FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
(Mark One)

[X]      Annual  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934

                   For the fiscal year ended December 31, 1997

or

[ ]      Transition  Report  Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

For the transition period from _____________ to _______________

Commission File Number      333-35799

                             UNION COMMUNITY BANCORP
             (Exact name of registrant as specified in its charter)

                  INDIANA                                 35-2025237
       (State or other Jurisdiction             (I.R.S. Employer Identification
     of Incorporation or Organization)                      Number)


           221 East Main Street
         Crawfordsville,  Indiana                            47933
 (Address of Principal Executive Offices)                 (Zip Code)

               Registrant's telephone number including area code:
                                 (765) 362-2400

           Securities Registered Pursuant to Section 12(b) of the Act:
                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:
                         Common Stock, Without Par Value
                                (Title of Class)

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

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

The aggregate market value of the issuer's voting stock held by  non-affiliates,
as of March 20, 1998 was $42,175,144.

The  number of shares of the  Registrant's  Common  Stock,  without  par  value,
outstanding as of December 29, 1997, was 3,041,750 shares.


                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.


                            Exhibit Index on Page E-1
                               Page 1 of 69 Pages

<PAGE>


                             UNION COMMUNITY BANCORP
                                    Form 10-K
                                      INDEX
                                                                           Page
Forward Looking Statement.................................................   3

                                     PART I
     Item 1     Business..................................................   3
     Item 2.    Properties................................................  25
     Item 3.    Legal Proceedings.........................................  25
     Item 4.    Submission of Matters to a Vote of Security Holders.......  25
     Item 4.5.  Executive Officers of the Registrant......................  26
PART II
     Item 5.    Market for Registrant's Common Equity and Related
                    Shareholder Matters...................................  26
     Item 6.    Selected Financial Data...................................  28
     Item 7.    Management's Discussion and Analysis of Financial
                    Condition and Results of Operations...................  29
     Item 7A.   Quantitative and Qualitative Disclosures
                    about Market Risks....................................  40
     Item 8.    Financial Statements and Supplementary Data...............  42
     Item 9.    Changes in and Disagreements with Accountants on
                    Accounting and Financial Disclosure...................  64
PART III
     Item 10.   Directors and Executive Officers of Registrant............  64
     Item 11.   Executive Compensation....................................  65
     Item 12.   Security Ownership of
                    Certain Beneficial Owners and Management..............  66
     Item 13.   Certain Relationships and Related Transactions............  67

PART IV

     Item 14.   Exhibits, Financial Statement Schedules,
                    and Reports on Form 8-K...............................  67

SIGNATURES          ......................................................  68


<PAGE>

                            FORWARD LOOKING STATEMENT

     This Annual Report on Form 10-K ("Form  10-K")  contains  statements  which
constitute  forward  looking  statements  within  the  meaning  of  the  Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-K and include  statements  regarding the intent,  belief,
outlook, estimate or expectations of the Holding Company (as defined below), its
directors or its officers primarily with respect to future events and the future
financial  performance  of the  Holding  Company.  Readers of this Form 10-K are
cautioned that any such forward looking  statements are not guarantees of future
events or  performance  and  involve  risks and  uncertainties,  and that actual
results may differ materially from those in the forward looking  statements as a
result of various factors. The accompanying  information  contained in this Form
10-K  identifies  important  factors  that could cause such  differences.  These
factors include  changes in interest rates;  loss of deposits and loan demand to
other  savings and  financial  institutions;  substantial  changes in  financial
markets;  changes in real estate values and the real estate  market;  regulatory
changes; or unanticipated results in pending legal proceedings.

Item 1.  Business

General

         Union  Community   Bancorp,   an  Indiana   corporation  (the  "Holding
Company"),  was organized in September,  1997. On December 29, 1997, it acquired
the common stock of Union Federal Savings and Loan Association ("Union Federal")
upon the  conversion  of Union  Federal from a federal  mutual  savings and loan
association to a federal stock savings and loan association.

         Union  Federal  was  organized  as a  state-chartered  savings and loan
association in 1913.  Since then,  Union Federal has conducted its business from
its  full-service  office located in  Crawfordsville,  Indiana.  Union Federal's
principal  business consists of attracting  deposits from the general public and
originating  fixed-rate  and  adjustable-rate  loans secured  primarily by first
mortgage liens on one- to four-family  residential real estate.  Union Federal's
deposit accounts are insured up to applicable limits by the Savings  Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").

      Management  believes  that it has developed a solid  reputation  among its
loyal customer base because of its commitment to personal service and because of
strong  support  of the  local  community.  Union  Federal  offers a  number  of
financial  services,   including:   (i)  residential  real  estate  loans;  (ii)
multi-family loans; (iii) commercial real estate loans; (iv) construction loans;
(v) home improvement loans; (vi) money market demand accounts  ("MMDAs");  (vii)
passbook savings accounts; and (viii) certificates of deposit.

Lending Activities

      Union Federal has historically  concentrated its lending activities on the
origination  of  loans  secured  by  first-mortgage   liens  for  the  purchase,
construction  or refinancing of one- to four-family  residential  real property.
One- to four-family residential mortgage loans continue to be the major focus of
Union Federal's loan  origination  activities,  representing  77.0% of its total
loan  portfolio  at December 31, 1997.  Union  Federal also offers  multi-family
mortgage loans,  commercial  real estate loans,  construction  loans,  and, to a
limited extent,  consumer loans consisting of loans secured by deposits and home
improvement  loans.  Mortgage  loans  secured  by  multi-family  properties  and
commercial real estate totaled  approximately 12.6% and 4.5%,  respectively,  of
Union  Federal's total loan portfolio at December 31, 1997.  Construction  loans
totaled  approximately  5.7% of Union  Federal's  total loans as of December 31,
1997.  Consumer  loans,  which  consist of home  improvement  loans and passbook
loans, constituted  approximately .3% of Union Federal's total loan portfolio at
December 31, 1997.


<PAGE>

     Loan  Portfolio  Data.  The following  table sets forth the  composition of
Union  Federal's  loan  portfolio by loan type and security type as of the dates
indicated,   including  a   reconciliation   of  gross  loans  receivable  after
consideration of the allowance for loan losses and loans in process.

<TABLE>
<CAPTION>

                                                                      At December 31,
                                                1997                       1996                       1995
                                                       Percent                   Percent                   Percent
                                         Amount       of Total      Amount      of Total      Amount      of Total
                                                                         (Dollars in thousands)

TYPE OF LOAN Real estate mortgage loans:
<S>                                      <C>            <C>         <C>           <C>         <C>           <C>   
   One-to-four-family...............     $62,436        76.95%      $57,031       77.46%      $48,295       76.64%
   Multi-family.....................      10,197        12.57        10,920       14.83         9,617       15.26
   Commercial.......................       3,627         4.47         3,593        4.88         2,814        4.46
Real estate construction loans......       4,652         5.73         1,740        2.36         2,107        3.34
Consumer loans .....................         223          .28           346         .47           191         .30
                                         -------       ------       -------      ------       -------      ------ 
     Gross loans receivable.........     $81,135       100.00%      $73,630      100.00%      $63,024      100.00%
                                         =======       ======       =======      ======       =======      ====== 
TYPE OF SECURITY
   One-to-four-family real estate...     $64,730        79.78%      $58,271       79.14%      $49,762       78.96%
   Multi-family real estate.........      11,172        13.77        11,520       15.65        10,367       16.45
   Commercial real estate...........       5,094         6.28         3,593        4.88         2,814        4.46
   Deposits.........................         139          .17           246         .33            81         .13
                                         -------       ------       -------      ------       -------      ------ 
     Gross loans receivable.........      81,135       100.00        73,630      100.00        63,024      100.00
                                         =======       ======       =======      ======       =======      ====== 
Deduct:
Allowance for loan losses...........         252          .31           159         .22           111         .18
Deferred loan fees..................         325          .40           356         .48           379         .60
Loans in process....................       2,122         2.62           418         .57         1,255        1.99
                                         -------       ------       -------      ------       -------      ------ 
   Net loans receivable.............     $78,436        96.67%      $72,697       98.73%      $61,279       97.23%
                                         =======       ======       =======      ======       =======      ====== 
Mortgage Loans:
   Adjustable-rate..................    $ 20,683        25.56%      $24,238       33.07%      $27,057       43.06%
   Fixed-rate.......................      60,229        74.44        49,046       66.93        35,776       56.94
                                         -------       ------       -------      ------       -------      ------ 
     Total..........................     $80,912       100.00%      $73,284      100.00%      $62,833      100.00%
                                         =======       ======       =======      ======       =======      ====== 

</TABLE>

     The following  table sets forth certain  information  at December 31, 1997,
regarding the dollar amount of loans maturing in Union  Federal's loan portfolio
based on the  contractual  terms to  maturity.  Demand  loans  having  no stated
schedule of repayments and no stated maturity are reported as due in one year or
less.  This  schedule  does not reflect the effects of possible  prepayments  or
enforcement of due-on-sale  clauses.  Management  expects that  prepayments will
cause actual maturities to be shorter.

<TABLE>
<CAPTION>
                                        Balance                         Due During Years Ended December 31,
                                    Outstanding at                                           2001       2003      2008       2013
                                     December 31,                                             to         to        to         and
                                         1997                 1998       1999       2000     2002       2007      2012     following
                                                                                    (In thousands)
Real estate mortgage loans:
<S>                                     <C>                   <C>        <C>     <C>       <C>        <C>        <C>        <C>    
   Residential loans..................  $62,436               $307       $174    $   296   $   965    $18,401    $23,656    $18,637
Multi-family loans....................   10,197                  1        ---        473       ---      3,726      4,812      1,185
   Commercial loans...................    3,627                ---        ---         15        70      1,318        921      1,303
Construction loans....................    4,652                154        ---        975       ---        610      1,118      1,795
Loans secured by deposits.............      139                139        ---        ---       ---        ---        ---        ---
Home improvement loans................       84                  8          6         13        31         26        ---        ---
                                        -------               ----       ----     ------    ------    -------    -------    -------
     Total............................  $81,135               $609       $180     $1,772    $1,066    $24,081    $30,507    $22,920
                                        =======               ====       ====     ======    ======    =======    =======    =======

</TABLE>
<PAGE>

      The following table sets forth, as of December 31, 1997, the dollar amount
of all loans due after one year that have fixed  interest  rates and floating or
adjustable interest rates.

<TABLE>
<CAPTION>
                                                           Due After December 31, 1998
                                         Fixed Rates             Variable Rates                  Total
                                         -----------             --------------                  -----
                                                                 (In thousands)
Real estate mortgage loans:
<S>                                         <C>                      <C>                        <C>    
   Residential loans.................       $50,649                  $11,480                    $62,129
   Multi-family loans................         5,446                    4,750                     10,196
   Commercial loans..................         1,450                    2,177                      3,627
Construction loans...................         2,905                    1,593                      4,498
Installment loans....................           ---                      ---                        ---
Loans secured by deposits............           ---                      ---                        ---
Home improvement loans...............            76                      ---                         76
                                            -------                  -------                    -------
   Total.............................       $60,526                  $20,000                    $80,526
                                            =======                  =======                    =======
</TABLE>



      One- to Four-Family  Residential  Loans.  Union Federal's  primary lending
activity consists of originating one- to four-family  residential mortgage loans
secured by property located in its primary market area. Union Federal  generally
does not originate one- to four-family  residential  mortgage loans if the ratio
of the loan amount to the lesser of the current cost or  appraised  value of the
property (the "Loan-to-Value Ratio") exceeds 95%. Union Federal requires private
mortgage  insurance  on loans with a  Loan-to-Value  Ratio in excess of 80%, and
factors  the cost of such  insurance  into the  annual  percentage  rate on such
loans.  Union Federal  originates and retains fixed rate loans which provide for
the payment of principal and interest over a 15- or 20-year  period,  or balloon
loans  having  terms of up to 15 years  with  principal  and  interest  payments
calculated using a 30-year amortization period.

      Union Federal also offers  adjustable-rate  mortgage  ("ARM")  loans.  The
interest rate on ARM loans is indexed to the one-year U.S.  Treasury  securities
yields  adjusted to a constant  maturity.  Union  Federal  may offer  discounted
initial  interest rates on ARM loans, but requires that the borrower qualify for
the ARM loan at the  fully-indexed  rate (the  index  rate plus the  margin).  A
substantial  portion of the ARM loans in Union  Federal's  portfolio at December
31, 1997 provide for maximum rate  adjustments per year and over the life of the
loan of 1% and 5%, respectively.  Union Federal's residential ARMs are amortized
for terms up to 25 years.

      ARM loans decrease the risk  associated  with changes in interest rates by
periodically  repricing,  but involve  other risks  because,  as interest  rates
increase, the underlying payments by the borrower also increase, thus increasing
the potential for default by the borrower.  At the same time, the  marketability
of the underlying collateral may be adversely affected by higher interest rates.
Upward  adjustment  of the  contractual  interest  rate is also  limited  by the
maximum  periodic and lifetime  interest rate  adjustment  permitted by the loan
documents,  and,  therefore,  is  potentially  limited in  effectiveness  during
periods of rapidly rising interest  rates.  At December 31, 1997,  approximately
25.6% of Union  Federal's real estate  mortgage  loans had  adjustable  rates of
interest.

      All of the one- to  four-family  residential  mortgage  loans  that  Union
Federal originates  include  "due-on-sale"  clauses,  which give it the right to
declare a loan  immediately  due and  payable  in the event  that,  among  other
things, the borrower sells or otherwise disposes of the real property subject to
the mortgage and the loan is not repaid.  However,  Union  Federal  occasionally
permits  assumptions  of existing  residential  mortgage loans on a case-by-case
basis.


<PAGE>

      At December  31,  1997,  approximately  $62.4  million,  or 77.0% of Union
Federal's  portfolio  of loans,  consisted  of one- to  four-family  residential
loans.  Approximately  $47,000, or .1% of total residential loans, were included
in  non-performing  assets as of that date.  See  "--Non-Performing  and Problem
Assets."

      Multi-Family Loans. At December 31, 1997,  approximately $10.2 million, or
12.6% of Union  Federal's  total loan  portfolio,  consisted  of mortgage  loans
secured by multi-family  dwellings  (those  consisting of more than four units).
Union Federal's  multi-family loans are generally written as one-year adjustable
rate loans indexed to the one-year  U.S.  Treasury rate with an original term of
up  to  20  years.   Union  Federal  writes   multi-family  loans  with  maximum
Loan-to-Value  ratios of 80%. Union Federal's  largest  multi-family  loan as of
December 31, 1997 had a balance of approximately $1.1 million and was secured by
28 duplexes located in Crawfordsville,  Indiana. On the same date, none of Union
Federal's multi-family loans were included in non-performing assets.

      Multi-family  loans, like commercial real estate loans,  involve a greater
risk than do residential loans. See "-- Commercial Real Estate Loans" below.

      Commercial Real Estate Loans. Union Federal's commercial real estate loans
are secured by churches,  office  buildings,  and other  commercial  properties.
Union  Federal  generally  originates  commercial  real estate loans as one-year
adjustable  rate loans indexed to the one-year U.S.  Treasury  securities  yield
adjusted to a constant  maturity,  with a maximum term of 20 years and a maximum
Loan-to-Value  ratio of 80%. At  December  31,  1997,  Union  Federal's  largest
commercial  loan had an  outstanding  balance of  $497,000  and was secured by a
nursing home in Richmond,  Indiana.  At December  31, 1997,  approximately  $3.6
million,  or  4.5%  of  Union  Federal's  total  loan  portfolio,  consisted  of
commercial real estate loans. On the same date,  Union Federal had no commercial
real estate loans included in non-performing assets.

      Loans secured by commercial real estate  generally are larger than one- to
four-family  residential loans and involve a greater degree of risk.  Commercial
real estate  loans often  involve  large loan  balances to single  borrowers  or
groups of related borrowers. Payments on these loans depend to a large degree on
results of operations  and management of the properties and may be affected to a
greater extent by adverse conditions in the real estate market or the economy in
general.  Accordingly,  the nature of the loans  makes them more  difficult  for
management to monitor and evaluate.

      Construction  Loans. Union Federal offers  construction loans with respect
to residential  and commercial real estate and, in certain cases, to builders or
developers constructing such properties on a speculative basis (i.e., before the
builder/developer  obtains a commitment  from a buyer).  Union Federal  provides
construction  loans only to borrowers  who commit to permanent  financing on the
finished project. At December 31, 1997,  approximately $4.7 million, or 5.73% of
Union  Federal's  total loan portfolio,  consisted of  construction  loans.  The
largest construction loan had a balance of $975,000 on December 31, 1997 and was
secured by a condominium project and golf course in Pittsboro,  Indiana. None of
Union Federal's  construction  loans were included in  non-performing  assets on
that date.

      Construction  loans generally match the term of the construction  contract
and are  written as  fixed-rate  loans with  interest  calculated  on the amount
disbursed under the loan and payable monthly.  The maximum  Loan-to-Value  Ratio
for a construction  loan is based upon the nature of the  construction  project.
For example,  a  construction  loan for a one- to  four-family  residence may be
written with a maximum Loan-to-Value Ratio of 95%, while a construction loan for
a multi-family project may be written with a maximum Loan-to-Value Ratio of 80%.
Inspections are made prior to any disbursement  under a construction loan. Union
Federal does not normally charge commitment fees for construction loans.

      While providing Union Federal with a comparable, and in some cases higher,
yield than  conventional  mortgage  loans,  construction  loans involve a higher
level of risk.  For  example,  if a project is not  completed  and the  borrower
defaults,  Union  Federal may have to hire  another  contractor  to complete the
project at a higher  cost.  Also,  a project  may be  completed,  but may not be
salable,  resulting in the borrower  defaulting and Union Federal's taking title
to the project.


<PAGE>

      Consumer  Loans.  Union Federal's  consumer loans,  consisting of passbook
loans and home improvement loans, aggregated  approximately $223,000 at December
31, 1997, or .3% of its total loan portfolio.  Union Federal's home  improvement
loans  generally  have a fixed  rate  and a term  of up to  seven  years.  Union
Federal's  passbook loans are made up to 90% of the deposit account balance and,
at December 31, 1997,  accrued at a rate of 8.8%.  This rate may change but will
always be at least 3% over the  underlying  passbook or  certificate  of deposit
rate. Interest on loans secured by deposits is paid  semi-annually.  At December
31, 1997, none of Union Federal's consumer loans were included in non-performing
assets. See "-- Non-Performing and Problem Assets."

      Origination,  Purchase and Sale of Loans.  Union Federal  historically has
originated its mortgage loans pursuant to its own  underwriting  standards which
do not conform  with the  standard  criteria of the Federal  Home Loan  Mortgage
Corporation  ("FHLMC") or the Federal National Mortgage Association ("FNMA"). In
the event that Union Federal begins originating  fixed-rate residential mortgage
loans  for  sale to the  FHLMC  in the  secondary  market,  such  loans  will be
originated in accordance  with the guidelines  established by the FHLMC and will
be sold promptly  after they are  originated.  Union Federal has no intention to
originate loans for sale to the FHLMC at this time, however.

      Union  Federal  confines  its loan  origination  activities  primarily  to
Montgomery  County and the  surrounding  counties of Boone,  Hendricks,  Putnam,
Parke and Fountain.  Union Federal has also  originated  several loans in Marion
County.  At  December  31,  1997,  Union  Federal  also had six  loans  which it
originated, totaling approximately $671,000, secured by property located outside
of Indiana.  Union Federal's loan originations are generated from referrals from
existing   customers,   real  estate  brokers,   and  newspaper  and  periodical
advertising. Loan applications are underwritten and processed at Union Federal's
office.

      Union Federal's loan approval process is intended to assess the borrower's
ability to repay the loan,  the  viability  of the loan and the  adequacy of the
value of the  property  that will  secure  the loan.  To assess  the  borrower's
ability to repay,  Union Federal  studies the  employment and credit history and
information  on  the  historical  and  projected  income  and  expenses  of  its
mortgagors. All mortgage loans are approved or ratified by Union Federal's board
of directors.

      Union Federal generally requires  appraisals on all real property securing
its loans and requires an  attorney's  opinion and a valid lien on the mortgaged
real  estate.  Appraisals  for all real  property  securing  mortgage  loans are
performed  by  independent  appraisers  who are  state-licensed.  Union  Federal
requires fire and extended  coverage  insurance in amounts at least equal to the
principal  amount of the loan and also requires  flood  insurance to protect the
property  securing  its  interest  if the  property is in a flood  plain.  Union
Federal also generally  requires private mortgage  insurance for all residential
mortgage  loans  with  Loan-to-Value  Ratios of  greater  than 80%,  and  escrow
accounts  for  insurance  premiums  and  taxes for loans  that  require  private
mortgage insurance.

      Union Federal's  underwriting standards for consumer loans are intended to
protect against some of the risks inherent in making  consumer  loans.  Borrower
character, paying habits and financial strengths are important considerations.

      Union  Federal  occasionally  purchases  participation  interests in loans
originated by other financial  institutions in order to diversify its portfolio,
supplement  local  loan  demand  and  to  obtain  more  favorable  yields.   The
participations  that Union  Federal  purchases  normally  represent a portion of
residential  or  commercial  real  estate  loans  originated  by  other  Indiana
financial  institutions,  most of which  are  secured  by  property  located  in
Indiana.  As of December 31,  1997,  Union  Federal  held in its loan  portfolio
participations in mortgage loans aggregating $7.6 million that it purchased, all
of  which  were   serviced   by  others.   Included   within  this  amount  were
participations  in the  aggregate  amount of  $736,000  which  were  secured  by
property  located outside of Indiana.  The largest  participation  loan in Union
Federal's  portfolio  at  December  31,  1997 was a $975,000  interest in a loan
secured by a condominium project and golf course located in Pittsboro, Indiana.


<PAGE>

      The following table shows Union  Federal's loan  origination and repayment
activity during the periods indicated:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                           1997                  1996                  1995
                                                                            (In thousands)
Gross loans receivable
<S>                                                        <C>                  <C>                     <C>    
   at beginning of period.............................     $73,630              $63,024                 $61,880
Loans originated:
     Real estate mortgage loans:
       One-to-four family loans.......................      18,116               19,332                   9,655
       Multi-family loans.............................         654                1,532                     ---
       Commercial loans...............................         483                   45                     139
     Construction loans...............................       5,284                2,220                   2,135
     Loans secured by deposits........................         161                  322                      95
     Home improvement loans...........................          85                   36                      50
                                                           -------              -------                 -------
         Total originations...........................      24,783               23,487                  12,074
Purchases (sales) of participation loans, net.........         500                1,350                     742
Reductions:
     Principal loan repayments........................      17,541               14,211                  11,672
     Transfers from loans to real estate owned........         237                   20                     ---
         Total reductions.............................      17,778               14,231                  11,672
                                                           -------              -------                 -------
Total gross loans receivable at
   end of period......................................     $81,135              $73,630                 $63,024
                                                           =======              =======                 =======
</TABLE>

      Union  Federal's  residential  loan  originations  during  the year  ended
December  31, 1997 totaled  $18.1  million,  compared to $19.3  million and $9.7
million in the years ended December 31, 1996 and 1995, respectively.

      Origination  and Other  Fees.  Union  Federal  realizes  income  from late
charges,  checking  account service  charges,  and fees for other  miscellaneous
services.  Union Federal currently charges a commitment fee of $200 on all loans
and an additional $500 origination fee on construction loans. Union Federal also
may charge points on a mortgage loan as consideration for a lower interest rate,
although it does so infrequently. Late charges are generally assessed if payment
is not  received  within a specified  number of days after it is due.  The grace
period depends on the individual loan documents.

Non-Performing and Problem Assets

      After a mortgage loan becomes 30 days past due,  Union Federal  delivers a
delinquency  notice to the  borrower.  When loans are 30 to 60 days in  default,
Union Federal sends additional delinquency notices and makes personal contact by
telephone with the borrower to establish an acceptable repayment schedule.  When
loans become 60 days in default, Union Federal again contacts the borrower, this
time in person, to establish an acceptable  repayment schedule.  When a mortgage
loan is 90 days  delinquent,  Union  Federal  will have  either  entered  into a
workout  plan with the  borrower  or  referred  the matter to its  attorney  for
collection. Management is authorized to commence foreclosure proceedings for any
loan upon making a determination that it is prudent to do so.

      Union Federal  reviews  mortgage  loans on a regular basis and places such
loans on a non-accrual  status when they become 90 days  delinquent.  Generally,
when  loans are placed on a  non-accrual  status,  unpaid  accrued  interest  is
written off, and further income is recognized only to the extent received.

      Non-performing  Assets.  At December 31, 1997,  $98,000,  or .07% of Union
Federal's  total  assets,   were   non-performing   (non-performing   loans  and
non-accruing  loans)  compared  to  $489,000,  or .59%,  of its total  assets at
December 31, 1996. At December 31, 1997, residential loans accounted for $52,000
of Union Federal's  non-performing  assets.  Union Federal had real estate owned
("REO") properties in the amount of $46,000 as of December 31, 1997.


<PAGE>

      The table below sets forth the amounts and  categories of Union  Federal's
non-performing assets (non-performing loans, foreclosed real estate and troubled
debt  restructurings)  for the last three years. It is Union Federal's policy to
review all earned but uncollected  interest on all loans monthly to determine if
any portion thereof should be classified as uncollectible  for any loan past due
in excess  of 90 days.  Delinquent  loans  that are 90 days or more past due are
considered non-performing assets.

                                                     At December 31,
                                              1997        1996         1995
                                                  (Dollars in thousands)
Non-performing assets:
   Non-performing loans....................   $52         $ 489       $ 156
   Foreclosed real estate..................    46           ---         ---
     Total non-performing assets...........   $98          $489       $ 156

Non-performing loans to total loans........   .07%          .67%        .25%

Non-performing assets to total assets......   .07%          .59%        .21%

      Interest  income of  $4,000,  $10,000  and  $14,000  for the  years  ended
December  31,  1997,  1996  and  1995,  respectively,   was  recognized  on  the
non-performing  loans summarized above.  Interest income of $5,000,  $33,000 and
$17,000 for the years ended  December  31,  1997,  1996 and 1995,  respectively,
would have been  recognized  under the  original  terms of these  non-performing
loans.

      At December 31, 1997,  Union Federal held loans  delinquent  from 30 to 89
days totaling approximately $555,000.  Other than in connection with these loans
and the other delinquent loans disclosed  elsewhere in this section,  management
was  not  aware  of  any  other  borrowers  who  were   experiencing   financial
difficulties.

     Delinquent  Loans.  The following  table sets forth certain  information at
December 31, 1997, 1996 and 1995,  relating to  delinquencies in Union Federal's
portfolio.  Delinquent  loans  that are 90 days or more past due are  considered
non-performing assets.

      Classified   assets.   Federal   regulations  and  Union  Federal's  Asset
Classification  Policy provide for the  classification of loans and other assets
such as debt and equity securities considered by the OTS to be of lesser quality
as   "substandard,"   "doubtful"  or  "loss"  assets.  An  asset  is  considered
"substandard"  if it is  inadequately  protected  by the  current  net worth and
paying  capacity  of  the  obligor  or  of  the  collateral   pledged,  if  any.
"Substandard"  assets include those characterized by the "distinct  possibility"
that the  institution  will  sustain  "some  loss" if the  deficiencies  are not
corrected.  Assets classified as "doubtful" have all of the weaknesses  inherent
in those  classified  "substandard,"  with  the  added  characteristic  that the
weaknesses  present make  "collection  or  liquidation in full," on the basis of
currently  existing facts,  conditions,  and values,  "highly  questionable  and
improbable."  Assets  classified as "loss" are those considered  "uncollectible"
and  of  such  little  value  that  their  continuance  as  assets  without  the
establishment of a specific loss reserve is not warranted.

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


<PAGE>

      At December 31, 1997, the aggregate  amount of Union Federal's  classified
assets and its general and specific loss allowances were as follows:

                                                            At December 31, 1997
                                                               (In thousands)

       Substandard assets.....................................     $  98
       Doubtful assets........................................       ---
       Loss assets............................................       ---
           Total classified assets............................     $  98
       General loss allowances................................      $252
       Specific loss allowances...............................       ---
           Total allowances...................................      $252

      Union Federal  regularly  reviews its loan portfolio to determine  whether
any loans require classification in accordance with applicable regulations.  All
of Union Federal's classified assets constitute non-performing assets.

Allowance for Loan Losses

      The allowance for loan losses is maintained through the provision for loan
losses,  which  is  charged  to  earnings.  The  allowance  for loan  losses  is
determined in conjunction  with Union Federal's review and evaluation of current
economic  conditions  (including  those of its  lending  area),  changes  in the
character and size of the loan portfolio,  loan delinquencies (current status as
well as past and  anticipated  trends) and adequacy of collateral  securing loan
delinquencies,  historical and estimated net  charge-offs,  and other  pertinent
information  derived  from a  review  of the  loan  portfolio.  In  management's
opinion,  Union  Federal's  allowance  for loan  losses  is  adequate  to absorb
probable  losses  inherent in the loan portfolio at December 31, 1997.  However,
there can be no assurance that  regulators,  when reviewing Union Federal's loan
portfolio  in  the  future,  will  not  require  increases  in  Union  Federal's
allowances  for loan  losses or that  changes in  economic  conditions  will not
adversely affect its loan portfolio.

      Summary of Loan Loss  Experience.  The following table analyzes changes in
the allowance during the past three fiscal years ended December 31, 1997.

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                    1997              1996              1995
                                                             (Dollars in thousands)
<S>                                               <C>                 <C>             <C>    
Balance at beginning of period................    $159                $111            $    87
Gross charge-offs - Multi-family loans........     (72)
Provision for losses on loans.................     165                  48                 24
   Balance end of period......................    $252                $159               $111
Allowance for loan losses as a percent of
   total loans outstanding....................     .32%                .22%               .18%
Ratio of net charge-offs to average
   loans outstanding..........................     .10%                ---                ---
</TABLE>



<PAGE>

      Allocation of Allowance for Loan Losses.  The following  table presents an
analysis of the allocation of Union  Federal's  allowance for loan losses at the
dates  indicated.  The  allocation  of the  allowance  to each  category  is not
necessarily  indicative of future loss in any  particular  category and does not
restrict  Union  Federal's  use of the  allowance  to  absorb  losses  in  other
categories.

<TABLE>
<CAPTION>
                                                                           At December 31,
                                                 1997                           1996                          1995
                                                       Percent                        Percent                       Percent
                                                      of loans                       of loans                      of loans
                                                       in each                        in each                       in each
                                                      category                       category                      category
                                                      to total                       to total                        total
                                         Amount         loans           Amount         loans           Amount        loans
                                         ------         -----           ------         -----           ------        -----
                                                                         (Dollars in thousands)
Balance at end of period applicable to:
   Real estate mortgage loans:
<S>                                       <C>         <C>                  <C>         <C>                <C>        <C>   
     Residential...............           $  65       76.95%               $60         77.46%             $57        76.64%
     Commercial................              29        4.47                 13          4.88               11         4.46
     Multi-family..............              82       12.57                 75         14.83               39        15.26
   Construction loans..........              10        5.73                 11          2.36                4         3.34
   Loans secured by deposits...             ---         .17                ---           .33              ---          .13
   Home improvement loans......             ---         .11                ---           .14              ---          .17
   Unallocated.................              66         ---                ---           ---              ---          ---
                                           ----      ------               ----        ------             ----       ------ 
   Total.......................            $252      100.00%              $159        100.00%            $111       100.00%
                                           ====      ======               ====        ======             ====       ====== 
</TABLE>

Investments

     Investments. Union Federal's investment portfolio consists of U.S. Treasury
and  federal  agency  securities,   FHLB  stock  and  an  investment  in  Pedcor
Investments  - 1993 - XVI,  L.P.  See  "--Service  Corporation  Subsidiary."  At
December 31, 1997, approximately $7.7 million, or 5.8%, of Union Federal's total
assets consisted of such investments.  Union Federal also had $44.8 million,  or
33.9% of its assets, in interest-earning deposits as of that date.

     The amount of  interest-earning  deposits held by Union  Federal  increased
significantly as a result of the Conversion.  Because the subscription  offering
for the  Holding  Company's  Common  Stock  was  oversubscribed,  Union  Federal
delivered  refund  checks  during  the  last  week of  December,  1997 to  those
subscribers whose purchase orders were not filled.  Many of those checks had not
cleared as of December 31, 1997,  thereby increasing the amount of funds held by
Union Federal in interest-bearing  deposits. In addition, Union Federal invested
some  of  the   proceeds   that  it   received   from  the  stock   offering  in
interest-bearing  overnight  accounts  at  the  FHLB  Indianapolis,  which  also
increased the amount of its interest-bearing deposits at December 31, 1997.


<PAGE>

      The following  table sets forth the amortized cost and the market value of
Union Federal's investment portfolio at the dates indicated.

<TABLE>
<CAPTION>

                                                                At December 31,
                                              1997                   1996                    1995
                                        Amortized   Market     Amortized   Market     Amortized    Market
                                          Cost       Value       Cost       Value       Cost        Value
                                          ----       -----       ----       -----       ----        -----
                                                                  (In thousands)
Investment securities held to maturity:
<S>                                     <C>         <C>        <C>        <C>           <C>        <C>   
   U.S. Treasury....................... $   350     $   350    $   350    $   348       $1,050     $1,051
   Federal agencies....................   3,346       3,351      2,645      2,611        2,950      2,944
   Mortgage-backed securities..........   2,124       2,302      2,752      2,933        3,423      3,668
     Total investment securities
       held to maturity................   5,820       6,003      5,747      5,892        7,423      7,663
Investment in limited partnership......   1,176          (1)     1,334         (1)       1,506         (1)
FHLB stock (2).........................     708         708        580        580          563        563
Total investments......................  $7,704                 $7,661                  $9,492
                                         ======                 ======                  ======
</TABLE>

(1)   Market values are not available

(2)   Market  value is based on the  price at which  stock  may be resold to the
      FHLB of Indianapolis.

         The  following  table sets forth the  amount of  investment  securities
(excluding  mortgage-backed  securities,  FHLB stock and  investment  in limited
partnership)  which mature during each of the periods indicated and the weighted
average yields for each range of maturities at December 31, 1997.

<TABLE>
<CAPTION>
                                                          Amount at December 31, 1997 which matures in
                                                      One Year             One Year                Five Years
                                                       or Less           to Five Years            to Ten Years
                                                 Amortized   Average  Amoritzed  Average      Amortized   Average
                                                   Cost       Yield     Cost      Yield         Cost       Yield
                                                   ----       -----     ----      -----         ----       -----
                                                                             (Dollars in thousands)

<S>                                             <C>          <C>    <C>            <C>         <C>           <C>    
U.S. Treasury securities........................$   350      5.14%  $     ---       ---%       $  ---        ---%
Federal agency securities.......................  1,050      4.41       2,296      6.49           ---        ---
                                                 $1,400      4.59%     $2,296      6.49%
</TABLE>


Mortgage-backed Securities

         The  following  table sets  forth the  composition  of Union  Federal's
mortgage-backed securities portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                            1997                        1996                        1995
                                                Amortized  Percent  Market  Amortized  Percent Market    Amortized  Percent  Market
                                                  Cost    of Total   Value    Cost    of Total  Value      Cost    of Total   Value
                                                  ----    --------   -----    ----    --------  -----      ----    --------   -----
                                                                                   (In thousands)
Governmental National
<S>                                              <C>       <C>       <C>     <C>       <C>     <C>        <C>       <C>      <C>   
   Mortgage Corporation.................         $1,223    57.6%     $1,348  $1,391    50.5%   $1,511     $1,707    49.9%    $1,856
Federal Home Loan Mortgage Corporation..            635    29.9         691   1,039    37.8     1,103      1,338    39.1      1,431
Federal National
   Mortgage Corporation.................            243    11.4         240     294    10.7       291        341     9.9        343
Other...................................             23     1.1          23      28     1.0        28         37     1.1         38
   Total mortgage- backed securities....         $2,124   100.0%     $2,302  $2,752   100.0%   $2,933     $3,423   100.0%    $3,668
</TABLE>


<PAGE>

         The following table sets forth the amount of mortgage-backed securities
which  mature  during each of the periods  indicated  and the  weighted  average
yields for each range of maturities at December 31, 1997.

<TABLE>
<CAPTION>
                                                                        Amount at December 31, 1997 which matures in
                                                          One Year                    One Year to                 After
                                                           or Less                     Five Years               Five Years
                                                                  Weighted                     Weighted                  Weighted
                                                   Amortized       Average      Amortized       Average    Amortized      Average
                                                     Cost           Yield         Cost           Yield       Cost          Yield
                                                     ----           -----         ----           -----       ----          -----
                                                                             (Dollars in thousands)
<S>                                                   <C>            <C>           <C>            <C>       <C>            <C>  
Mortgage-backed securities......................      $---           ---%          $283           8.40%     $1,841         8.59%
</TABLE>

      The   following   table  sets  forth  the   changes  in  Union   Federal's
mortgage-backed securities portfolio for the years ended December 31, 1997, 1996
and 1995.

<TABLE>
<CAPTION>
                                                For the Year Ended
                                                   December 31,
                                    1997               1996                  1995
                                    ---------------------------------------------
                                                  (In thousands)
<S>                               <C>                   <C>                   <C>   
Beginning balance..........       $2,752                $3,423                $4,079
   Repayments/sales........         (639)                 (676)                 (663)
Premium and discount
   amortization, net.......           11                     5                     7
Ending balance.............       $2,124                $2,752                $3,423
                                  ======                ======                ======
</TABLE>

Sources of Funds

      General.  Deposits have  traditionally been Union Federal's primary source
of funds for use in lending and investment activities.  In addition to deposits,
Union Federal derives funds from scheduled loan payments, investment maturities,
loan prepayments,  retained  earnings,  income on earning assets and borrowings.
While scheduled loan payments and income on earning assets are relatively stable
sources  of  funds,  deposit  inflows  and  outflows  can  vary  widely  and are
influenced  by  prevailing  interest  rates,  market  conditions  and  levels of
competition.  Borrowings  from  the  FHLB  of  Indianapolis  may be  used in the
short-term to compensate for  reductions in deposits or deposit  inflows at less
than projected levels.

      Deposits.   Union  Federal  attracts  deposits   principally  from  within
Montgomery  County  through  the  offering  of  a  broad  selection  of  deposit
instruments, including fixed-rate passbook accounts, NOW accounts, variable rate
money market accounts,  fixed-term certificates of deposit and savings accounts.
Union  Federal does not actively  solicit or advertise  for deposits  outside of
Montgomery County, and substantially all of its depositors are residents of that
county.  Deposit  account terms vary, with the principal  differences  being the
minimum balance required, the amount of time the funds remain on deposit and the
interest rate.
Union Federal does not pay broker fees for any deposits it receives.

      Union Federal establishes the interest rates paid, maturity terms, service
fees and withdrawal  penalties on a periodic basis.  Determination  of rates and
terms are predicated on funds acquisition and liquidity requirements, rates paid
by competitors,  growth goals, and applicable regulations. Union Federal relies,
in part, on customer service and long-standing  relationships  with customers to
attract and retain its deposits.  Union Federal also closely prices its deposits
to the rates offered by its competitors.


<PAGE>

      The flow of  deposits  is  influenced  significantly  by general  economic
conditions,  changes in money  market and other  prevailing  interest  rates and
competition.  The  variety of deposit  accounts  that Union  Federal  offers has
allowed it to be competitive in obtaining funds and to respond with  flexibility
to changes in consumer  demand.  Union  Federal has become more  susceptible  to
short-term  fluctuations in deposit flows as customers have become more interest
rate  conscious.  Union  Federal  manages the pricing of its deposits in keeping
with its asset/liability management and profitability objectives. Based on Union
Federal's experience,  management believes that its passbook,  NOW and MMDAs are
relatively  stable  sources of  deposits.  However,  the  ability to attract and
maintain certificates of deposit, and the rates paid on these deposits, has been
and will continue to be significantly affected by market conditions.

      An analysis of Union Federal's  deposit  accounts by type,  maturity,  and
rate at December 31, 1997, is as follows:

<TABLE>
<CAPTION>
                                                                    Minimum        Balance at                          Weighted
                                                                    Opening       December 31,          % of            Average
Type of Account                                                     Balance           1997            Deposits           Rate
-----------------------------------------------------------------------------------------------------------------------------
                                                                                       (Dollars in thousands)
Withdrawable:
<S>                                                             <C>                  <C>                 <C>              <C>  
   Fixed rate, passbook accounts..............................  $      10            $  4,579            7.35%            4.00%
   Variable rate, money market................................         10               9,125           14.66             4.58
   NOW accounts and other transaction accounts................        500               2,373            3.81             2.94
                                                                                      -------          ------             ---- 
     Total withdrawable.......................................                         16,077           25.82             4.17

Certificates (original terms):
   3 months or less...........................................      1,000                 101             .16             4.23
   6 months...................................................      1,000               3,778            6.07             5.02
   12 months..................................................      1,000               5,477            8.80             5.57
   18 months..................................................      1,000               7,986           12.83             5.73
   24 months..................................................      1,000               5,174            8.31             5.95
   30 months..................................................      1,000               6,615           10.62             5.95
   36 months .................................................      1,000               3,854            6.19             6.09
   48 months..................................................      1,000                 321             .52             5.97
   60 months..................................................      1,000               5,815            9.34             6.02
Jumbo certificates - $100,000 and over........................    100,000               7,060           11.34             6.18
                                                                                      -------          ------             ---- 
Total certificates............................................                         46,181           74.18             5.84
                                                                                      -------          ------             ---- 
Total deposits................................................                        $62,258          100.00%            5.41%
                                                                                      =======          ======             ==== 

</TABLE>

      The following  table sets forth by various  interest rate  categories  the
composition of time deposits of Union Federal at the dates indicated:

                                            At December 31,
                           1997                  1996                  1995
                           ------------------------------------------------
                                            (In thousands)
4.00 to 4.99%.......    $   3,622            $   4,760            $    5,432
5.00 to 5.99%.......       19,245               19,400                11,330
6.00 to 6.99%.......       22,894               20,954                21,991
7.00 to 7.99%.......          420                1,941                 6,516
                          -------              -------              --------
   Total............      $46,181              $47,055              $ 45,269
                          =======              =======              ========


<PAGE>

     The following table  represents,  by various interest rate categories,  the
amounts of time  deposits  maturing  during  each of the three  years  following
December  31,  1997.  Matured  certificates,  which have not been  renewed as of
December 31, 1997, have been allocated based upon certain rollover assumptions.

<TABLE>
<CAPTION>

                                           Amounts at December 31, 1997 Maturing In
                         One Year                 Two                  Three             Greater Than
                          or Less                Years                 Years              Three Years
                                                        (In thousands)
<C>                    <C>               <C>                    <C>                    <C>    
4.00 to 4.99%.......    $   3,622
5.00 to 5.99%.......       12,548            $   5,427              $    953               $   317
6.00 to 6.99%.......       10,806                7,817                 2,733                 1,538
7.00 to 7.99%.......          394                   10                    16                   ---
                          -------              -------                ------                ------
   Total............      $27,370              $13,254                $3,702                $1,855
                          =======              =======                ======                ======
</TABLE>


     The  following   table  indicates  the  amount  of  Union  Federal's  other
certificates  of deposit of $100,000 or more by time remaining until maturity as
of December 31, 1997.

                                                          At December 31, 1997
                                                          --------------------
 Maturity Period                                             (In thousands)
 Three months or less...................................          $2,471
 Greater than three months through six months...........             583
 Greater than six months through twelve months..........           1,585
 Over twelve months.....................................           2,421
                                                                  ------
      Total.............................................          $7,060
                                                                  ======

      The following  table sets forth the dollar  amount of savings  deposits in
the various types of deposits that Union Federal offers at the dates  indicated,
and the amount of  increase  or  decrease  in such  deposits  as compared to the
previous period.

<TABLE>
<CAPTION>
                                                                          DEPOSIT ACTIVITY
                                           Balance                Increase    Balance                Increase    Balance
                                             at                  (Decrease)     at                  (Decrease)     at
                                        December 31,     % of       from   December 31,     % of       from   December 31,   % of
                                            1997       Deposits     1996       1996       Deposits     1995       1995     Deposits
                                                                       (Dollars in thousands)
Withdrawable:
<S>                                       <C>             <C>     <C>         <C>            <C>        <C>      <C>           <C>  
   Fixed rate, passbook accounts......    $  4,579        7.35%   $   712     $3,867         6.40%      $356     $3,511        6.11%
   Variable rate, money market........       9,125       14.66        510      8,615        14.25        218      8,397       14.63
   NOW accounts and other
     transaction accounts.............       2,373        3.81      1,474        899         1.49        669        230         .40
                                           -------      ------     ------    -------       ------     ------    -------      ------ 
     Total withdrawable...............      16,077       25.82      2,696     13,381        22.14      1,243     12,138       21.14

Certificates (original terms):
   3 months...........................         101         .16        (48)       149          .25         19        130         .23
   6 months...........................       3,778        6.07       (489)     4,267         7.06       (265)     4,532        7.89
   12 months..........................       5,477        8.80        244      5,233         8.66       (131)     5,364        9.34
   18 months..........................       7,986       12.83       (204)     8,190        13.55      1,152      7,038       12.26
   24 months..........................       5,174        8.31        678      4,496         7.44        (94)     4,590        8.00
   30 months..........................       6,615       10.62      1,133      5,482         9.07        273      5,209        9.07
   36 months .........................       3,854        6.19     (1,344)     5,198         8.60        113      5,085        8.86
   48 months..........................         321         .52        (55)       376          .62        (29)       405         .71
   60 months..........................       5,815        9.34       (793)     6,608        10.93         79      6,529       11.37
Jumbo certificates....................       7,060       11.34          4      7,056        11.68        669      6,387       11.13
                                           -------      ------     ------    -------       ------     ------    -------      ------ 
Total certificates....................      46,181       74.18       (874)    47,055        77.86      1,786     45,269       78.86
                                           -------      ------     ------    -------       ------     ------    -------      ------ 
Total deposits........................     $62,258      100.00%    $1,822    $60,436       100.00%    $3,029    $57,407      100.00%
                                           =======      ======     ======    =======       ======     ======    =======      ====== 
</TABLE>


<PAGE>

     Total  deposits at  December  31, 1997 were  approximately  $62.3  million,
compared to  approximately  $57.4 million at December 31, 1995.  Union Federal's
deposit  base  depends  somewhat  upon the  manufacturing  sector of  Montgomery
County's  economy.   Although  Montgomery  County's   manufacturing   sector  is
relatively  diversified and does not significantly  depend upon any industry,  a
loss of a material portion of the manufacturing workforce could adversely affect
Union Federal's  ability to attract  deposits due to the loss of personal income
attributable  to the lost  manufacturing  jobs and the attendant loss in service
industry jobs.

      In the unlikely event of Union Federal's liquidation after the Conversion,
all claims of creditors  (including  those of deposit  account  holders,  to the
extent of their deposit  balances)  would be paid first followed by distribution
of the liquidation  account to certain deposit account holders,  with any assets
remaining thereafter  distributed to the Holding Company as the sole shareholder
of Union Federal.

      Borrowings.  Management  focuses on generating high quality loans and then
seeking the best source of funding from deposits,  investments or borrowings. At
December 31, 1997,  Union  Federal had  borrowings in the amount of $2.4 million
from the FHLB of Indianapolis  which bear fixed and variable  interest rates and
are due at various dates through  January 2, 2004.  Union Federal is required to
maintain  eligible  loans  in its  portfolio  of at  least  170% of  outstanding
advances as collateral for advances from the FHLB of Indianapolis. Union Federal
does not anticipate any difficulty in obtaining advances appropriate to meet its
requirements in the future. Union Federal also owes Pedcor Investments 1993-XVI,
L.P.  ("Pedcor")  $1.2 million  under a note payable that is not included in the
following table. See "--Service Corporation Subsidiary."

      The  following  table  presents  certain  information  relating  to  Union
Federal's borrowings at or for the years ended December 31, 1997, 1996 and 1995.

<TABLE>
<CAPTION>
                                                                        At or for the Year
                                                                        Ended December 31,
                                                            1997             1996              1995
                                                            ---------------------------------------
                                                                    (Dollars in thousands)
FHLB Advances:
<S>                                                         <C>             <C>                <C>   
     Outstanding at end of period....................       $2,373          $6,482             $1,065
     Average balance outstanding for period..........        5,748           3,566              1,857
     Maximum amount outstanding at any
       month-end during the period...................        6,873           6,482              3,065
     Weighted average interest rate
       during the period.............................         5.90%           5.36%              6.03%
     Weighted average interest rate
       at end of period..............................         5.71%           5.52%              5.46%
</TABLE>

Service Corporation Subsidiary

      OTS  regulations  permit  federal  savings  associations  to invest in the
capital  stock,   obligations  or  other   specified   types  of  securities  of
subsidiaries  (referred to as "service  corporations") and to make loans to such
subsidiaries  and joint ventures in which such  subsidiaries are participants in
an  aggregate  amount not  exceeding  2% of the  association's  assets,  plus an
additional 1% of assets if the amount over 2% is used for specified community or
inner-city  development  purposes.  In  addition,   federal  regulations  permit
associations to make specified types of loans to such  subsidiaries  (other than
special purpose finance  subsidiaries)  in which the association  owns more than
10% of the stock, in an aggregate amount not exceeding 50% of the  association's
regulatory capital if the association's regulatory capital is in compliance with
applicable  regulations.  A savings  association  that  acquires  a  non-savings

<PAGE>

association  subsidiary,  or that  elects  to  conduct a new  activity  within a
subsidiary,  must  give the FDIC  and the OTS at least 30 days  advance  written
notice.  The FDIC  may,  after  consultation  with the OTS,  prohibit  specified
activities if it determines  such  activities pose a serious threat to the SAIF.
Moreover,  a savings  association  must deduct  from  capital,  for  purposes of
meeting the core capital,  tangible capital and risk-based capital requirements,
its entire  investment in and loans to a subsidiary  engaged in  activities  not
permissible for a national bank (other than  exclusively  agency  activities for
its customers or mortgage banking subsidiaries).

      Union Federal  currently owns one subsidiary,  UFS Service Corp.  ("UFS"),
whose  sole asset is its  investment  in  Pedcor,  which is an  Indiana  limited
partnership  that was established to organize,  build,  own, operate and lease a
48-unit  apartment  complex in  Crawfordsville,  Indiana known as Shady Knoll II
Apartments (the  "Project").  Union Federal owns the limited partner interest in
Pedcor. The general partner is Pedcor Investments LLC. The Project,  operated as
a multi-family,  low- and  moderate-income  housing project, is completed and is
performing as planned.  Because UFS engages  exclusively in activities  that are
permissible for a national bank, OTS regulations permit Union Federal to include
its investment in UFS in its calculation of regulatory capital.

       A low- and moderate-income  housing project qualifies for certain federal
income tax credits if (i) it is a residential  rental  property,  (ii) the units
are used on a  nontransient  basis,  and  (iii)  20% or more of the units in the
project are occupied by tenants whose incomes are 50% or less of the area median
gross income,  adjusted for family size, or  alternatively,  at least 40% of the
units in the project are occupied by tenants  whose  incomes are 60% of the area
median gross income. Qualified low income housing projects generally must comply
with these and other rules for fifteen years,  beginning with the first year the
project  qualified for the tax credit, or some or all of the tax credit together
with interest may be recaptured. The tax credit is subject to the limitations on
the use of general business  credit,  but no basis reduction is required for any
portion of the tax credit claimed.

      UFS  committed  to  invest  approximately  $1.8  million  in Pedcor at the
inception of the project in November,  1993.  Through December 31, 1997, UFS had
invested cash of  approximately  $610,000 in Pedcor with six  additional  annual
capital  contributions  remaining  to be paid in  January  of each year  through
January,  2004, totaling $1,200,000.  The additional  contributions will be used
for operating and other expenses of the partnership.  In addition, Union Federal
borrowed funds from the FHLB of  Indianapolis  to advance to Pedcor,  and Pedcor
currently owes Union Federal  $873,000  pursuant to a promissory note payable in
installments  through January 1, 2004 and bearing  interest at an annual rate of
9%.

       UFS transfers the tax credits  resulting  from Pedcor's  operation of the
Project to Union  Federal.  These tax credits will be available to Union Federal
through 2003.  Although Union Federal has reduced income tax expense by the full
amount of the tax  credit  available  each  year,  it has not been able to fully
utilize  available tax credits to reduce income taxes payable because it may not
use tax credits that would reduce its regular  corporate tax liability below its
alternative  minimum tax  liability.  Union Federal may carry forward unused tax
credits for a period of fifteen years and management believes that Union Federal
will be able to utilize  available tax credits during the carry forward  period.
Additionally,  Pedcor has  incurred  operating  losses in the early years of its
operations  primarily due to its  accelerated  depreciation  of assets.  UFS has
accounted for its  investment  in Pedcor on the equity method and,  accordingly,
has  recorded  its share of these  losses as  reductions  to its  investment  in
Pedcor,  which at December 31, 1997, was $1.2 million.  As of December 31, 1997,
83% of the units in the Project  were  occupied,  and all of the tenants met the
income test required for the tax credits. UFS does not engage in any activity or
hold any assets other than its investment in Pedcor.


<PAGE>

      The following  summarizes  UFS's equity in Pedcor's losses and tax credits
recognized in Union Federal's consolidated financial statements.

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                     1997           1996         1995
                                                     ---------------------------------
                                                                (In Thousands)
Investment in Pedcor:
<S>                                                 <C>             <C>          <C>   
   Net of equity in losses..................        $1,176          $1,334       $1,506

Equity in losses, net
   of income tax effect.....................        $  (95)         $ (104)       $(150)
Tax credit..................................           178             178          178
Increase in after-tax net income from
   Pedcor investment........................        $   83          $   74      $    28
</TABLE>


Employees

      As of December 31, 1997,  Union Federal employed 12 persons on a full-time
basis.  Union  Federal  does  not have any  part-time  employees.  None of Union
Federal's employees is represented by a collective bargaining group.  Management
considers its employee relations to be good.

      Employee benefits for Union Federal's full-time  employees include,  among
other things, an employee stock ownership plan, a Pentegra Group (formerly known
as Financial  Institutions  Retirement  Fund)  defined  benefit  pension plan, a
noncontributory,   multiple-employer  comprehensive  pension  plan  (the"Pension
Plan"),  and  hospitalization/major  medical  insurance,  dental  and  eye  care
insurance,  long-term disability insurance, life insurance, and participation in
the Financial Institutions Thrift Plan.

      Management  considers its employee  benefits to be competitive  with those
offered by other  financial  institutions  and major  employers in the area. See
"Executive  Compensation" and "Certain Relationships and Related Transactions of
Union Federal."

                                   COMPETITION

      Union  Federal  originates  most of its loans to and  accepts  most of its
deposits from residents of Montgomery County,  Indiana. Union Federal is subject
to competition from various financial institutions, including state and national
banks,  state and  federal  savings  associations,  credit  unions,  and certain
nonbanking  consumer lenders that provide similar services in Montgomery  County
with  significantly  larger  resources than are available to Union  Federal.  In
total, there are 13 other financial  institutions  located in Montgomery County,
including  nine banks,  two credit  unions and two other  savings  associations.
Union  Federal  also  competes  with money  market funds with respect to deposit
accounts.

      The primary  factors  influencing  competition  for  deposits are interest
rates,  service and convenience of office locations.  Union Federal competes for
loan  originations  primarily through the efficiency and quality of the services
that it provides  borrowers  and through  interest  rates and loan fees charged.
Competition  is affected by, among other  things,  the general  availability  of
lendable funds,  general and local economic  conditions,  current  interest rate
levels, and other factors that management cannot readily predict.


<PAGE>

                                   REGULATION

General

      As a federally chartered,  SAIF-insured savings association, Union Federal
is subject to extensive  regulation by the OTS and the FDIC. For example,  Union
Federal must obtain OTS approval before it may engage in certain  activities and
must file reports with the OTS regarding its activities and financial condition.
The OTS  periodically  examines  Union  Federal's  books  and  records  and,  in
conjunction with the FDIC in certain situations, has examination and enforcement
powers.   This  supervision  and  regulation  are  intended  primarily  for  the
protection  of  depositors  and  the  federal  deposit  insurance  funds.  Union
Federal's  semi-  annual  assessment  owed to the OTS,  which  is  based  upon a
specified percentage of assets, is approximately $14,135.

      Union  Federal is also subject to federal and state  regulation as to such
matters as loans to officers,  directors,  or principal  shareholders,  required
reserves,  limitations  as to the nature  and  amount of loans and  investments,
regulatory  approval of any merger or consolidation,  issuance or retirements of
securities,  and  limitations  upon  other  aspects of  banking  operations.  In
addition,  Union Federal's  activities and operations are subject to a number of
additional  detailed,  complex and sometimes  overlapping federal and state laws
and regulations.  These include state usury and consumer credit laws, state laws
relating to fiduciaries,  the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community  Reinvestment Act,  anti-redlining  legislation and antitrust
laws.

      The United States Congress is considering  legislation  that would require
all federal savings associations,  such as Union Federal, to either convert to a
national bank or a state-chartered bank by a specified date to be determined. In
addition,  under  the  legislation,  the  Holding  Company  likely  would not be
regulated  as a savings and loan  holding  company but rather as a bank  holding
company.  This  proposed  legislation  would  abolish the OTS and  transfer  its
functions  among the other federal  banking  regulators.  Certain aspects of the
legislation remain to be resolved and,  therefore,  no assurance can be given as
to whether or in what form the legislation  will be enacted or its effect on the
Holding Company and Union Federal.

Savings and Loan Holding Company Regulation

      As the holding  company for Union  Federal,  the Holding  Company  will be
regulated as a  "non-diversified  savings and loan holding  company"  within the
meaning of the Home Owners' Loan Act of 1933, as amended  ("HOLA"),  and subject
to regulatory oversight of the Director of the OTS. As such, the Holding Company
is registered with the OTS and thereby subject to OTS regulations, examinations,
supervision  and reporting  requirements.  As a subsidiary of a savings and loan
holding  company,  Union  Federal  is subject  to  certain  restrictions  in its
dealings with the Holding Company and with other  companies  affiliated with the
Holding Company.

      In general, the HOLA prohibits a savings and loan holding company, without
prior  approval of the Director of the OTS,  from  acquiring  control of another
savings  association or savings and loan holding  company or retaining more than
5% of the voting shares of a savings  association or of another  holding company
which is not a subsidiary.  The HOLA also restricts the ability of a director or
officer  of the  Holding  Company,  or any  person who owns more than 25% of the
Holding Company's stock,  from acquiring control of another savings  association
or savings and loan holding company without  obtaining the prior approval of the
Director of the OTS.

      The Holding Company's Board of Directors  presently intends to operate the
Holding  Company  as a  unitary  savings  and loan  holding  company.  There are
generally no restrictions on the  permissible  business  activities of a unitary
savings and loan holding company.


<PAGE>

      Notwithstanding  the above rules as to permissible  business activities of
unitary  savings  and  loan  holding  companies,   if  the  savings  association
subsidiary of such a holding  company fails to meet the Qualified  Thrift Lender
("QTL") test,  then such unitary  holding  company  would become  subject to the
activities  restrictions  applicable to multiple holding companies.  (Additional
restrictions  on securing  advances from the FHLB also apply.) See  "--Qualified
Thrift Lender." At December 31, 1997,  Union Federal's asset  composition was in
excess of that required to qualify as a Qualified Thrift Lender.

      If the  Holding  Company  were  to  acquire  control  of  another  savings
association other than through a merger or other business combination with Union
Federal,  the Holding Company would thereupon become a multiple savings and loan
holding  company.  Except where such acquisition is pursuant to the authority to
approve  emergency  thrift   acquisitions  and  where  each  subsidiary  savings
association meets the QTL test, the activities of the Holding Company and any of
its  subsidiaries   (other  than  Union  Federal  or  other  subsidiary  savings
associations)  would  thereafter  be subject to further  restrictions.  The HOLA
provides that, among other things,  no multiple savings and loan holding company
or  subsidiary  thereof  which is not a savings  association  shall  commence or
continue for a limited period of time after becoming a multiple savings and loan
holding  company or subsidiary  thereof,  any business  activity  other than (i)
furnishing  or  performing   management   services  for  a  subsidiary   savings
association,  (ii)  conducting  an insurance  agency or escrow  business,  (iii)
holding,  managing, or liquidating assets owned by or acquired from a subsidiary
savings  association,  (iv) holding or managing properties used or occupied by a
subsidiary savings association, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by the FSLIC by regulation as of
March 5, 1987, to be engaged in by multiple  holding  companies,  or (vii) those
activities  authorized by the Federal  Reserve Board (the "FRB") as  permissible
for  bank  holding  companies,  unless  the  Director  of the OTS by  regulation
prohibits  or limits such  activities  for savings and loan  holding  companies.
Those activities  described in (vii) above must also be approved by the Director
of the OTS before a multiple holding company may engage in such activities.

      The  Director of the OTS may also  approve  acquisitions  resulting in the
formation of a multiple  savings and loan holding company which controls savings
associations  in more than one state,  if the multiple  savings and loan holding
company involved controls a savings  association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the  laws of the  state in which  the  association  to be  acquired  is  located
specifically permit associations to be acquired by state-chartered  associations
or savings and loan holding  companies  located in the state where the acquiring
entity is located (or by a holding  company that controls  such  state-chartered
savings associations).  Also, the Director of the OTS may approve an acquisition
resulting in a multiple  savings and loan holding  company  controlling  savings
associations  in more than one  state in the case of  certain  emergency  thrift
acquisitions.

      Indiana  law  permits  federal  and  state  savings   association  holding
companies with their home offices  located outside of Indiana to acquire savings
associations  whose home offices are located in Indiana and savings  association
holding  companies with their principal  place of business in Indiana  ("Indiana
Savings  Association Holding Companies") upon receipt of approval by the Indiana
Department of Financial  Institutions.  Moreover,  Indiana  Savings  Association
Holding  Companies  may acquire  savings  associations  with their home  offices
located outside of Indiana and savings  association holding companies with their
principal place of business  located outside of Indiana upon receipt of approval
by the Indiana Department of Financial Institutions.

      No subsidiary  savings  association of a savings and loan holding  company
may declare or pay a dividend on its permanent or  nonwithdrawable  stock unless
it  first  gives  the  Director  of the  OTS 30  days  advance  notice  of  such
declaration  and payment.  Any dividend  declared  during such period or without
giving notice shall be invalid.

Federal Home Loan Bank System


<PAGE>

      Union  Federal  is a member of the FHLB of  Indianapolis,  which is one of
twelve  regional  FHLBs.  Each FHLB serves as a reserve or central  bank for its
members within its assigned region.  It is funded primarily from funds deposited
by savings  associations  and  proceeds  derived  from the sale of  consolidated
obligations of the FHLB system.  It makes loans to members  (i.e.,  advances) in
accordance with policies and procedures established by the Board of Directors of
the FHLB.  All FHLB advances  must be fully secured by sufficient  collateral as
determined  by  the  FHLB.  The  Federal  Housing  Finance  Board  ("FHFB"),  an
independent   agency,   controls  the  FHLB  System,   including   the  FHLB  of
Indianapolis.

      As a member,  Union Federal is required to purchase and maintain  stock in
the FHLB of  Indianapolis  in an  amount  equal to at least 1% of its  aggregate
unpaid  residential   mortgage  loans,  home  purchase  contracts,   or  similar
obligations at the beginning of each year. At December 31, 1997, Union Federal's
investment in stock of the FHLB of Indianapolis  was $708,000.  The FHLB imposes
various  limitations on advances such as limiting the amount of certain types of
real  estate-related  collateral to 30% of a member's capital and limiting total
advances to a member.  Interest  rates charged for advances vary  depending upon
maturity,  the cost of funds to the FHLB of Indianapolis  and the purpose of the
borrowing.

      The FHLBs are  required to provide  funds for the  resolution  of troubled
savings  associations  and to contribute to affordable  housing programs through
direct loans or interest subsidies on advances targeted for community investment
and  low-  and  moderate-income  housing  projects.   These  contributions  have
adversely  affected the level of FHLB dividends paid and could continue to do so
in the future.  For the fiscal year ended  December 31, 1997,  dividends paid by
the FHLB of Indianapolis to Union Federal totaled approximately  $54,000, for an
annual rate of 7.99%.

Insurance of Deposits

      Deposit Insurance.  The FDIC is an independent federal agency that insures
the  deposits,  up to  prescribed  statutory  limits,  of banks and  thrifts and
safeguards  the safety and soundness of the banking and thrift  industries.  The
FDIC administers two separate  insurance funds, the BIF for commercial banks and
state savings banks and the SAIF for savings  associations such as Union Federal
and banks that have  acquired  deposits from savings  associations.  The FDIC is
required to maintain designated levels of reserves in each fund. As of September
30,  1996,  the  reserves  of the SAIF were  below the  level  required  by law,
primarily  because a significant  portion of the assessments  paid into the SAIF
have been used to pay the cost of prior thrift  failures,  while the reserves of
the BIF met the level  required by law in May, 1995.  However,  on September 30,
1996,  provisions  designed to  recapitalize  the SAIF and eliminate the premium
disparity  between the BIF and SAIF were signed into law.  See "--  Assessments"
below.

      Assessments.   The  FDIC  is  authorized  to  establish   separate  annual
assessment rates for deposit insurance for members of the BIF and members of the
SAIF.  The FDIC may  increase  assessment  rates for either fund if necessary to
restore the fund's  ratio of reserves  to insured  deposits to the target  level
within a reasonable  time and may  decrease  these rates if the target level has
been met. The FDIC has established a risk-based  assessment system for both SAIF
and BIF members.  Under this system,  assessments vary depending on the risk the
institution poses to its deposit insurance fund. An institution's  risk level is
determined  based on its  capital  level  and the  FDIC's  level of  supervisory
concern about the institution.

      On September 30, 1996, President Clinton signed into law legislation which
included  provisions  designed  to  recapitalize  the  SAIF  and  eliminate  the
significant  premium  disparity between the BIF and the SAIF. Under the new law,
Union Federal was charged a one-time special  assessment equal to $.657 per $100
in assessable deposits at March 31, 1995. Union Federal recognized this one-time
assessment as a non-recurring operating expense of $362,000 ($219,000 after tax)
during the three-month  period ending September 30, 1996, and Union Federal paid
this  assessment on November 27, 1996. The  assessment was fully  deductible for
both federal and state income tax  purposes.  Beginning  January 1, 1997,  Union
Federal's  annual deposit  insurance  premium was reduced from .23% to .0644% of
total  assessable   deposits.   BIF  institutions  pay  lower  assessments  than

<PAGE>

comparable SAIF  institutions  because BIF institutions pay only 20% of the rate
paid by SAIF  institutions on their deposits with respect to obligations  issued
by the  federally-chartered  corporation which provided some of the financing to
resolve the thrift crisis in the 1980's ("FICO"). The 1996 law also provides for
the merger of the SAIF and the BIF by 1999,  but not until such time as bank and
thrift  charters  are  combined.  Until  the  charters  are  combined,   savings
associations  with SAIF  deposits may not transfer  deposits into the BIF system
without  paying  various  exit and entrance  fees,  and SAIF  institutions  will
continue to pay higher FICO assessments. Such exit and entrance fees need not be
paid if a SAIF institution  converts to a bank charter or merges with a bank, as
long as the resulting bank continues to pay applicable insurance  assessments to
the SAIF, and as long as certain other conditions are met.

Savings Association Regulatory Capital

      Currently,  savings  associations  are subject to three  separate  minimum
capital-to-assets  requirements:  (i) a leverage limit,  (ii) a tangible capital
requirement,  and (iii) a risk-based  capital  requirement.  The leverage  limit
requires that savings  associations  maintain  "core  capital" of at least 3% of
total assets. Core capital is generally defined as common  shareholders'  equity
(including retained income), noncumulative perpetual preferred stock and related
surplus,   certain  minority  equity   interests  in  subsidiaries,   qualifying
supervisory  goodwill,  purchased mortgage servicing rights and purchased credit
card relationships  (subject to certain limits) less nonqualifying  intangibles.
Under the tangible  capital  requirement,  a savings  association  must maintain
tangible  capital (core  capital less all  intangible  assets  except  purchased
mortgage  servicing  rights which may be included  after making the  above-noted
adjustment  in an amount up to 100% of  tangible  capital)  of at least  1.5% of
total assets.  Under the risk-based  capital  requirements,  a minimum amount of
capital must be maintained by a savings  association to account for the relative
risks inherent in the type and amount of assets held by the savings association.
The risk-based capital  requirement  requires a savings  association to maintain
capital  (defined  generally  for these  purposes as core  capital  plus general
valuation  allowances  and  permanent or maturing  capital  instruments  such as
preferred stock and subordinated debt less assets required to be deducted) equal
to 8.0% of  risk-weighted  assets.  Assets  are ranked as to risk in one of four
categories  (0-100%).  A  credit  risk-free  asset,  such as cash,  requires  no
risk-based  capital,  while an asset with a significant  credit risk,  such as a
non-accrual  loan,  requires  a  risk  factor  of  100%.   Moreover,  a  savings
association must deduct from capital,  for purposes of meeting the core capital,
tangible capital and risk-based capital  requirements,  its entire investment in
and loans to a subsidiary  engaged in activities not  permissible for a national
bank (other than  exclusively  agency  activities  for its customers or mortgage
banking  subsidiaries).  At December 31, 1997,  Union  Federal was in compliance
with all capital requirements imposed by law.

      The OTS has  promulgated  a rule  which  sets  forth the  methodology  for
calculating an interest rate risk  component to be used by savings  associations
in calculating  regulatory  capital.  The OTS has delayed the  implementation of
this rule, however.  The rule requires savings  associations with "above normal"
interest rate risk  (institutions  whose portfolio equity would decline in value
by more than 2% of assets in the event of a hypothetical 200-basis-point move in
interest rates) to maintain  additional capital for interest rate risk under the
risk-based  capital  framework.  If the OTS were to implement  this  regulation,
Union Federal would be exempt from its provisions  because it has less than $300
million in assets and its  risk-based  capital ratio exceeds 12%.  Union Federal
nevertheless  measure  its  interest  rate  risk  in  conformity  with  the  OTS
regulation and, as of December 31, 1997,  Union Federal would have been required
to deduct  $1.7  million  from its total  capital  available  to  calculate  its
risk-based  capital  requirement.  See "Item 7A.  Quantitative  and  Qualitative
Disclosures about Market Risk."

      If an association is not in compliance with the capital requirements,  the
OTS is required to prohibit asset growth and to impose a capital  directive that
may  restrict,  among other  things,  the  payment of  dividends  and  officers'
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements. These actions may include restricting the operations activities of
the association,  imposing a capital directive, cease and desist order, or civil
money  penalties,  or imposing harsher measures such as appointing a receiver or
conservator or forcing the association to merge into another institution.


<PAGE>

Prompt Corrective Regulatory Action.

      The  Federal  Deposit  Insurance  Corporation   Improvement  Act  of  1991
("FedICIA")   requires,   among  other  things,  that  federal  bank  regulatory
authorities take "prompt corrective action" with respect to institutions that do
not meet minimum capital requirements.  For these purposes,  FedICIA establishes
five capital tiers: well capitalized, adequatelycapitalized, under capitialized,
significantly undercapitalzied, and critically undercapitalized. At December 31,
1997,  Union Federal was  categorized  as "well  capitalized,"  meaning that its
total risk-based capital ratio exceeded 10%, its Tier I risk-based capital ratio
exceeded 6%, its leverage  ratio  exceeded 5%, and Union Federal was not subject
to a  regulatory  order,  agreement or directive to meet and maintain a specific
capital level for any capital measure.

      The FDIC may order savings associations which have insufficient capital to
take corrective actions. For example, a savings association which is categorized
as  "undercapitalized"  would be  subject  to  growth  limitations  and would be
required  to submit a capital  restoration  plan,  and a  holding  company  that
controls  such a savings  association  would be required to  guarantee  that the
savings   association   complies  with  the  restoration  plan.   "Significantly
undercapitalized"   savings   associations   would  be  subject  to   additional
restrictions.  Savings  associations  deemed  by  the  FDIC  to  be  "critically
undercapitalized"  would  be  subject  to  the  appointment  of  a  receiver  or
conservator.

Dividend Limitations

      An OTS regulation imposes limitations upon all "capital  distributions" by
savings  associations,  including cash dividends,  payments by an association to
repurchase or otherwise acquire its shares,  payments to shareholders of another
institution  in a  cash-out  merger  and  other  distributions  charged  against
capital.  The regulation  establishes a three-tiered system of regulation,  with
the greatest  flexibility  being afforded to  well-capitalized  associations.  A
savings  association  which has total  capital  (immediately  prior to and after
giving effect to the capital  distribution)  that is at least equal to its fully
phased-in  capital   requirements  would  be  a  Tier  1  institution  ("Tier  1
Institution").  An  association  that has total  capital  at least  equal to its
minimum  capital  requirements,  but  less  than  its  fully  phased-in  capital
requirements,  would  be  a  Tier  2  institution  ("Tier  2  Institution").  An
institution  having  total  capital  that  is  less  than  its  minimum  capital
requirements would be a Tier 3 institution ("Tier 3 Institution").  However,  an
institution which otherwise  qualifies as a Tier 1 Institution may be designated
by the OTS as a Tier 2 or Tier 3  Institution  if the OTS  determines  that  the
institution  is "in need of more than  normal  supervision."  Union  Federal  is
currently a Tier 1 Institution.

      A Tier 1 Institution  may,  after prior notice but without the approval of
the OTS, make capital  distributions during a calendar year up to the greater of
(a) 100% of its net income to date during the calendar year plus the amount that
would  reduce by one-half its "surplus  capital  ratio" at the  beginning of the
calendar year (the smallest excess over its capital requirements), or (b) 75% of
its net income over the most recent  four-quarter  period. Any additional amount
of capital  distributions would require prior regulatory approval.  Accordingly,
at December 31, 1997, Union Federal had available approximately  $13,004,000 for
distribution,   without   consideration  of  the  restrictions  on  its  capital
distributions  as a result of the  establishment  of a  liquidation  account  in
connection with the Conversion.


<PAGE>

      The OTS has proposed  revisions to these  regulations which would permit a
savings association,  without filing a prior notice or application with the OTS,
to make a capital  distribution  to its  shareholders in an amount that does not
exceed the  association's  undistributed net income for the prior two years plus
the amount of its undistributed income from the current year. This proposed rule
would require a savings association, such as Union Federal, that is a subsidiary
of a savings  and loan  holding  company  to file a notice  with the OTS  before
making a capital  distribution up to the "maximum  amount"  described above. The
proposed  rule would also  require all  savings  associations,  whether  under a
holding company or not, to file an application  with the OTS prior to making any
capital  distribution  where  the  association  is not  eligible  for  expedited
processing  under  the OTS  "Expedited  Processing  Regulation,"  or  where  the
proposed  distribution,  together with any other  distributions made in the same
year, would exceed the "maximum amount" described above.

      Pursuant  to  the  Plan  of  Conversion,   Union  Federal   established  a
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account  Holders.  Union Federal will not be permitted to pay dividends
to the  Holding  Company  if its net worth  would be  reduced  below the  amount
required  for the  liquidation  account.  In addition,  Union  Federal must file
either a  notice  or an  application  with the OTS 30 days  before  declaring  a
dividend to the Holding Company, as described above.

Limitations on Rates Paid for Deposits

      Regulations  promulgated by the FDIC pursuant to FedICIA place limitations
on the ability of insured depository  institutions to accept, renew or roll over
deposits by offering rates of interest which are  significantly  higher than the
prevailing  rates of interest on deposits  offered by other  insured  depository
institutions having the same type of charter in the institution's  normal market
area. Under these regulations,  "well-capitalized"  depository  institutions may
accept,  renew or roll  such  deposits  over  without  restriction,  "adequately
capitalized"  depository  institutions  may accept,  renew or roll such deposits
over with a waiver from the FDIC (subject to certain restrictions on payments of
rates) and "undercapitalized"  depository  institutions may not accept, renew or
roll such deposits over. The  regulations  contemplate  that the  definitions of
"well capitalized,"  "adequately capitalized" and "undercapitalized" will be the
same as the  definition  adopted by the  agencies to  implement  the  corrective
action provisions of FedICIA. Management does not believe that these regulations
will have a materially adverse effect on Union Federal's current operations.

Safety and Soundness Standards

      On February 2, 1995, the federal banking agencies adopted final safety and
soundness  standards for all insured  depository  institutions.  The  standards,
which were issued in the form of guidelines rather than  regulations,  relate to
internal   controls,   information   systems,   internal  audit  systems,   loan
underwriting  and  documentation,  compensation  and interest rate exposure.  In
general,  the standards are designed to assist the federal  banking  agencies in
identifying and addressing  problems at insured depository  institutions  before
capital becomes impaired.  If an institution fails to meet these standards,  the
appropriate  federal  banking  agency may  require the  institution  to submit a
compliance  plan.  Failure to submit a compliance plan may result in enforcement
proceedings.  On August 27,  1996,  the  federal  banking  agencies  added asset
quality and earning standards to the safety and soundness guidelines.

Real Estate Lending Standards

      OTS  regulations  require  savings  associations to establish and maintain
written  internal  real estate  lending  policies.  Each  association's  lending
policies  must  be  consistent  with  safe  and  sound  banking   practices  and
appropriate  to the size of the  association  and the  nature  and  scope of its
operations.   The  policies  must  establish   loan  portfolio   diversification
standards;  establish prudent underwriting  standards,  including  loan-to-value
limits, that are clear and measurable;  establish loan administration procedures
for the  association's  real  estate  portfolio;  and  establish  documentation,
approval,   and  reporting   requirements   to  monitor   compliance   with  the
association's  real estate  lending  policies.  The  association's  written real
estate lending policies must be reviewed and approved by the association's Board
of Directors at least annually. Further, each association is expected to monitor
conditions  in its real  estate  market  to  ensure  that its  lending  policies
continue to be appropriate for current market conditions.


<PAGE>

Loans to One Borrower

      Under OTS regulations,  Union Federal may not make a loan or extend credit
to a single or related  group of  borrowers  in excess of 15% of its  unimpaired
capital and  surplus.  Additional  amounts may be lent,  not in excess of 10% of
unimpaired capital and surplus,  if such loans or extensions of credit are fully
secured by readily  marketable  collateral,  including  certain  debt and equity
securities but not including real estate.  In some cases, a savings  association
may lend up to 30 percent of unimpaired  capital and surplus to one borrower for
purposes  of  developing  domestic  residential   housing,   provided  that  the
association meets its regulatory capital requirements and the OTS authorizes the
association to use this expanded lending authority.  At December 31, 1997, Union
Federal  did not have any loans or  extensions  of credit to a single or related
group of borrowers in excess of its lending limits.  Management does not believe
that the  loans-to-one-borrower  limits will have a significant  impact on Union
Federal's business operations or earnings.

Qualified Thrift Lender

      Savings  associations  must meet a QTL test. If Union Federal maintains an
appropriate   level  of  qualified  thrift   investments   ("QTIs")   (primarily
residential    mortgages   and   related    investments,    including    certain
mortgage-related  securities) and otherwise qualifies as a QTL, it will continue
to enjoy full borrowing  privileges from the FHLB of Indianapolis.  The required
percentage  of QTIs is 65% of  portfolio  assets  (defined  as all assets  minus
intangible  assets,  property used by the association in conducting its business
and liquid assets equal to 10% of total assets). Certain assets are subject to a
percentage  limitation  of  20%  of  portfolio  assets.  In  addition,   savings
associations may include shares of stock of the FHLBs,  FNMA, and FHLMC as QTIs.
Compliance  with the QTL test is  determined  on a monthly  basis in nine out of
every twelve  months.  As of December 31, 1997,  Union Federal was in compliance
with its QTL  requirement,  with  approximately  93.3% of its assets invested in
QTIs.

      A savings association which fails to meet the QTL test must either convert
to a bank (but its deposit  insurance  assessments and payments will be those of
and paid to the SAIF) or be subject to the following  penalties:  (i) it may not
enter into any new activity except for those permissible for a national bank and
for a savings  association;  (ii) its branching  activities  shall be limited to
those  of a  national  bank;  (iii) it shall  not be  eligible  for any new FHLB
advances; and (iv) it shall be bound by regulations applicable to national banks
respecting  payment of  dividends.  Three years  after  failing the QTL test the
association must (i) dispose of any investment or activity not permissible for a
national  bank and a savings  association  and (ii) repay all  outstanding  FHLB
advances.  If such a savings  association  is  controlled  by a savings and loan
holding  company,  then such holding  company  must,  within a  prescribed  time
period,  become  registered as a bank holding  company and become subject to all
rules  and  regulations   applicable  to  bank  holding   companies   (including
restrictions as to the scope of permissible business activities).

Acquisitions or Dispositions and Branching

      The Bank  Holding  Company  Act  specifically  authorizes  a bank  holding
company, upon receipt of appropriate regulatory approvals, to acquire control of
any savings association or holding company thereof wherever located.  Similarly,
a savings and loan  holding  company may  acquire  control of a bank.  Moreover,
federal  savings  associations  may  acquire  or  be  acquired  by  any  insured
depository  institution.   Regulations  promulgated  by  the  FRB  restrict  the
branching authority of savings associations  acquired by bank holding companies.
Savings  associations  acquired by bank  holding  companies  may be converted to
banks if they continue to pay SAIF premiums,  but as such they become subject to
branching and activity restrictions applicable to banks.

      Subject  to  certain  exceptions,  commonly-controlled  banks and  savings
associations  must reimburse the FDIC for any losses suffered in connection with
a failed  bank or  savings  association  affiliate.  Institutions  are  commonly
controlled  if one is owned by another or if both are owned by the same  holding
company.  Such claims by the FDIC under this provision are subordinate to claims
of depositors,  secured creditors,  and holders of subordinated debt, other than
affiliates.


<PAGE>

      The OTS has adopted  regulations which permit nationwide  branching to the
extent  permitted by federal  statute.  Federal  statutes permit federal savings
associations to branch outside of their home state if the association  meets the
domestic  building  and loan  test in  ss.7701(a)(19)  of the Code or the  asset
composition  test of ss.7701(c) of the Code.  Branching that would result in the
formation of a multiple  savings and loan holding  company  controlling  savings
associations  in more  than one  state is  permitted  if the law of the state in
which the savings association to be acquired is located specifically  authorizes
acquisitions of its state-chartered associations by state-chartered associations
or their  holding  companies  in the state where the  acquiring  association  or
holding company is located. Moreover, Indiana banks and savings associations are
permitted  to  acquire  other  Indiana  banks and  savings  associations  and to
establish branches throughout Indiana.

      Finally,  The Riegle-Neal  Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal  Act") permits bank holding companies to acquire banks
in other  states and,  with state  consent  and subject to certain  limitations,
allows banks to acquire  out-of-state  branches either through merger or de novo
expansion.  The State of Indiana  enacted  legislation  establishing  interstate
branching  provisions for Indiana  state-chartered  banks  consistent with those
established by the Riegle-Neal Act (the "Indiana  Branching  Law").  The Indiana
Branching Law authorizes Indiana banks to branch interstate by merger or de novo
expansion,  provided that such  transactions  are not permitted to  out-of-state
banks  unless the laws of their home  states  permit  Indiana  banks to merge or
establish de novo banks on a reciprocial basis. The Indiana Branching Law became
effective March 15, 1996.

Transactions with Affiliates

      Union  Federal is subject to  Sections  22(h),  23A and 23B of the Federal
Reserve Act, which restrict financial  transactions between banks and affiliated
companies.  The statute  limits  credit  transactions  between a bank or savings
association and its executive officers and its affiliates,  prescribes terms and
conditions for bank affiliate transactions deemed to be consistent with safe and
sound  banking  practices,  and  restricts  the  types  of  collateral  security
permitted in connection with a bank's extension of credit to an affiliate.

Federal Securities Law

      The shares of Common  Stock of the Holding  Company  have been  registered
with the SEC under the 1934 Act. The Holding Company is therefore subject to the
information,   proxy  solicitation,   insider  trading  restrictions  and  other
requirements  of the 1934 Act and the rules of the SEC  thereunder.  After three
years following Union Federal's conversion to stock form, if the Holding Company
has fewer than 300 shareholders, it may deregister its shares under the 1934 Act
and cease to be subject to the foregoing requirements.

      Shares of Common Stock held by persons who are  affiliates  of the Holding
Company may not be resold without  registration  unless sold in accordance  with
the resale  restrictions  of Rule 144 under the 1933 Act. If the Holding Company
meets the current public information requirements under Rule 144, each affiliate
of the  Holding  Company  who  complies  with the other  conditions  of Rule 144
(including  those that require the affiliate's  sale to be aggregated with those
of certain other persons)  would be able to sell in the public  market,  without
registration,  a number of shares not to exceed, in any three-month  period, the
greater of (i) 1% of the  outstanding  shares of the Holding Company or (ii) the
average  weekly  volume of trading in such  shares  during  the  preceding  four
calendar weeks.

Community Reinvestment Act Matters

      Federal law requires  that ratings of  depository  institutions  under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a  four-unit  descriptive  rating --  outstanding,  satisfactory,  needs to
improve,  and  substantial  noncompliance  --  and a  written  evaluation  of an
institution's  performance.  Each FHLB is required  to  establish  standards  of
community  investment  or service that its members must  maintain for  continued
access to long-term  advances from the FHLBs.  The standards take into account a
member's  performance under the CRA and its record of lending to first-time home
buyers.  The OTS has  designated  Union  Federal's  record of meeting  community
credit needs as satisfactory.


<PAGE>

                                    TAXATION

Federal Taxation

      Historically,  savings  associations,  such as Union  Federal,  have  been
permitted to compute bad debt deductions using either the bank experience method
or the percentage of taxable income method.  However,  for years beginning after
December 31, 1995,  no savings  association  may use the  percentage  of taxable
income method of computing  its  allowable bad debt  deduction for tax purposes.
Instead,  all  savings  associations  are  required to compute  their  allowable
deduction  using  the  experience  method.  As a  result  of the  repeal  of the
percentage  of  taxable  income  method,  reserves  taken  after  1987 using the
percentage of taxable income method generally must be included in future taxable
income over a six-year  period,  although a two-year  delay may be permitted for
associations meeting a residential mortgage loan origination test. Union Federal
will recapture  approximately $55,000 over a six-year period that began with the
year ended December 31, 1996. In addition,  the pre-1988  reserve,  for which no
deferred taxes have been recorded, need not be recaptured into income unless (i)
the savings  association  no longer  qualifies as a bank under the Code, or (ii)
the savings association pays out excess dividends or distributions.

      Depending on the composition of its items of income and expense, a savings
association may be subject to the alternative minimum tax. A savings association
must pay an  alternative  minimum  tax on the  amount  (if any) by which  20% of
alternative minimum taxable income ("AMTI"),  as reduced by an exemption varying
with AMTI,  exceeds the regular tax due.  AMTI  equals  regular  taxable  income
increased or decreased by certain tax  preferences  and  adjustments,  including
depreciation  deductions in excess of that allowable for alternative minimum tax
purposes, tax-exempt interest on most private activity bonds issued after August
7, 1986  (reduced by any related  interest  expense  disallowed  for regular tax
purposes), the amount of the bad debt reserve deduction claimed in excess of the
deduction  based on the  experience  method  and 75% of the  excess of  adjusted
current  earnings over AMTI (before this  adjustment and before any  alternative
tax net  operating  loss).  AMTI may be reduced only up to 90% by net  operating
loss  carryovers,  but  alternative  minimum  tax paid can be  credited  against
regular tax due in later years.

      For federal  income tax  purposes,  Union  Federal has been  reporting its
income and expenses on the accrual method of accounting. Union Federal's federal
income tax returns have not been audited in recent years.

State Taxation

      Union Federal is subject to Indiana's Financial  Institutions Tax ("FIT"),
which is imposed at a flat rate of 8.5% on "adjusted  gross  income."  "Adjusted
gross  income,"  for purposes of FIT,  begins with taxable  income as defined by
Section 63 of the Code and,  thus,  incorporates  federal  tax law to the extent
that it affects the  computation of taxable  income.  Federal  taxable income is
then adjusted by several Indiana  modifications.  Other  applicable  state taxes
include generally applicable sales and use taxes plus real and personal property
taxes.

      Union  Federal's  state income tax returns have not been audited in recent
years.


<PAGE>

Item 2.   Properties.

         The following table provides certain  information with respect to Union
Federal's office as of December 31, 1997:

<TABLE>
<CAPTION>
                                                                                                 Net Book
                                                                                                 Value of
                                                                                                 Property,            Approximate
    Description                              Owned or           Year            Total           Furniture &             Square
    and Address                               leased           Opened         Deposits           Fixtures               Footage
                                                                       (Dollars in thousands)
<C>                                            <C>              <C>            <C>                 <C>                  <C>   
221 East Main Street                           Owned            1913           $62,258             $367                 19,065
Crawfordsville, Indiana 47933
</TABLE>


      Union Federal owns computer and data  processing  equipment  which it uses
for transaction processing, loan origination, and accounting. The net book value
of Union Federal's electronic data processing equipment was approximately $4,000
at December 31, 1997.

      Union Federal has also  contracted  for the data  processing and reporting
services of On-Line Financial Services, Inc. in Oak Brook, Illinois. The cost of
these data processing services is approximately $5,000 per month.

      Union Federal has also executed a  Correspondent  Services  Agreement with
the FHLB of  Indianapolis  under which it  receives  item  processing  and other
services for a fee of approximately $1,100 per month.

      Union Federal also receives income from leasing office space on the second
floor of its building and parking  spaces  located  behind its  building.  Union
Federal's gross income from renting the office space was $28,000 for fiscal year
ended December 31, 1997 and $27,000 for the year ended December 31, 1996.  Union
Federal's gross income from renting the parking spaces was approximately  $9,000
for the fiscal year ended  December  31, 1997 and  approximately  $9,000 for the
year ended December 31, 1996.

Item 3.  Legal Proceedings.

         Although Union Federal is involved, from time to time, in various legal
proceedings  in the  normal  course of  business,  there are no  material  legal
proceedings  to which it presently is a party or to which any of its property is
subject.

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

         No matter was submitted to a vote of the Holding Company's shareholders
during the quarter ended December 31, 1997.

Item 4.5.  Executive Officers of the Registrant.

         The executive officers of the Holding Company are identified below. The
executive  officers of the Holding  Company are elected  annually by the Holding
Company's Board of Directors.

         Name                           Position with Holding Company
         ----                           -----------------------------
         Joseph E. Timmons              Chairman of the Board, President 
                                             and Chief Executive Officer
         Denise E. Swearingen           Secretary and Treasurer
         Ronald L. Keeling              Vice President


<PAGE>

         Joseph E. Timmons (age 63) has served as President and Chief  Executive
Officer of the Holding  Company  since 1997,  of Union Federal since 1974 and of
UFS Service Corp.  since its inception in 1994. He has been an employee of Union
Federal since 1954.

         Denise  E.  Swearingen  (age 39) has  served as the  Holding  Company's
Secretary  and  Treasurer  since  1997  and as  Union  Federal's  Secretary  and
Controller/Treasurer since 1995. She has worked for Union Federal since 1983.

         Ronald L.  Keeling  (age 46) has served as the Holding  Company's  Vice
President since 1997, as Union Federal's Vice President and Assistant  Secretary
since  1984 and as Senior  Loan  Officer  since  1979.  He has  worked for Union
Federal since 1971.

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Shareholder Matters.

         a) The Holding  Company's  common  stock,  without  par value  ("Common
Stock"),  is listed on the NASDAQ National Market System under the symbol "UCBC"
The Holding Company shares began to trade on December 29, 1997. The high and low
bid prices for the period  December 29, 1997 to March 20, 1998,  were $13.75 and
$14.88, respectively.  Since the Holding Company has no independent operation or
other  subsidiaries to generate income,  its ability to accumulate  earnings for
the payment of cash dividends to shareholders  directly depends upon the ability
of Union Federal to pay  dividends to the Holding  Company and upon the earnings
on its investment securities.  On March 30, 1998, there were 425 shareholders of
record.

         Under current  federal income tax law,  dividend  distributions  to the
Holding Company,  to the extent that such dividends paid are from the current or
accumulated  earnings and profits of Union  Federal (as  calculated  for federal
income tax purposes),  will be taxable as ordinary income to the Holding Company
and will not be  deductible  by Union  Federal.  Any dividend  distributions  in
excess of  current or  accumulated  earnings  and  profits  will be treated  for
federal income tax purposes as a distribution  from Union Federal's  accumulated
bad debt reserves,  which could result in increased federal income tax liability
for Union Federal.  Moreover, Union Federal may not pay dividends to the Holding
Company if such  dividends  would result in the  impairment  of the  liquidation
account established in connection with the Conversion.

         Generally,  there is no OTS  regulatory  restriction  on the payment of
dividends by the Holding Company unless there is a determination by the Director
of the OTS that  there  is  reasonable  cause to  believe  that the  payment  of
dividends  constitutes  a serious  risk to the  financial  safety,  soundness or
stability of Union  Federal.  The FDIC also has  authority  under current law to
prohibit a financial  institution from paying dividends if, in its opinion,  the
payment of dividends would  constitute an unsafe or unsound practice in light of
the financial  condition of the  financial  institution.  Indiana law,  however,
would  prohibit  the Holding  Company  from paying a dividend  if,  after giving
effect to the payment of that dividend, the Holding Company would not be able to
pay its debts as they become due in the usual  course of business or the Holding
Company's total assets would be less than the sum of its total  liabilities plus
preferential rights of holders of preferred stock, if any.

         The Holding Company paid no dividends to its shareholders in the fiscal
year ended December 31, 1997.

         b)  Use of Proceeds.

         The  Registration  Statement  filed  by  the  Company  pursuant  to the
Securities  Act of 1933 was declared  effective by the  Securities  and Exchange
Commission  on November 12, 1997 (SEC File No.  333-35799).  The offering of the
Company's  common stock (the "Common Stock")  commenced on November 19, 1997 and
terminated  at 12:00 noon,  Crawfordsville,  Indiana time, on December 10, 1997.
The  Company  sold  each of the  3,041,750  shares of  Common  Stock  registered
pursuant to the  Registration  Statement at $10 per share.  The Union  Community
Bancorp Employee Stock Ownership Plan and Trust (the "ESOP")  purchased  184,000
shares of the Common  Stock with the  proceeds  of a loan it  received  from the
Company.  Trident  Securities,  Inc. acted as the Company's  exclusive  agent in
marketing the Common Stock on a best efforts basis.


<PAGE>

         The following table indicates the net proceeds from the offering of the
Common Stock by the Company:

         Gross proceeds from sale of
              3,041,750 shares at $10/share                        $30,417,500
         Expenses:
         Underwriting commissions                 $   394,397
         Underwriting expenses                         31,903
         Other expenses                               353,608
         Total expenses                                                779,908
         Net proceeds                                              $29,637,592

         As  described  in the  prospectus,  the  Company  used  50% of the  net
proceeds (or $14,818,796) to purchase all of the capital stock of the Bank. From
the  proceeds  that it  retained,  the  Company  made a loan to the ESOP for the
purchase of 184,000  shares of the Common Stock.  After  providing for this loan
and  for  the  purchase  of the  Bank's  capital  stock,  the  Company  retained
$12,978,796 of the net proceeds, as the following table indicates:

         Net proceeds                                              $29,637,592
         Purchase of Bank capital stock           $14,818,796
         Loan to ESOP                               1,840,000
         Total                                                      16,658,796
         Net proceeds retained by Company                          $12,978,796

         The  Company  deposited  the  remainder  of the  net  proceeds  that it
retained in an account  with the Bank,  thereby  increasing  the Bank's  working
capital.

         The Bank used  $4,500,000  of its portion of the net  proceeds to repay
short-term  advances  from the FHLB of  Indianapolis.  The  Bank  deposited  the
remainder of the net proceeds it received in an overnight  account with the FHLB
of Indianapolis to be used for daily operations.

         The payments  described above reflect  reasonable  estimates of amounts
paid by the Company  and the Bank.  Neither the Company nor the Bank paid any of
the expenses indicated above,  either directly or indirectly,  to its directors,
officers or their  associates,  or to any person owning 10% or more of any class
of its securities,  or to any affiliate. The Company's and the Bank's use of the
proceeds  from  the  offering  of the  Common  Stock  described  above  does not
represent a material change in the use of proceeds described in the prospectus.

Item 6.  Selected Financial Data.

         The following selected consolidated financial data of Union Federal and
its  subsidiary  is  qualified  in its  entirety  by,  and  should  be  read  in
conjunction  with,  the  consolidated  financial  statements,   including  notes
thereto, included elsewhere in this Form 10-K.

<PAGE>

<TABLE>
<CAPTION>
                                                                                 AT DECEMBER 31,
                                                            1997         1996         1995         1994          1993
                                                                                          (In thousands)
Summary of Selected Consolidated
Financial Condition Data:
<S>                                                       <C>            <C>          <C>          <C>          <C>    
Total assets.....................................         $132,040       $82,789      $73,631      $72,540      $66,833
Loans, net.......................................           78,436        72,697       61,279       60,059       55,256
Cash and interest-bearing 
     deposits in other banks (1).................           44,781        1,465        1,993        1,329          963
Investment securities held to maturity...........            5,820         5,747        7,423        7,985        9,355
Deposits.........................................           62,258        60,436       57,407       54,886       55,076
Stock subscriptions refundable...................           22,687           ---          ---          ---          ---
Borrowings.......................................            3,573         7,880        2,642        4,943          ---
Shareholders' equity.............................           42,906        13,910       13,024       12,033       10,878
</TABLE>

<TABLE>
<CAPTION>

                                                                             YEAR ENDED DECEMBER 31,
                                                            1997         1996         1995         1994          1993
                                                                                          (In thousands)
Summary of Operating Data:
<S>                                                         <C>           <C>          <C>          <C>          <C>   
Total interest and dividend income...............           $6,801        $6,112       $5,729       $5,249       $5,334
Total interest expense...........................            3,836         3,424        3,148        2,507        2,594
   Net interest income...........................            2,965         2,688        2,581        2,742        2,740
Provision for loan losses........................              165            48           24           24           15
   Net interest income after 
     provision for loan losses...................            2,800        2,640        2,557        2,718        2,725
Other income (losses):
   Equity in losses of limited partnership.......             (158)         (173)        (249)         (54)         ---
   Investment securities gains...................              ---           ---          ---          ---          ---
   Other.........................................               62            57           32           14           13
     Total other losses..........................              (96)         (116)        (217)         (40)          13
Other expenses:
   Salaries and employee benefits................              480           461          481          489          434
   Net occupancy expenses........................               39            39           66           44           57
   Equipment expenses............................               22            20           20           17           17
   Deposit insurance expense.....................               31           495          127          126           94
   Other.........................................              389           287          328          208          234
     Total other expenses........................              961         1,302        1,022          884          836
Income before income taxes and cumulative effect
   of change in accounting principle.............            1,743         1,222        1,318        1,794        1,902
Income taxes.....................................              545           336          326          639          755
Cumulative effective of change
   in accounting principle.......................              ---           ---          ---          ---           12
   Net income....................................           $1,198       $   886      $   992       $1,155       $1,159

Supplemental Data:
Interest rate spread during period...............             2.55%         2.54%        2.69%        3.25%        3.45%
Net yield on interest-earning assets (2) ........             3.50          3.53         3.67         4.01         4.23
Return on assets (3).............................             1.38          1.13         1.36         1.63         1.77
Return on equity (4).............................             8.10          6.54         7.84        10.02        11.19
Other expenses to average assets (5).............             1.11          1.66         1.41         1.25         1.28
Equity to assets (6).............................            32.49         16.80        17.69        16.59        16.28
Average interest-earning assets to average
   interest-bearing liabilities..................           120.98        121.94       121.83       120.63       119.42
Non-performing assets to total assets (6)........              .07           .59          .21          .20          .31
Allowance for loan losses to total loans
   outstanding (6)...............................              .32           .22          .18          .15          .11
Allowance for loan losses to
   non-performing loans (6)......................           484.62         32.52        71.15        60.84        30.88
Net charge-offs to average
   total loans outstanding ......................              .10           ---          ---          ---          ---
Number of full service offices (6)...............                1             1            1            1            1
</TABLE>
--------------
(1) Includes certificates of deposit in other financial institutions.

(2) Net interest income divided by average interest-earning assets.

(3) Net income divided by average total assets.

(4) Net income divided by average total equity.

(5) Other expenses divided by average total assets.

(6) At end of period.


<PAGE>

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

General

         The Holding Company was  incorporated  for the purpose of owning all of
the outstanding shares of Union Federal.  The following  discussion and analysis
of the Holding Company's  financial  condition as of December 31, 1997 and Union
Federal's  results of  operations  should be read in  conjunction  with and with
reference  to the  consolidated  financial  statements  and  the  notes  thereto
included herein.

         In  addition  to  the  historical  information  contained  herein,  the
following discussion contains forward-looking  statements that involve risks and
uncertainties.  The Holding Company's operations and actual results could differ
significantly from those discussed in the  forward-looking  statements.  Some of
the factors that could cause or  contribute  to such  differences  are discussed
herein but also include  changes in the economy and interest rates in the nation
and the Holding  Company's general market area. The  forward-looking  statements
contained  herein  include,  but are not limited to,  those with  respect to the
following matters:

      1.    Management's determination of the amount of loan loss allowance;

      2.    The effect of changes in interest rates;

      3.    Changes in deposit insurance premiums; and

      4.    Proposed legislation that would eliminate the federal thrift charter
            and the separate federal regulation of thrifts.

Average Balances and Interest Rates and Yields


<PAGE>

         The  following  tables  present for the years ended  December 31, 1997,
1996 and 1995, the balances, interest rates and average monthly balances of each
category  of  Union  Federal's   interest-earning  assets  and  interest-bearing
liabilities,  and the  interest  earned  or paid  on  such  amounts.  Management
believes  that the use of month-end  average  balances  instead of daily average
balances has not caused any material difference in the information presented.

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                    1997                            1996                          1995
                                        Average               Average   Average               Average  Average              Average
                                        Balance Interest (1)Yield/Cost  BalanceInterest (1) Yield/Cost BalanceInterest (1)Yield/Cost
                                                                            (Dollars in thousands)
Assets:
Interest-earning assets:
<S>                                      <C>        <C>       <C>      <C>        <C>         <C>      <C>     <C>          <C>  
   Interest-earning deposits............ $3,821     $246      6.44%    $   959    $   67      6.99%    $ 1,089 $     71     6.52%
   Mortgage-backed securities
     held to maturity...................  2,421      214      8.84       3,061       263      8.59       3,777      321     8.50
   Other investment securities
     held to maturity...................  3,487      197      5.65       3,169       175      5.52       3,918      227     5.79
   Loans receivable (2)................. 74,382    6,090      8.19      68,346     5,562      8.14      60,950    5,066     8.31
   FHLB stock...........................    676       54      7.99         576        45      7.81         562       44     7.83
     Total interest-earning assets...... 84,787    6,801      8.02      76,111     6,112      8.03      70,296    5,729     8.15
Non-interest earning assets, net of
   allowance for loan losses............  2,039                          2,152                           2,391
     Total assets.......................$86,826                        $78,263                         $72,687
Liabilities and retained earnings:
Interest-bearing liabilities:
   Savings deposits..................... $3,845      159      4.14     $ 3,754       148      3.94     $ 3,650      146     4.00
   Interest-bearing demand.............. 10,350      444      4.29       9,061       369      4.07       8,594      385     4.48
   Certificates of deposit.............. 47,403    2,764      5.83      46,035     2,716      5.90      43,597    2,505     5.75
   Stock subscriptions refundable.......  2,737      130      4.75         ---       ---       ---         ---      ---      ---
   FHLB advances........................  5,748      339      5.90       3,566       191      5.36       1,857      112     6.03
     Total interest-bearing liabilities. 70,083    3,836      5.47      62,416     3,424      5.49      57,698    3,148     5.46
Other liabilities.......................  1,960                          2,303                           2,333
     Total liabilities.................. 72,043                         64,719                          60,031
Shareholders' equity.................... 14,783                         13,544                          12,656
     Total liabilities and
         stockholders' equity...........$86,826                        $78,263                        $ 72,687
Net interest-earning assets.............$14,704                        $13,695                        $ 12,598
Net interest income.....................          $2,965                          $2,688                         $2,581
Interest rate spread (3)................                      2.55%                          2.54%                         2.69%
Net yield on weighted average
   interest-earning assets (4)..........                      3.50%                          3.53%                         3.67%
Average interest-earning assets to
   average interest-bearing liabilities. 120.98%                        121.94%                         121.83%
</TABLE>

(1)   Interest income on loans  receivable  includes loan fee income of $97,000,
      $97,000 and $101,000 for the years ended December 31, 1997, 1996 and 1995.

(2)   Total loans less loans in process.

(3)   Interest  rate  spread  is  calculated  by  subtracting  weighted  average
      interest  rate cost from  weighted  average  interest  rate  yield for the
      period indicated.

(4)   The net yield on weighted average interest-earning assets is calculated by
      dividing net interest income by weighted average  interest-earning  assets
      for the period indicated.

Interest Rate Spread


<PAGE>

         Union Federal's results of operations have been determined primarily by
net interest income and, to a lesser extent,  fee income,  miscellaneous  income
and general and administrative  expenses. Union Federal's net interest income is
determined by the interest rate spread between the yields Union Federal earns on
interest-earning  assets and the rates it pays on interest-bearing  liabilities,
and by the  relative  amounts of  interest-earning  assets and  interest-bearing
liabilities.

      The following  table sets forth the weighted  average  effective  interest
rate that  Union  Federal  earned  on its loan and  investment  portfolios,  the
weighted average effective cost of its deposits and advances,  the interest rate
spread,  and net  yield on  weighted  average  interest-earning  assets  for the
periods  and as of the  dates  shown.  Average  balances  are  based on  average
month-end  balances.  Management  believes  that  the use of  month-end  average
balances  instead  of  daily  average  balances  has  not  caused  any  material
difference in the information presented.

<TABLE>
<CAPTION>
                                                                At December 31,                Year Ended December 31,
                                                                     1997             1997              1996             1995
                                                                     --------------------------------------------------------
Weighted average interest rate earned on:
<S>                                                                  <C>              <C>              <C>               <C>  
   Interest-earning deposits..............................           5.13%            6.44%            6.99%             6.52%
   Mortgage-backed securities held to maturity............           8.57             8.84             8.59              8.50
   Other investment securities held to maturity...........           5.77             5.65             5.52              5.79
   Loans receivable.......................................           8.11             8.19             8.14              8.31
   FHLB stock.............................................           7.99             7.99             7.81              7.83
     Total interest-earning assets........................           7.02             8.02             8.03              8.15
Weighted average interest rate cost of:
   Savings deposits.......................................           4.00             4.14             3.94              4.00
   Interest-bearing demand................................           4.32             4.29             4.07              4.48
   Certificates of deposit................................           5.87             5.83             5.90              5.75
   Stock subscriptions refundable.........................           4.00             4.75              ---               ---
   FHLB advances..........................................           5.71             5.90             5.36              6.03
     Total interest-bearing liabilities...................           5.09             5.47             5.49              5.46
Interest rate spread (1)..................................           1.93             2.55             2.54              2.69
Net yield on weighted average
   interest-earning assets (2)............................            ---             3.50             3.53              3.67
</TABLE>

(1)    Interest  rate spread is  calculated  by  subtracting  combined  weighted
       average  interest rate cost from combined  weighted average interest rate
       earned for the period  indicated.  Interest  rate spread  figures must be
       considered  in  light  of  the   relationship   between  the  amounts  of
       interest-earning assets and interest-bearing liabilities.

(2)    The net yield on weighted average  interest-earning  assets is calculated
       by dividing  net  interest  income by weighted  average  interest-earning
       assets for the period indicated.


<PAGE>

         The following  table  describes the extent to which changes in interest
rates and  changes in volume of  interest-related  assets and  liabilities  have
affected  Union  Federal's  interest  income  and  expense  during  the  periods
indicated.  For each  category of  interest-earning  asset and  interest-bearing
liability,  information  is provided on changes  attributable  to (1) changes in
rate  (changes  in rate  multiplied  by old  volume)  and (2)  changes in volume
(changes in volume  multiplied by old rate).  Changes  attributable to both rate
and volume which cannot be segregated have been allocated  proportionally to the
change due to volume and the change due to rate.

<TABLE>
<CAPTION>
                                                                        Increase (Decrease) in Net Interest Income
                                                                                                                 Total
                                                                    Due to                Due to                  Net
                                                                     Rate                 Volume                Change
                                                                                      (In thousands)
Year ended December 31, 1997 compared
to year ended December 31, 1996
   Interest-earning assets:
<S>                                                                <C>                      <C>               <C>      
     Interest-earning deposits..................................   $    (6)                 $ 185             $     179
     Mortgage-backed securities held to maturity................         7                    (56)                  (49)
     Other investment securities held to maturity...............         4                     18                    22
     Loans receivable...........................................        34                    494                   528
     FHLB stock.................................................         1                      8                     9
       Total....................................................        40                    649                   689
   Interest-bearing liabilities:
     Savings deposits...........................................         7                      4                    11
     Interest-bearing demand....................................        20                     55                    75
     Certificates of deposit....................................       (32)                    80                    48
     Stock subscriptions refundable.............................       ---                    130                   130
     FHLB advances..............................................        21                    127                   148
       Total....................................................        16                    396                   412
   Net change in net interest income............................    $   24                  $ 253              $    277

Year ended December 31, 1996 compared
to year ended December 31, 1995
   Interest-earning assets:
     Interest-earning deposits..................................   $     5                 $   (9)           $       (4)
     Mortgage-backed securities held to maturity................         3                    (61)                  (58)
     Other investment securities held to maturity...............       (10)                   (42)                  (52)
     Loans receivable...........................................      (108)                   604                   496
     FHLB stock.................................................       ---                      1                     1
       Total....................................................      (110)                   493                   383
   Interest-bearing liabilities:
     Savings deposits...........................................        (2)                     4                     2
     Interest-bearing demand....................................       (36)                    20                   (16)
     Certificates of deposit....................................        68                    143                   211
     FHLB advances..............................................       (14)                    93                    79
       Total....................................................        16                    260                   276
   Net change in net interest income............................    $ (126)                 $ 233              $    107

Year ended December 31, 1995 compared
to year ended December 31, 1994
   Interest-earning assets:
     Interest-earning deposits..................................    $   26                  $ (16)            $      10
     Mortgage-backed securities held to maturity................        (3)                   (66)                  (69)
     Other investment securities held to maturity...............       (13)                     7                    (6)
     Loans receivable...........................................       304                    229                   533
     FHLB stock.................................................        11                      1                    12
       Total....................................................       325                    155                   480
   Interest-bearing liabilities:
     Savings deposits...........................................        23                    (36)                  (13)
     Interest-bearing demand....................................        81                    (60)                   21
     Certificates of deposit....................................       436                    144                   580
     FHLB advances..............................................        20                     33                    53
       Total....................................................       560                     81                   641
   Net change in net interest income............................     $(235)                $   74              $   (161)

</TABLE>
<PAGE>

Financial  Condition  at December 31, 1997  Compared to  Financial  Condition at
December 31, 1996

         Total assets  increased  $49.3 million,  or 59.5% at December 31, 1997,
compared to December 31, 1996. The largest  increases were primarily in cash and
cash  equivalents  which increased $43.3 million,  and net loans which increased
$5.7  million.  The increase in cash and cash  equivalents  was  principally  in
short-term interest-bearing deposits due to net proceeds from the conversion and
stock  subscriptions  refundable.  Net proceeds of the Holding  Company's  stock
issuance,  after costs and excluding the shares issued for the ESOP,  were $27.8
million and stock subscriptions  refundable were $22.7 million.  The increase in
net  loans  was  principally  in real  estate  mortgage  loans,  and a result of
increased customer demand.

         Average assets increased $8.5 million from $78.3 million for the period
ended  December 31,  1996,  to $86.8  million for the period ended  December 31,
1997, an increase of 10.9%. Average interest-earning assets represented 97.3% of
average  assets for the period ended December 31, 1996 compared to 97.7% for the
period ended  December 31, 1997.  Although the average of most  interest-earning
assets  increased  during 1997,  average loans  experienced the largest increase
amounting to $6.0 million, or 8.8%,  compared to 1996. Average  interest-earning
assets as a percentage of average  interest-bearing  liabilities were 121.9% for
1996 and 121.0% for 1997.

         Average  balances  of  mortgage-backed   securities  held  to  maturity
decreased  $640,000,  or 20.9%, from December 31, 1996 to December 31, 1997 as a
result of  principal  repayments,  while  other  investment  securities  held to
maturity  increased  $318,000,  or 10.0%, from $3.2 million for the period ended
December 31, 1996 to $3.5 million for the period ended  December 31, 1997 due to
purchases.  Although  no  mortgage-backed  securities  have been  purchased  for
several years,  mortgage-backed  securities  have been purchased on occasion and
are considered for purchase on an ongoing basis because such  instruments  offer
liquidity  and lower  credit risk than other types of  investments.  The primary
risk  associated  with these  instruments  is that in a declining  interest rate
environment the prepayment  level of the loans  underlying these securities will
accelerate,  which reduces the effective  yield and exposes the  association  to
interest rate risk on the prepaid  amounts.  In an increasing rate  environment,
the primary risk associated with these securities is that the fixed-rate portion
of such securities will not adjust to market rates which reduces our spread. See
"Business -- Investments -- Mortgage-Backed Securities."

         Loans and  Allowance  for Loan Losses.  Average  loans  increased  $6.0
million, or 8.8%, from the period ended December 31, 1996, to December 31, 1997.
The growth in loans was in part  funded by  increased  average  deposits of $2.7
million and increased average FHLB advances of $2.2 million.  Average loans were
$68.3  million for the 1996 period and $74.4  million for the 1997  period.  The
average  rates on loans were 8.14% for 1996 and 8.19% for 1997, an increase of 5
basis  points.  The  allowance  for loan losses as a  percentage  of total loans
increased  from .22% to .32% due to an increase in the allowance for loan losses
from  $159,000 at December  31, 1996 to  $252,000  at  December  31,  1997.  The
increase in our allowance  for loan losses was a result of a $165,000  provision
for loan  losses  for the year  ended  December  31,  1997  offset  by a $72,000
charge-off.  The ratio of the allowance for loan losses to non-performing  loans
was  32.5% at  December  31,  1996  compared  to 484.6% at  December  31,  1997.
Nonperforming  loans  decreased from $489,000 at December 31, 1996 to $52,000 at
December  31,  1997.   Nonperforming  loans  of  $203,000  were  transferred  to
foreclosed  real  estate  during  the  period  ended  December  31,  1997  and a
charge-off of $72,000  relating to a multi-family  loan taken at the time of the
transfer.  In response  to this loss,  the risk  factor  used to  calculate  the
necessary allowance for loan losses related to loans secured by multi-family and
commercial  real estate was  increased.  Union Federal has  experienced  minimal
residential  loan losses in the past with no losses  recorded in over five years
and does not  expect  this  experience  in this area to change in future  years;
therefore,  the risk factor used on the residential  loan portfolio has not been
adjusted.


<PAGE>

         Premises and Equipment.  Premises and equipment decreased slightly from
December  31,  1996 to  December  31,  1997 due to  depreciation  for the period
exceeding  purchases.  Union  Federal  has no  branches,  and it leases to other
businesses  a portion of its main  office and  parking  lot.  See  "Business  --
Properties."

         Deposits. Deposits increased $1.8 million to $62.3 million during 1997,
an increase  of 3.0%.  Increased  deposits  were  utilized to fund loan  growth.
Demand and savings deposits increased $2.7 million,  or 20.1%,  between December
31, 1996 and December 31, 1997.  Certificates of deposits decreased $874,000, or
1.9%,  during this period.  Average total deposits  increased  $2.7 million,  or
4.6%,  from $58.9 million for the year ended December 31, 1996 compared to $61.6
million for the year ended December 31, 1997.

         Borrowed Funds.  Borrowed funds decreased $4.3 million,  or 54.7%, from
December 31, 1996 to December 31, 1997.  The decline in total borrowed funds was
comprised of a decrease in FHLB advances of $4.1 million,  63.4%, and a decrease
in the note payable to Pedcor Investments - 1993-XVI,  LP ("Pedcor"),  a limited
partnership  organized to build, own and operate a 48-unit apartment complex, of
$198,000,  or 14.0%.  The note to Pedcor was used to fund an  investment  in the
Pedcor  low-income  housing income tax credit limited  partnership  and bears no
interest so long as there  exists no event of  default.  Average  FHLB  advances
increased  to $5.7  million  for 1997  compared  to $3.6  million  for 1996,  an
increase of $2.1 million, or 58.3%.

         Shareholders' Equity. Shareholders' equity increased $29.0 million from
$13.9  million at December 31, 1996 to $42.9  million at December 31, 1997.  The
increase was due to net proceeds of the Holding Company's stock issuance,  after
costs and  excluding  the shares  issued for the ESOP,  of $27.8 million and net
income for 1997 of $1.2 million.

Financial  Condition  at December 31, 1996  Compared to  Financial  Condition at
December 31, 1995

         Total assets  increased $9.2 million,  or 12.4%,  at December 31, 1996,
compared to December  31,  1995.  The  largest  increase  was in net loans which
increased  $11.4  million,  or 18.6%.  This  increase  was  funded in part by an
increase in deposits of $3.0 million,  or 5.3%, and an increase in FHLB advances
of $5.4  million,  or 508.6%.  The  increase  in net loans of $11.4  million was
primarily in  one-to-four  family loans and resulted  from a strong local demand
for residential financing.

         Average  assets  increased  from $72.7  million  for the  period  ended
December 31, 1995, to $78.3  million for the period ended  December 31, 1996, an
increase of $5.6 million, or 7.7%. Average  interest-earning  assets represented
97.3% of average  assets for the period ended in 1996  compared to 96.7% for the
period ended in 1995.  The increase in average  earning  assets was primarily in
the loan portfolio.  Average  interest-bearing assets as a percentage of average
interest-bearing   liabilities   was  121.9%  and  121.8%  for  1996  and  1995,
respectively.

         Average  balances  of  mortgage-backed   securities  held  to  maturity
decreased  $716,000,  or 19.0%, for the year ended December 31, 1996 as a result
of principal  repayments,  while other  investment  securities  held to maturity
decreased  $749,000,  or 19.1%,  from $3.9 million for the period ended December
31,  1995  to $3.2  million  for the  period  ended  December  31,  1996  due to
maturities.

         Loans and  Allowance for Loan Losses.  The increase in Union  Federal's
net loans of $11.4 million, or 18.6% from December 31, 1995 to December 31, 1996
was primarily in real estate mortgage loans.  Average loans increased from $61.0
million to $68.3 million while the average rates earned on such loans  decreased
17 basis points to 8.14%. The allowance for loan losses as a percentage of total
loans  increased  to 0.22% from 0.18% as a result of an increase in loans and no
charge-offs.  The allowance  for loan losses as a percentage  of  non-performing
loans  was  32.5%  and  71.15%  at  December  31,  1996 and  1995  respectively.
Non-performing  loans were  $489,000  and  $156,000 at each date,  respectively.
Included in  non-performing  loans at December 31, 1996 was an impaired  loan of
$112,000. A provision for loss of $37,000 had been recorded on this loan.


<PAGE>

         Premises and Equipment.  Premises and equipment decreased slightly from
December  31,  1995 to  December  31,  1996 due to  depreciation  for the period
exceeding purchases.

         Deposits.  Deposits  increased  approximately  $3.0  million,  or 5.3%,
during the period ended December 31, 1996.  Interest-bearing  demand and savings
deposits  increased  $1.2  million,  or 10.2%,  while  certificates  of  deposit
increased $1.8 million,  or 3.9%.  Average deposits  increased $3.0 million,  or
5.4%, during the period ended December 31, 1996. Average interest-bearing demand
and savings deposits increased $571,000, or 4.7%, while certificates of deposits
increased  $2.4  million,  or 5.6%.  Although  Union  Federal  did not offer any
special  deposit  programs  during 1996,  it increased  its deposits by offering
rates that were competitive with the rates offered by other  institutions in the
area. The rates paid on interest-bearing demand and saving deposits decreased 41
and 6 basis  points,  respectively,  while  the  rate  paid on  certificates  of
deposits increased 15 basis points.

         Borrowed  Funds.  The  growth  in loans  was  partially  funded  by the
increase in FHLB advances of $5.4  million,  or 508.6% from December 31, 1995 to
December 31, 1996.  Union Federal elected to utilize FHLB advances  available at
rates  comparable to the cost of acquiring  local deposits to partially fund the
increase in loans.  The majority of these FHLB advances matured in less than one
year.  Average FHLB advances increased from $1.9 million at December 31, 1995 to
$3.6 million at December 31, 1996.

         Retained Earnings.  Retained earnings increased $886,000, or 6.8%, from
$13.0  million at December 31, 1995 to $13.9  million at December 31, 1996.  The
increase was due to net income during the period.

Comparison of Operating Results For Years Ended December 31, 1997 and 1996

         General. Net income increased $312,000, or 35.2%, from $886,000 for the
year ended December 31, 1996 to $1,198,000 for the year ended December 31, 1997.
The  increase  is  primarily  due to an increase  in net  interest  income and a
decrease in deposit  insurance  expense.  The return on average assets was 1.38%
and 1.13 % for the years ended December 31, 1997 and 1996, respectively.

         Interest  Income.  Our total interest  income was $6.8 million for 1997
compared to $6.1  million  for 1996.  The  increase  in interest  income was due
primarily  to an increase  in volume.  Average  earning  assets  increased  $8.7
million,  or 11.4%,  from $76.1 million for 1996 compared to $84.8 for 1997. The
average yield on  interest-earning  assets decreased slightly from 8.03% for the
year ended December 31, 1996 to 8.02% for the comparable period in 1997.

         Interest Expense.  Interest expense increased  $412,000,  or 12.0%, for
the year ended  December 31, 1997 compared to the year ended  December  31,1996.
Average  interest-bearing  liabilities  increased $7.7 million,  or 12.3%,  from
$62.4 million for the 1996 period to $70.1 million  during the 1997 period.  The
average  balance of each deposit type increased from the 1996 period to the 1997
period with a $2.7 million, or 4.6%, increase in total average deposits. Average
FHLB advances  increased $2.1 million,  or 58.3%, from $3.6 million for the 1996
period to $5.7 million during the 1997 period.

         Net Interest Income. Net interest income increased $277,000,  or 10.3%,
for the year ended  December  31, 1997  compared to the year ended  December 31,
1996.  The increase  was  primarily  due to the $253,000  increase due to volume
increases.  The interest  spread was 2.55% for the year ended  December 31, 1997
compared to 2.54% for the comparable 1996 period.

         Provision  for Loan Losses.  The provision for loan losses for the year
ended December 31, 1997 was $165,000  compared to $48,000 for the same period in
1996. The provision for loan losses increased due to the increase in outstanding
loans and the losses  recorded  in 1997  associated  with  non-performing  loans
secured by  multi-family  real estate.  In response to the loss  experienced  in
1997, the risk factor used on multi-family  and commercial real estate loans was
increased.


<PAGE>

         Other Losses.  Other losses decreased  $20,000,  or 17.2%, for the year
ended  December 31, 1997 compared to the 1996 period  primarily due to decreased
losses of $15,000 from our investment in a low-income  housing income tax credit
limited partnership.  The investment in the limited partnership represents a 99%
equity in Pedcor. In addition to recording the equity in the losses of Pedcor, a
benefit of low income  housing  income tax credits in the amount of $178,000 for
both 1997 and 1996 was recorded.

         Salaries and Employee  Benefits.  Salaries and employee  benefits  were
$480,000 for the year ended  December 31, 1997 compared to $461,000 for the 1996
period,  and  increase of $19,000,  or 4.1%.  This  increase  resulted  from the
addition of 3 full-time  employees to our staff and normal increases in employee
compensation and related payroll taxes.

         Net Occupancy and Equipment Expenses.  Occupancy expenses and equipment
expenses increased $2,000, or 3.4%, during 1997 compared to 1996.

         Deposit   Insurance   Expense.   Deposit  insurance  expense  decreased
$464,000,  or 93.7%,  from  $495,000  for the year ended  December  31,  1996 to
$31,000  for the same  period  in 1997.  This  decrease  was due to the one time
Savings Association  Insurance Fund ("SAIF") special assessment of approximately
$362,000  expensed in the fourth quarter of 1996. The  recapitalization  of SAIF
resulted in a decline in the assessment for 1997. Prior to the  recapitalization
of SAIF, an assessment of $.23 per $100 of deposits was paid.  Subsequent to the
recapitalization, the assessment was reduced to $.0644 per $100 of deposits.

         Other Expense. Other expenses, consisting primarily of expenses related
to  service  center  fees,  advertising,  directors'  fees,  professional  fees,
supervisory examination fees, supplies, and postage increased $102,000, or 35.5%
for 1997  compared to 1996.  The  increase was  primarily  due to an increase in
director fees of $26,000 and a $30,000  charitable  contribution.  The remaining
increase resulted from nominal increases in a variety of expense categories.

         Income Tax Expense.  Income tax expense increased  $209,000,  or 62.2%,
during 1997 compared to 1996. The increase was directly  related to the increase
in taxable income for the period. The effective tax rate was 31.3% and 27.5% for
the respective 1997 and 1996 periods.

Comparison of Operating Results For Years Ended December 31, 1996 and 1995

         General.  Net income for the year ended  December  31,  1996  decreased
$106,000, or 10.7%, to $886,000 compared to $992,000 for 1995. Return on average
assets for the years  ended  December  31,  1996,  and 1995 was 1.13% and 1.36%,
respectively. Return on average equity was 6.54% for 1996 and 7.84% for 1995.

         Interest  Income.  Total  interest  income  was $6.1  million  for 1996
compared  to $5.7  million  for 1995.  Average  earning  assets  increased  $5.8
million,  or 8.3%, from $70.3 million to $76.1 million from 1995 to 1996. Volume
increases,  primarily  from loans,  accounted for $493,000 of the increase while
lower interest rates offset the increase by $110,000.

         Interest Expense.  Interest expense increased $276,000, or 8.8%, during
1996 compared to 1995. The increase in interest expense was primarily the result
of an increase in average interest-bearing liabilities of $4.7 million, or 8.1%,
from $57.7  million  to $62.4  million.  The growth in average  interest-bearing
liabilities was primarily  attributable to the growth in certificates of deposit
and FHLB advances. The average balance of certificates of deposit increased $2.4
million,  or 5.6%, while average FHLB advances increased $1.7 million, or 92.0%.
The deposit growth and increased borrowings from the FHLB were used to fund loan
growth.

         Net Interest Income. Net interest income increased  $107,000,  or 4.1%,
from $2.6  million for 1995 to $2.7 million for 1996.  Interest  rate spread was
2.54% and 2.69% for 1996 and 1995, respectively.


<PAGE>

         Provision  for Loan Losses.  The provision for loan losses for the year
ended December 31, 1996 was $48,000. The 1996 provision and the related increase
in the allowance for loan losses was considered adequate, based on growth, size,
condition  and  components of the loan  portfolio.  The provision of $24,000 for
1995 reflected a more moderate growth of the loan portfolio.

         Other Losses.  Other losses decreased $101,000,  or 46.5%, from 1995 to
1996  primarily due to a decrease in losses of $76,000 from the  investment in a
limited partnership.

         Salaries and Employee  Benefits.  Salaries and employee  benefits  were
$461,000 for 1996 compared to $481,000 for 1995, a decrease of $20,000, or 4.2%.
This  decrease was primarily a result of a $5,000  decrease in  retirement  plan
contributions  and a $13,000 increase loan origination  costs which are deferred
over the lives of the related loans.

         Net Occupancy  and Equipment  Expenses.  Occupancy  expenses  decreased
$27,000,  or 40.9%,  and equipment  expenses  remained  constant  during 1996 as
compared to 1995. The decrease in occupancy expenses was primarily  attributable
to an additional $32,000 of repairs and maintenance expenses in 1995 as compared
to 1996.

         Deposit   Insurance   Expense.   Deposit  insurance  expense  increased
$368,000,  or 289.8%, from $127,000 for 1995 to $495,000 for 1996 due to the one
time SAIF special assessment of approximately $362,000.

         Other Expense. Other expenses, consisting primarily of expenses related
to  service  center  fees,  advertising,  directors'  fees,  professional  fees,
supervisory examination fees, supplies, and postage decreased $41,000, or 12.5%,
from 1995 to 1996. The decrease  resulted from decreases in a variety of expense
categories.

         Income Tax Expense. Income tax expense increased $10,000, or 3.1%, from
1995 to 1996.  The  effective  tax rate were  27.5% and 24.7% for 1996 and 1995,
respectively.

Liquidity and Capital Resources

      The  following is a summary of Union  Federal's  cash flows,  which are of
three major types. Cash flows from operating activities consist primarily of net
income generated by cash.  Investing  activities generate cash flows through the
origination and principal  collection on loans as well as purchases and sales of
securities.  Investing  activities will generally  result in negative cash flows
when Union Federal experiences loan growth. Cash flows from financing activities
include savings deposits,  withdrawals and maturities and changes in borrowings.
The following table summarizes cash flows for each year in the three-year period
ended December 31, 1997.
<PAGE>

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                         1997          1996           1995
                                                                   (In thousands)
<S>                                                     <C>           <C>             <C>   
Operating activities.................................   $1,367        $ 1,088         $1,160

Investing activities:
Investment securities
     Proceeds from maturities and
     paydowns of mortgage-backed
     securities held to maturity.....................      639            676            663
     Purchases of other investment
       securities held to maturity...................   (1,200)          (994)          (100)
     Proceeds from maturities of
       investment securities held to maturity........      500          2,000            ---
     Purchase of loans...............................     (500)        (1,350)          (742)
     Other net change in loans.......................   (5,517)       (10,116)          (502)
     Purchase of FHLB of
       Indianapolis Stock............................     (128)           (18)            (1)
Proceeds on sale of foreclosed real estate...........       73            ---            ---
     Purchases of premises and equipment.............      (23)            (3)           (38)
     Net cash used by investing activities...........   (6,156)        (9,805)          (720)
Financing activities:
   Net change in
   Interest-bearing demand and savings deposits......    2,696          1,243         (1,375)
   Certificates of deposits..........................     (874)         1,786          3,896
   Stock subscription escrow accounts................   22,687            ---            ---
   Proceeds from borrowings..........................    1,500         10,500          2,500
   Repayment of borrowings...........................   (5,807)        (5,261)        (4,801)
   Net change in advances by borrowers
       for taxes and insurance.......................       20            (79)             4
   Proceeds from sale of common stock,
     net of costs....................................   27,883            ---            ---
     Net cash provided by financing activities.......   48,105          8,189            224
Net increase(decrease) in cash
   and cash equivalents..............................  $43,316        $  (528)       $   664
</TABLE>


      Federal law requires that savings  associations  maintain an average daily
balance of liquid assets in an amount not less than 4% or more than 10% of their
withdrawable  accounts plus short-term  borrowings.  Liquid assets include cash,
certain time deposits, certain bankers' acceptances,  specified U.S. government,
state  or  federal  agency  obligations,   certain  corporate  debt  securities,
commercial paper, certain mutual funds, certain mortgage-related securities, and
certain  first-lien  residential  mortgage loans.  The OTS recently  amended its
regulation that implements  this statutory  liquidity  requirement to reduce the
amount  of  liquid  assets  a  savings  association  must  hold  from  5% of net
withdrawable  accounts and short-term  borrowings to 4%. The OTS also eliminated
the requirement  that savings  associations  maintain  short-term  liquid assets
constituting  at least 1% of their  average  daily  balance of net  withdrawable
deposit  accounts  and current  borrowings.  The  revised OTS rule also  permits
savings  associations  to calculate  compliance  with the liquidity  requirement
based upon their  average  daily  balance of liquid  assets  during each quarter
rather than during each month, as was required under the prior rule. The OTS may
impose  monetary  penalties  on  savings  associations  that fail to meet  these
liquidity requirements. As of December 31, 1997, Union Federal had liquid assets
of $48.6 million, and a regulatory liquidity ratio of 49.4%.


<PAGE>

      Pursuant to OTS capital  regulations,  savings associations must currently
meet a 1.5% tangible capital requirement,  a 3% leverage ratio (or core capital)
requirement, and a total risk-based capital to risk-weighted assets ratio of 8%.
At December 31, 1997, Union Federal's tangible capital ratio was 22.7%, its core
capital ratio was 22.7%,  and its  risk-based  capital to  risk-weighted  assets
ratio was 56.5%. Therefore, at December 31, 1997, Union Federal's capital levels
exceeded all applicable regulatory capital requirements currently in effect. The
following table provides the minimum regulatory  capital  requirements and Union
Federal's capital ratios as of December 31, 1997:

<TABLE>
<CAPTION>
                                                       At December 31, 1997
                                       OTS Requirement                      Union Federal's Capital Level
                                   % of                               % of                              Amount
Capital Standard                  Assets            Amount          Assets(1)          Amount          of Excess
                                                             (Dollars in thousands)
<S>                                 <C>             <C>              <C>                <C>              <C>    
Tangible capital............        1.5%            $29,969          22.7%              $1,981           $27,988
Core capital (2)............        3.0              29,969          22.7                3,961            26,008
Risk-based capital..........        8.0              30,221          56.5                4,279            25,942
</TABLE>

(1)      Tangible  and core capital  levels are shown as a  percentage  of total
         assets;  risk-based  capital  levels  are  shown  as  a  percentage  of
         risk-weighted assets.

(2)      The  OTS  has  proposed  and  is  expected  to  adopt  a  core  capital
         requirement  for  savings  associations  comparable  to  that  recently
         adopted by the OCC for national banks. The new regulation, as proposed,
         would  require  at  least  3% of  total  adjusted  assets  for  savings
         associations  that received the highest  supervisory  rating for safety
         and  soundness,  and 4% to 5% for all other savings  associations.  The
         final form of such new OTS core  capital  requirement  may differ  from
         that which has been proposed. Union Federal expects to be in compliance
         with such new requirements. See "Regulation -- Regulatory Capital."

         For  definitions  of tangible  capital,  core  capital  and  risk-based
capital, see "Regulation -- Savings Association Regulatory Capital."

         As of  December  31,  1997,  management  is not  aware  of any  current
recommendations by regulatory authorities which, if they were to be implemented,
would have, or are reasonably likely to have, a material adverse effect on Union
Federal's liquidity, capital resources or results of operations.

Current Accounting Issues

         In February 1997,  the Financial  Accounting  Standards  Board ("FASB")
issued Statement of Financial  Accounting  Standards  ("SFAS") No. 128, Earnings
per Share,  establishing  standards for computing  and  presenting  earnings per
share  ("EPS") and  applies to  entities  with  publicly  held  common  stock or
potential  common stock,  such as the shares  issuable  under the proposed stock
option  plan,  as well as any other  entity  that  chooses to present EPS in its
financial statements.

         This Statement  simplifies the current standards of APB Opinion No. 15,
Earnings per Share, and makes them comparable to international EPS standards. It
eliminates the  presentation  of primary EPS and requires  presentation of basic
EPS (the  principal  difference  being that  common  stock  equivalents  are not
considered in the computation of basic EPS). It also requires dual  presentation
of basic and diluted EPS on the face of the income  statement  for all  entities
with complex capital  structures and requires a reconciliation  of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.


<PAGE>

         Basic EPS  includes  no dilution  and is  computed  by dividing  income
available to common stockholders by the weighted-average number of common shares
outstanding  for the period.  Diluted EPS reflects the  potential  dilution that
could occur if the  potential  common  shares were  exercised or converted  into
common stock or resulted in the issuance of common stock that then shared in the
earnings of the  entity.  Diluted  EPS is  computed  similarly  to that of fully
diluted EPS  pursuant  to Opinion No. 15. The  adoption of SFAS No. 128 will not
have a material impact on financial position or results of operations.

         The  Statement is effective  for the  financial  statements  issued for
periods  ending after  December 15, 1997,  including  interim  periods.  Earlier
application  is  not  permitted.  The  Statement  requires  restatement  of  all
prior-period EPS data presented.

         In  February  1997,  the  FASB  issued  SFAS  No.  129,  Disclosure  of
Information  about Capital  Structure,  continuing the current  requirements  to
disclose certain  information  about an entity's capital  structure found in APB
Opinion  No.  10,  Omnibus  Opinion--1966,  Opinion  No.  15,  and SFAS No.  47,
Disclosure  of  Long-Term  Obligations.   It  consolidates  specific  disclosure
requirements  from those  standards.  SFAS No. 129 is  effective  for  financial
statements issued for periods ending after December 15, 1997,  including interim
periods.  The  adoption  of SFAS No. 129 will not have a material  impact on the
Holding Company's financial position or results of operations.

         In June 1997,  the FASB issued SFAS No.  130,  Reporting  Comprehensive
Income, establishing standards for reporting and display of comprehensive income
and its  components  (revenues,  expenses,  gains,  and losses) in a full set of
general-purpose  financial  statements.  It  requires  that all  items  that are
required  to  be  recognized  under   accounting   standards  as  components  of
comprehensive income be reported in a financial statement that is displayed with
the same  prominence as other  financial  statements.  This  Statement  does not
require a specific  format for that  financial  statement  but requires  that an
enterprise  display an amount  representing total  comprehensive  income for the
period in that financial statement.

         SFAS No. 130 will also require the (a) classification of items of other
comprehensive income by their nature in a financial statement and (b) displaying
of the  accumulated  balance  of  other  comprehensive  income  separately  from
retained  earnings and  additional  paid-in  capital in the equity  section of a
statement of financial position.

         The Statement is effective for fiscal years  beginning  after  December
15, 1997.  Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The adoption of SFAS No. 130 will not have
a material impact on financial condition or results of operations.

         In June 1997, the FASB issued SFAS No. 131,  Disclosures about Segments
of an Enterprise  and Related  Information,  establishing  standards for the way
public business  enterprises  report  information  about  operating  segments in
annual financial  statements and requires that those enterprises report selected
information  about  operating  segments in interim  financial  reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services,  geographic  areas, and major  customers.  This Statement
supersedes  SFAS  No.  14,  Financial  Reporting  for  Segments  of  a  Business
Enterprise,  but  retains  the  requirement  to report  information  about major
customers.   It  amends  SFAS  No.  94,   Consolidation  of  All  Majority-Owned
Subsidiaries,  to remove the  special  disclosure  requirements  for  previously
unconsolidated subsidiaries. This Statement does not apply to nonpublic business
enterprises or to not-for-profit organizations.

         SFAS  No.  131  requires  that  a  public  business  enterprise  report
financial and descriptive  information about its reportable  operating segments.
Operating  segments  are  components  of  an  enterprise  about  which  separate
financial  information  is available  that is  evaluated  regularly by the chief
operating  decision maker in deciding how to allocate resources and in assessing
performance.  Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.


<PAGE>

         This  Statement  requires that a public  business  enterprise  report a
measure of segment profit or loss,  certain  specific revenue and expense items,
and segment assets. It requires reconciliations of total segment revenues, total
segment profit or loss,  total segment assets,  and other amounts  disclosed for
segments to corresponding amounts in the enterprise's  general-purpose financial
statements.  This  Statement  also  requires that a public  business  enterprise
report  descriptive  information about the way that the operating  segments were
determined,  the  products  and  services  provided by the  operating  segments,
differences  between the measurements used in reporting segment  information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.

         SFAS  No.  131  is  effective  for  financial  statements  for  periods
beginning  after  December  15,  1997.  In  the  initial  year  of  application,
comparative information for earlier years is to be restated. This Statement need
not be  applied to  interim  financial  statements  in the  initial  year of its
application, but comparative information for interim periods in the initial year
of application is to be reported in financial  statements for interim periods in
the second  year of  application.  The  adoption of SFAS No. 131 will not have a
material impact on financial condition or results of operations.

Impact of Inflation

         The  consolidated  financial  statements  presented  herein  have  been
prepared in accordance  with generally  accepted  accounting  principles.  These
principles  require the measurement of financial  position and operating results
in terms of  historical  dollars,  without  considering  changes in the relative
purchasing power of money over time due to inflation.

         The Holding  Company's  primary assets and  liabilities are monetary in
nature.  As a  result,  interest  rates  have a more  significant  impact on the
Holding  Company's  performance than the effects of general levels of inflation.
Interest rates,  however,  do not necessarily move in the same direction or with
the same  magnitude  as the price of goods and  services,  since such prices are
affected  by  inflation.  In a period of  rapidly  rising  interest  rates,  the
liquidity and maturities  structures of Union  Federal's  assets and liabilities
are critical to the maintenance of acceptable performance levels.

         The principal effect of inflation,  as distinct from levels of interest
rates, on earnings is in the area of noninterest expense.  Such expense items as
employee  compensation,  employee benefits and occupancy and equipment costs may
be  subject to  increases  as a result of  inflation.  An  additional  effect of
inflation  is the  possible  increase  in the  dollar  value  of the  collateral
securing loans that Union Federal has made. Union Federal is unable to determine
the extent,  if any, to which properties  securing its loans have appreciated in
dollar value due to inflation.

Year 2000 Compliance

         Because computer memory was so expensive on early mainframe  computers,
some  computer  programs used only the final two digits for the year in the date
field and  assumed  that the  first  two  digits  were  "19." As a result,  some
computer  applications  may be unable to interpret  the change from year 1999 to
year 2000.  The Holding  Company is actively  monitoring  its year 2000 computer
compliance  issues.  The bulk of the Holding  Company's  computer  processing is
provided  under contract by On-Line  Financial  Services,  Inc., Oak Brook,  IL.
("On-Line")  On-Line  expects to be in year 2000  compliance  by June 1999.  The
Holding Company's loan documentation  system is provided by Banker's Systems and
is also expected to be in year 2000 compliance within the next year. The Holding
Company has also appointed the three  executive  officers to address all aspects
of year 2000 compliance.  The Holding  Company's expense in connection with year
2000  compliance  is  not  expected  to be  material  to its  overall  financial
condition.


<PAGE>

Item 7A.  Quantitative and Qualitative Disclosures about Market Risks

         An important  component of Union Federal's  asset/liability  management
policy  includes  examining  the  interest  rate  sensitivity  of its assets and
liabilities and monitoring the expected  effects of interest rate changes on its
net portfolio value.

         An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period.  If Union Federal's
assets  mature  or  reprice  more  quickly  or  to a  greater  extent  than  its
liabilities,  Union  Federal's net portfolio value and net interest income would
tend to increase  during periods of rising  interest  rates but decrease  during
periods of falling interest rates. Conversely,  if Union Federal's assets mature
or reprice  more  slowly or to a lesser  extent  than its  liabilities,  its net
portfolio value and net interest income would tend to decrease during periods of
rising  interest rates but increase  during periods of falling  interest  rates.
Union  Federal's  policy has been to mitigate the interest rate risk inherent in
the historical  business of savings  associations,  the origination of long-term
loans funded by short-term deposits,  by pursuing certain strategies designed to
decrease the  vulnerability of its earnings to material and prolonged changes in
interest rates.

         Because of the lack of customer demand for adjustable rate loans in its
market area, Union Federal  primarily  originates  fixed-rate real estate loans,
which  accounted for  approximately  74.4% of its loan portfolio at December 31,
1997.  To manage the interest  rate risk of this type of loan  portfolio,  Union
Federal  limits  maturities  of  fixed-rate  loans to no more than 20 years.  In
addition,  Union Federal  continues to offer and attempts to increase its volume
of adjustable  rate loans when market  interest rates make these type loans more
attractive to customers.

         Management  believes it is critical to manage the relationship  between
interest  rates and the effect on Union  Federal's net portfolio  value ("NPV").
This approach  calculates the  difference  between the present value of expected
cash  flows  from  assets  and the  present  value of  expected  cash flows from
liabilities,  as well as cash  flows from  off-balance  sheet  contracts.  Union
Federal  manages assets and liabilities  within the context of the  marketplace,
regulatory  limitations and within limits  established by its Board of Directors
on the amount of change in NPV which is acceptable  given certain  interest rate
changes.

         The OTS issued a regulation,  which uses a net market value methodology
to measure the interest rate risk exposure of savings  associations.  Under this
OTS  regulation,  an  institution's  "normal" level of interest rate risk in the
event of an assumed change in interest rates is a decrease in the  institution's
NPV in an amount not  exceeding 2% of the present  value of its assets.  Savings
associations  with over  $300  million  in assets or less than a 12%  risk-based
capital  ratio are required to file OTS Schedule  CMR. Data from Schedule CMR is
used by the OTS to calculate  changes in NPV (and the related  "normal" level of
interest rate risk) based upon certain interest rate changes  (discussed below).
Associations  which  do not  meet  either  of the  filing  requirements  are not
required to file OTS Schedule CMR, but may do so  voluntarily.  As Union Federal
does not meet either of these requirements,  it is not required to file Schedule
CMR, although it does so voluntarily.  Under the regulation,  associations which
must file are  required  to take a deduction  (the  interest  rate risk  capital
component)  from their total  capital  available to  calculate  their risk based
capital  requirement  if their  interest rate exposure is greater than "normal."
The amount of that  deduction  is  one-half  of the  difference  between (a) the
institution's  actual  calculated  exposure to a 200 basis point  interest  rate
increase or  decrease  (whichever  results in the greater pro forma  decrease in
NPV) and (b) its "normal"  level of exposure which is 2% of the present value of
its assets.

          Presented below, as of December 31, 1997, is an analysis  performed by
the OTS of Union Federal's  interest rate risk as measured by changes in NPV for
instantaneous  and sustained  parallel  shifts in the yield curve,  in 100 basis
point increments,  up and down 400 basis points. At December 31, 1997, 2% of the

<PAGE>

present value of Union Federal's assets was approximately $2.2 million.  Because
the interest rate risk of a 200 basis point  increase in market rates (which was
greater  than the  interest  rate risk of a 200 basis point  decrease)  was $3.9
million at June 30,  1997,  Union  Federal  would have been  required  to deduct
$850,000  from its total  capital  available to calculate its risk based capital
requirement if it had been subject to the OTS' reporting requirements under this
methodology.  Union  Federal's  exposure to interest  rate risk results from the
concentration of fixed rate mortgage loans in our portfolio.

         The  following   table  sets  forth  Union   Federal's   interest  rate
sensitivity  as  measured  by changes  in NPV for  instantaneous  and  sustained
parallel  shifts of 100 basis point  increments in market  interest  rates as of
December 31, 1997).

<TABLE>
<CAPTION>

      Change                Net Portfolio Value                    NPV as % of PV of Assets
     In Rates         $ Amount          $ Change       % Change     NPV Ratio        Change
-------------------------------------------------------------------------------------------
                                    (Dollars in thousands)

<S>                 <C>            <C>              <C>           <C>             <C>     
    + 400 bp *      $24,383        $(8,362)         (26)%         23.94%          (555) bp
    + 300 bp         26,661         (6,084)         (19)%         25.55%          (394) bp
    + 200 bp         28,860         (3,885)         (12)%         27.03%          (246) bp
    + 100 bp         30,947         (1,799)          (5)%         28.37%          (111) bp
        0 bp         32,746                                       29.49%           
    - 100 bp         33,973          1,227            4  %        30.21%            73 bp
    - 200 bp         34,782          2,036            6  %        30.67%           118 bp
    - 300 bp         35,809          3,064            9  %        31.25%           177 bp
    - 400 bp         37,247          4,501           14  %        32.08%           259 bp
</TABLE>


*  Basis points (1 basis point equals .01%).

         This chart  illustrates,  for  example,  that a 200 basis point (or 2%)
increase in interest  rates would result in a $3.9 million (or 12%)  decrease in
the net portfolio value of Union Federal's assets. This hypothetical increase in
interest rates would also result in a 246 basis point (or 2.46%) decrease in the
ratio of the net portfolio value to the present value of Union Federal's assets.

         As  with  any  method  of  measuring   interest   rate  risk,   certain
shortcomings  are  inherent  in the  methods of analysis  presented  above.  For
example,  although certain assets and liabilities may have similar maturities or
periods to repricing,  they may react in different  degrees to changes in market
interest  rates.  Also,  the  interest  rates on  certain  types of  assets  and
liabilities may fluctuate in advance of changes in market interest rates,  while
interest  rates  on  other  types  may  lag  behind  changes  in  market  rates.
Additionally, certain assets, such as adjustable-rate loans, have features which
restrict  changes in interest  rates on a short-term  basis and over the life of
the asset.  Further, in the event of a change in interest rates,  expected rates
of prepayments on loans and early  withdrawals  from  certificates  could likely
deviate significantly from those assumed in calculating the table.


<PAGE>

Item 8.  Financial Statements and Supplementary Data.



                          Independent Auditor's Report


         Board of Directors
         Union Community Bancorp
         Crawfordsville, Indiana


         We have audited the  accompanying  consolidated  balance sheet of Union
         Community Bancorp (formerly Union Federal Savings and Loan Association)
         and  subsidiary  as of  December  31,  1997 and  1996  and the  related
         consolidated  statements of income,  changes in retained earnings,  and
         cash flows for each of the three years in the period ended December 31,
         1997. These consolidated financial statements are the responsibility of
         the Company's  management.  Our responsibility is to express an opinion
         on these consolidated 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 described above
         present fairly, in all material  respects,  the consolidated  financial
         position of Union  Community  Bancorp and subsidiary as of December 31,
         1997 and 1996, and the results of their operations and their cash flows
         for each of the three years in the period ended  December 31, 1997,  in
         conformity with generally accepted accounting principles.


         Geo. S. Olive & Co. LLC



         Indianapolis, Indiana
         February 20, 1998

<PAGE>

                     UNION COMMUNITY BANCORP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET


<TABLE>
<CAPTION>
December 31                                                     1997               1996
-------------------------------------------------------------------------------------------
Assets
<S>                                                        <C>                <C>          
Cash                                                       $      22,424      $      29,297
Short-term interest-bearing deposits                          44,758,403          1,435,893
Total cash and cash equivalents                               44,780,827          1,465,190
Investment securities held to maturity                         5,820,069          5,747,347
Loans                                                         78,687,999         72,856,009
Allowance for loan losses                                       (252,258)          (159,000)
Net loans                                                     78,435,741         72,697,009
Premises and equipment                                           367,360            371,364
Federal Home Loan Bank stock                                     707,700            580,100
Investment in limited partnership                              1,176,109          1,333,909
Interest receivable
Loans                                                            440,641            385,530
Mortgage-backed securities                                        18,036             23,600
Other investment securities
     and interest-bearing deposits                               122,849             44,474
Deferred income tax                                               38,674             75,424
Other assets                                                     132,251             64,813

       Total assets                                        $ 132,040,257      $  82,788,760

Liabilities
Deposits
Noninterest bearing                                        $   1,532,647      $     321,523
Interest bearing                                              60,725,398         60,114,919
Total deposits                                                62,258,045         60,436,442
Stock subscriptions refundable                                22,687,104
Federal Home Loan Bank advances                                2,373,051          6,482,478
Note payable                                                   1,200,042          1,397,892
Interest payable                                                 118,867             91,452
Other liabilities                                                497,271            470,663
Total liabilities                                             89,134,380         68,878,927

Stockholders' Equity  Preferred  stock,
     without  par  value  Authorized  and
     unissued--2,000,000 shares Common stock,
     without par value Authorized--5,000,000 shares
     Issued and outstanding--3,041,750 shares                 29,637,592
Retained earnings                                             15,108,285         13,909,833
Unearned employee stock ownership plan ("ESOP") shares        (1,840,000)
Total stockholders' equity                                    42,905,877         13,909,833

       Total liabilities and stockholders' equity          $ 132,040,257      $  82,788,760
</TABLE>


See notes to consolidated financial statements.


<PAGE>

                     UNION COMMUNITY BANCORP AND SUBSIDIARY
                        Consolidated Statement of Income


<TABLE>
<CAPTION>
Year Ended December 31                                         1997              1996              1995

Interest and Dividend Income
<S>                                                          <C>               <C>              <C>       
Loans                                                        $6,090,003        $5,561,735       $5,065,944
   Investment securities
Mortgage-backed securities                                      214,121           262,711          321,262
Other investment securities                                     196,937           175,332          227,154
Dividends on Federal Home Loan Bank stock                        53,956            45,027           44,291
Deposits with financial institutions                            245,927            66,886           70,575
Total interest and dividend  income                           6,800,944         6,111,691        5,729,226

Interest Expense
Deposits                                                      3,366,097         3,232,877        3,036,215
Stock subscription escrow accounts                              130,411
Federal Home Loan Bank advances                                 339,258           190,800          111,569
Total interest expense                                        3,835,766         3,423,677        3,147,784

Net Interest Income                                           2,965,178         2,688,014        2,581,442
Provision for loan losses                                       165,000            48,000           24,000

Net Interest Income After Provision for Loan Losses           2,800,178         2,640,014        2,557,442

Other Income (Losses)
Equity in losses of limited partnership                        (157,800)         (172,552)        (249,092)
Other income                                                     61,952            56,457           31,346
Total other losses                                              (95,848)         (116,095)        (217,746)

Other Expenses
Salaries and employee benefits                                  479,726           460,615          480,770
Net occupancy expenses                                           39,159            39,103           65,698
Equipment expenses                                               22,436            19,886           20,460
Deposit insurance expense                                        31,482           494,679          127,053
Other expenses                                                  388,519           287,654          328,184
Total other expenses                                            961,322         1,301,937        1,022,165

Income Before Income Tax                                      1,743,008         1,221,982        1,317,531
   Income tax expense                                           544,556           336,286          326,018

Net Income                                                   $1,198,452       $   885,696      $   991,513

</TABLE>

See notes to consolidated financial statements.

<PAGE>

                     UNION COMMUNITY BANCORP AND SUBSIDIARY
            Consolidated Statement of Changes in Stockholders' Equity

<TABLE>
<CAPTION>

                                                        Common Stock
                                                  Shares                            Retained          Unearned
                                                Outstanding         Amount          Earnings         ESOP Shares         Total
<S>                                              <C>              <C>               <C>             <C>               <C>        
Balances, January 1, 1995                                                           $12,032,624                       $12,032,624
Net income for 1995                                                                     991,513                           991,513

Balances, December 31, 1995                                                          13,024,137                        13,024,137
Net income for 1996                                                                     885,696                           885,696

Balances, December 31, 1996                                                          13,909,833                        13,909,833
Net income for 1997                                                                   1,198,452                         1,198,452

Common stock issued in conversion,
   net of costs                                  3,041,750        $29,637,592                                          29,637,592

Contribution for unearned ESOP shares                                                               $(1,840,000)       (1,840,000)

Balances, December 31, 1997                      3,041,750        $29,637,592       $15,108,285     $(1,840,000)      $42,905,877

</TABLE>


See notes to consolidated financial statements.


<PAGE>


                     UNION COMMUNITY BANCORP AND SUBSIDIARY
                      Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
Year Ended December 31                                                               1997               1996            1995

Operating Activities
<S>                                                                              <C>               <C>               <C>        
Net income                                                                       $  1,198,452      $   885,696       $   991,513
   Adjustments to reconcile net income to net cash provided
     by operating activities
Provision for loan losses                                                             165,000           48,000            24,000
     Depreciation                                                                      27,335           25,913            25,005
     Deferred income tax                                                               36,750          (13,910)           40,462
     Investment securities accretion, net                                             (11,677)          (6,181)             (812)
     Gains on sale of foreclosed real estate                                           (5,565)
     Equity in losses of limited partnership                                          157,800          172,552           249,092
Net change in
Interest receivable                                                                  (127,922)         (83,459)         (103,132)
       Interest payable                                                                27,415           (1,964)           12,260
Other assets                                                                          (21,878)         (24,199)           59,003
Other liabilities                                                                     (78,749)          85,879          (137,157)
         Net cash provided by operating activities                                  1,366,961        1,088,327         1,160,234

Investing Activities
Investment securities
     Purchases of investment securities held to maturity                           (1,200,000)        (994,342)         (100,000)
     Proceeds from maturities and paydowns of mortgage-backed
       securities held to maturity                                                    638,955          675,913           663,446
Proceeds from maturities of investment securities held to maturity                    500,000        2,000,000
Net change in loans                                                                (6,017,272)     (11,466,414)       (1,243,891)
Purchases of premises and equipment                                                   (23,331)          (2,602)          (38,381)
Proceeds on sale of foreclose real estate                                              73,546
Purchase of Federal Home Loan Bank of Indianapolis stock                             (127,600)         (17,500)           (1,000)
Net cash used by investing activities                                              (6,155,702)      (9,804,945)         (719,826)

Financing Activities
   Net change in
Interest-bearing demand and savings deposits                                        2,695,812        1,243,027        (1,375,313)
Certificates of deposit                                                              (874,209)       1,786,193         3,896,285
Stock subscription escrow accounts                                                 22,687,104
Proceeds from borrowings                                                            1,500,000       10,500,000         2,500,000
Repayment of borrowings                                                            (5,807,277)      (5,261,331)       (4,801,291)
Net change in advances by borrowers for taxes and insurance                            19,981          (79,558)            4,201
Proceeds from sale of common stock, net of costs                                   27,882,967
Net cash provided by financing activities                                          48,104,378        8,188,331           223,882

Net Increase (Decrease) in Cash and Cash Equivalents                               43,315,637         (528,287)          664,290

Cash and Cash Equivalents, Beginning of Year                                        1,465,190        1,993,477         1,329,187

Cash and Cash Equivalents, End of Year                                            $44,780,827       $1,465,190
$1,993,477

Additional Cash Flows Information
   Interest paid                                                                   $3,808,351       $3,425,641        $3,135,524
Income tax paid                                                                       527,433          375,405           227,747
Stock issuance costs included in other liabilities                                     85,375
Common stock issued to ESOP leveraged with an employer loan                         1,840,000
Loans transferred to foreclosed real estate                                           163,540

</TABLE>

See notes to consolidated financial statements.


<PAGE>



                     UNION COMMUNITY BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)


-       Nature of Operations and Summary of Significant Accounting Policies

The accounting and reporting policies of Union Community Bancorp ("Company") and
its  wholly  owned  subsidiary,  Union  Federal  Savings  and  Loan  Association
("Association") and the Association's wholly owned subsidiary, UFS Service Corp.
("UFS"),  conform to generally  accepted  accounting  principles  and  reporting
practices followed by the thrift industry.  The more significant of the policies
are described below.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

The  Company  is a  thrift  holding  company  whose  principal  activity  is the
ownership and management of the  Association.  The Association  operates under a
federal  thrift  charter and  provides  full  banking  services.  As a federally
chartered  thrift,  the  Association  is subject to  regulation by the Office of
Thrift Supervision and the Federal Deposit Insurance Corporation.

The Association generates mortgage and consumer loans and receives deposits from
customers  located  primarily  in  Montgomery  County,  Indiana and  surrounding
counties.  The  Association's  loans are generally  secured by specific items of
collateral  including real property,  consumer assets and business  assets.  UFS
invests in a low income housing partnership.

Consolidation--The consolidated financial statements include the accounts of the
Company, the Association and UFS after elimination of all material  intercompany
transactions.

Investment  Securities--Debt  securities are classified as held to maturity when
the  Association  has the positive  intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost.

Amortization  of premiums and  accretion  of discounts  are recorded as interest
income from  securities.  Realized gains and losses are recorded as net security
gains  (losses).  Gains and losses on sales of securities  are determined on the
specific-identification method.

Loans are carried at the principal amount outstanding.  A loan is impaired when,
based on current information or events, it is probable that the Association will
be unable to collect all amounts due (principal  and interest)  according to the
contractual terms of the loan agreement.  Payments with insignificant delays not
exceeding 90 days outstanding are not considered  impaired.  Certain  nonaccrual
and  substantially  delinquent  loans  may be  considered  to be  impaired.  The
Association considers its investment in one-to-four family residential loans and
consumer  loans  to  be  homogeneous   and  therefore   excluded  from  separate
identification  for evaluation of impairment.  Interest income is accrued on the
principal  balances of loans. The accrual of interest on impaired and nonaccrual
loans is discontinued when, in management's  opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued,  all
unpaid  accrued  interest is reversed when  considered  uncollectible.  Interest
income is subsequently recognized only to the extent cash payments are received.
Certain  loan fees and  direct  costs are being  deferred  and  amortized  as an
adjustment of yield on the loans over the contractual lives of the loans. When a
loan is paid off or sold,  any  unamortized  loan  origination  fee  balance  is
credited to income.


<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Allowance  for  loan  losses  is  maintained  to  absorb  loan  losses  based on
management's  continuing  review and  evaluation  of the loan  portfolio and its
judgment  as to  the  impact  of  economic  conditions  on  the  portfolio.  The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio,  the current  condition and amount of loans
outstanding,  and the probability of collecting all amounts due.  Impaired loans
are  measured by the present  value of expected  future cash flows,  or the fair
value of the collateral of the loan, if collateral dependent.

The  determination  of the adequacy of the allowance for loan losses is based on
estimates  that are  particularly  susceptible  to  significant  changes  in the
economic  environment  and market  conditions.  Management  believes  that as of
December 31, 1997 and 1996,  the allowance for loan losses is adequate  based on
information  currently available.  A worsening or protracted economic decline in
the area within which the Association  operates would increase the likelihood of
additional  losses due to credit and market  risks and could create the need for
additional loss reserves.

Premises  and  equipment  are carried at cost net of  accumulated  depreciation.
Depreciation is computed using the straight-line method based principally on the
estimated  useful  lives  of  the  assets  which  range  from 5 to  31.5  years.
Maintenance  and repairs are  expensed as  incurred  while major  additions  and
improvements are  capitalized.  Gains and losses on dispositions are included in
current operations.

Federal Home Loan Bank stock is a required  investment for institutions that are
members of the Federal Home Loan Bank ("FHLB") system.  The required  investment
in the common stock is based on a predetermined formula.

Investment  in  limited  partnership  is  recorded  using the  equity  method of
accounting. Losses due to impairment are recorded when it is determined that the
investment  no longer has the  ability  to  recover  its  carrying  amount.  The
benefits of low income  housing tax credits  associated  with the investment are
accrued when earned.

Foreclosed  real  estate  is  carried  at the lower of cost or fair  value  less
estimated selling costs.  When foreclosed real estate is acquired,  any required
adjustment is charged to the allowance for loan losses. All subsequent  activity
is included in current operations.

Income tax in the consolidated  statement of income includes deferred income tax
provisions or benefits for all significant  temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiary.

Earnings per share will be computed  based upon the weighted  average common and
common  equivalent  shares  outstanding  during  the  period  subsequent  to the
Association's conversion to a stock savings and loan association on December 29,
1997.  Net  income  per share for the  periods  before  the  conversion,  is not
meaningful.






<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


-       Conversion

On December 29, 1997, the Association  completed the conversion from a federally
chartered  mutual  institution to a federally  chartered  stock savings and loan
association  and the  formation  of the  Company as the  holding  company of the
Association.  As part of the conversion,  the Company issued 3,041,750 shares of
common stock at $10 per share.  Net proceeds of the  Company's  stock  issuance,
after costs of  $779,908  and  excluding  the shares  issued for the ESOP,  were
$27,797,592,  of which  $14,861,484  was used to  acquire  100% of the stock and
ownership of the  Association.  The  transaction was accounted for at historical
cost in a manner similar to that utilized in a pooling of interests.


-       Investment Securities Held to Maturity


<TABLE>
<CAPTION>
                                                                  1997
                                                         Gross             Gross
                                      Amortized       Unrealized        Unrealized          Fair
December 31                             Cost             Gains            Losses            Value
<S>                                    <C>                 <C>                <C>           <C>   

U.S. Treasury                         $   350                                              $   350
Federal agencies                        3,346            $    8               $3             3,351
Mortgage-backed securities              2,124               183                5             2,302
     Total investment securities       $5,820              $191               $8            $6,003
</TABLE>


<TABLE>
<CAPTION>
                                                                  1996
                                                         Gross             Gross
                                      Amortized       Unrealized        Unrealized          Fair
December 31                             Cost             Gains            Losses            Value
<S>                                    <C>                 <C>                <C>           <C>   
U.S. Treasury                         $   350                               $  2            $  348
Federal agencies                        2,645             $   1               35             2,611
Mortgage-backed securities              2,752               186                5             2,933
     Total investment securities       $5,747              $187              $42            $5,892
</TABLE>



<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


The amortized cost and fair value of securities held to maturity at December 31,
1997, by contractual maturity,  are shown below. Expected maturities will differ
from contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.

                                                        1997
                                           Amortized              Fair
December 31                                  Cost                 Value

Within one year                              $1,400                $1,398
One to five years                             2,296                 2,303
                                              3,696                 3,701
Mortgage-backed securities                    2,124                 2,302

Totals                                       $5,820                $6,003

Securities  with a carrying value of $2,194,000  and $2,832,000  were pledged at
December 31, 1997 and 1996 to secure FHLB advances.

Mortgage-backed  securities  included in investment  securities held to maturity
above consist of the following:

<TABLE>
<CAPTION>
                                                                           1997
                                                                  Gross             Gross
                                               Amortized       Unrealized        Unrealized          Fair
December 31                                      Cost             Gains            Losses            Value
<S>                                             <C>                 <C>                              <C>   
Government National Mortgage Corporation        $1,223              $125                             $1,348
Federal Home Loan Mortgage Corporation             635                56                                691
Federal National Mortgage Corporation              243                 2               $5               240
Other                                               23                                                   23
     Total mortgage-backed securities           $2,124              $183               $5            $2,302
</TABLE>



<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

<TABLE>
<CAPTION>
                                                                              1996
                                                                     Gross             Gross
                                                  Amortized       Unrealized        Unrealized          Fair
December 31                                         Cost             Gains            Losses            Value

<S>                                                <C>                 <C>            <C>               <C>   
Government National Mortgage Corporation           $1,391              $120                             $1,511
Federal Home Loan Mortgage Corporation              1,039                64                              1,103
Federal National Mortgage Corporation                 294                 2               $5               291
Other                                                  28                                                   28

     Total mortgage-backed securities              $2,752              $186               $5            $2,933
</TABLE>

-       Loans and Allowance

<TABLE>
<CAPTION>
December 31                                                                   1997                  1996
Real estate mortgage loans
<S>                                                                           <C>                   <C>    
One-to-four family                                                            $62,436               $57,031
Multi-family                                                                   10,197                10,920
Commercial                                                                      3,627                 3,593
Real estate construction loans                                                  2,530                 1,322
Individuals' loans for household and other personal expenditures                  223                   346
                                                                               79,013                73,212
Deferred loan fees                                                               (325)                 (356)

Total loans                                                                   $78,688               $72,856
</TABLE>


Year Ended December 31                1997         1996      1995
Allowance for loan losses
Balances, Beginning of Period           $159        $111      $  87
     Provision for losses                165          48         24
     Loans charged off                   (72)

     Balances, End of Period            $252        $159       $111


<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


At December 31, 1997, the  Association  had no impaired  loans.  At December 31,
1996,  the  Association  had an impaired  loan of $112,000  and had  recorded an
allowance for losses of $37,000.  The average  balance of impaired loans for the
years ended December 31, 1997 and 1996 was $33,000 and $110,000. The Association
had no interest income or cash receipts of interest on impaired loans during the
years ended December 31, 1997 and 1996. The  Association  has no loans that were
impaired during 1995.

In addition, at December 31, 1997, 1996 and 1995, the Association had nonaccrual
loans of $52,000,  $377,000  and  $156,000,  for which  impairment  had not been
recognized.  If  interest  on these loans had been  recognized  at the  original
interest  rates,  interest  income would have  increased  approximately  $1,000,
$14,000 and $3,000 for the years ended December 31, 1997, 1996 and 1995.

The Association has no commitments to loan additional  funds to the borrowers of
impaired or nonaccrual loans.

The  Association  has entered  into  transactions  with  certain  directors  and
officers and their affiliates or associates (related parties). Such transactions
were made in the ordinary course of business on substantially the same terms and
conditions,  including interest rates and collateral, as those prevailing at the
same time for comparable transactions with other customers,  and did not, in the
opinion of  management,  involve more than normal  credit risk or present  other
unfavorable features. The aggregate amount of loans, as defined, to such related
parties was as follows:


Balances, January 1, 1997                            $1,528
     New loans, including renewals                    1,291
     Payments, etc. including renewals                 (461)

Balances, December 31, 1997                          $2,358



-       Premises and Equipment

December 31                                 1997                 1996

Land                                        $146                  $146 
Buildings
553  538 Equipment                           142                   134
Total cost                                   841                   818
Accumulated depreciation                    (474)                 (447)

         Net                                $367                  $371


<PAGE>

UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


-       Investment in Limited Partnership

The  investment in limited  partnership of $1,176,000 and $1,334,000 at December
31,  1997 and 1996  represents  a 99  percent  equity  in Pedcor  Investments  -
1993-XVI,  LP  ("Pedcor"),  a limited  partnership  organized to build,  own and
operate a 48-unit apartment complex.  In addition to recording its equity in the
losses of Pedcor, the Company has recorded the benefit of low income housing tax
credits of  $178,000  for the years  ended  December  31,  1997,  1996 and 1995.
Condensed financial statements for Pedcor are as follows:

December 31                                          1997              1996

Condensed statement of financial condition
   Assets
     Cash                                         $        5         $     29
     Land and property                                 2,292            2,350
     Other assets                                         55               30

       Total assets                                   $2,352           $2,409

   Liabilities
     Notes payable--Association                      $   873         $    982
     Notes payable--other                              1,274            1,290
     Other liabilities                                   165              173
       Total liabilities                               2,312            2,445
   Partners' equity                                       40              (36)

       Total liabilities and partners' equity         $2,352           $2,409




Year Ended December 31                      1997       1996        1995

   Condensed statement of operations
   Total revenue                            $219       $219        $222
   Total expenses                            340        435         454

       Net loss                            $(121)     $(216)      $(232)


<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


-       Deposits

December 31                                                 1997        1996

Noninterest-bearing demand                                $  1,533   $     322
Interest-bearing demand                                      9,965       9,192
Savings deposits                                             4,579       3,867
Certificates and other time deposits of $100,000 or more     7,060       7,056
Other certificates and time deposits                        39,121      39,999

     Total deposits                                        $62,258     $60,436

     Certificates and other time deposits maturing
     in years ending December 31

                        1998          $27,369
                        1999           13,254
                        2000            3,703
                        2001              774
                        2002            1,081
                        v             $46,181
   
The aggregate  amount of certificates of deposit with a minimum  denomination of
$100,000 was  approximately  $7,060,000  and $7,056,000 at December 31, 1997 and
1996. Deposits in excess of $100,000 are not federally insured.

Year Ended December 31                   1997         1996         1995
   Interest expense on deposits
Interest-bearing demand               $   444      $   369      $   385
Savings deposits                          159          148          146
Certificates                            2,763        2,716        2,505
$3,366 $3,233                          $3,036



<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


-       Federal Home Loan Bank Advances

                                                     1997
                                                                Weighted
                                                                 Average
December 31                            Amount                     Rate
Advances from FHLB
   Maturities in years ending
     1998                               $1,601                    5.71%
     1999                                  114                    5.33
     2000                                  123                    5.49
     2001                                  129                    5.67
     2002                                  138                    5.80
     2003                                  147                    5.90
     2004                                  121                    6.03

                                        $2,373                    5.71%

The FHLB advances are secured by first-mortgage loans and investment  securities
totaling $62,517,000 and $57,954,000 at December 31, 1997 and 1996. Advances are
subject to restrictions or penalties in the event of prepayment.


-       Note Payable

The note  payable to Pedcor  dated  February 1, 1994 in the  original  amount of
$1,809,792 bears no interest so long as there exists no event of default. In the
instances  where an event of default has occurred,  interest shall be calculated
at a rate equal to the lesser of 14% per annum or the highest  amount  permitted
by applicable law.

December 31                                                  1997

Note payable to Pedcor Maturities in years ending:
     1998                                                  $   179
     1999                                                      184
     2000                                                      183
     2001                                                      177
     2002                                                      174
     Thereafter                                                303

                                                            $1,200

The  Association  has an  available  line  of  credit  with  the  FHLB  totaling
$1,000,000. The line of credit expires September 16,1998 and bears interest at a
rate equal to the current  variable advance rate. There were no drawings on this
line of credit at December 31, 1997.

<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


-       Income Tax

Year Ended December 31                        1997       1996        1995

Income tax expense
   Currently payable
     Federal                                   $353      $246        $184
     State                                      155       104         102
   Deferred
     Federal                                     37       (20)         32
     State                                                  6           8

       Total income tax expense                $545      $336        $326

Reconciliation of federal 
  statutory to actual tax expense
   Federal statutory income tax at 34%         $593      $415        $448
   Effect of state income taxes                 102        73          73
   Tax credits                                 (178)     (178)       (178)
   Other                                         28        26         (17)

       Actual tax expense                      $545      $336        $326

Effective tax rate                             31.2%     27.5%       24.7%

The components of the cumulative net deferred tax asset are as follows:

December 31                                1997              1996

Assets
   Allowance for loan losses                $92               $49
   Loan fees                                 37                66
   Business income tax credits               29                68
   Other                                      2                13
       Total assets                         160               196

Liabilities
   Depreciation                              26                28
   State income tax                           2                 2
   FHLB stock dividend                       23                23
   Equity in partnership losses              70                67
       Total liabilities                    121               120

                                            $39               $76

<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


At December 31, 1997 and 1996, the Association had an unused business income tax
credit carryforward of $29,000 and $68,000 expiring in 2011.

Retained earnings at December 31, 1997 and 1996 include approximately $2,632,000
for which no deferred  income tax  liability  has been  recognized.  This amount
represents  an  allocation  of income to bad debt  deductions as of December 31,
1987 for tax purposes only. Reduction of amounts so allocated for purposes other
than tax bad debt losses or adjustments  arising from carryback of net operating
losses or loss of "bank"  status,  would create  income for tax  purposes  only,
which income would be subject to the then-current corporate income tax rate. The
unrecorded  deferred income tax liability on the above amounts was approximately
$1,043,000 at December 31, 1997 and 1996.


-       Commitments and Contingent Liabilities

In  the  normal  course  of  business  there  are  outstanding  commitments  and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements.  The
Association's  exposure  to credit  loss in the event of  nonperformance  by the
other party to the financial  instruments  for  commitments to extend credit and
standby  letters of credit is represented by the  contractual or notional amount
of those  instruments.  The Association  uses the same credit policies in making
such   commitments  as  it  does  for  instruments  that  are  included  in  the
consolidated balance sheet.

Financial  instruments  whose  contract  amount  represents  credit risk were as
follows:

December 31                                   1997            1996
Mortgage and consumer loan commitments
   At variable rates                          $   773        $  107
   At fixed rates ranging from
     7.13 to 8.25% for 1997 and                 2,136
     7.38 to 9.25% for 1996                                     697
Standby letters of credit                       2,014         1,500

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent future cash  requirements.  The Association  evaluates each customer's
credit worthiness on a case-by-case  basis. The amount of collateral obtained if
deemed  necessary  by the  Association  upon  extension  of  credit  is based on
management's credit evaluation.  Collateral held varies but may include accounts
receivable,  inventory,  property and equipment, and income-producing commercial
properties.

Standby letters of credit are conditional  commitments issued by the Association
to guarantee the performance of a customer to a third party.


<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


The  Association  has entered into an  employment  agreement  with the president
which  provides  for the  continuation  of salary  and  certain  benefits  for a
specified  period  of time  under  certain  conditions.  Under  the terms of the
agreements,  these  payments  could occur in the event of a change in control of
the  Association,   as  defined,  along  with  other  specific  conditions.  The
contingent  liability under these agreements in the event of a change in control
is  approximately  $300,000.  The Association is not required to pay any amounts
under these agreements which cannot be deducted for federal income tax purposes.

The Company,  Association  and UFS are also subject to claims and lawsuits which
arise  primarily  in the  ordinary  course of  business.  It is the  opinion  of
management  that the  disposition  or  ultimate  resolution  of such  claims and
lawsuits will not have a material adverse effect on the  consolidated  financial
position of the Company.


-       Dividend and Capital Restrictions

The  Company is not  subject to any  regulatory  restrictions  on the payment of
dividends to its stockholders.

The OTS regulations provide that savings associations which meet fully phased-in
capital  requirements and are subject only to "normal  supervision" may pay out,
as a dividend,  100 percent of net income to date over the calendar  year and 50
percent of surplus  capital  existing  at the  beginning  of the  calendar  year
without  supervisory  approval,  but with 30 days prior  notice to the OTS.  OTS
regulations  also prohibit a savings  association  from  declaring or paying any
dividends if, as a result,  the regulatory  capital of the Association  would be
reduced below the minimum amount  required to be maintained for the  liquidation
account established in connection with the conversion.  Any additional amount of
capital   distributions  would  require  prior  regulatory   approval.   Savings
associations  failing to meet current  capital  standards may only pay dividends
with supervisory approval.

At the time of conversion,  a liquidation  account was  established in an amount
equal to the  Association's  net worth as reflected  in the latest  statement of
condition  used in its  final  conversion  offering  circular.  The  liquidation
account is maintained for the benefit of eligible  deposit  account  holders who
maintain their deposit account in the Association after conversion. In the event
of a complete liquidation, and only in such event, each eligible deposit account
holder  will  be  entitled  to  receive  a  liquidation  distribution  from  the
liquidation  account  in the  amount  of the then  current  adjusted  subaccount
balance for deposit accounts then held, before any liquidation  distribution may
be made to  stockholders.  Except  for the  repurchase  of stock and  payment of
dividends, the existence of the liquidation account will not restrict the use or
application of net worth.  The initial  balance of the  liquidation  account was
$14,472,934.

At  December  31,  1997,  the  stockholder's   equity  of  the  Association  was
$29,969,000, of which approximately $13,004,000 was available for the payment of
dividends.




<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


-       Regulatory Capital

The  Association  is  subject  to  various   regulatory   capital   requirements
administered  by the  federal  banking  agencies  and is  assigned  to a capital
category.  The assigned capital  category is largely  determined by three ratios
that are calculated  according to the regulations:  total risk adjusted capital,
Tier 1 capital,  and Tier 1 leverage ratios.  The ratios are intended to measure
capital  relative to assets and credit  risk  associated  with those  assets and
off-balance  sheet exposures of the entity.  The capital category assigned to an
entity can also be affected by qualitative judgments made by regulatory agencies
about the risk  inherent  in the  entity's  activities  that are not part of the
calculated ratios.

There are five capital categories defined in the regulations,  ranging from well
capitalized to critically  undercapitalized.  Classification of a bank in any of
the  undercapitalized  categories can result in actions by regulators that could
have a material  effect on a bank's  operations.  At December 31, 1997 and 1996,
the Association is categorized as well capitalized and meets all subject capital
adequacy requirements. There are no conditions or events since December 31, 1997
that management believes have changed the Association's classification.

The Association's actual and required capital amounts and ratios are as follows:

<TABLE>
<CAPTION>
                                                                              1997
                                                                                        Required for               To Be Well
                                                                 Actual             Adequate Capital (1)         Capitalized (1)
December 31                                                Amount        Ratio       Amount        Ratio        Amount        Ratio

<S>                                                        <C>           <C>         <C>           <C>          <C>           <C>  
Total risk-based capital 1
(to risk weighted assets)                                  $30,221       56.5%       $4,279        8.0%         $5,349        10.0%

Core capital 1 (to adjusted tangible assets)               29,969        22.7         3,961         3.0          7,922         6.0

Core capital 1 (to adjusted total assets)                  29,969        22.7         3,961         3.0          6,602         5.0
</TABLE>

1 As defined by regulatory agencies

<TABLE>
<CAPTION>
                                                                              1996
                                                                                        Required for               To Be Well
                                                                 Actual             Adequate Capital (1)         Capitalized (1)
December 31                                                Amount        Ratio       Amount        Ratio        Amount        Ratio

Total risk-based capital 1
<S>                                                        <C>           <C>         <C>           <C>          <C>           <C>  
(to risk weighted assets)                                  $14,069       33.6%       $3,346        8.0%         $4,183        10.0%

Core capital 1 (to adjusted tangible assets)               13,910        16.8         2,484         3.0          4,967         6.0

Core capital 1 (to adjusted total assets)                  13,910        16.8         2,484         3.0          4,139         5.0
</TABLE>



1 As defined by regulatory agencies

The Association's tangible capital at December 31, 1997 and 1996 was $29,629,000
and  $13,910,000,  which  amount  was  22.7% and 16.8% of  tangible  assets  and
exceeded the required ratio of 1.5%.

<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


-       Employee Benefit Plans

The Company provides pension  benefits for  substantially  all of its employees,
and is a  participant  in a pension fund known as the Pentegra  Group  (formerly
known  as  the  Financial   Institutions   Retirement  Fund).  This  plan  is  a
multi-employer  plan; separate actuarial valuations are not made with respect to
each participating employer. Pension expense (benefit) was $(4,000), $47,000 and
$53,000 for 1997, 1996, 1995.

The Company has a  retirement  savings  401(k) plan in which  substantially  all
employees may participate.  The Company matches employees'  contributions at the
rate of 50% for the first 5% of base salary  contributed  by  participants.  The
Company's expense for the plan was $11,000,  $10,000 and $11,000 for 1997, 1996,
and 1995.

As part of the  conversion  in 1997,  the Company  established  an ESOP covering
substantially  all employees of the Company and  Association.  The ESOP acquired
184,000  shares of the Company  common stock at $10 per share in the  conversion
with funds provided by a loan from the Company.  Accordingly,  the $1,840,000 of
common  stock  acquired  by the ESOP is shown as a  reduction  of  stockholders'
equity.  Shares are  released  to  participants  proportionately  as the loan is
repaid.  Dividends on allocated  shares are recorded as dividends and charged to
retained earnings. Dividends on unallocated shares, which will be distributed to
participants,  are  treated as  compensation  expense.  Compensation  expense is
recorded equal to the fair market value of the stock when  contributions,  which
are determined  annually by the Board of Directors of the Association,  are made
to the ESOP. There was no expense under the ESOP for the year ended December 31,
1997. At December 31, 1997, the ESOP had no allocated  shares,  184,000 suspense
shares and no committed-to-be released shares.

In  connection  with the  conversion,  the Board of  Directors  approved a Stock
Option Plan and a Recognition and Retention Plan ("RRP").  The Plans are subject
to stockholder's  approval.  Under the stock option plan, stock options covering
shares  representing an aggregate of up to 10% of the common stock issued in the
conversion may be granted to directors and executive officers.  Restricted stock
awards  covering up to 4% of the common  stock issued in the  conversion  may be
awarded to directors and executive officers under the RRP.


-       Fair Values of Financial Instruments

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instrument:

Cash  and  Cash  Equivalents--The  fair  value  of  cash  and  cash  equivalents
approximates carrying value.

Investment Securities--Fair values are based on quoted market prices.

Loans--The  fair  value  for  loans is  estimated  using  discounted  cash  flow
analyses,  using interest rates  currently  being offered for loans with similar
terms to borrowers of similar credit quality.

FHLB  Stock--Fair  value of FHLB  stock is based on the price at which it may be
resold to the FHLB.


<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Interest    Receivable/Payable--The    fair    value   of    accrued    interest
receivable/payable approximates carrying values.

Deposits--Fair  values  for  certificates  of  deposit  are  estimated  using  a
discounted  cash flow  calculation  that applies  interest rates currently being
offered on certificates to a schedule of aggregated  expected monthly maturities
on such time deposits.

Stock  Subscriptions  Refundable and Advance Payments by Borrowers for Taxes and
Insurance--The fair value approximates carrying value.

Federal  Home  Loan  Bank  Advances--The  fair  value  of these  borrowings  are
estimated using a discounted cash flow  calculation,  based on current rates for
similar debt.

Note Payable--Limited  Partnership--The fair value of the borrowing is estimated
using a discounted  cash flow  calculation,  based on current  rates for similar
debt.

Off-Balance  Sheet  Commitments--Commitments  include  commitments  to originate
mortgage and consumer loans, and are generally of a short-term  nature. The fair
value of such  commitments  are based on fees  currently  charged  to enter into
similar  agreements,  taking into account the remaining  terms of the agreements
and  the  counterparties'   credit  standing.  The  carrying  amounts  of  these
commitments, which are immaterial, are reasonable estimates of the fair value of
these financial instruments.

The estimated fair values of the Company's financial instruments are as follows:

<TABLE>
<CAPTION>
                                                              1997                               1996
                                                   Carrying           Fair            Carrying           Fair
December 31                                         Amount            Value            Amount            Value

Assets
<S>                                                 <C>               <C>               <C>              <C>   
Cash and cash equivalents                           $44,781           $44,781           $1,465           $1,465
Investment securities held to maturity                5,820             6,003            5,747            5,892
Loans, net                                           78,436            79,611           72,697           73,220
Stock in FHLB                                           708               708              580              580
Interest receivable                                     582               582              454              454
Liabilities
Deposits                                             62,258            62,476           60,436           60,683
Stock subscriptions refundable                       22,687            22,687
Borrowings
FHLB advances                                         2,373             2,345            6,482            6,587
Notes payable--limited partnership                    1,200             1,170            1,398            1,343
Interest payable                                        119               119               91               91
Advances by borrowers for taxes and insurance           221               221              201              201
</TABLE>



<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


-       Condensed Financial Information (Parent Company Only)

Presented  below is condensed  financial  information as to financial  position,
results of operations and cash flows of the Company:

                             Condensed Balance Sheet
December 31                                                          1997

Assets
     Cash                                                           $13,022
     Investment in subsidiary                                        29,927

              Total assets                                          $42,949

Liability--other                                                  $      43

Stockholders' Equity                                                 42,906

              Total liabilities and stockholders' equity            $42,949


                          Condensed Statement of Income

Year Ended December 31                                                 1997

Net Income--equity in undistributed income of subsidiaries       $        7



<PAGE>



UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


                        Condensed Statement of Cash Flows

December 31                                                             1997

Operating Activities
     Net income                                                    $         7
     Adjustments to reconcile net income to 
          net cash provided by operating activities                         (7)
              Net cash provided by operating activities                      0

Financing Activities
     Net proceeds from issuance of stock                                27,883
     Capital contribution to Association                               (14,861)
              Net cash provided by financing activities                 13,022

Net Change in Cash                                                      13,022

Cash at Beginning of Year                                                    0

Cash at End of Year                                                    $13,022

Additional Cash Flow and Supplementary Information
     Common stock issued to ESOP leveraged with an employee loan        $1,840
     Stock issuance cost included in other liabilities                      43



<PAGE>

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

         There were no such  changes  or  disagreements  during  the  applicable
period.

                                    PART III

Item 10.      Directors and Executive Officers of the Registrant.

     The  information  concerning the Holding  Company's  executive  officers is
included in Item 4.5 in Part I of this report.  Section 16(a) of the  Securities
Exchange Act of 1934 ("1934 Act") requires that the Holding  Company's  officers
and directors and persons who own more than 10% of the Holding  Company's Common
Stock file reports of ownership and changes in ownership with the Securities and
Exchange  Commission  (the  "SEC").  Officers,  directors  and greater  than 10%
shareholders are required by SEC regulations to furnish the Holding Company with
copies of all Section 16(a) forms that they file.

     Based  solely on the Holding  Company's  review of the copies of such forms
received by it, and/or written  representations  from certain  reporting persons
that no Forms 5 were required for those persons,  the Holding  Company  believes
that during the fiscal year ended  December  31, 1997,  all filing  requirements
applicable to its officers,  directors  and greater than 10%  beneficial  owners
with respect to Section 16(a) of the 1934 Act were complied with.

         Presented below is certain information  concerning the directors of the
Holding Company:

<TABLE>
<CAPTION>

                         Director of           Director of                           Position              Position
                       Holding Company        Union Federal        Expiration      with Holding              with
Director                    Since                 Since              of Term          Company            Union Federal

<S>                         <C>                   <C>              <C>            <C>                   <C>     
Philip L. Boots             1997                  1991             1998           Director              Director
Marvin L. Burkett           1997                  1975             1999           Director              Director
Phillip E. Grush            1997                  1982             1999           Director              Director, Vice
                                                                                                        Chairman of the
                                                                                                        Board and Vice
                                                                                                        President
Samuel H. Hildebrand        1997                  1995             2000           Director              Director
John M. Horner              1997                  1979             1998           Director              Director,
                                                                                                        Chairman of the
                                                                                                        Board and Vice
                                                                                                        President
Harry A. Siamas             1997                  1994             2000           Director              Director
Joseph E. Timmons           1997                  1973             1999           Director,             Director,
                                                                                  President and         President and
                                                                                  Chief Executive       Chief Executive
                                                                                  Officer               Officer

</TABLE>

<PAGE>

Presented  below  is  certain  information  concerning  the  directors  of Union
Federal:

      Philip L.  Boots  (age 51) has served  since  1985 as  President  of Boots
Brothers Oil Company, Inc., a petroleum marketer that operates gasoline outlets,
convenience grocery stores and car washes in the Crawfordsville area.

      Marvin  L.  Burkett  (age 70) has  worked  as a  self-employed  farmer  in
Montgomery County since 1956. He currently is semi-retired from farming.

      Phillip  E.  Grush  (age 66)  worked  as a  self-employed  optometrist  in
Crawfordsville  from 1960 until  September,  1996 when he sold his practice.  He
currently  works for Dr.  Michael  Scheidler  in  Crawfordsville  as a full-time
employee/consultant.

      Samuel H.  Hildebrand,  II (age 58) was Executive Vice President of Atapco
Custom  Products  Division,  a manufacturer of custom  decorated  looseleaf ring
binders in Crawfordsville from 1987-1995. Since 1995, he has served as President
of Village Traditions, Inc., a home builder located in Crawfordsville.

     John M.  Horner  (age 61) has  served as the  president  of Horner  Pontiac
Buick, Inc. in Crawfordsville since 1974.

     Harry A. Siamas (age 47) has practiced law in Crawfordsville since 1976 and
has served as Union Federal's attorney for 18 years.

      Joseph E.  Timmons (age 63) has served as  President  and Chief  Executive
Officer of Union Federal since 1974 and of UFS Service Corp. since its inception
in 1994. He has been an employee of Union Federal since 1954.

      Union Federal also has a director  emeritus  program pursuant to which its
former  directors  may  continue to serve as advisors to the Board of  Directors
upon their retirement or resignation from the Board. Currently, Lester B. Sommer
serves as a director  emeritus.  Mr. Sommer receives the same directors' fees as
the other directors of Union Federal.

Item 11.      Executive Compensation.

         No cash  compensation is paid directly by the Holding Company to any of
its executive officers. Each of such officers is compensated by Union Federal.

         The following table sets forth information as to annual,  long-term and
other  compensation  for  services  in all  capacities  paid to Union  Federal's
President  and Chief  Executive  Officer for the fiscal year ended  December 31,
1997. Other than Mr. Timmons,  Union Federal had no other executive officers who
earned over $100,000 in salary and bonuses during that fiscal year.

<TABLE>
<CAPTION>
                                                          Summary Compensation Table
                                                              Annual Compensation
     Name and Principal          Fiscal                                           Other Annual            All Other
          Position                Year            Salary             Bonus      Compensation (1)        Compensation
<S>                               <C>          <C>                  <C>                <C>                   <C>     
Joseph E. Timmons, President      1997         $108,300 (1)(2)      $25,000             --                   --
  and Chief Executive Officer
</TABLE>

(1)  Mr. Timmons  received  certain  perquisites,  but the  incremental  cost of
     providing such  perquisites  did not exceed the lesser of $50,000 or 10% of
     his salary and bonus.

(2)  This column includes $8,300 directors fees paid to Mr. Timmons.


<PAGE>

Employment Contract

      Union Federal has entered into a three-year  employment  contract with Mr.
Timmons.  The  contract  with Mr.  Timmons,  which  became  effective  as of the
effective date of the Conversion,  extends  annually for an additional  one-year
term to maintain  its  three-year  term if Union  Federal's  Board of  Directors
determines  to so extend it,  unless  notice not to extend is properly  given by
either party to the contract.  Mr. Timmons  receives an initial salary under the
contract equal to his current salary subject to increases  approved by the Board
of Directors.  The contract also provides, among other things, for participation
in other  fringe  benefits  and  benefit  plans  available  to  Union  Federal's
employees. Mr. Timmons may terminate his employment upon 60 days' written notice
to Union Federal.  Union Federal may discharge Mr. Timmons for cause (as defined
in the contract) at any time or in certain  specified  events.  If Union Federal
terminates  Mr.  Timmons'  employment  for other  than  cause or if Mr.  Timmons
terminates  his own  employment  for cause (as  defined  in the  contract),  Mr.
Timmons will receive his base compensation  under the contract for an additional
three  years if the  termination  follows a change  of  control  in the  Holding
Company,  and for the balance of the contract if the termination does not follow
a change in control. In addition,  during such period, Mr. Timmons will continue
to participate in Union Federal's group insurance plans and retirement plans, or
receive  comparable  benefits.  Moreover,  within a period of three months after
such termination  following a change of control, Mr. Timmons will have the right
to cause Union  Federal to purchase any stock options he holds for a price equal
to the fair market value (as defined in the  contract) of the shares  subject to
such options  minus their  option  price.  If the  payments  provided for in the
contract, together with any other payments made to Mr. Timmons by Union Federal,
are deemed to be payments in  violation of the "golden  parachute"  rules of the
Code,  such payments will be reduced to the largest amount which would not cause
Union Federal to lose a tax deduction for such payments under those rules. As of
the date hereof, the cash compensation which would be paid under the contract to
Mr. Timmons if the contract were terminated  either after a change of control of
the  Holding  Company,  without  cause by  Union  Federal,  or for  cause by Mr.
Timmons,  would be $300,000.  For purposes of this employment contract, a change
of control of the Holding  Company is generally an  acquisition  of control,  as
defined  in  regulations  issued  under the Change in Bank  Control  Act and the
Savings and Loan Holding Company Act.

      The employment  contract  protects Union Federal's  confidential  business
information and protects Union Federal from competition by Mr. Timmons should he
voluntarily  terminate  his  employment  without cause or be terminated by Union
Federal for cause.

Compensation of Directors

      Union Federal pays its directors and director  emeritus a monthly retainer
of $250 plus $300 for each  month in which  they  attend  one or more  meetings.
Total fees paid to Union Federal's directors and advisory directors for the year
ended December 31, 1997 were  approximately  $64,000.  Beginning in July,  1997,
Union Federal  began paying its  directors a monthly  retainer of $500 plus $250
for each monthly meeting attended.

      Directors of the Holding Company and UFS are not currently paid directors'
fees.  The  Holding  Company  may, if it  believes  it is  necessary  to attract
qualified directors or is otherwise  beneficial to the Holding Company,  adopt a
policy of paying directors' fees.


<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

         The  following  table  sets forth  certain  information  regarding  the
beneficial  ownership of the Common  Stock as of March 20, 1998,  by each person
who is known by the Holding Company to own beneficially 5% or more of the Common
Stock.  Unless otherwise  indicated,  the named beneficial owner has sole voting
and dispositive power with respect to the shares.

                                      Number of Shares
        Name and Address               of Common Stock              Percent of
     of Beneficial Owner(1)          Beneficially Owned                Class
     ----------------------          ------------------                -----
   Home Federal Savings Bank                 184,000(2)                6.05%
   501 Washington Street
   Columbus, IN  47201

(1)      The  information  in  this  chart  is  based  on  Schedule  13D and 13G
         Report(s) filed by the  above-listed  person(s) with the SEC containing
         information  concerning  shares  held by them.  It does not reflect any
         changes in those  shareholdings  which may have occurred since the date
         of such filings.

(2)      These  shares are held by the  Trustee of the Union  Community  Bancorp
         ESOP. The Employees  participating in the ESOP are entitled to instruct
         the Trustee how to vote shares held in their  accounts  under the ESOP.
         Unallocated  shares  held in a  suspense  account  under  the  ESOP are
         required to be voted by the Trustee in the same proportion as allocated
         shares are voted.

         The  following  table  sets forth  certain  information  regarding  the
nominees  for the  position of director of the Holding  Company,  including  the
number and percent of shares of Common Stock  beneficially owned by such persons
as of  March  20,  1998.  Unless  otherwise  indicated,  each  nominee  has sole
investment  and/or voting power with respect to the shares shown as beneficially
owned by him. The table also sets forth the number of shares of Holding  Company
Common Stock  beneficially  owned by all directors and executive officers of the
Holding Company as a group.

<TABLE>
<CAPTION>
                                                                     Common Stock
                          Expiration of        Director of the       Beneficially
                             Term as               Holding            Owned as of                Percentage
       Name                 Director            Company Since       March 20, 1998               of Class(1)
------------------------------------            -------------       -----------------------   
<S>                           <C>                   <C>                 <C>                        <C> 
Philip Boots                  1998                  1997                12,100  (2) (3)             .40%
Marvin L. Burkett             1999                  1997                 6,000  (2)                 .20 
Phillip E. Grush              1999                  1997                15,550  (2)                 .51 
Samuel H. Hildebrand          2000                  1997                16,418  (2)                 .54 
John M. Horner                1998                  1997                22,500  (2) (3) (4)         .74 
Harry A. Siamas               2000                  1997                11,300  (4) (5)             .37 
Joseph E. Timmons             1999                  1997                30,417  (2)                1.00 
All directors and
executive officers
as a group (9 persons)                                                 119,773                     3.94%
</TABLE>

footnotes on following page.


<PAGE>

(1)      Based upon information  furnished by the respective  director nominees.
         Under  applicable  regulations,  shares are  deemed to be  beneficially
         owned by a person if he or she directly or indirectly has or shares the
         power to vote or  dispose of the  shares,  whether or not he or she has
         any  economic  power  with  respect  to  the  shares.  Includes  shares
         beneficially  owned  by  members  of  the  immediate  families  of  the
         directors residing in their homes.

(2)      Includes shares owned by director and his spouse.

(3)      Includes shares owned by a company deemed to be controlled by director.

(4)      Includes shares held by spouse of director as custodian for a minor.

(5)      Includes shares held jointly by director and his aunt.

Item 13.  Certain Relationships and Related Transactions.

      Union  Federal  has  followed  a  policy  of  offering  to its  directors,
officers,  and employees real estate  mortgage loans secured by their  principal
residence as well as other loans. All of Union Federal's loans to its directors,
officers  and  employees  are made on  substantially  the same terms,  including
interest  rates and  collateral as those  prevailing at the time for  comparable
transactions, and do not involve more than minimal risk of collectibility. Loans
to directors, executive officers and their associates totaled approximately $2.4
million, or approximately 5.5% of consolidated  shareholders' equity at December
31, 1997.

      Current law authorizes Union Federal to make loans or extensions of credit
to its executive  officers,  directors,  and principal  shareholders on the same
terms that are available with respect to loans made to all of its employees.  At
present,  Union  Federal's  loans to executive  officers,  directors,  principal
shareholders and employees are made on the same terms generally available to the
public. Union Federal may in the future, however, adopt a program under which it
may waive loan  application fees and closing costs with respect to loans made to
such  persons.  Loans made to a director or  executive  officer in excess of the
greater  of  $25,000  or 5% of its  capital  and  surplus  (up to a  maximum  of
$500,000) must be approved in advance by a majority of the disinterested members
of the Board of Directors.  Union Federal's  policy regarding loans to directors
and all employees meets the requirements of current law.

                                     PART IV
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)      List the following documents filed as part of the report:

          Financial Statements

          Consolidated Balance Sheet at December 31, 1997, and 1996

          Consolidated  Statement  of Income for the Years  Ended  December  31,
          1997, 1996, and 1995

          Consolidated  Statement  of  Changes in  Shareholders'  Equity for the
          Years Ended December 31, 1997, 1996, and 1995.

          Consolidated  Statement of Cash Flows for the Years Ended December 31,
          1997, 1996, and 1995

          Notes to Consolidated Financial Statements

(b)       Reports on Form 8-K.

         The  Holding  Company  filed no reports on Form 8-K during the  quarter
ended December 31, 1997.

(c)      The exhibits filed herewith or incorporated by reference herein are set
         forth on the Exhibit Index on page E-1.  Included in those  exhibits is
         an executive  compensation  plan and arrangement which is identified as
         Exhibit 10(5).

(d)      All  schedules  are omitted as the required  information  either is not
         applicable or is included in the Consolidated  Financial  Statements or
         related notes.

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirement  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized.

         UNION COMMUNITY BANCORP


Date:  March 31, 1998                       By: /s/ Joseph E. Timmons
                                             Joseph E. Timmons, President and
                                             Chief Executive Officer



         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 31st day of March, 1998.

     Signatures                               Title                   Date

(1)  Principal Executive Officer:



     /s/ Joseph E. Timmons                                       )
     Joseph E. Timmons                    President and          )
                                          Chief Executive Officer)
                                                                 )
                                                                 )
(2)  Principal Financial and Accounting                          )
     Officer:                                                    )
                                                                 )
                                                                 )
     /s/ Denise E. Swearingen             Treasurer              )
     Denise E. Swearingen                                        )
                                                                 )
                                                                 )March 31, 1998
                                                                 )
(3)  The Board of Directors:                                     )
                                                                 )
                                                                 )
     /s/ Philip L. Boots                  Director               )
     Philip L. Boots                                             )
                                                                 )
                                                                 )
     /s/ Marvin L. Burkett                Director               )
     Marvin L. Burkett                                           )
                                                                 )
                                                                 )
     /s/ Phillip E. Grush                 Director               )
     Phillip E. Grush                                            )
                                                                 )
                                                                 )
     /s/ Samuel H. Hillenbrand                                   )
     Samuel H. Hillenbrand                Director               )
                                                                 )
                                                                 )
     /s/ John M. Horner                   Director               )
     John M. Horner                                              )
                                                                 )
                                                                 )March 31, 1998
     /s/ Harry A. Siamas                  Director               )
     Harry A. Siamas                                             )
                                                                 )
                                                                 )
     /s/ Joseph E. Timmons                Director               )
     Joseph E. Timmons                                           )
                                                                 )


<PAGE>

                                  EXHIBIT INDEX

Exhibit No.       Description                        

         3(1)     Registrant's  Articles of  Incorporation  are  incorporated by
                  reference to to Exhibit 3(1) to the Registration Statement

         (2)      Registrant's  Code of By-Laws is  incorporated by reference to
                  to Exhibit 3(2) to the Registration Statement

         10(4)    Union  Community  Bancorp  Employee  Stock  Ownership Plan and
                  Trust Agreement

         (5)      Employment  Agreement  between Union Federal  Savings and Loan
                  Association and Joseph E. Timmons incorporated by reference to
                  to Exhibit 10(5) to the Registration Statement

         (6)      Exempt Loan and Share Purchase  Agreement  between Trust under
                  Union  Community  Bancorp  Employee  Stock  Ownership Plan and
                  Trust Agreement and Union Community Bancorp

         21       Subsidiaries of the Registrant

         27       Financial Data Schedule (filed electronically)