Message to Shareholders...................................................    1
Selected Consolidated Financial Data......................................    2
Management's Discussion and Analysis......................................    3
Report of Independent Auditor.............................................   19
Consolidated Balance Sheet................................................   20
Consolidated Statement of Income..........................................   21
Consolidated Statement of Shareholders' Equity............................   22
Consolidated Statement of Cash Flows......................................   23
Notes to Consolidated Financial Statements................................   24
Directors and Officers....................................................   40
Shareholder Information...................................................   42
                                                     
================================================================================
         Union  Community  Bancorp (the "Holding  Company" and together with the
Association,  as  defined  below,  the  "Company")  is  an  Indiana  corporation
organized in September,  1997, to become a savings and loan holding company upon
its acquisition of all the issued and outstanding capital stock of Union Federal
Savings  and  Loan  Association   ("Union  Federal"  or  the  "Association")  in
connection  with the  Association's  conversion  from mutual to stock form.  The
Holding Company became the  Association's  holding company on December 29, 1997;
therefore,  all historical  financial and other data contained for periods prior
to December 29, 1997 herein relate solely to the  Association  while  historical
financial and other data contained herein for the period after December 29, 1997
relate to the Company.  The  principal  asset of the Holding  Company  currently
consists of 100% of the issued and outstanding shares of capital stock, $.01 par
value per share, of the Association.

         The  Association  is a  federal  savings  and  loan  association  which
conducts its business  from a  full-service  office  located in  Crawfordsville,
Indiana.  The  Association  offers a  variety  of  lending,  deposit  and  other
financial  services to its retail and commercial  customers.  The  Association's
principal  business consists of attracting  deposits from the general public and
originating  mortgage  loans,  most of which are secured by one- to  four-family
residential  real property in Montgomery  County.  The  Association  also offers
multi-family loans, construction loans,  non-residential real estate loans, home
equity loans and consumer loans,  including  single-pay loans,  loans secured by
deposits,  and installment loans. The Association  derives most of its funds for
lending from deposits of its customers,  which consist primarily of certificates
of deposit, demand accounts and savings accounts.

<PAGE>

TO OUR SHAREHOLDERS:

On behalf of our  employees  and Board of  Directors,  I take great  pleasure in
providing you with the 1998 Annual  Report to  Shareholders  of Union  Community
Bancorp, the holding company for Union Federal Savings and Loan Association.

We have now completed one year as a stock company and look forward to the future
with great enthusiasm.

The  Board of  Directors,  officers  and  employees  of Union  Community  remain
committed to enhancing  the value of your  investment  with us. To that end, the
Board increased the quarterly dividends paid by Union Community  throughout 1998
and authorized the repurchase of shares of Union Community's  outstanding common
stock.  During November 1998, we repurchased 5% of our outstanding common stock,
and we  have  received  approval  from  the  Office  of  Thrift  Supervision  to
repurchase up to an additional 10% of our outstanding  common stock during 1999.
These share  repurchases  reduce the number of our outstanding  shares of common
stock, which is intended to improve the book value of the remaining  outstanding
shares and positively impact our return on equity.

We also introduced several new products and services during 1998, including home
equity loans, commercial loans and commercial lines of credit. We also increased
our electronic  banking during 1998 by adding two new automatic teller machines.
We expect to further  expand our ATM network in the future and to  increase  our
participation in debit card programs.  In addition,  we hope to expand the types
of checking accounts that we currently offer to our customers.

We  appreciate  the  continued  support  and  confidence  of our  customers  and
shareholders  as we  look  to the  future.  Remember,  this  is  your  financial
institution,  so be sure to use us for all of your  personal and business  needs
and to recommend us to your friends and neighbors.




                                             Sincerely,


                                             /s/ Joseph E. Timmons
                                             Joseph E. Timmons,
                                             President & Chief Executive Officer

<PAGE>

                     SELECTED CONSOLIDATED FINANCIAL DATA OF
                     UNION COMMUNITY BANCORP AND SUBSIDIARY

     The  following  selected  consolidated  financial  data of the  Company  is
qualified  in its  entirety  by, and  should be read in  conjunction  with,  the
consolidated financial statements,  including notes thereto,  included elsewhere
in this Annual Report.

<TABLE>
<CAPTION>


                                                                              At  December 31,
                                                      ----------------------------------------------------------
                                                       1998         1997         1996         1995         1994
                                                       ----         ----         ----         ----         ----
                                                                           (Dollars in thousands)
Summary of Selected Consolidated
Financial Condition Data:
<S>                                                  <C>           <C>           <C>          <C>           <C>    
Total assets.......................................  $108,162      $132,040      $82,789      $73,631       $72,540
Loans, net.........................................    90,900        78,436       72,697       61,279        60,059
Cash and interest-bearing deposits 
     in other banks (1)............................     6,191        44,781        1,465        1,993         1,329
Investment securities held to maturity.............     8,026         5,820        5,747        7,423         7,985
Deposits...........................................    64,846        62,258       60,436       57,407        54,886
Stock subscriptions refundable.....................       ---        22,687          ---          ---           ---
Borrowings.........................................     1,793         3,573        7,880        2,642         4,943
Shareholders' equity...............................    40,531        42,906       13,910       13,024        12,033

                                                                           Year Ended December 31,
                                                        1998          1997         1996         1995         1994
                                                       ------        ------      -------      -------        ------
Summary of Operating Data:
Total interest and dividend income.................    $8,105        $6,801       $6,112       $5,729        $5,249
Total interest expense.............................     3,415         3,836        3,424        3,148         2,507
                                                       ------        ------      -------      -------        ------
   Net interest income.............................     4,690         2,965        2,688        2,581         2,742
Provision for loan losses..........................       110           165           48           24            24
                                                       ------        ------      -------      -------        ------
   Net interest income after provision 
     for loan losses...............................     4,580         2,800        2,640        2,557         2,718
                                                       ------        ------      -------      -------        ------
Other income (losses):
   Equity in losses of limited partnership.........      (121)         (158)        (173)        (249)          (54)
   Other...........................................        73            62           57           32            14
                                                       ------        ------      -------      -------        ------
     Total other losses............................       (48)          (96)        (116)        (217)          (40)
                                                       ------        ------      -------      -------        ------
Other expenses:
   Salaries and employee benefits..................       850           480          461          481           489
   Legal and professional fees.....................       128            34           29           47            21
   Net occupancy expenses..........................        39            39           39           66            44
   Equipment expenses..............................        28            22           20           20            17
   Deposit insurance expense.......................        46            31          495          127           126
   Other...........................................       373           355          258          281           187
                                                       ------        ------      -------      -------        ------
     Total other expenses..........................     1,464           961        1,302        1,022           884
                                                       ------        ------      -------      -------        ------
Income before income taxes and cumulative effect
   of change in accounting principle...............     3,068         1,743        1,222        1,318         1,794
Income taxes.......................................     1,094           545          336          326           639
                                                       ------        ------      -------      -------        ------
   Net income......................................    $1,974        $1,198      $   886      $   992        $1,155
                                                       ======        ======      =======      =======        ======
</TABLE>

Table continued on following page
<PAGE>
<TABLE>
<CAPTION>


                                                                           Year Ended December 31,
                                                          1998         1997         1996         1995         1994
Supplemental Data:
<S>                                                       <C>            <C>          <C>          <C>          <C>         
Interest rate spread during period.................       2.23          %2.55        %2.54        %2.69        %3.25       %
Net yield on interest-earning assets (2) ..........       4.42           3.50         3.53         3.67         4.01
Return on assets (3)...............................       1.82           1.38         1.13         1.36         1.63
Return on equity (4)...............................       4.65           8.10         6.54         7.84         10.02
Other expenses to average assets (5)...............       1.35           1.11         1.66         1.41         1.25
Equity to assets (6)...............................      37.47           32.49        16.80        17.69        16.59
Average interest-earning assets to average
   interest-bearing liabilities....................     167.89           120.98       121.94       121.83       120.63
Non-performing assets to total assets (6)..........        .32           .07          .59           .21         .20
Allowance for loan losses to total loans
   outstanding (6).................................        .40           .32          .22           .18         .15
Allowance for loan losses to
   non-performing loans (6)........................     103.72           484.62       32.52        71.15        60.84
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.
================================================================================

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 Company's financial condition and 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  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 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

         The  following  tables  present for the years ended  December 31, 1998,
1997 and 1996, the balances, interest rates and average monthly balances of each
category  of  the  Company'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.
<PAGE>

<TABLE>
<CAPTION>
                                                                     AVERAGE BALANCE SHEET/YIELD ANALYSIS

                                                                      Year Ended December 31,
                                    ------------------------------------------------------------------------------------------------
                                               1998                            1997                             1996
                                    -----------------------------  --------------------------------  -------------------------------
                                    Average              Average   Average               Average     Average                Average
                                    Balance Interest(1) Yield/Cost Balance  Interest(1)  Yield/Cost  Balance  Interest(1) Yield/Cost
                                    ------- ----------  ---------- -------  -----------  ----------  -------  ----------- ----------
                                                                 (Dollars in thousands)                                    
Assets:                                                                                                                    
Interest-earning assets:                                                                                                   
<S>                                <C>       <C>          <C>     <C>          <C>        <C>       <C>          <C>           <C>  
   Interest-earning deposits.......$11,441   $   600      5.24%   $3,821       $246       6.44%     $   959      $   67        6.99%
   Mortgage-backed securities                                                                                              
     held to maturity..............  3,304       257      7.78     2,421        214       8.84        3,061         263        8.59 
   Other investment securities                                                                                             
     held to maturity..............  4,301       257      5.98     3,487        197       5.65        3,169         175        5.52 
   Loans receivable (2)............ 86,421     6,932      8.02    74,382      6,090       8.19       68,346       5,562        8.14 
   FHLB stock......................    735        59      8.03       676         54       7.99          576          45        7.81 
     Total interest-earning assets.106,202     8,105      7.63    84,787      6,801       8.02       76,111       6,112        8.03 
Non-interest earning assets, net of                                                                                        
   allowance for loan losses.......  2,030                         2,039                              2,152                
     Total assets.................$108,232                       $86,826                          $  78,263                

Liabilities and shareholder's equity:                                                                                      
Interest-bearing liabilities:                                                                                              
   Savings deposits................ $3,466       139      4.01    $3,845        159       4.14    $   3,754         148        3.94 
   Interest-bearing demand......... 11,920       496      4.16    10,350        444       4.29        9,061         369        4.07 
   Certificates of deposit......... 46,999     2,729      5.81    47,403      2,764       5.83       46,035       2,716        5.90 
   Stock subscriptions refundable..    ---       ---       ---     2,737        130       4.75          ---         ---         ---
   FHLB advances...................    873        51      5.84     5,748        339       5.90        3,566         191        5.36 
     Total interest-bearing                                                                                                
          liabilities.............. 63,258     3,415      5.40    70,083      3,836       5.47       62,416       3,424        5.49 
Other liabilities..................  2,504                         1,960                              2,303                
     Total liabilities............. 65,762                        72,043                             64,719                
Shareholders' equity............... 42,470                        14,783                             13,544                
     Total liabilities and                                                                                                 
         shareholders' equity.....$108,232                       $86,826                          $  78,263                
Net interest-earning assets........$42,944                       $14,704                          $  13,695                
Net interest income................           $4,690                         $2,965                              $2,688    
Interest rate spread (3)...........                       2.23%                           2.55%                                2.54%
Net yield on weighted average                                                                                              
   interest-earning assets (4).....                       4.42%                           3.50%                                3.53%
   Average interest-earning assets to                                                                                      
   average interest-bearing liabilities   167.89%                 120.98%                            121.94%               
</TABLE>

(1)      Interest income on loans receivable includes loan fee income of $88,000
         for the year ended  December 31, 1998 and $97,000 for each of the years
         ended December 31, 1997 and 1996.

(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.


<PAGE>

Interest Rate Spread

         The Company'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.  The Company's net interest income is
determined by the interest  rate spread  between the yields the Company 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 the Company 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,
                                                            1998                1998           1997        1996
                                                            ----               ----           ----         ---- 
Weighted average interest rate earned on:
<S>                                                         <C>                <C>            <C>          <C>  
   Interest-earning deposits.......................         4.60%              5.24%          6.44%        6.99%
   Mortgage-backed securities held to maturity.....         7.44               7.78           8.84         8.59
   Other investment securities held to maturity....         6.30               5.98           5.65         5.52
   Loans receivable................................         7.85               8.02           8.19         8.14
   FHLB stock......................................         8.00               8.03           7.99         7.81
     Total interest-earning assets.................         7.58               7.63           8.02         8.03

Weighted average interest rate cost of:
   Savings deposits................................         4.00               4.01           4.14         3.94
   Interest-bearing demand.........................         4.52               4.16           4.29         4.07
   Certificates of deposit.........................         5.73               5.81           5.83         5.90
   Stock subscriptions refundable..................          ---                ---           4.75          ---
   FHLB advances...................................         5.71               5.84           5.90         5.36
     Total interest-bearing liabilities............         5.41               5.40           5.47         5.49
Interest rate spread (1)...........................         2.18               2.23           2.55         2.54
Net yield on weighted average
   interest-earning assets (2).....................          N/A               4.42           3.50         3.53
</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.

         The following  table  describes the extent to which changes in interest
rates and  changes in volume of  interest-related  assets and  liabilities  have
affected the Company'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.
<PAGE>
<TABLE>
<CAPTION>


                                                                         Increase (Decrease) in Net Interest Income
                                                                   ----------------------------------------------------
                                                                                                                 Total
                                                                    Due to                Due to                  Net
                                                                     Rate                 Volume                Change
                                                                                      (In thousands)
Year ended December 31, 1998 compared
to year ended December 31, 1997
   Interest-earning assets:
<S>                                                                <C>                       <C>                   <C> 
     Interest-earning deposits..................................   $   (53)                  $407                  $354
     Mortgage-backed securities held to maturity................       (28)                    71                    43
     Other investment securities held to maturity...............        12                     48                    60
     Loans receivable...........................................      (126)                   968                   842
     FHLB stock.................................................       ---                      5                     5
                                                                    ------                  -----              --------
       Total....................................................      (195)                 1,499                 1,304
                                                                    ------                  -----              --------
   Interest-bearing liabilities:
     Savings deposits...........................................        (5)                   (15)                  (20)
     Interest-bearing demand....................................       (14)                    66                    52
     Certificates of deposit....................................       (12)                   (23)                  (35)
     Stock subscriptions refundable.............................       ---                   (130)                 (130)
     FHLB advances..............................................        (3)                  (285)                 (288)
                                                                    ------                  -----              --------
       Total....................................................       (34)                  (387)                 (421)
                                                                    ------                  -----              --------
   Net change in net interest income............................    $ (161)                $1,886                $1,725
                                                                    ======                 ======                ======
Year ended December 31, 1997 compared
to year ended December 31, 1996
   Interest-earning assets:
     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
                                                                    ======                  =====              ========
</TABLE>
<PAGE>


Financial  Condition  at December 31, 1998  Compared to  Financial  Condition at
December 31, 1997

     Total  assets  decreased  $23.9  million,  or 18.1% at December  31,  1998,
compared to December  31,  1997.  The  decline  was  primarily  in cash and cash
equivalents,  which  decreased  $38.6  million  as the  result of the  Company's
payment of the stock  subscriptions  refundable of $22.7 million at December 31,
1997. This decrease in cash and cash  equivalents was offset by increases in net
loans and investment  securities  held to maturity.  Net loans  increased  $12.5
million,  or 15.9%, due primarily to an increase in customer demand.  Investment
securities held to maturity increased by $2.2 million, or 37.9%.

     Average  assets  increased  $21.4  million from $86.8  million for the year
ended December 31, 1997, to $108.2 million for the year ended December 31, 1998,
an increase  of 24.7%.  Average  interest-earning  assets  represented  97.7% of
average  assets for the period ended December 31, 1997 compared to 98.1% for the
period ended  December 31, 1998.  Although the average of each  interest-earning
asset  increased  during  1998,  average  interest-earning  deposits  and  loans
experienced the largest  increases  amounting to $7.6 million and $12.0 million,
or 199.4% and 16.2%,  respectively.  The  increase  in average  interest-earning
assets was a result of the proceeds  received  from the stock  conversion in the
fourth  quarter of 1997.  Average  interest-earning  assets as a  percentage  of
average interest-bearing liabilities were 121.0% for 1997 and 167.9% for 1998.

     Loans and Allowance for Loan Losses. Average loans increased $12.0 million,
or 16.2%,  from the period ended  December  31, 1997 to December  31, 1998.  The
growth in loans was  funded by stock  conversion  proceeds.  Average  loans were
$74.4  million for the 1997 period and $86.4  million for the 1998  period.  The
allowance for loan losses as a percentage of total loans  increased from .32% to
 .40% due to an  increase  in the  allowance  for loan  losses  from  $252,000 at
December  31,  1997 to  $362,000  at  December  31,  1998.  The  increase in the
allowance  for loan losses was a result of a $110,000  provision for loan losses
for the year ended December 31, 1998.  This increase in the allowance was due to
loan growth and an increase in non-performing  loans. The ratio of the allowance
for loan losses to non-performing loans was 484.6% at December 31, 1997 compared
to 103.7% at December 31, 1998.  Nonperforming  loans  increased from $52,000 at
December 31, 1997 to $349,000 at December 31,  1998.  Included in  nonperforming
loans at December 31, 1998 were $322,000 of impaired loans.

     Deposits.  Deposits increased $2.6 million to $64.8 million during 1998, an
increase  of  4.2%.  Increased  deposits  were  utilized  to fund  loan  growth.
Certificates  of  deposits  accounted  for the  majority  of the growth  with an
increase of $2.6 million,  or 5.7%,  during this period.  Average total deposits
increased $787,000,  or 1.3%, from $61.6 million for the year ended December 31,
1997 compared to $62.4 million for the year ended December 31, 1998.

     Borrowed  Funds.  Borrowed  funds  decreased $1.8 million,  or 49.8%,  from
December 31, 1997 to December 31, 1998.  The decline in total borrowed funds was
comprised of a decrease in FHLB advances of $1.6 million,  67.5%, 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
$179,000,  or 14.9%.  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.  Due to the  conversion
proceeds  available to fund loan growth,  it was not necessary to renew advances
as they  matured.  Average  FHLB  advances  decreased  to $873  million for 1998
compared to $5.7 million for 1997, a decrease of $4.9 million, or 84.8%.

     Shareholders'  Equity.  Shareholders'  equity  decreased  $2.4 million from
$42.9  million at December 31, 1997 to $40.5  million at December 31, 1998.  The
decrease was  primarily  due to the $1.8 million  contribution  made to fund the
recognition and retention  compensation  plan, stock repurchases of $1.9 million
and cash  dividends of $1.3 million.  These  decreases were offset by net income
for the year ended December 31, 1998 of $2.0 million,  Employee Stock  Ownership
Plan  shares  earned of  $149,000  and  unearned  compensation  amortization  of
$114,000.

<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
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 was 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.

         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.
<PAGE>

         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.

Comparison of Operating Results For Years Ended December 31, 1998 and 1997

         General. Net income increased $776,000, or 64.8%, from $1.2 million for
the year ended December 31, 1997 to $2.0 million for the year ended December 31,
1998. The increase was primarily due to an increase in net interest income which
was primarily  attributable to the Company's stock issuance on December 29, 1997
which  resulted in net  proceeds  to the Company in the amount of  approximately
$27.8 million after costs and excluding the shares issued for the Employee Stock
Ownership Plan. The Company primarily used the proceeds of the stock offering to
invest in loans and short-term  interest-bearing  deposits and for the repayment
of Federal Home Loan Bank  advances,  which  resulted in increased  net interest
income.  The return on average  assets was 1.82% and 1.38 % for the years  ended
December 31, 1998 and 1997, respectively.

         Interest  Income.  Our total interest  income was $8.1 million for 1998
compared to $6.8  million  for 1997.  The  increase  in interest  income was due
primarily  to an increase in volume.  Average  earning  assets  increased  $21.4
million,  or 25.3%,  from $84.8 million for 1997 compared to $106.2  million for
1998. The average yield on  interest-earning  assets decreased from 8.0% for the
year ended December 31, 1997 to 7.6% for the comparable period in 1998.

         Interest Expense.  Interest expense decreased  $421,000,  or 11.0%, for
the year ended  December 31, 1998 compared to the year ended  December 31, 1997.
Average interest-bearing liabilities decreased $6.8 million, or 9.7%, from $70.1
million for the 1997 period to $63.3  million  during the 1998  period.  Average
deposits increased by $787,000,  or 1.3%, from $61.6 million for the 1997 period
to $62.4  million for the 1998 period.  Average  FHLB  advances  decreased  $4.9
million,  or 84.8%, from $5.8 million for the 1997 period to $873,000 during the
1998 period.

         Net Interest  Income.  Net interest income  increased $1.7 million,  or
58.2%,  for the year ended December 31, 1998 compared to the year ended December
31, 1997.  $1.9 million of the  increase  was  primarily  due to the increase in
volume of earning  assets.  The net yield of weighted  average  interest-earning
assets was 4.4% for the year ended  December  31, 1998  compared to 3.5% for the
comparable 1997 period.

         Provision  for Loan Losses.  The provision for loan losses for the year
ended December 31, 1998 was $110,000 compared to $165,000 for the same period in
1997.  The provision  and the related  increase in the allowance for loan losses
were considered adequate, based on growth, size, condition and components of the
loan portfolio.

         Other Losses.  Other losses decreased  $48,000,  or 50.0%, for the year
ended  December 31, 1998 compared to the 1997 period  primarily due to decreased
losses of $37,000 from Union Federal's 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 1998 and 1997 was recorded.
<PAGE>

         Salaries and Employee  Benefits.  Salaries and employee  benefits  were
$850,000 for the year ended  December 31, 1998 compared to $480,000 for the 1997
period, an increase of $370,000, or 77.1%. This increase resulted primarily from
$263,000 of  compensation  expense  related to the ESOP and the  recognition and
retention compensation plan. The remaining increase resulted from an increase in
the number of full-time  equivalent  employees and normal  increases in employee
compensation and related payroll taxes.

         Net Occupancy and Equipment Expenses.  Occupancy expenses and equipment
expenses increased $6,000, or 9.8%, during 1998 compared to 1997.

         Deposit Insurance Expense. Deposit insurance expense increased $15,000,
or 48.4%,  from $31,000 for the year ended  December 31, 1997 to $46,000 for the
same period in 1998.

         Legal and Professional  Fees. Legal and professional fees were $128,000
for the year ended December 31, 1998 compared to $34,000 for the 1997 period, an
increase of  $94,000.  This  increase  was a result of the  additional  expenses
incurred as a public company.

         Other Expense. Other expenses, consisting primarily of expenses related
to service center fees,  advertising,  directors' fees, supervisory  examination
fees,  supplies,  and postage  increased  $18,000,  or 5.1% for 1998 compared to
1997.  The  increase  resulted  from  nominal  increases in a variety of expense
categories.

         Income Tax Expense.  Income tax expense increased $549,000,  or 100.7%,
during 1998 compared to 1997. The increase was directly  related to the increase
in taxable income for the period. The effective tax rate was 35.7% and 31.2% for
the respective 1998 and 1997 periods.

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.

         Legal and  Professional  Fees.  Legal and  professional  fees increased
$5,000, or 17.2%, during 1997 compared to 1996.

         Other Expense. Other expenses, consisting primarily of expenses related
to service center fees,  advertising,  directors' fees, supervisory  examination
fees,  supplies,  and postage increased  $97,000,  or 37.6% 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.

Liquidity and Capital Resources

      The following is a summary of the Company'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 the Company 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, 1998.
<PAGE>
<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                               ---------------------------------------------------- 
                                                                 1998                  1997                  1996
                                                               --------               -------               ------- 
                                                                                 (In thousands)
<S>                                                              <C>                   <C>                  <C>    
Operating activities..........................................   $2,355                $1,367               $ 1,088
                                                               --------               -------               ------- 
Investing activities:
Investment securities
     Proceeds from maturities and paydowns of
     mortgage-backed securities held to maturity..............      607                   639                   676
     Purchases of other investment
       securities held to maturity............................   (9,204)               (1,200)                 (994)
     Proceeds from maturities of
       investment securities held to maturity.................    6,400                   500                 2,000
Purchase of loans.............................................                           (500)               (1,350)
Other net change in loans.....................................  (12,529)               (5,517)              (10,116)
Purchase of FHLB of Indianapolis Stock........................      (37)                 (128)                  (18)       Proceeds
on sale of foreclosed real estate.............................        5                    76                   ---
Purchases of premises and equipment...........................      (18)                  (23)                   (3)
Other investing activities....................................       (2)                   (3)                  ---
                                                               --------               -------               ------- 
     Net cash used by investing activities....................  (14,778)               (6,156)               (9,805)
                                                               --------               -------               ------- 
Financing activities:
Net change in
   Interest-bearing demand and savings deposits...............      (28)                2,696                 1,243
   Certificates of deposits...................................    2,616                  (874)                1,786
   Stock subscription escrow accounts.........................  (22,687)               22,687                   ---
Proceeds from borrowings......................................                          1,500                10,500
Repayment of borrowings.......................................   (1,780)               (5,807)               (5,261)
Net change in advances by borrowers
   for taxes and insurance....................................       54                    20                   (79)
Cash dividends................................................     (729)                  ---                   ---
Contribution of unearned compensation ........................   (1,754)                  ---                   ---
Repurchase of common stock....................................   (1,859)                  ---                   ---
Proceeds from sale of common stock, net of costs..............                         27,883                   ---
                                                               --------               -------               ------- 
     Net cash provided (used) by financing activities.........  (26,167)               48,105                 8,189
                                                               --------               -------               ------- 
Net increase(decrease) in cash and cash equivalents..........  $(38,590)              $43,316               $  (528)
                                                               ========               =======               ======= 
</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, 1998, Union Federal had liquid assets
of $8.1 million, and a regulatory liquidity ratio of 10.8%.
<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, 1998,  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, 1998:
<TABLE>
<CAPTION>
                                                          At December 31, 1998
                                         ---------------------------------------------------------------------------
                                            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%         $1,610                28.3%       $30,331           $28,721
Core capital (2)....................       3.0           3,219                28.3         30,331            27,112
Risk-based capital..................       8.0           4,325                56.7         30,693            26,368
</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 adopted a core capital requirement for savings associations
         comparable to that recently  adopted by the OCC for national banks. The
         new regulation,  which becomes effective on April 1, 1999,  requires at
         least 3% of total adjusted assets for savings associations that receive
         the highest  supervisory rating for safety and soundness,  and 4% to 5%
         for all other savings associations. Union Federal will be in compliance
         with the revised regulation when it takes effect.

         As of  December  31,  1998,  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

The  Financial  Accounting  Standards  Board  (FASB)  has  issued  Statement  of
Financial  Accounting  Standards  (SFAS)  No.  133,  Accounting  for  Derivative
Instruments and Hedging Activities.  This Statement requires companies to record
derivatives  on the  balance  sheet  at their  fair  value.  SFAS  No.  133 also
acknowledges  that the method of  recording a gain or loss depends on the use of
the derivative.  If certain conditions are met, a derivative may be specifically
designated  as (a) a hedge of the  exposure  to  changes  in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction,  or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation,  an
unrecognized   firm   commitment,   an   available-for-sale   security,   or   a
foreign-currency- denominated forecasted transaction.

     o    For a derivative  designated as hedging the exposure to changes in the
          fair value of a recognized  asset or  liability  or a firm  commitment
          (referred to as a fair value hedge), the gain or loss is recognized in
          earnings in the period of change  together with the offsetting loss or
          gain on the hedged item  attributable  to the risk being  hedged.  The
          effect of that  accounting  is to  reflect in  earnings  the extent to
          which the hedge is not  effective in achieving  offsetting  changes in
          fair value.

     o    For a derivative  designated  as hedging the exposure to variable cash
          flows of a forecasted  transaction (referred to as a cash flow hedge),
          the effective  portion of the  derivative's  gain or loss is initially
          reported  as  a  component  of  other  comprehensive  income  (outside
          earnings)  and  subsequently   reclassified  into  earnings  when  the
          forecasted  transaction  affects earnings.  The ineffective portion of
          the gain or loss is reported in earnings immediately.


<PAGE>

     o    For a derivative  designated as hedging the foreign currency  exposure
          of a net  investment  in a  foreign  operation,  the  gain  or loss is
          reported in other  comprehensive  income (outside earnings) as part of
          the cumulative translation adjustment. The accounting for a fair value
          hedge described above applies to a derivative designated as a hedge of
          the foreign currency exposure of an unrecognized firm commitment or an
          available-for-sale security. Similarly, the accounting for a cash flow
          hedge described above applies to a derivative designated as a hedge of
          the  foreign  currency  exposure  of  a   foreign-currency-denominated
          forecasted transaction.

     o    For a derivative not designated as a hedging  instrument,  the gain or
          loss is recognized in earnings in the period of change.

     The new Statement  applies to all entities.  If hedge accounting is elected
by the  entity,  the  method  of  assessing  the  effectiveness  of the  hedging
derivative   and  the   measurement   approach   of   determining   the  hedge's
ineffectiveness must be established at the inception of the hedge.

         SFAS No. 133 amends SFAS No. 52 and  supercedes  SFAS Nos. 80, 105, and
119.  SFAS No. 107 is amended to include  the  disclosure  provisions  about the
concentrations  of credit risk from SFAS No. 105.  Several  Emerging Issues Task
Force  consensuses  are also changed or nullified by the  provisions of SFAS No.
133.

         SFAS No. 133 will be  effective  for all fiscal years  beginning  after
June 15, 1999. Early application is encouraged;  however, this Statement may not
be applied retroactively to financial statements of prior periods.

         FASB has issued  Statement of Financial  Accounting  Standards No. 134,
Accounting for  Mortgage-Backed  Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage  Banking  Enterprise.  This Statement
establishes  accounting  standards for certain  activities  of mortgage  banking
enterprises and for other  enterprises  with similar mortgage  operations.  This
Statement amends Statement of Financial Accounting Standards (SFAS) No. 65.

         SFAS No. 65, as previously amended by SFAS Nos. 115 and 125, required a
mortgage banking enterprise to classify a mortgage-backed  security as a trading
security  following the  securitization of the mortgage loan held for sale. This
Statement further amends SFAS No. 65 to require that after the securitization of
mortgage loans held for sale, an entity engaged in mortgage  banking  activities
must classify the resulting mortgage-backed security or other retained interests
based on the entity's ability and intent to sell or hold those investments.

         The  determination  of the  appropriate  classification  for securities
retained  after the  securitization  of  mortgage  loans by a  mortgage  banking
enterprise now conforms to SFAS No. 115. The only  requirement the new Statement
adds is that if an entity has a sales  commitment in place, the security must be
classified into trading.

         This  Statement is effective  for the first  fiscal  quarter  beginning
after  December 15, 1998. On the date this  Statement is initially  applied,  an
entity may reclassify  mortgage-backed securities and other beneficial interests
retained  after the  securitization  of  mortgage  loans  held for sale from the
trading  category,  except  for those  with sales  commitments  in place.  Those
securities and other interests shall be classified based on the entity's present
ability and intent to hold the investments.


<PAGE>

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 Company's primary assets and liabilities are monetary in nature. As
a  result,  interest  rates  have a more  significant  impact  on the  Company's
performance  than the effects of general  levels of inflation.  Interest  rates,
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 the Company'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 the Company has made. The Company 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

         The  Company's  lending  and  deposit  activities,  like  those of most
financial institutions,  depend significantly upon computer systems. The Company
is addressing the potential  problems  associated with the possibility  that the
computers  that  it  uses to  control  its  operating  systems,  facilities  and
infrastructure  may not be programmed to read four-digit date codes.  This could
cause some computer  applications  to be unable to recognize the change from the
year 1999 to the year 2000,  which  could  cause  computer  systems to  generate
erroneous data or to fail.

         The  Company is  actively  monitoring  its  compliance  with making its
computer equipment and other information systems Year 2000 compliant. During the
first week of March 1999,  the Company  switched  its  electronic  data  service
provider  from  On-Line  Financial  Services,  Inc.  in Oak Brook,  Illinois  to
Intrieve  Incorporated,  located in Cincinnati,  Ohio ("Intrieve").  The Company
changed data  service  providers in order to improve the quality of its computer
and networking  technology.  Testing  conducted  during the second week of March
1999 indicates that the data that the Company  maintains on Intrieve's system is
Year 2000 compliant.  The Company incurred expenses of approximately  $34,000 in
converting  its data  processing to Intrieve's  system.  It is not expected that
data  processing  expenses  incurred  by the  Company in the future  will differ
materially from prior periods.  Banker's Systems,  which maintains the Company's
loan documentation  system,  conducted tests during December 1998 that indicated
that its systems are Year 2000  compliant.  The Company will continue to conduct
tests  during  the  remainder  of 1999 to ensure  that its data  processing  and
information systems are Year 2000 compliant.

         The Company has also  contacted  the  approximately  49 companies  that
supply or  service  its  material  operations  requesting  that they  certify by
December  31, 1998 that they have plans to make their  respective  systems  Year
2000  compliant.  The  Company  received  responses  from 29 of these  companies
confirming  that their systems are Year 2000  compliant.  Followup  letters have
been delivered to the parties that did not respond to this initial  inquiry and,
in some cases,  the Company has  contacted  them by  telephone  requesting  that
confirmation  that their systems are Year 2000  compliant.  A deadline of May 1,
1999 has been  established  for  venders  to  respond  to this  second  inquiry.
Notwithstanding  these efforts that the Company has made,  no assurances  can be
given that the  systems of its service  providers  will be timely  renovated  to
address the Year 2000 issue.

         The  Company's  Board of  Directors  reviews  on a  monthly  basis  its
progress  in  addressing  Year 2000  issues and has  appointed  three  executive
officers to address all aspects of Year 2000  compliance.  The Company  believes
that its expenses  related to  upgrading  its systems and software for Year 2000

<PAGE>

compliance will not exceed $10,000.  At December 31, 1998, the Company had spent
approximately  $5,000 in  connection  with Year 2000  compliance.  Although  the
Company  believes  it is taking the  necessary  steps to  address  the Year 2000
compliance  issue,  no assurances can be given that some problems will not occur
or that it will not incur significant  additional expenses in future periods. In
the event that the  Company  is  ultimately  required  to  purchase  replacement
computer systems,  programs and equipment,  or to incur substantial  expenses to
make its current  systems,  programs and equipment Year 2000 compliant,  its net
income and financial condition could be adversely affected.

         In addition to possible  expenses  related to the Company's own systems
and those of its service providers,  the Company could incur losses if Year 2000
problems affect any of its depositors or borrowers.  Such problems could include
delayed loan payments due to Year 2000 problems affecting any of its significant
borrowers  or  impairing  the payroll  systems of large  employers in its market
area. The Company has contacted the  approximately 18 commercial  borrowers with
outstanding loans in excess of $500,000 for confirmation  that, by June 1, 1999,
their computer  systems are, or soon will be, Year 2000 compliant.  In addition,
the  Company  requires  that  borrowers  under  new  commercial  loans  that  it
originates  certify that they are aware of the Year 2000 issue and will give all
necessary  attention to insure that their  information  technology  will be Year
2000 compliant.  Because the Company's loan portfolio to individual borrowers is
diversified and its market area does not depend  significantly upon one employer
or industry, the Company does not expect any such Year 2000 related difficulties
that may affect its  depositors  and borrowers to  significantly  affect its net
earnings or cash flow.

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  78.5% of its loan portfolio at December 31,
1998.  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.


<PAGE>

         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.

         It is estimated  that at December 31, 1998,  NPV would decrease 15% and
31% in the event of 200 and 400 basis point  increases in market interest rates,
respectively,  compared to 12% and 26% for the same  increases  at December  31,
1997.  Union Federal's NPV at December 31, 1998 would increase 9% and 19% in the
event of 200 and 400 basis point decreases in market rates, respectively. A year
earlier,  200 and 400 basis point decreases in market rates would have increased
NPV 6% and 14%, respectively.

          Presented  below,  as of December  31,  1998 and 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 200 basis point increments,  up and down 400 basis points. At December
31, 1998, 2% of the 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 $4.9 million at December 31, 1998,  Union Federal would have been
required to deduct $1.4  million 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 its
portfolio.

<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 *    $22,919           $(10,498)           (31)%         23.14%          (702) bp
   + 200 bp       28,509             (4,907)           (15)          27.08           (308) bp
       0 bp       33,417                                             30.16
   - 200 bp       36,542              3,125              9           31.90             175 bp
   - 400 bp       39,871              6,454             19           33.68             352 bp
</TABLE>


             Interest Rate Risk Measures: 200 Basis Point Rate Shock

    Pre-Shock NPV Ratio: NPV as % of PV of Assets.....................    30.16%
    Exposure Measure: Post-Shock NPV Ratio............................    27.08%
    Sensitivity Measure: Change in NPV Ratio..........................   308 bp
    Change in NPV as % of PV of Assets................................    10.21%

<PAGE>
<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>             <C>     
   + 400 bp *      $24,383            $(8,362)           (26)%           23.94%          (555) bp
   + 200 bp         28,860             (3,885)           (12)%           27.03%          (246) bp
       0 bp         32,746                                               29.49%                 
   - 200 bp         34,782              2,036              6 %           30.67%            118 bp
   - 400 bp         37,247              4,501             14 %           32.08%            259 bp
</TABLE>


             Interest Rate Risk Measures: 200 Basis Point Rate Shock

  Pre-Shock NPV Ratio: NPV as % of PV of Assets......................    29.49%
  Exposure Measure: Post-Shock NPV Ratio.............................    27.03%
  Sensitivity Measure: Change in NPV Ratio...........................    246 bp
  Change in NPV as % of PV of Assets.................................    8.34%
                                                                      
* Basis points (1 basis point equals .01%)

         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>


                          Independent Auditor's Report


Board of Directors
Union Community Bancorp
Crawfordsville, Indiana


We have audited the  consolidated  balance sheet of Union Community  Bancorp and
subsidiary  as of  December  31,  1998 and 1997,  and the  related  consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period  ended  December  31,  1998.  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, 1998 and 1997,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1998,  in  conformity  with  generally  accepted
accounting principles.






Indianapolis, Indiana
February 19, 1999
<PAGE>




                     UNION COMMUNITY BANCORP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>



December 31                                                             1998               1997
                                                                    -------------      -------------
Assets
<S>                                                                 <C>                <C>          
   Cash                                                             $      32,153      $      22,424
   Interest-bearing demand deposits                                     6,158,927         44,758,403
                                                                    -------------      -------------
   Cash and cash equivalents                                            6,191,080         44,780,827
   Investment securities held to maturity
     (fair value of $8,175,000 and $6,003,000)                          8,026,162          5,820,069
   Loans, net of allowance for loan losses of $362,258 and $252,258    90,900,269         78,435,741
   Premises and equipment                                                 355,194            367,360
   Federal Home Loan Bank stock                                           744,500            707,700
   Investment in limited partnership                                    1,055,109          1,176,109
   Interest receivable                                                    714,691            581,526
   Other assets                                                           174,687            170,925
                                                                    -------------      -------------
       Total assets                                                 $ 108,161,692      $ 132,040,257
                                                                    =============      =============

Liabilities
   Deposits
   Noninterest bearing                                              $     656,796      $   1,532,647
   Interest bearing                                                    64,188,836         60,725,398
                                                                    -------------      -------------
       Total deposits                                                  64,845,632         62,258,045
   Stock subscriptions refundable                                      22,687,104
   Federal Home Loan Bank advances                                        772,226          2,373,051
   Note payable                                                         1,020,642          1,200,042
   Interest payable                                                       109,337            118,867
   Dividends payable                                                      270,567
   Other liabilities                                                      612,427            497,271
                                                                    -------------      -------------
       Total liabilities                                               67,630,831         89,134,380
                                                                    -------------      -------------

   Commitments and contingent liabilities

Shareholders' 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--2,889,663 and 3,041,750 shares            28,193,644         29,637,592
   Retained earnings                                                   15,708,073         15,108,285
   Unearned employee stock ownership plan ("ESOP") shares              (1,730,736)        (1,840,000)
   Unearned recognition and retention plan ("RRP") shares               (1,640,120)
                                                                    -------------      -------------
       Total shareholders' equity                                      40,530,861         42,905,877
                                                                    -------------      -------------
       Total liabilities and shareholders' equity                   $ 108,161,692      $ 132,040,257
                                                                    =============      =============

</TABLE>

See notes to consolidated financial statements.
<PAGE>

                     UNION COMMUNITY BANCORP AND SUBSIDIARY
                        Consolidated Statement of Income
<TABLE>
<CAPTION>


Year Ended December 31                                      1998             1997             1996
-----------------------------------------------------------------------------------------------------
Interest and Dividend Income
<S>                                                     <C>              <C>              <C>        
     Loans                                              $ 6,932,194      $ 6,090,003      $ 5,561,735
     Investment securities
       Mortgage-backed securities                           256,870          214,121          262,711
       Other investment securities                          257,305          196,937          175,332
     Dividends on Federal Home Loan Bank stock               58,866           53,956           45,027
     Deposits with financial institutions                   599,612          245,927           66,886
                                                        -----------      -----------      -----------
          Total interest and dividend  income             8,104,847        6,800,944        6,111,691
                                                        -----------      -----------      -----------

Interest Expense
     Deposits                                             3,364,222        3,366,097        3,232,877
     Stock subscription escrow accounts                     130,411
     Federal Home Loan Bank advances                         50,952          339,258          190,800
                                                        -----------      -----------      -----------
          Total interest expense                          3,415,174        3,835,766        3,423,677
                                                        -----------      -----------      -----------

Net Interest Income                                       4,689,673        2,965,178        2,688,014
     Provision for loan losses                              110,000          165,000           48,000
                                                        -----------      -----------      -----------

Net Interest Income After Provision for Loan Losses       4,579,673        2,800,178        2,640,014
                                                        -----------      -----------      -----------

Other Income (Losses)
     Equity in losses of limited partnership               (121,000)        (157,800)        (172,552)
     Other income                                            73,126           61,952           56,457
                                                        -----------      -----------      -----------
          Total other losses                                (47,874)         (95,848)        (116,095)
                                                        -----------      -----------      -----------

Other Expenses
     Salaries and employee benefits                         849,909          479,726          460,615
     Net occupancy expenses                                  38,741           39,159           39,103
     Equipment expenses                                      28,182           22,436           19,886
     Deposit insurance expense                               45,847           31,482          494,679
     Legal and professional fees                            128,193           33,813           28,880
     Other expenses                                         372,314          354,706          258,774
                                                        -----------      -----------      -----------
          Total other expenses                            1,463,186          961,322        1,301,937
                                                        -----------      -----------      -----------
Income Before Income Tax                                  3,068,613        1,743,008        1,221,982
     Income tax expense                                   1,094,377          544,556          336,286
                                                        -----------      -----------      -----------
Net Income                                              $ 1,974,236      $ 1,198,452      $   885,696
                                                        ===========      ===========      ===========

Basic Earnings per Share                                $       .70

Diluted Earnings per Share                                      .70
</TABLE>


See notes to consolidated financial statements.
<PAGE>


                     UNION COMMUNITY BANCORP AND SUBSIDIARY
                 Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>

                                          Common Stock
                                       Shares                    Retained         Unearned       Unearned
                                     Outstanding     Amount      Earnings        ESOP Shares   Compensation        Total
---------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>         <C>           <C>            <C>             <C>              <C>        
Balances, January 1, 1996                                       $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

Net income for 1998                                               1,974,236                                       1,974,236
Cash dividends ($.355 per share)                                   (999,293)                                       (999,293)
Purchase of common stock               (152,087)   (1,483,829)     (375,155)                                     (1,858,984)
Contribution for unearned
   RRP shares                                                                                  $(1,753,853)      (1,753,853)
Amortization of unearned
   compensation expense                                                                            113,733          113,733
ESOP shares earned                                     39,881                      109,264                          149,145
                                     ---------------------------------------------------------------------------------------
Balances, December 31, 1998           2,889,663   $28,193,644   $15,708,073    $(1,730,736)    $(1,640,120)     $40,530,861
                                     =======================================================================================
</TABLE>





See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>

                     UNION COMMUNITY BANCORP AND SUBSIDIARY
                      Consolidated Statement of Cash Flows

Year Ended December 31                                                           1998              1997              1996
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>               <C>         
Operating Activities
   Net income                                                                $  1,974,236      $  1,198,452      $    885,696
   Adjustments to reconcile net income to net cash provided
     by operating activities
   Provision for loan losses                                                      110,000           165,000            48,000
   Depreciation                                                                    30,344            27,335            25,913
   Deferred income tax                                                            (40,926)           36,750           (13,910)
   Investment securities accretion, net                                            (9,223)          (11,677)           (6,181)
   Gains on sale of foreclosed real estate                                         (2,500)           (5,565)
   Equity in losses of limited partnership                                        121,000           157,800           172,552
   Amortization of unearned compensation expense                                  113,733
   ESOP shares earned                                                             149,145
   Net change in
      Interest receivable                                                        (133,165)         (127,922)          (83,459)
      Interest payable                                                             (9,530)           27,415            (1,964)
      Other assets                                                                 (8,396)          (21,878)          (24,199)
      Other liabilities                                                            60,780           (78,749)           85,879
                                                                             ------------      ------------      ------------
      Net cash provided by operating activities                                 2,355,498         1,366,961         1,088,327
                                                                             ------------      ------------      ------------

Investing Activities
   Investment securities
      Purchases of investment securities held to maturity                      (9,203,586)       (1,200,000)         (994,342)
      Proceeds from maturities and paydowns of mortgage-backed
       securities held to maturity                                                606,716           638,955           675,913
      Proceeds from maturities of investment securities held to maturity        6,400,000           500,000         2,000,000
   Net change in loans                                                        (12,529,034)       (6,017,272)      (11,466,414)
   Purchases of premises and equipment                                            (18,178)          (23,331)           (2,602)
   Proceeds on sale of foreclose real estate                                        4,500            76,274
   Purchase of Federal Home Loan Bank of Indianapolis stock                       (36,800)         (127,600)          (17,500)
   Other investing activity                                                        (1,934)           (2,728)
                                                                             ------------      ------------      ------------
      Net cash used by investing activities                                   (14,778,316)       (6,155,702)       (9,804,945)
                                                                             ------------      ------------      ------------

Financing Activities
   Net change in
      Interest-bearing demand and savings deposits                                (28,493)        2,695,812         1,243,027
      Certificates of deposit                                                   2,616,080          (874,209)        1,786,193
      Stock subscription escrow accounts                                      (22,687,104)       22,687,104
   Proceeds from borrowings                                                     1,500,000        10,500,000
   Repayment of borrowings                                                     (1,780,225)       (5,807,277)       (5,261,331)
   Cash dividends                                                                (728,726)
   Contribution of unearned compensation                                       (1,753,853)
   Repurchase of common stock                                                  (1,858,984)
   Net change in advances by borrowers for taxes and insurance                     54,376            19,981           (79,558)
   Proceeds from sale of common stock, net of costs                                              27,882,967
                                                                             ------------      ------------      ------------
      Net cash provided (used) by financing activities                        (26,166,929)       48,104,378         8,188,331
                                                                             ------------      ------------      ------------

Net Increase (Decrease) in Cash and Cash Equivalents                          (38,589,747)       43,315,637          (528,287)

Cash and Cash Equivalents, Beginning of Year                                   44,780,827         1,465,190         1,993,477
                                                                             ------------      ------------      ------------
Cash and Cash Equivalents, End of Year                                       $  6,191,080      $ 44,780,827      $  1,465,190
                                                                             ============      ============      ============

Additional Cash Flows Information
   Interest paid                                                             $  3,424,704      $  3,808,351      $  3,425,641
   Income tax paid                                                                984,063           527,433           375,405
   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                                     13,619           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)

o Note 1 -- 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  Company  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. Loans with payment 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,  1998,  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  assets are carried at the lower of cost or fair value less estimated
selling costs. When foreclosed assets are acquired,  any required  adjustment is
charged to the allowance for loan losses. All subsequent activity is included in
current operations.

Stock  options  are granted for a fixed  number of shares to  employees  with an
exercise  price equal to the fair value of the shares at the date of grant.  The
Bank  accounts  for and will  continue  to account  for stock  option  grants in
accordance  with APB Opinion No. 25,  Accounting  for Stock Issued to Employees,
and,  accordingly,  recognizes  no  compensation  expense  for the stock  option
grants.

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 have been  computed  based upon the weighted  average  common
shares outstanding during 1998. Unearned ESOP shares have been excluded from the
computation of average shares outstanding.  Net income per share for the periods
before and including the  conversion to a stock savings and loan  association on
December 29, 1997, is not meaningful.

<PAGE>



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


o       Note 2 -- 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 3,042,000 shares of
common stock at $10 per share.  Net proceeds of the  Company's  stock  issuance,
after costs of  $780,000  and  excluding  the shares  issued for the ESOP,  were
$27,798,000,  of which  $14,861,000  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.


o       Note 3 -- Investment Securities Held to Maturity
<TABLE>
<CAPTION>


                                                                   1998
                                       -------------------------------------------------------------
                                                           Gross            Gross
                                       Amortized        Unrealized       Unrealized           Fair
December 31                              Cost              Gains           Losses             Value
----------------------------------------------------------------------------------------------------
<S>                                     <C>                <C>                <C>            <C>   
Federal agencies                        $4,500             $   7              $28            $4,479
Mortgage-backed securities               3,526               174                4             3,696
                                        ------              ----              ---            ------
     Total investment securities        $8,026              $181              $32            $8,175
                                        ======              ====              ===            ======



                                                                   1997
                                       -------------------------------------------------------------
                                                          Gross            Gross
                                       Amortized        Unrealized       Unrealized           Fair
December 31                              Cost              Gains           Losses             Value
----------------------------------------------------------------------------------------------------
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>


<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,
1998, 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.

                                                  1998
                                      ------------------------------
                                      Amortized              Fair
December 31                             Cost                 Value
--------------------------------------------------------------------
Within one year                         $  100                $  100
One to five years                        1,800                 1,807
Five to ten years                          500                   500
After ten years                          2,100                 2,072
                                        ------                ------
                                         4,500                 4,479
Mortgage-backed securities               3,526                 3,696
                                        ------                ------
          Totals                        $8,026                $8,175
                                        ======                ======

Securities  with a carrying value of $3,597,000  and $2,194,000  were pledged at
December 31, 1998 and 1997 to secure FHLB advances.

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

<TABLE>
<CAPTION>
                                                                                      1998
                                                          ------------------------------------------------------------
                                                                              Gross            Gross
                                                          Amortized        Unrealized       Unrealized           Fair
December 31                                                 Cost              Gains           Losses             Value
----------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                 <C>                              <C>        
Government National Mortgage Corporation                   $  991              $104                             $1,095     
Federal Home Loan Mortgage Corporation                      2,395                69                              2,464     
Federal National Mortgage Corporation                         123                 1               $4               120     
Other                                                          17                                                   17
                                                           ------              ----               --            ------
         Total mortgage-backed securities                  $3,526              $174               $4            $3,696
                                                           ======              ====               ==            ======

                                                                                      1997
                                                          ------------------------------------------------------------
                                                                              Gross            Gross
                                                          Amortized        Unrealized       Unrealized           Fair
December 31                                                 Cost              Gains           Losses             Value
----------------------------------------------------------------------------------------------------------------------
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)



o       Note 4 -- Loans and Allowance
<TABLE>
<CAPTION>


December 31                                                            1998          1997
--------------------------------------------------------------------------------------------
Real estate mortgage loans
<S>                                                                  <C>           <C>     
     One-to-four family                                              $ 71,823      $ 62,436
     Multi-family                                                      10,609        10,197
     Commercial                                                         6,355         3,627
Real estate construction loans                                          2,545         2,530
Commercial loans                                                           51
Individuals' loans for household and other personal expenditures          213           223
                                                                     --------      --------
                                                                       91,596        79,013
Deferred loan fees                                                       (334)         (325)
Allowance for loan losses                                                (362)         (252)
                                                                     --------      --------
              Total loans                                            $ 90,900      $ 78,436
                                                                     ========      ========
</TABLE>

Year Ended December 31                      1998          1997         1996
--------------------------------------------------------------------------------
Allowance for loan losses                                          
Balances, Beginning of Period              $ 252         $ 159        $ 111
     Provision for losses                    110           165           48
     Loans charged off                       (72)                  
                                           -----         -----        -----
     Balances, End of Period               $ 362         $ 252        $ 159
                                           =====         =====        =====
                                                                
Information on impaired loans is summarized below.

December 31                                                    1998      1997
--------------------------------------------------------------------------------
Impaired loans for which the discounted cash flows
or collateral value exceeds the carrying value of the loan     $322     $   0


Year Ended December 31                                         1998      1997
--------------------------------------------------------------------------------
Average balance of impaired loans                              $110     $  33
Interest income recognized on impaired loans                     10
Cash basis interest included above                               10

o       Note 5 --  Premises and Equipment

December 31                                                    1998      1997
--------------------------------------------------------------------------------
Land                                                          $ 146     $ 146
Buildings                                                       569       553
Equipment                                                       140       142
              Total cost                                        855       841
Accumulated depreciation                                       (500)     (474)
                                                              -----     -----
              Net                                             $ 355     $ 367
                                                              =====     =====
                                                         
<PAGE>

                     Union Community Bancorp and Subsidiary
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

o       Note 6 -- Investment in
         Limited Partnership

The  investment in limited  partnership of $1,055,000 and $1,176,000 at December
31,  1998 and 1997  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,  1998,  1997 and 1996.
Condensed financial statements for Pedcor are as follows:

December 31                                     1998       1997
-----------------------------------------------------------------
Condensed statement of financial condition
   Assets
     Cash                                      $   31     $    5
     Land and property                          2,235      2,292
     Other assets                                  19         55     
                                               ------     ------
       Total assets                            $2,285     $2,352
                                               ======     ======

   Liabilities
     Notes payable--
       Association                             $  772     $  873
     Notes payable--other                       1,256      1,274
     Other liabilities                            159        165
                                               ------     ------
       Total liabilities                        2,187      2,312
   Partners' equity                                98         40
                                               ------     ------
       Total liabilities and
       partners' equity                        $2,285     $2,352
                                               ======     ======


Year Ended December 31                        1998        1997        1996  
--------------------------------------------------------------------------
   Condensed statement of operations                                 
   Total revenue                               $232        $219       $219
   Total expenses                               354         340        435
                                              -----       -----      ----- 
       Net loss                               $(122)      $(121)     $(216)
                                              =====       =====      ===== 
                                                                    
o       Note 7 -- Deposits

December 31                                      1998                1997
---------------------------------------------------------------------------
Noninterest-bearing demand                      $   657             $ 1,533
Interest-bearing demand                          11,982               9,965
Savings deposits                                  3,410               4,579
Certificates and other time                                      
   deposits of $100,000 or more                   9,351               7,060
Other certificates and                                           
   time deposits                                 39,446              39,121
                                                -------             -------
Total deposits                                  $64,846             $62,258
                                                =======             =======
                                                                 
                                                           
Certificates and other time deposits maturing in years ending December 31:

            1999                                 $29,059  
            2000                                  12,707  
            2001                                   3,657  
            2002                                   1,207
            2003                                   2,167
                                                 -------
                                                 $48,797
                                                 =======
                
<PAGE>


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

Year Ended December 31                          1998          1997          1996
--------------------------------------------------------------------------------
Interest expense on deposits
  Interest-bearing demand                     $  496        $  444        $  369
  Savings deposits                               139           159           148
  Certificates                                 2,729         2,763         2,716
                                              ------        ------        ------
                                              $3,364        $3,366        $3,233
                                              ======        ======        ======


o Note 8-- Federal Home Loan Bank Advances

                                        1998
                                              Weighted
                                               Average
December 31                      Amount         Rate
-------------------------------------------------------
Advances from FHLB
   Maturities in years ending                                                   
      1999                        $114           5.33%
      2000                         123           5.49
      2001                         129           5.67
      2002                         138           5.80
      2003                         147           5.90
      2004                         121           6.03
                                  ----  
                                  $772           5.71%
                                  ====
                       
The  Association  has an  available  line  of  credit  with  the  FHLB  totaling
$1,000,000.  The line of credit expires September 16, 1999 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, 1998.

FHLB  advances are secured by  first-mortgage  loans and  investment  securities
totaling $73,501,000 and $62,517,000 at December 31, 1998 and 1997. Advances are
subject to restrictions or penalties in the event of prepayment.

o       Note 9-- 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                                                     1998
----------------------------------------------------------------------
Note payable to Pedcor Maturities in years ending:
     1999                                                   $    183
     2000                                                        184
     2001                                                        177
     2002                                                        174
     2003                                                        171
     Thereafter                                                  132
                                                            --------
                                                            $  1,021
                                                            ========
                                             
<PAGE>


o       Note 10 -- Income Tax

Year Ended December 31                     1998            1997           1996
--------------------------------------------------------------------------------
Income tax expense
  Currently payable
    Federal                              $   848         $   353       $   246
    State                                    287             155           104
  Deferred                                           
    Federal                                  (27)             37           (20)
    State                                    (14)              6
    Total income                                     
       tax expense                       $ 1,094         $   545       $   336
                                                     
Reconciliation of federal                            
statutory to actual tax expense                      
                                                     
  Federal statutory                                  
     income tax at 34%                   $ 1,043         $   593       $   415
  Effect of state                                    
     income taxes                            180             102            73
  Tax credits                               (178)           (178)         (178)
  Other                                       49              28            26
  Actual tax expense                     $ 1,094         $   545       $   336
    Effective tax rate                      35.7%           31.2%         27.5%
                                                     
The components of the cumulative net deferred tax asset are as follows:

December 31                                                1998           1997
--------------------------------------------------------------------------------
Assets
   Allowance for loan losses                               $144           $ 92
   Loan fees                                                 15             37
   Business income tax credits                                              29
   Pensions and employee
     benefits                                                63
   Other                                                                     2
                                                           ----           ----
      Total assets                                          222            160
                                                           ----           ----

Liabilities
   Depreciation                                              21             26
   State income tax                                           6              2
   FHLB stock dividend                                       23             23
   Equity in partnership losses                              87             70
   Other                                                      5
                                                           ----           ----
       Total liabilities                                    142            121
                                                           ----           ----
                                                           $ 80           $ 39
                                                           ====           ====

Retained earnings 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
including  redemption  of bank  stock or  excess  dividends,  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.

o       Note 11 -- 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  as of
December 31 were as follows:

December 31                         1998         1997
-------------------------------------------------------
Commitments to extend credit        $2,566      $2,909
Standby letters of credit            2,514       2,014

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

<PAGE>


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

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.

The Company and Association  have 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 Company, 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 Company and Association are 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.

o       Note 12 -- Year 2000

Like all entities,  the Company and subsidiary  are exposed to risks  associated
with  the Year  2000  Issue,  which  affects  computer  software  and  hardware;
transactions  with  vendors,  and other  entities;  and  equipment  dependent on
microchips.  The  Company  has  begun,  but not yet  completed,  the  process of
identifying and remediating potential Year 2000 problems. It is not possible for
any  entity to  guarantee  the  results  of its own  remediation  efforts  or to
accurately predict the impact of the Year 2000 Issue on third parties with which
the Company and subsidiary do business. If remediation efforts of the Company or
third  parties  with  which the  Company  and  subsidiary  do  business  are not
successful,  the Year 2000 Issue could have  negative  effects on the  Company's
financial condition and results of operation in the near term.

o       Note 13 -- Dividend and Capital Restrictions

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

<PAGE>

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  shareholders.  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
$14,473,000.

At  December  31,  1998,  the  shareholders'   equity  of  the  Association  was
$30,332,000, of which approximately $13,184,000 was available for the payment of
dividends.

o       Note 14 -- 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 an association in
any of the undercapitalized  categories can result in actions by regulators that
could have a material  effect on an  association's  operations.  At December 31,
1998 and 1997, the Association is categorized as well  capitalized and meets all
subject capital adequacy  requirements.  There are no conditions or events since
December  31, 1998 that  management  believes  have  changed  the  Association's
classification.

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

<TABLE>
<CAPTION>


                                                                                    1998
                                                ----------------------------------------------------------------------
                                                                                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)                       $30,693        56.7%        $4,325         8.0%     $5,406      10.0%

Core capital 1 (to adjusted tangible assets)     30,331        28.3          3,219         3.0       6,438       6.0

Core capital 1 (to adjusted total assets)        30,331        28.3          3,219         3.0       5,365       5.0
1 As defined by regulatory agencies
                                       
</TABLE>


<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
1 As defined by regulatory agencies
</TABLE>
<PAGE>

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

The Association's tangible capital at December 31, 1998 and 1997 was $30,331,000
and  $29,969,000,  which  amount  was  28.3% and 22.7% of  tangible  assets  and
exceeded the required ratio of 1.5%.

o       Note 15 -- 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. This plan is
a multi-employer  plan; separate actuarial  valuations are not made with respect
to each participating  employer.  Pension expense (benefit) was $2,000, ($4,000)
and $47,000 for 1998, 1997, 1996.

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 $10,000,  $11,000 and $10,000 for 1998, 1997,
and 1996.

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  shareholders'
equity.  Unearned ESOP shares  totaled  173,074 and 184,000 at December 31, 1998
and 1997 and had a fair value of $1,947,000  and $2,691,000 at December 31, 1998
and 1997.  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 may be distributed to
participants  or used to repay the loan,  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. ESOP expense for the year ended December
31, 1998 was  $149,000.  There was no expense  under the ESOP for the year ended
December 31, 1997. At December 31, 1998, the ESOP had 10,926  allocated  shares,
173,074 suspense shares and no committed-to-be  released shares. At December 31,
1997, the ESOP had 184,000 suspense shares.

In  connection  with the  conversion,  the  Board  of  Directors  established  a
Recognition  and  Retention  Plan  and  Trust  ("RRP").   The  Bank  contributed
$1,753,853  to the RRP for the  purchase  of 121,670  shares of  Company  common
stock, and effective June 30, 1998,  awards of grants for 78,900 of these shares
were issued to various  directors,  officers and  employees of the  Association.
These awards  generally  are to vest and be earned by the recipient at a rate of
20 percent per year,  commencing  June 30, 1999.  The unearned  portion of these
stock awards is presented as a reduction of shareholders' equity.

o       Note 16 -- Stock Option Plan

Under  the  Company's  stock  option  plan  (Plan),  which is  accounted  for in
accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for
Stock  Issued to  Employees,  and related  interpretations,  the Company  grants
selected  executives and other key employees stock option awards which vest at a
rate of 20 percent a year.  During  1998,  the Company  authorized  the grant of
options for up to 304,175 shares of the Company's  common stock.  Effective June
30, 1998, the Company granted 186,000 of the options. The exercise price of each
option,  which  has a  ten-year  life,  was  equal  to the  market  price of the
Company's stock on the date of grant;  therefore,  no  compensation  expense was
recognized.

Although the Company has elected to follow APB No. 25, SFAS No. 123 requires pro
forma  disclosures  of net income and  earnings  per share as if the Company had
accounted for its employee stock options under that Statement. The fair value of
each option grant was estimated on the grant date using an option-pricing  model
with the following assumptions:

<PAGE>

                                               1998
-----------------------------------------------------
Risk-free interest rates                         5.5%         
Dividend yields                                  2.7%    
Volatility factors of expected
     market price of common stock               14.0

Weighted-average expected life
     of the options                           7 years

Under  SFAS No.  123,  compensation  cost is  recognized  in the  amount  of the
estimated  fair value of the options and  amortized to expense over the options'
vesting  period.  The pro forma  effect on net income and  earnings per share of
this statement are as follows:

                                                                      1998
---------------------------------------------------------------------------
Net income                                 As reported               $1,974
                                           Pro forma                  1,876    

Basic earnings per share                   As reported                  .70  
                                           Pro forma                    .67

Diluted earnings per share                 As reported                  .70
                                           Pro forma                    .67
                                                        

The following is a summary of the status of the Company's  stock option plan and
changes in that plan as of and for the year ended December 31, 1998.

Year Ended December 31                                    1998
                                                                  Weighted-
                                                                   Average
                                                                  Exercise
Options                                        Shares               Price
--------------------------------------------------------------------------
Outstanding, beginning of year
Granted                                       $186,000             $14.59       
                                              --------             ------
Outstanding, end of year                      $186,000             $14.59
                                              ========             ======

Options exercisable at year end                      0
Weighted-average fair value of
options granted during the year                  $2.94


As of December 31, 1998, the 186,000 options  outstanding have an exercise price
of $14.59 and a weighted-average remaining contractual life of 9.5 years.

o       Note 17 -- Related Party Transactions

The Association has entered into transactions with certain directors,  executive
officers,  significant  shareholders 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.

Balances, January 1, 1998                      $2,358                  
------------------------------------------------------
   New loans, including renewals                  266              
   Payments, etc. including renewals             (531)
                                              -------
Balances, December 31, 1998                    $2,093
                                              =======

Deposits  from  related  parties  held by the  Association  at December 31, 1998
totaled $1,826,000.


<PAGE>

o       Note 18 -- Earnings Per Share

Earnings per share (EPS) were computed as follows:
<TABLE>
<CAPTION>

                                                                      Year Ended December 31, 1998
                                                           --------------------------------------------------
                                                                            Weighted Average         Per-Share
                                                           Income                Shares                Amount
---------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share
<S>                                                         <C>                  <C>                  <C> 
     Income available to common shareholders                $1,974               2,804,584            $.70

Effect of Dilutive Securities
     Stock options                                                                       9
                                                           -------------------------------

Diluted Earnings Per Share
     Income available to common
     shareholders and assumed conversions                   $1,974               2,804,593            $.70
                                                            ==============================================
</TABLE>


o       Note 19 -- 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.

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.

<PAGE>

The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>


                                                                     1998                               1997
                                                          --------------------------------------------------------------
                                                          Carrying            Fair           Carrying            Fair
December 31                                                Amount             Value           Amount             Value
------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>               <C>               <C>              <C>    
Assets                                                                                                                     
  Cash and cash equivalents                                $ 6,191           $ 6,191           $44,781          $44,781
  Investment securities held to maturity                     8,026             8,175             5,820            6,003
  Loans, net                                                90,900            92,365            78,436           79,611
  Stock in FHLB                                                745               745               708              708
  Interest receivable                                          715               715               582              582

Liabilities
  Deposits                                                  64,846            61,460            62,258           62,476
  Stock subscriptions refundable                                                                22,687           22,687
  Borrowings
    FHLB advances                                              772               781             2,373            2,345
    Notes payable--limited partnership                       1,021               835             1,200              944
  Interest payable                                             109               109               119              119
  Advances by borrowers for taxes and insurance                275               275               221              221

</TABLE>

<PAGE>

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


o Note 20-- 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                                              1998              1997
--------------------------------------------------------------------------------
Assets
   Cash                                                $10,243           $13,022
   Investment in subsidiary                             30,332            29,927
   Other assets                                            238
                                                       -------           -------
      Total assets                                     $40,813           $42,949
                                                       =======           =======

Liability--other                                       $   282           $    43

Shareholders' Equity                                    40,531            42,906
                                                       -------           -------
      Total liabilities and
        shareholders' equity                           $40,813           $42,949
                                                       =======           =======

                         Condensed Statement of Income
December 31                                             1998              1997
--------------------------------------------------------------------------------
Income
   Interest income                                     $     4
                                                       -------  
   Other income                                             81
                                                       -------  
                                                            85
Expenses
   Salaries and
      employee benefits                                     65
   Legal and professional fees                              97
   Other expenses                                           14
      Total expenses                                       176
                                                       -------  
Loss before income tax
and equity in undistributed
income of subsidiaries                                     (91)

Income tax benefit                                         (20)
                                                       -------  

Loss before equity in
undistributed income
of subsidiaries                                            (71)

Equity in undistributed
income of subsidiaries                                   2,045           $ 1,198
                                                       -------           -------
Net Income                                             $ 1,974           $ 1,198
                                                       =======           =======
<PAGE>

                       Condensed Statement of Cash Flows
<TABLE>
<CAPTION>

Year Ended December 31                                            1998          1997

Operating Activities
<S>                                                             <C>           <C>     
   Net income                                                   $  1,974      $  1,198
   Adjustments to reconcile net income to
     net cash provided by operating activities                    (2,165)       (1,198)
                                                                --------      --------
   Net cash used by operating activities                            (191)            0
                                                                --------      --------

Financing Activities

   Net proceeds from issuance of stock                                          27,883
   Capital contribution to Association                                         (14,861)
   Cash dividend                                                    (729)
   Repurchase of common stock                                     (1,859)
                                                                --------      --------
     Net cash provided (used) by financing activities             (2,588)       13,022
                                                                --------      --------

Net Change in Cash                                                (2,779)       13,022

Cash at Beginning of Year                                         13,022             0
                                                                --------      --------

Cash at End of Year                                             $ 10,243      $ 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
</TABLE>


<PAGE>

                               BOARD OF DIRECTORS

                                Joseph E. Timmons
                              Chairman of the Board
                      President and Chief Executive Officer
                   Union Federal Savings and Loan Association

    Philip L. Boots                                     Samuel H. Hildebrand
    President, Boots Brothers                           President, Village
    Oil Company, Inc.                                   Traditions, Inc.

    Marvin L. Burkett                                   John M. Horner
    Farmer (Retired)                                    President, Horner
                                                        Pontiac Buick, Inc.

    Phillip E. Grush                                    Harry A. Siamas
    Optometrist                                         Attorney
                                         
================================================================================
                       OFFICERS OF UNION COMMUNITY BANCORP

Joseph E. Timmons               Ronald L. Keeling       Denise E. Swearingen
Chairman of the Board           Vice President          Secretary and Treasurer
President and
Chief Executive Officer

================================================================================

             OFFICERS OF UNION FEDERAL SAVINGS AND LOAN ASSOCIATION

  Joseph E. Timmons                                      Ronald L. Keeling
  President and                                          Senior Loan Officer
  Chief Executive Officer                                Vice President and
                                                         Assistant Secretary

  Denise E. Swearingen                                   Alan L. Grimble
  Secretary, Controller/                                 Vice President
  Treasurer




<PAGE>

      Philip L.  Boots  (age 52) 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 71) has  worked  as a  self-employed  farmer  in
Montgomery County since 1956. He currently is semi-retired from farming.

      Phillip  E.  Grush  (age 67)  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 part-time
employee/consultant.

      Samuel H.  Hildebrand,  II (age 59) 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 62) has served as the  president  of Horner  Pontiac
Buick, Inc. in Crawfordsville since 1974.

      Harry A. Siamas (age 48) has  practiced law in  Crawfordsville  since 1976
and has served as Union Federal's attorney for 18 years.

      Joseph E.  Timmons (age 64) 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.





<PAGE>


MARKET INFORMATION

         The  Association  converted  from a  federal  mutual  savings  and loan
association to a federal stock savings and loan associaiton  effective  December
29, 1997,  and  simultaneously  formed a savings and loan holding  company,  the
Holding  Company.  The Holding  Company's  Common Stock, is traded on the NASDAQ
National Market System under the symbol "UCBC." As of March 30, 1999, there were
approximately 550 record holders of the Holding Company's Common Stock.

         Any  dividends  paid  by  the  Holding   Company  will  be  subject  to
determination  and declaration by the Board of Directors in its  discretion.  In
determining  the level of any  future  dividends,  the Board of  Directors  will
consider,  among other factors,  the  following:  tax  considerations;  industry
standards;  economic  conditions;  capital  levels;  regulatory  restrictions on
dividend  payments by the  Association  to the  Holding  Company;  and,  general
business practices.

         The Holding  Company is not subject to OTS regulatory  restrictions  on
the  payment  of  dividends  to its  shareholders  although  the  source of such
dividends   will  depend  in  part  upon  the  receipt  of  dividends  from  the
Association.  The Holding Company is subject,  however,  to the  requirements of
Indiana law, which generally limit the payment of dividends to amounts that will
not affect the  ability of the  Holding  Company,  after the  dividend  has been
distributed,  to pay its debts in the  ordinary  course of business and will not
exceed the  difference  between the  Holding  Company's  total  assets and total
liabilities  plus  preferential  amounts  payable to  shareholders  with  rights
superior to those of the holders of the Holding Company's common stock.

         In addition to the foregoing, the portion of the Association's earnings
which has been  appropriated  for bad debt  reserves  and  deducted  for federal
income tax purposes  cannot be used by the  Association to pay cash dividends to
the  Holding  Company  without  the  payment  of  federal  income  taxes  by the
Associaiton   at  the  then  current  income  tax  rate  on  the  amount  deemed
distributed,  which would include any federal income taxes  attributable  to the
distribution.  The Holding Company does not contemplate any  distribution by the
Assciation  that  would  result in a  recapture  of the  Association's  bad debt
reserve or otherwise create federal tax liabilities.

                                 Stock Price           Dividends
Month Ended                 High            Low        Per Share
-----------            ------------      ---------     ---------
January 31, 1998       $14    13/16      $14  1/16
February 28, 1998       14     5/8        14
March 31, 1998          15     7/8        14  1/2       $.075
April 30, 1998          15     1/2        14 11/16    
May 31, 1998            15     5/8        14  1/2     
June 30, 1998           15     1/8        14  1/8        .085
July 31, 1998           14     7/8        13  7/8     
August 31, 1998         14     3/4        11  1/4     
September 30, 1998      13                10  3/4        .095
October 31, 1998        12    13/16        9 13/16    
November 30, 1998       12     3/8        10  1/2     
December 31, 1998       13                10  1/2        .10
                                                    
TRANSFER AGENT AND REGISTRAR        
The Fifth Third Bank
Corporate Trust Operations
38 Fountain Square Plaza, MD - 1090F5
Cincinnati, Ohio 45202
(513) 579-5320 or (800) 837-2755

GENERAL COUNSEL
Barnes & Thornburg
11 South Meridian Street
Indianapolis, Indiana  46204

INDEPENDENT AUDITOR
Olive LLP
201 N. Illinois Street, Suite 700S
Indianapolis, Indiana  46204

SHAREHOLDERS AND GENERAL INQUIRIES
     The Company  filed an Annual  Report on Form 10-K for its fiscal year ended
December 31, 1998 with the  Securities and Exchange  Commission.  Copies of this
annual report may be obtained without charge upon written request to:

     Joseph E. Timmons
     President and Chief Executive Officer
     Union Community Bancorp
     221 East Main Street
     Crawfordsville, Indiana 47933