at the date of
exercise over the option price. Stock appreciation  rights are vested at 20% per
year and must be  exercised  within ten years of grant.  The Plan  expires  May,
2002.  Granted rights  outstanding were  fully-vested and consisted of 45,085 at
$6.65 per share  for 1997,  and  69,166 at $7.32 per share for 1996 and 1995 (as
restated  for the  effect  of  stock  dividends).  In 1997,  prior to the  stock
dividend,  28,180 rights were exercised at $7.32 per share. Compensation expense
charged  to  operations  in 1997,  1996 and 1995 was $657,  $112 and $229 and is
based on an increase in market  value.  The  liability  at December 31, 1997 and
1996 was $1,132 and $1,022.

Effective May 1, 1995, the  Corporation  authorized a nonqualified  stock option
plan providing stock options to directors and key members of management. A total
of 47,916 shares of common stock for directors and 68,244 shares for  management
were  available  for grant at a price equal to the market  price of the stock at
the date of grant.  Options  granted  to  directors  at the  effective  date are
exercisable  any time after the date of grant,  and options granted to directors
elected  after the  effective  date are  exercisable  after two  years.  Options
granted  to  management  become  20%  exercisable  after  one  year and 20% each
subsequent  year.  The Plan is  effective  for five  years and  options  must be
exercised within ten years from the date of grant.

A summary of the Corporation's  stock option activity,  and related  information
for the years ended December 31, follows (adjusted for stock dividends):

<TABLE>

                                                              1997                               1996
                                                              ----                               ----

                                                                    Weighted                           Weighted
                                                                     Average                            Average
                                                                    Exercise                           Exercise
                                                   Options            Price           Options            Price
                                                   -------            -----           -------            -----
<S>                                                <C>             <C>                <C>               <C>
Outstanding beginning of year                      79,220         $    19.34          52,539            $  18.85
Granted                                            28,160              24.20          26,681               20.30
Exercised                                               -                                  -                   -
Forfeited                                            (624)             19.69               -                   -
                                                  --------        ----------         -------              ------

Outstanding end of year                            106,756        $    20.62          79,220          $    19.34
                                                  ========        ==========         =======          ==========
Exercisable at end of year                          49,697        $    19.00          41,818          $    18.85
                                                  ========        ===========        =======          ==========

Weighted average fair value per
  option granted during the year                  $   5.31                           $  3.71

</TABLE>

Options  outstanding at December 31, 1997 have a weighted average remaining life
of 8.8 years, with exercise prices ranging from $18.86 to $24.20.


<PAGE> 50




                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 11 - STOCK APPRECIATION RIGHTS AND STOCK OPTION PLAN (Continued)

The Corporation has elected to follow  Accounting  Principles  Board Opinion No.
25,   "Accounting   for  Stock  Issued  to  Employees"   (APB  25)  and  related
interpretations in accounting for its stock options because the alternative fair
value accounting provided for under Statement of Financial  Accounting Standards
No. 123 (FAS 123),  "Accounting for Stock-Based  Compensation,"  requires use of
option valuation models which management  believes are not necessarily  reliable
in valuing the Corporation's  stock options.  Under APB 25, because the exercise
price  of the  Corporation's  stock  options  equals  the  market  price  of the
underlying stock on the date of grant, no compensation expense is recognized.

Pro forma  information  regarding  net  income and  earnings  per share has been
determined as if the  Corporation  had accounted for its stock options under the
fair  value  method of that  Statement.  The fair  value for these  options  was
estimated at the date of grant using a  Black-Scholes  option pricing model with
the following  weighted  average  assumptions for the years 1997, 1996 and 1995,
respectively:  risk-free interest rates of 6.6%, 6.5% and 6.4%;  dividend yields
of 2%;  volatility  factors of the expected  market  price of the  Corporation's
common stock of .16, .05 and .06, and a weighted  average  expected  life of the
options of five years.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options' vesting period.  The Corporation's pro
forma   information   follows  (in  thousands  except  for  earnings  per  share
information):

<TABLE>
                                                              1997                 1996                1995
                                                              ----                 ----                ----
<S>                                                        <C>                <C>                 <C>
Pro forma net income                                       $       4,706      $        4,034      $       3,220
Pro forma earnings per share
    Basic                                                  $        2.18      $         1.87      $        1.49
    Diluted                                                $        2.16      $         1.86      $        1.49

</TABLE>

In future years, the pro forma effect of not applying this standard may increase
if additional options are granted.


<PAGE> 51

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 12 - INCOME TAXES

Income taxes consist of the following:
<TABLE>

                                                               1997                1996                1995
                                                               ----                ----                ----
    <S>                                                    <C>                <C>                 <C>    
    Currently payable                                      $       2,626      $        2,165      $       1,610
    Deferred income taxes (benefit)                                  (57)                (62)               181
                                                           --------------     --------------      -------------

       Total                                               $       2,569      $        2,103      $       1,791
                                                           =============      ==============      =============
</TABLE>


The  following is a  reconciliation  of statutory  federal  income taxes and the
amount  computed by applying the  statutory  rate of 34% to income before income
taxes:

<TABLE>

                                                               1997                1996                1995
                                                               ----                ----                ----
<S>                                                        <C>                <C>                 <C>
Statutory rate applied to income before
  income taxes                                             $       2,508      $        2,106      $      1,756
Add/(deduct)
    Tax exempt interest income                                      (303)               (301)             (218)
    State tax expense (net of federal benefit)                       405                 346               300
    Other                                                            (41)                (48)              (47)
                                                           --------------     --------------      -------------

       Total                                               $       2,569      $        2,103      $       1,791
                                                           =============      ==============      =============
</TABLE>

The net  deferred  tax asset  reflected  in the  consolidated  balance  sheet is
comprised of the following components as of December 31:

<TABLE>

                                                                                   1997                1996
                                                                                   ----                ----

<S>                                                                           <C>                 <C>
Deferred tax assets:
    Allowance for loan losses                                                 $          510      $         404
    Accrued stock appreciation rights                                                    448                405
    Accrued postretirement benefit obligation                                            271                236
    Deferred compensation                                                                237                169
    Deferred loan fees                                                                   132                225
    Net operating loss carryforward                                                       26                 54
    Net unrealized loss on securities available-for-sale                                  59                204
                                                                              --------------      -------------
       Total deferred tax assets                                                       1,683              1,697

Deferred tax liabilities:
    Depreciation                                                                        (220)              (234)
    Net pension benefit                                                                 (765)              (756)

    Other                                                                               (169)               (90)
                                                                              ---------------     -------------
Total deferred tax liabilities                                                        (1,154)            (1,080)

Valuation allowance                                                                        -                  -
                                                                              --------------      -------------

    Net deferred tax asset                                                    $          529      $         617
                                                                              ==============      =============
</TABLE>


<PAGE> 52


                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)


NOTE 12 - INCOME TAXES (Continued)

The Corporation has the following tax carryforwards at December 31, 1997:

<TABLE>

                                                         Tax Carryforward                 Expiration
                                                         ----------------                 ----------
                                                                                   2001                2002
                                                                                   ----                ----
<S>                                                         <C>                  <C>                <C>    
    Regular tax
       Net operating loss                                    $      77           $     32           $      45

    Alternative minimum tax
       Net operating loss                                    $      44           $     32           $      12

</TABLE>

Federal tax laws restrict the use of the net operating loss carryforwards listed
above.  Utilization  is limited  to $83 each year  until  fully used and is also
dependent upon future taxable income of the Bank exceeding such amounts.


NOTE 13 - PER SHARE DATA

In November  1997,  the  Corporation  issued  197,597  shares of common stock in
connection with a 10% stock dividend.  In September 1996, the Corporation issued
329,329  shares of common  stock in  connection  with a 20% stock  dividend.  In
October  1995,  the  Corporation  issued  149,695  shares  of  common  stock  in
connection  with a 10% stock  dividend.  Earnings and dividend per share amounts
have  been  retroactively  restated  for  the  stock  dividends.  Stock  options
outstanding  in 1995 were  antidilutive  and have been  excluded  from  weighted
average shares.  The following  illustrates the computation of basic and diluted
earnings per share.

<TABLE>

                                                               1997                1996                1995
                                                               ----                ----                ----
<S>                                                        <C>                <C>                 <C>
Basic earnings per share
 Net income                                                $       4,808      $        4,091      $       3,375
Weighted average shares outstanding                            2,161,386           2,161,518          2,161,659
                                                           -------------      --------------      -------------

    Basic earnings per share                               $        2.22      $         1.89      $        1.56
                                                           =============     ===============      =============


Diluted earnings per share
 Net income                                                $       4,808      $        4,091      $       3,375

Weighted average shares outstanding                            2,161,386           2,161,518          2,161,659
Stock Options                                                    106,756              79,220                  -
Assumed shares repurchased upon exercise                         (85,485)            (75,670)                 -
                                                           --------------     ---------------     -------------
    Diluted average shares outstanding                          2,182,657          2,165,068          2,161,659
                                                           --------------     ---------------     -------------

    Diluted earnings per share                             $         2.20     $         1.89      $        1.56
                                                           ==============     ==============      =============

</TABLE>


<PAGE> 53


                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)


NOTE 14 - CAPITAL REQUIREMENTS

The Corporation and Bank are subject to various regulatory capital  requirements
administered  by federal and state  banking  agencies.  Failure to meet  minimum
capital  requirements can initiate certain  mandatory - and possible  additional
discretionary - actions by regulators  that, if undertaken,  could have a direct
material  effect  on  the  Corporation's  financial  statements.  Under  capital
adequacy  guidelines and the regulatory  framework for prompt corrective action,
the  Corporation  and Bank must meet specific  capital  guidelines  that involve
quantitative  measures of assets,  liabilities,  and certain  off-balance  sheet
items as calculated under regulatory accounting  practices.  The capital amounts
and classification  are also subject to qualitative  judgments by the regulators
about components, risk weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the  Corporation  and Bank to maintain  minimum  amounts and ratios (set
forth in the  table  below)  of total  and Tier 1  capital  (as  defined  in the
regulations)  to  risk-weighted  assets (as defined),  and of Tier 1 capital (as
defined) to average assets (as defined). Management believes the Corporation and
Bank meet all applicable capital adequacy requirements as of December 31, 1997.

As  of  December  31,  1997,  the  Corporation  and  Bank  were  categorized  as
well-capitalized under the regulatory framework for prompt corrective action. To
be  categorized  as  well-capitalized,  the  Corporation  and Bank must maintain
minimum total risk-based,  Tier 1 risk-based,  and Tier 1 leverage ratios as set
forth in the table.

The Corporation's  actual consolidated  capital amounts and ratios are presented
in the following  table (in  millions).  The Bank's actual  capital  amounts and
ratios are not materially different from the consolidated amounts below.

<TABLE>

                                                                                                 Minimum Required
                                                                                                    To Be Well-
                                                                      Minimum Required           Capitalized Under
                                                                         For Capital             Prompt Corrective
                                                 Actual               Adequacy Purposes         Action Regulations
                                          Amount        Ratio        Amount        Ratio       Amount        Ratio
                                          ------        -----        ------        -----       ------        -----
<S>                                       <C>           <C>          <C>           <C>         <C>           <C>
1997
----
Total capital (to risk weighted assets)   $ 41.1        13.3%        $ 24.8         8.0%       $ 31.0        10.0%
Tier 1 capital (to risk weighted assets)    37.7        12.1           12.4         4.0          18.6         6.0
Tier 1 capital (to average assets)          37.7         8.8           17.2         4.0          21.5         5.0

1996
----
Total capital (to risk weighted assets)   $ 37.2        13.3%        $ 22.5         8.0%       $ 28.1        10.0%
Tier 1 capital (to risk weighted assets)    34.0        12.1           11.2         4.0          16.9         6.0
Tier 1 capital (to average assets)          34.0         8.6           15.9         4.0          19.8         5.0

</TABLE>

The  Bank is also  subject  to  state  regulations  restricting  the  amount  of
dividends  payable to the Corporation.  At December 31, 1997, these  regulations
pose  no  practical  restriction  on the  Bank's  ability  to pay  dividends  at
historical levels.



<PAGE> 54



                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES

The Bank leases branch  facilities  under  operating  leases expiring in various
years  through  2007.  Expense for leased  premises was $188,  $181 and $143 for
1997, 1996 and 1995.
Future minimum lease payments are as follows:

            1998                                                 $     212
            1999                                                       205
            2000                                                       185
            2001                                                       104
            2002                                                       101
            2003 through 2007                                          311
                                                                 ---------

                 Total                                           $   1,118
                                                                 =========

In the  ordinary  course  of  business,  the Bank  has  loans,  commitments  and
contingent  liabilities,  such as guarantees  and  commitments to extend credit,
which are not reflected in the  consolidated  balance sheet. The Bank's exposure
to  credit  loss in the  event  of  nonperformance  by the  other  party  to the
financial instrument for commitments to make loans and standby letters of credit
is represented by the contractual amount of those instruments. The Bank uses the
same credit  policy to make such  commitments  as it uses for  on-balance  sheet
items.

At December 31,  off-balance  sheet financial  instruments whose contract amount
represents credit risk are summarized as follows:

<TABLE>

                                                                                   1997                1996
                                                                                   ----                ----
         <S>                                                                  <C>                 <C>

         Unused lines of credit                                               $       33,686      $      28,752
         Commitments to make loans                                                     4,964              8,965
         Standby letters of credit                                                     2,189              1,426
         Commercial letters of credit                                                     78                 89

</TABLE>


Since many  commitments to make loans expire without being used, the amount does
not necessarily  represent  future cash  commitments.  Collateral  obtained upon
exercise of the commitment is determined using management's credit evaluation of
the borrower, and may include accounts receivable, inventory, property, land and
other items.  These  commitments are generally  variable rate or carry a term of
one year or less.

The cash  balance  required  to be  maintained  on hand or on  deposit  with the
Federal  Reserve  was $4,931 and $4,785 at  December  31,  1997 and 1996.  These
reserves do not earn interest.




<PAGE> 55

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)




NOTE 16 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying  value and  estimated  fair values of the  Corporation's  financial
instruments as of December 31 are as follows:

<TABLE>

                                                            1997                               1996
                                                            ----                               ----
                                                  Carrying            Fair           Carrying           Fair
                                                   Value             Value            Value             Value
                                                   -----             -----            -----             -----
<S>                                            <C>              <C>               <C>              <C>
Financial assets:
   Cash and cash equivalents                   $      30,901    $      30,901     $      29,380    $      29,380
   Securities available-for-sale                      66,577           66,577            88,206           88,206
   Securities held-to-maturity                         5,268            5,378             6,156            6,147
   Loans held for sale                                 7,640            7,768             5,877            5,979
   Loans, net                                        308,763          310,115           265,742          266,359
   Federal Home Loan Bank stock                        1,242            1,242             1,116            1,116
   Accrued interest receivable                         4,359            4,359             3,929            3,929

Financial liabilities:
   Deposits                                    $    (355,195)   $    (356,623)    $    (341,550)   $    (342,751)
   Short-term borrowings                             (20,372)         (20,372)          (24,521)         (24,521)
   Long-term debt                                    (19,886)         (20,076)           (9,265)          (9,145)
   Accrued interest payable                           (1,332)          (1,332)           (1,284)          (1,284)

</TABLE>


The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.  The carrying  amount is  considered  to estimate fair value for cash and
short-term  instruments,   demand  deposits,   short-term  borrowings,   accrued
interest, and variable rate loans or deposits that reprice frequently and fully.
Securities  fair values are based on quoted  market  prices or, if no quotes are
available,  on the rate and term of the  security and on  information  about the
issuer.  For loans held for sale, the fair value of loans held for sale is based
on quoted market prices. For commercial, real estate, consumer, and other loans,
fair value is estimated by discounting future cash flows using the current rates
at which similar loans would be made to borrowers  with similar  credit  ratings
and for  the  same  remaining  maturities.  Federal  Home  Loan  Bank  stock  is
restricted  in nature and is not actively  traded on a secondary  market and the
carrying  amount is a  reasonable  estimate  of fair  value.  The fair  value of
fixed-maturity  certificates  of deposit is estimated  using the rates currently
offered for deposits of similar remaining maturities.  For long-term debt, rates
are  currently  available to the  Corporation  for debt with  similar  terms and
remaining  maturities.  The  estimated  fair  value for  off-balance  sheet loan
commitments  approximates  carrying value and are not considered  significant to
this presentation.



<PAGE> 56

                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)


NOTE 17 - PARENT COMPANY STATEMENTS

Presented  below are  condensed  balance  sheets,  statements of income and cash
flows for the parent company:

                            CONDENSED BALANCE SHEETS
                           December 31, 1997 and 1996
                          (Dollar amounts in thousands)

<TABLE>

                                                                                   1997                1996
                                                                                   ----                ----
<S>                                                                           <C>                 <C>
ASSETS
Cash on deposit with subsidiary                                               $          758      $         722
Investment in bank                                                                    38,576             34,819
Other assets                                                                             720                461
                                                                              --------------      -------------

                                                                              $       40,054      $      36,002
                                                                              ==============      =============


LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities                                                                            1,585              1,356

Shareholders' equity                                                                  38,469             34,646
                                                                              --------------      -------------

                                                                              $       40,054      $      36,002
                                                                              ==============      =============
</TABLE>



<PAGE> 57


                            LAFAYETTE BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 17 - PARENT COMPANY STATEMENTS (Continued)

                         CONDENSED STATEMENTS OF INCOME
              For the years ended December 31, 1997, 1996 and 1995
                          (Dollar amounts in thousands)

<TABLE>
                                                                          1997            1996           1995
                                                                          ----            ----           ----

<S>                                                                   <C>             <C>            <C>
Operating income
    Dividends received from subsidiary bank                            $     1,714    $     1,570    $       920
    Interest income                                                             10              3              -
                                                                       -----------    -----------    -----------
                                                                             1,724          1,573            920

Operating expenses                                                             742            192            335
                                                                       -----------    -----------    -----------

Income before income taxes and equity in
  undistributed earnings of subsidiary                                         982          1,381            585

Income tax benefit                                                             290             75            134
                                                                       -----------    -----------    -----------
Income before equity in undistributed earnings of bank                       1,272          1,456            719

Equity in undistributed earnings of bank                                     3,536          2,635          2,656
                                                                       -----------    -----------    -----------

Net income                                                             $     4,808    $     4,091    $     3,375
                                                                       ===========    ===========    ===========

</TABLE>


                       CONDENSED STATEMENTS OF CASH FLOWS
              For the years ended December 31, 1997, 1996 and 1995
                          (Dollar amounts in thousands)

<TABLE>
                                                                          1997            1996           1995
                                                                          ----            ----           ----

<S>                                                                   <C>             <C>            <C>
Cash flows from operating activities
    Net income                                                         $     4,808    $     4,091    $     3,375
    Adjustments to reconcile net income to net cash
      from operating activities
       Amortization of deferred costs                                            6              6              6
       Equity in undistributed earnings of bank                             (3,536)        (2,635)        (2,656)
       Other assets and other liabilities                                      (36)           215            177
                                                                       ------------   -----------    -----------
          Net cash from operating activities                                 1,242          1,677            902

Cash flows from financing activities
    Principal payments on long-term debt                                         -           (224)           (81)
    Dividends paid                                                          (1,201)          (989)          (778)
    Purchase of treasury shares                                                 (5)            (3)            (4)
                                                                       ------------   -----------    -----------
       Net cash from financing activities                                   (1,206)        (1,216)          (863)
                                                                       ------------   -----------    -----------

Net change in cash and cash equivalents                                         36            461             39

Cash and cash equivalents at beginning of year                                 722            261            222
                                                                       -----------    -----------    -----------

Cash and cash equivalents at end of year                               $       758    $       722    $       261
                                                                       ===========    ===========    ===========

</TABLE>


<PAGE> 58


                          LAFAYETTE BANCORPORATION 27.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)



NOTE 18 - BRANCH ACQUISITION

In  September  1996,  the Bank  purchased a branch in  Monticello,  Indiana from
another institution.  The fair value of assets acquired was $923, the fair value
of  liabilities  assumed was $18,114,  and the Bank received  $16,298 of cash at
settlement.  Goodwill and core deposit intangibles associated with this purchase
amounted to $893.







<PAGE> 59


                               STOCK INFORMATION

         The common stock of Lafayette  Bancorporation,  Lafayette,  Indiana, is
traded on the OTC  Bulletin  Board under the  trading  symbol of LAYB (Cusip No.
505893-10-7).  At the  close of  business  on  December  31,  1997,  there  were
2,161,370 shares outstanding held by approximately 500 shareholders.  Management
does not have  knowledge  of the  prices  paid in all  transactions  and has not
verified the accuracy of those  prices that have been  reported.  Because of the
lack of an established  market for the Common Shares of the  corporation,  these
prices would not necessarily  reflect the prices which the Shares would trade in
an active market.

<TABLE>

                                           Price Per Share            Dividend
                                           ---------------            --------
                                      High                        Low               Declared
                                      ----                        ---               --------
<S>                        <C>                       <C>                         <C> 
1997
----

First Quarter              $        21 7/8            $        21 1/4            $        .11
Second Quarter                      24 1/16                    21 7/8                     .12
Third Quarter                       27                         24 1/16                    .12
Fourth Quarter                      31 3/4                     27                         .21

1996
----

First Quarter              $        20 5/8           $        18 3/4             $       .10
Second Quarter                      20 7/16                   20 1/16                    .10
Third Quarter                       20 7/16                   19 1/2                     .11
Fourth Quarter                      20 1/4                    19 9/16                    .15

</TABLE>

* Data  adjusted  for all stock  dividends,  including  a 10% stock  dividend to
shareholders of record on September 30, 1997, paid on November 1, 1997.

     The following  firms have transacted  business in Lafayette  Bancorporation
common stock during the past year:

         Chicago Corporation
         City Securities Corporation
         JJB Hilliard, WL Lyons, Inc.
         McDonald & Company Securities, Inc.
         Merrill Lynch
         Monroe Securities, Inc.
         Robert Thomas Securities located at Lafayette Bank & Trust Co.
         Salomon Smith Barney

     Transfer Agent: Lafayette Bancorporation, 133 North Fourth Street, P.O. Box
1130, Lafayette, Indiana 47902-1130.