<PAGE>
                                                                               .
                                                                               .
                                                                               .

EXHIBIT 13. THE ANNUAL REPORT TO SHAREHOLDERS OF THE COMPANY

SELECTED CONSOLIDATED FINANCIAL DATA
BLUE RIVER BANCSHARES, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                              YEAR ENDED          YEAR ENDED
                                                          DECEMBER 31, 2006   DECEMBER 31, 2005
                                                          -----------------   -----------------
<S>                                                       <C>                 <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Net Interest Income                                         $     8,156          $    7,100
Non-Interest Income                                                 929               1,330
Provision for Loan Losses                                           858                 126
Non-Interest Expense                                              7,262               7,161
Income before Income Taxes                                          965               1,143
Income Tax Expense (Benefit)                                        366                (430)
Net Income                                                          599               1,573

CONSOLIDATED BALANCE SHEET DATA
Total Assets                                                $   226,514          $  221,241
Total Deposits                                                  184,113             178,759
Loans, net                                                      181,875             162,416
Investment Securities                                            21,920              24,737
Shareholders' Equity                                             17,820              17,470

GENERAL
Number of Employees (Full Time/Part Time)                    59 FT / 14 PT        64 FT / 7 PT
Number of Shares Outstanding at December 31                   3,507,150           3,507,150
Weighted Average Shares Outstanding during year - Basic       3,507,150           3,472,561

PER COMMON SHARE DATA
Basic and diluted earnings per share                        $      0.17          $     0.45
                                                            ===========          ==========
SELECTED PERFORMANCE RATIOS
Return on Average Assets                                           0.28%               0.75%
Return on Average Equity                                           3.38%               9.66%
Average Shareholders' Equity to Average Assets                     8.23%               7.73%
</TABLE>


                                       31

<PAGE>

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

FORWARD LOOKING STATEMENTS

Statements in this report which express "belief", "intention", "expectation",
"prospects", as well as other statements which are not historical fact, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements can be identified by the use of
words like "expected", "may", "could", "intend", "project", "estimate",
"believe" or "anticipate." These forward-looking statements involve risk and
uncertainties which may cause actual results to differ materially from those in
such statements. It is intended that these forward looking statements speak only
as of the date they are made, and the Company undertakes no obligation to update
any forward looking statement to reflect the occurrence of unanticipated events.
Some of the factors that may generally cause actual results to differ materially
from projection, forecasts, estimates and expectations include, but are not
limited to (i) changes in the interest rate environment, (ii) competitive
pressures among financial institutions, (iii) general economic conditions on
local or national levels, (iv) political developments, wars or other hostilities
may disrupt or increase volatility in securities markets, (v) legislative or
regulatory changes, (vi) changes in prepayment speeds of loans or securities,
(vii) changes in loan sale volumes, charge-offs and loan loss provisions, (viii)
changes in legal or regulatory proceedings, and (ix) the impact of reputation
risk created by these developments on such matters as business generation or
retention.

The following information is intended to provide an analysis of the consolidated
financial condition of Blue River Bancshares, Inc. (the "Company" or "Blue
River") as of December 31, 2006 and 2005 and the consolidated statements of
operations, shareholders' equity, and cash flows for the years ended December
31, 2006 and 2005. The financial data in this report should be read in
conjunction with the audited Consolidated Financial Statements and footnotes.

MANAGEMENT OVERVIEW OF 2006

The Company is a holding company for its principal banking subsidiaries, Shelby
County Bank and Paramount Bank. Shelby County Bank and Paramount Bank are
collectively referred to as the "Banks". The Company's net income is derived
principally from the operating results of its banking subsidiaries. The
principal sources of the Company's revenue are interest and fees on loans;
deposit service charges; interest on security investments; and, origination fees
on mortgage loans brokered. The Banks' lending activity consists of
short-to-medium-term consumer and commercial loans, including home equity lines
of credit; personal loans for home improvement, autos and other consumer goods;
residential real estate loans; and, commercial real estate and operating loans.
Funding activities at the subsidiary Banks include a full range of deposit
accounts, including demand deposits; NOW accounts; money market accounts; and
certificates of deposit. Also, funding is supplemented with deposits gathered
from local and state governments and through borrowings from the Federal Home
Loan Banks. The Company maintains $7,217,000 of Subordinated Debentures. On
April 20, 2006, the Company paid off its $6,000,000 loan in its entirety to a
commercial bank with the proceeds of the Subordinated Debentures (see Note 8 to
the Consolidated Financial Statements included herein).

Shelby County Bank is a federally chartered savings bank located in Shelbyville,
Indiana and Paramount Bank is a federally chartered savings bank located in
Lexington, Kentucky. The Banks provide full-service banking to businesses and
residents within their communities and surrounding areas. The Banks place
particular emphasis on serving its clients with a broad range of services
delivered by experienced professionals concerned with building strong and
long-term relationships.

On April 20, 2006, the Company established a new Delaware trust subsidiary, Blue
River Bancshares Trust I, which completed the sale of $7 million of trust
preferred securities on April 20, 2006. Blue River Bancshares Trust I issued the
trust preferred securities at a rate equal to the three-month LIBOR rate plus
1.55%. The trust preferred securities mature in 30 years and may be called
without penalty on or after June 30, 2011. Blue River Bancshares Trust I
simultaneously issued 217 of the trust's common securities to the Company for a
purchase price of


                                       32

<PAGE>

$217,000, which, together with the trust preferred securities, constitutes all
of the issued and outstanding securities of the trust. Blue River Bancshares
Trust I used the proceeds from the sale of the trust preferred securities to
purchase the Company's unsecured junior subordinated deferrable interest notes
due June 30, 2036 (the "Debenture"). The net proceeds from the offering were
used by the Company to pay all amounts due under and terminated, its $6 million
credit facility with Union Federal Bank of Indianapolis, under the Credit
Agreement dated as of November 19, 2003, as amended December 30, 2004 by the
First Amendment to Credit Agreement, March 30, 2005 by the Second Amendment to
Credit Agreement and June 30, 2005 by the Third Amendment to Credit Agreement.
The obligations evidenced by the Credit Agreement were scheduled to mature on
June 30, 2008. In conjunction with the termination of the Credit Agreement, all
collateral securing the obligations under the Credit Agreement, including the
capital stock of Shelby County Bank and Paramount Bank was released. The
additional proceeds will be used for general corporate purposes.

The Debenture was issued pursuant to a Junior Subordinated Indenture between the
Company and Wilmington Trust Company dated April 20, 2006, (the "Indenture").
The interest payments by the Company will be used by the trust to pay the
quarterly distributions to the holders of the trust preferred securities. The
interest rate as of December 31, 2006 was 6.92%. The Indenture permits the
Company to redeem the Debenture after June 30, 2011.

The Company has the right, at any time and from time to time during the term of
the Security, to defer the payment of interest on the Securities for a period of
up to twenty (20) consecutive quarterly interest periods, during which the
Company has the right to make no payments or partial payments of interest on any
interest payment due date.

On July 25, 2006 a quarterly dividend of $.015 per share was declared by the
Board of Directors, payable September 1, 2006, to the shareholders of record as
of August 15, 2006. On October 24, 2006 a quarterly dividend of $.0175 per share
was declared by the Board of Directors, payable December 1, 2006, to the
shareholders of record as of November 15, 2006. Subsequently, on January 23,
2007 a quarterly dividend of $.02 per share was declared by the Board of
Directors, payable March 1, 2007, to the shareholders of record as of February
15, 2007.

On September 19, 2006, the Company entered into an Agreement and Plan of
Reorganization with FirstAtlantic Financial Holdings, Inc. The Agreement
provides for the transfer of all operating assets of Paramount Bank, a
wholly-owned subsidiary of the Company in an inter-company transaction with
another of the Company's wholly-owned subsidiaries, Shelby County Bank. The
Agreement also provides for the sale of the charter of Paramount Bank to
FirstAtlantic Financial Holdings, Inc. through a stock sale. In consideration
thereof, FirstAtlantic Financial Holdings will make a cash payment to the
Company in the amount of $1,675,000. After regulatory approval and following the
completion of the transaction, the Company will operate Paramount Bank as a
division of Shelby County Bank. The Company anticipates completing the
transaction during the second quarter of 2007.

On a consolidated basis, the Company's total assets as of December 31, 2006 were
$226,514,000 compared to total assets of $221,241,000 at December 31, 2005. As
of December 31, 2006, gross loans were $183,772,000 compared to gross loans of
$163,992,000 at December 31, 2005. Deposits were $184,113,000 at December 31,
2006 compared to $178,759,000 at December 31, 2005. Total capital was
$17,820,000 at December 31, 2006 compared to $17,470,000 at December 31, 2005.
Outstanding shares of common stock were 3,507,150 as of December 31, 2006 and
December 31, 2005. The book value per share was $5.08 at year end 2006 versus
$4.98 at December 31, 2005.

The Company earned $.17 per share in 2006 and $.45 per share in 2005. Net income
for 2006 was $599,000 compared to a net income of $1,573,000 in 2005. Returns on
average total assets ("ROA") and equity ("ROE") were .28% and 3.38%,
respectively, in 2005 as compared to .75% and 9.66% respectively, in 2005.
Earnings, before income taxes in 2006 were $965,000 or $.28 per share, compared
to earnings before income tax benefit in 2005 of $1,143,000 or $.33 per share;
the main difference being due to the reversal of the remaining valuation
allowance on the deferred tax asset.

The Company benefited from the past increases in the prime lending rate.
However, the Banks have reduced their asset sensitivity. As a result, the
Company would no longer gain as much benefit if the prime lending rate would
increase as it has in the past. With the issuance of the subordinated debentures
in April 2006 (see Note 8 to the


                                       33

<PAGE>

Consolidated Financial Statements included herein), the Company fully retired
$6,000,000 of bank debt with the remaining balance of the proceeds of the
issuance to be used for general corporate purposes. The initial interest rate on
the subordinated debt was 6.63%, which will float for five years with 3 month
LIBOR plus a margin of 155 basis points. At December 31, 2006 the interest rate
was 6.92%. The interest rate on the retired bank debt was equal to the prime
interest rate plus a margin, which varied, but was recently prime plus 50 basis
points. The Company continues to focus on maintaining its momentum of growing
quality loans and improving net interest income. During 2006, the Company
increased loan balances by 12% thus increasing net interest income, while
continuing to focus on credit quality. During 2006, the pretax income was below
the anticipated level. The Company did not achieve its net income goal primarily
due to increased professional fee expenses associated with the proposed charter
sale (see Note 18 to the Consolidated Financial Statements included herein), the
analysis and negotiation of another potential acquisition opportunity which was
terminated before a transaction could be consummated, and the increases needed
in the allowance for loan losses to reserve for, or charge off loans. The
Company has since implemented improved procedures in the approval, underwriting,
originating and structuring of the loan processes at Paramount Bank and believes
this will reduce the need to provide for loan problems in the future. The
Company will continue to focus on exceeding a 10% pretax return on shareholder's
equity during 2007 and in 2008, by concentrating on the growth of quality loans,
increasing net interest income, and lowering net non interest expense.

Management believes it can continue to improve return on equity by following
this strategy and prudently managing non interest expenses. The Banks are
strategically maintaining their "well capitalized" status while continuing to
concentrate on improving net interest income and overall profitability, without
taking undue interest rate risk. Management and staff at both Shelby County Bank
and Paramount Bank will continue to work diligently at implementing loan growth
plans and strategies; emphasizing the benefits of gathering non-certificate
depository funding as means of decreasing the Banks' overall funding costs;
improving levels of fee income derived from depository relationships and
encouraging a stronger relationship with their customer base. The issuance of
the subordinated debt will allow additional liquidity at the holding company
level. In July of 2006, the Company announced the commencement of dividend
payments to its shareholders. Subsequent dividends were announced in October of
2006 and January of 2007. The Company will continue to review the possibility of
future dividend payments to its shareholders in 2007 and beyond.

With the proposed sale of Paramount Bank's charter to FirstAtlantic Holdings,
Inc., (see Note 18 to the Consolidated Financial Statements included herein)
expected during the second quarter of 2007, the Company anticipates net proceeds
of approximately $1,525,000. At this time management is considering several uses
for the cash payment, however no final decisions have been made.

Also during 2006, continued significant administrative time and resources were
invested in the areas of compliance and internal control. Enhancing and
implementing policies, systems and controls remained high priorities for the
Company. Efficiently maintaining and building the infrastructure of the Company,
while increasing core profitability and succeeding at reducing older loan
related problems were major areas of focus during the year.

Information Technology review and upgrading were also focal points during 2006.
Each bank believes it can use technology to improve operating efficiency and
better serve its clients. With the assistance of outside technology consultants,
each bank is improving its infrastructure, by implementing enhancements in
hardware and software. The Company incurred increased costs during 2006 as these
technology plans were implemented.

In February of 2007, the Company announced that its wholly-owned banking
subsidiary, Shelby County Bank, opened its first loan production office. The
office is located in Fishers, Indiana, and will service Hamilton County, Indiana
as well as other areas in the Indianapolis Metropolitan statistical area. The
loan production office represents the next logical expansion of Shelby County
Bank in that over 40% of the Bank's current loan portfolio was originated
outside of the Shelby County market.


                                       34

<PAGE>

NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS

Prior to January 1, 2006, the Company accounted for share-based compensation to
employees under the intrinsic value method in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". Effective
January 1, 2006, the Company began recognizing compensation expense for stock
options with the adoption of SFAS No. 123 (Revised), "Share-Based Payment," as
described in Note 9 of the Consolidated Financial Statements included herein.

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 158, Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and
132(R). This Statement requires an employer to recognize the over-funded or
under-funded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its balance sheet, beginning
with year end 2006, and to recognize changes in the funded status in the year in
which the changes occur through comprehensive income beginning in 2007.
Additionally, defined benefit plan assets and obligations are to be measured as
of the date of the employer's fiscal year-end, starting in 2008. The Company
does not provide any defined benefit postretirement plans, and accordingly, the
provisions of SFAS No. 158 will have no material impact on the Company's results
of operations or financial position.

In September 2006, the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements (SAB 108),
which is effective for fiscal years ending on or after November 15, 2006. SAB
108 provides guidance on how the effects of prior-year uncorrected financial
statement misstatements should be considered in quantifying a current year
misstatement. SAB 108 requires public companies to quantify misstatements using
both an income statement (rollover) and balance sheet (iron curtain) approach
and evaluate whether either approach results in a misstatement that, when all
relevant quantitative and qualitative factors are considered, is material. If
prior year errors that had been previously considered immaterial now are
considered material based on either approach, no restatement is required so long
as management properly applied its previous approach and all relevant facts and
circumstances were considered. Adjustments considered immaterial in prior years
under the method previously used, but now considered material under the dual
approach required by SAB 108, are to be recorded upon initial adoption of SAB
108. The amount so recorded is shown as a cumulative effect adjustment in
opening retained earnings as of January 1, 2006. Upon adoption of SAB 108, the
Company recorded a cumulative adjustment of $165,153 as a reduction to retained
earnings (see Note 1 of the Consolidated Financial Statements included herein).

NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET EFFECTIVE

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (FIN
48), which prescribes a recognition threshold and measurement attribute for a
tax position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company has determined that the
adoption of FIN 48 will not have a material effect on the financial statements.

Additionally, new accounting standards have been issued that the Company does
not expect will have a material effect on the financial statements when adopted
in future years or for which the Company has not yet completed its evaluation of
the potential effect upon adoption. In general, these standards revise the
accounting for derivatives embedded in other financial instruments for 2007,
revise the recognition and accounting for servicing of financial assets for 2007
and establish a hierarchy about the assumptions used to measure fair value for
2008.


                                       35

<PAGE>

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

The Company's critical accounting policies include the following:

An analysis of the allowance for loan losses is performed monthly by the Banks'
management to assess the appropriate levels of allowance for loan losses.
Specific allocations are established based upon review of individual borrowers
identified in the classified loan list, establishing the probable incurred
losses associated with such borrowers, including comparison of loan balances
versus estimated liquidation values of collateral based upon independent
information sources or appraisals performed by board-approved licensed
appraisers. The remaining pools of loans, excluding those classified or
delinquent are analyzed for the general loan loss allowance. Management
evaluates this general allowance using loan loss statistics by various types of
loans, including statistics published periodically by the OTS and FDIC, the
Banks' historical losses and recommendations by the Chief Credit Officer.
Appropriate loss percentages are applied to the Banks' distribution of portfolio
balances since management believes this will be representative of future losses
inherent in the portfolio. The calculated allocations are compared to the Banks'
existing allocations to establish the provision necessary to bring the actual
allowance balance in compliance with the findings of the allowance analysis.

A valuation allowance reduces deferred tax assets to the amount management
believes is more likely than not to be realized. In evaluating the realization
of deferred tax assets, management considers the likelihood that sufficient
taxable income of appropriate character will be generated within carry forward
periods, including consideration of available tax planning strategies. In the
past, the Company maintained a valuation allowance against a portion of its
deferred tax asset, however in the fourth quarter of 2005, management concluded
that the remaining valuation allowance on the deferred tax assets was no longer
necessary given the Company's sustained income and growth through the year and
projected net income in the future. A net tax benefit of $430,000 was recognized
on December 31, 2005 as a result of the reversal of the tax valuation allowance.

RESULTS OF OPERATIONS

NET INCOME

For the year ended December 31, 2006, the Company reported net income of
$599,000 compared to net income of $1,573,000 reported for the year ended
December 31, 2005. The decrease was primarily due to an increase in the
provision for loan losses of $732,000 and an increase in tax expense of
$796,000. Tax expense of $366,000 recognized in 2006 compared to a tax benefit
of $430,000, the result of a reversal of the tax valuation allowance for the
year ended December 31, 2005. Non-interest income also decreased $402,000 due to
decreases in mortgage fee income and losses incurred on the impairment and sale
of other real estate owned and other assets. Other non-interest expense
increased $101,000. These increased expenses were offset by an increase in
net-interest income before the provision for loan losses of $1,056,000. The
increase in net interest income was primarily the result of variable rate loans
and investments subject to an increase in yields. The average yield on earning
assets increased 115 basis points from the year ended December 31, 2005.


                                       36

<PAGE>

NET INTEREST INCOME

For the year ended December 31, 2006, net interest income before provision for
loan losses increased $1,056,000. Interest income increased $2,667,000 to
$14,723,000 from $12,056,000 for the year ended December 31, 2005. Interest
expense increased $1,611,000 to $6,567,000 for the year ended December 31, 2006,
compared to $4,956,000 for the year ended December 31, 2005.

The increase in interest income was due to higher yields on interest-earning
assets and slightly higher average balances on those assets. The average balance
of interest-earning assets increased $5,690,000 from $196,615,000 for the year
ended December 31, 2005 to $202,098,000 for the year ended December 31, 2006.
Compared to the prior year, the weighted average interest rate increased from
6.13% to 7.29%, primarily due to the rise in market interest rates during the
first six months of the year ended December 31, 2006. Interest expense increased
$1,611,000 compared to the prior year ended December 31, 2005. The average rate
paid on interest-bearing liabilities increased from 3.00% for the year ended
December 31, 2005 to 3.79% for the year ended December 31, 2006. Deposits were
affected by both an increase in interest rates and balances during the current
year. The average balance on interest bearing deposits increased by $7,674,000
in 2006 and the average weighted rate increased from 2.81% to 3.59%. For the
year ended December 31, 2006 compared to the year ended December 31, 2005, the
interest expense on balances of FHLB advance borrowings, note payable and
subordinated debt (See Note 8 to the Consolidated Financial Statements included
herein) increased $224,000 and the average balance increased $606,000. This was
due to the rising interest rate environment in 2006 and the retirement of long
term debt and the issuance of subordinated debt (See Note 8 to the Consolidated
Financial Statements included herein).

INTEREST INCOME

For the year ended December 31, 2006, interest income increased $2,667,000. This
increase was comprised of a $567,000 increase due to the average balances of
earning assets, and a $2,100,000 increase due to higher yields on the Company's
earning assets.

Interest income and fees on loans were $13,345,000 for the year ended December
31, 2006, an increase of $2,838,000 from the year ended December 31, 2005. The
increase in yield on loans accounted for a $1,989,000 favorable rate variance,
and an increase in average loan balances created an $849,000 favorable volume
variance. The increase in yield was largely due to increases in the prime
interest rate, increased balances in variable rate products, as well as higher
yields on new loans originated during the period. The overall yield on loans
increased to 7.77% for the year ended December 31, 2006 from 6.59% for the year
ended December 31, 2005.

Interest income on investment securities decreased $198,000 for the year ended
December 31, 2006 as compared to the year ended December 31, 2005. A favorable
variance of $8,000 was due to a higher portfolio yield which was the result of
the rising interest rate environment. The favorable rate variance was offset by
an unfavorable volume variance of $206,000. The portfolio decreased $2,816,000
due to principal payment reductions in the mortgage backed securities.

Interest income on interest-bearing deposits held at other financial
institutions increased $1,000 over the year ended December 31, 2006 to $192,000
from $191,000 for the period ended December 31, 2005. This increase was due to a
$72,000 favorable rate variance due to an increase in yield on such investments
and a decrease in volume of $71,000 from lower balances in such liquid
investments. This category is very susceptible to changes in interest rates due
to its liquidity and strong correlation to short-term interest rates, such as
federal funds and LIBOR.


                                       37

<PAGE>

Dividends on FHLB stock and other equity securities increased $9,000 from the
year ended December 31, 2005, due to higher dividend yields provided by the
stock of $14,000 offset by a decrease in volume of $5,000. For the year ended
December 31, 2006, the Banks' investment in FHLB stock decreased $610,000 due to
$645,000 from the proceeds of repurchases of the stock by the FHLB offset by
$35,000 which was the result of reinvestment of stock dividends.

INTEREST EXPENSE

Interest expense increased $1,611,000 to $6,567,000 from $4,956,000 for the year
ended December 31, 2006. Interest expense on deposits increased $1,387,000 from
$4,055,000 for the year ended December 31, 2005 to $5,441,000. This increase
results from a $165,000 variance due to an increase in average deposit balances,
and a $1,222,000 unfavorable rate variance due to a 78 basis point increase in
cost, the result of the rising interest rate environment. The cost of
certificates of deposit increased $473,000 over 2005. Primarily this was the
result of the rise in rates, increasing from 3.41% in 2005 to 4.19% in 2006.
Interest expense from FHLB advances, other borrowings and subordinated debt
increased $224,000 from 2005 by an unfavorable rate variance of $197,000 and an
increased volume variance of $27,000. The average yield increased from 4.28% in
2005 to 5.19% in 2006. Rates on core deposit products such as, savings accounts
and NOW accounts also increased. The effective cost of money market accounts
increased 151 basis points from 2.40% for the year ended December 31, 2005. NOW
account and Savings account rates have also increased by 3 and 61 basis
point(s), respectively.

NET INTEREST INCOME

<TABLE>
<CAPTION>
                                                       YEAR ENDED
                                                      DECEMBER 31,        PERCENTAGE
                                                ---------------------     CHANGE FROM
                                                   2006        2005      2005 TO 2006
                                                ----------   --------    ------------
                                                (DOLLARS IN THOUSANDS)
<S>                                             <C>          <C>         <C>
Interest Income:
   Interest and fees on loans                     $13,345     $10,507       27.01%
   Interest on investment securities                1,028       1,226      (16.15)%
   FHLB dividends and other equity securities         158         132       19.70%
   Interest on interest-bearing deposits              192         191        0.52%
                                                  -------     -------
      Total interest income                        14,723      12,056       22.12%
                                                  =======     =======
Interest Expense:
   Interest on deposits                             5,441       4,054       34.21%
   Interest on borrowings                           1,126         902       24.83%
                                                  -------     -------
      Total interest expense                        6,567       4,956       32.51%
                                                  -------     -------
Net interest income                               $ 8,156     $ 7,100       14.87%
                                                  =======     =======
</TABLE>


                                       38


<PAGE>

RATE VOLUME ANALYSIS OF CHANGE IN NET INCOME

<TABLE>
<CAPTION>
                                            YEAR ENDED DECEMBER 31, 2006   YEAR ENDED DECEMBER 31, 2005
                                            ----------------------------   ----------------------------
                                              VOLUME    RATE     TOTAL       VOLUME    RATE     TOTAL
                                              ------   ------   ------       ------   ------   ------
                                               (DOLLARS IN THOUSANDS)          (DOLLARS IN THOUSANDS)
<S>                                         <C>        <C>      <C>        <C>        <C>      <C>
Interest Income on:
   Loans                                      $ 849    $1,989   $2,838        $ 794   $1,335   $2,129
   Investment securities                       (206)        8   $ (198)        (373)     107   $ (266)
   FHLB stock and other equity securities        (5)       31   $   26            5        4   $    9
   Interest-bearing deposits                    (71)       72        1           17      101      118
                                              -----    ------   ------        -----   ------   ------
      Total interest income                     567     2,100    2,667          443    1,547    1,990
Interest Expense on:
   Deposits                                     165     1,222    1,387           36      797      833
   Borrowings                                    27       197      224          (27)     197      170
                                              -----    ------   ------        -----   ------   ------
      Total interest expense                    192     1,419    1,611            9      994    1,003
                                              -----    ------   ------        -----   ------   ------
Net interest income                           $ 375    $  681   $1,056        $ 434   $  553   $  987
                                              =====    ======   ======        =====   ======   ======
</TABLE>

This table represents causes of fluctuations in net interest income over the
reporting periods. The volume variance is calculated by multiplying the change
in balances by the prior year rate. Rate variance computed by multiplying the
change in rate/yield by the balance from the prior period. Variances that result
from both are allocated pro-rata to the volume and rate variances. Loan fees are
deferred and accounted for using the level yield method. Non-accruing loans are
included in the balances presented, while only amounts of interest collected on
such loans are included in the income amounts.

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
AND DIFFERENTIAL VARIANCE ANALYSIS

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31, 2006   YEAR ENDED DECEMBER 31, 2005
                                                 ----------------------------   ----------------------------
                                                  AVERAGE              YIELD/   AVERAGE               YIELD/
                                                  BALANCE   INTEREST    RATE    BALANCE    INTEREST    RATE
                                                 --------   --------   ------   --------   --------   ------
                                                    (DOLLARS IN THOUSANDS)         (DOLLARS IN THOUSANDS)
<S>                                              <C>        <C>        <C>      <C>        <C>        <C>
Interest Earning Assets:
   Investment securities                         $ 23,254    $ 1,028    4.42%   $ 27,912    $ 1,226    4.39%
   Interest-bearing deposits and other              4,359        192    4.40%      6,344        191    3.01%
   FHLB stock and other equity securities           2,807        158    4.63%      2,905        132    4.54%
   Loans (1)                                      171,678     13,345    7.77%    159,454     10,507    6.59%
                                                 --------    -------    ----    --------    -------    ----
      Total earning assets                        202,098     14,723    7.29%    196,615     12,056    6.13%
                                                 --------    -------    ----    --------    -------    ----
Interest and Non-Interest Bearing Liabilities:
   Savings accounts                                12,020        271    2.25%      9,644        157    1.64%
   NOW accounts                                    17,002        120    0.71%     16,680        113    0.68%
   Money market accounts                           34,543      1,352    3.91%     23,289        559    2.40%
   Certificates of deposit                         88,174      3,698    4.19%     94,452      3,225    3.41%
                                                 --------    -------    ----    --------    -------    ----
      Total interest bearing deposits             151,739      5,441    3.59%    144,065      4,054    2.81%
   Borrowings                                      21,690      1,126    5.19%     21,084        902    4.28%
                                                 --------    -------    ----    --------    -------    ----
      Total interest bearing liabilities         $173,429      6,567    3.79%   $165,149      4,956    3.00%
                                                 ========    -------    ----    ========    -------    ----
Net interest margin                                          $ 8,156    4.04%               $ 7,100    3.61%
                                                             =======                        =======
</TABLE>

(1)  Includes principal balances of non-accruing loans. Interest on non-accruing
     loans is not included.


                                       39

<PAGE>

NON-INTEREST INCOME

The Company's non-interest income for the year ended December 31, 2006 was
$929,000. This represents a decrease of $402,000 from the year ended December
31, 2005. The change in non-interest income results from an increase of $156,000
in service charges on deposit accounts as Shelby County Bank increased their fee
structure during the second quarter of 2006 on deposit accounts. There were also
net increases in other income of $5,000. Offsetting these increases, there was a
reduction in secondary market mortgage fees which decreased $303,000. This was
due to the rising interest rate environment and the reduction of secondary
market mortgage loan originators at Paramount Bank which caused a reduction in
this type of loan origination. Another factor contributing to the decrease
included net losses of $225,000 in the disposition and impairment of other
assets and other real estate versus zero in net losses on other real estate and
other assets during the year ended December 31, 2005. Of the net losses of
$225,000 on other assets during the year ended December 31, 2006, $150,000 was
due to the write-down of other repossessed assets and $79,000 was related to the
liquidation and total write off of "The Bank's Insurance Agency," a bank
insurance company in which the Company had invested. This three year old joint
venture sold various insurance products and was formed by several Indiana
community banks. There was also a decrease of $34,000 in gains on the sale of
available-for-sale securities for the year ended December 31, 2006 compared to
the year ended December 31 2005 as the Banks have not sold any
available-for-sale securities during 2006.

NON-INTEREST INCOME

<TABLE>
<CAPTION>
                                                                                     PERCENTAGE
                                                                                     CHANGE FROM
                                                                 YEAR ENDED         DECEMBER 31,
                                                                 DECEMBER 31,         2005 TO
                                                           ----------------------   DECEMBER 31,
                                                                2006    2005            2006
                                                               -----   ------       ------------
                                                           (DOLLARS IN THOUSANDS)
<S>                                                        <C>         <C>          <C>
Service charges on deposit accounts                            $ 608   $  452           34.51%
Secondary market mortgage fees                                   292      595          (50.92)%
Gain on sale of securities                                        --       34         (100.00)%
(Loss) on sale and impairment of other real estate owned
   and other assets                                             (225)      --         (100.00)%
Other                                                            254      249            2.01%
                                                               -----   ------
Total Non-Interest Income                                      $ 929   $1,330          (30.15)%
                                                               =====   ======
</TABLE>


                                       40

<PAGE>

NON-INTEREST EXPENSE

For the year ended December 31, 2006, non-interest expense was $7,262,000, an
increase of $101,000 from the year ended December 31, 2005 of $7,161,000.
Overall non-interest expense increased by approximately 1.40% for the year ended
December 31, 2006 compared to the year ended December 31 2005. Major
fluctuations in non-interest expense include salary and benefit expenditures
which increased $121,000 from 2005. This increase is primarily the result of
salary increases and in part due to the reclassification of the director fees
during the second quarter of 2005 of both the Chief Executive of the Company and
the Chairman of the Board at Shelby County Bank to salaries. Professional fees
increased by $111,000, primarily the result of initial costs associated with the
proposed sale of Paramount Bank's charter (see Note 18 of the Consolidated
Financial Statements included herein) and the analysis and negotiation of
another potential acquisition opportunity which was terminated before a
transaction could be consummated. The target, a Central Indiana thrift,
subsequently agreed to be purchased by another financial institution. Increases
in data processing charges of $47,000 were due to volume increases in loans and
deposits and the related servicing of those products. Occupancy expenses
increased $63,000 due to additional depreciation expense pertaining to a new
computer system implemented at Shelby County Bank. A major offset to the
increases in non-interest expense was the absence of merger related costs of
$73,000 relating to the terminated merger with Heartland Bancshares, Inc., as
the majority of this expense category occurred during the first quarter of 2005.
Additionally, advertising and promotion expenses decreased $58,000 as expenses
at Paramount Bank have decreased since 2005 due to Paramount's name change in
late 2004 and the associated branding recognition expenses in 2005. Other real
estate and repossession expenses were reduced by $44,000, primarily the result
of a reduction in collection expenses associated with other real estate owned
and other assets. There was also a decrease in the FDIC assessment of $35,000 as
an improved risk classification at Shelby County Bank was fully recognized in
2006 and the bank was only responsible for the Financing Corporation assessment
known as "FICO". Director fees have also decreased $16,000 for the year ended
December 31, 2006 compared to the year ended December 31, 2005. This is the
result of a change in the role of some directors who previously served on both
Blue River Bancshares' Board of Directors as well as Shelby County Bank's Board
of Directors and who currently only serve at the bank level. As stated
previously, compensation for the Chief Executive of the Company and the Chairman
of the Board of Shelby County Bank changed from directors fees to salaries
during the second quarter ended June 30, 2005.


                                       41

<PAGE>

Changes in non-interest expense consist of the following:

<TABLE>
<CAPTION>
                                                         YEAR ENDED                        PERCENTAGE
                                                        DECEMBER 31,                      CHANGE FROM
                                                  -----------------------   CHANGE FROM   DECEMBER 31,
                                                     2006         2005          2005      2005 TO 2006
                                                  ----------   ----------   -----------   ------------
<S>                                               <C>          <C>          <C>           <C>
Salaries and employee benefits                    $3,885,834   $3,764,936    $120,898          3.21%
Premises and equipment                               852,259      789,687      62,572          7.92%
Federal deposit insurance, KY state tax and OTS      199,332      234,020     (34,688)       (14.82)%
Data Processing                                      665,922      618,627      47,295          7.65%
Advertising and promotion                            119,903      177,740     (57,837)       (32.54)%
Bank fees and charges                                105,976      107,061      (1,085)        (1.01)%
Director Fees                                        118,900      134,900     (16,000)       (11.86)%
Professional fees                                    671,650      560,738     110,912         19.78%
Stationery, supplies and printing                    121,014      125,884      (4,870)        (3.87)%
Insurance                                             54,698       67,498     (12,800)       (18.96)%
ORE and repossession                                  15,507       59,339     (43,832)       (73.87)%
Core deposit intangible amortization                  68,964       68,964          --          0.00%
Merger expense                                            --       73,171     (73,171)      (100.00)%
Other                                                381,997      378,818       3,179          0.84%
                                                  ----------   ----------    --------
                                                  $7,261,956   $7,161,383    $100,573          1.40%
                                                  ==========   ==========    ========
</TABLE>


                                       42
<PAGE>

PROVISION FOR INCOME TAXES

The income tax expense was $366,000 for the year ended December 31, 2006
compared to a tax benefit of $430,000 for the year ended December 31, 2005.
During the fourth quarter of 2002, the Company recorded a valuation allowance of
$760,000 against a portion of the deferred tax assets, as management concluded
that it was more likely than not that a portion of the benefit associated with
the deferred tax asset would not be realized. During 2003, 2004 and the first
three quarters of 2005, management's estimate of the deferred tax asset
realization did not change significantly, and the Company recorded changes in
its valuation allowance to offset changes in the deferred tax assets, resulting
in no income tax expense. As deferred tax assets were realized during the first
three quarters of 2005, the valuation allowance declined by approximately
$429,000. In the fourth quarter of 2005, management concluded that the remaining
valuation allowance on the deferred tax assets was no longer necessary given the
Company's sustained income and growth through the year and projected net income
in the future and the valuation allowance was fully reversed. A tax benefit of
$430,000 was recognized related to the reversal of the remaining tax valuation
allowance. The effective tax rate was 38.0% for 2006 and (37.6)% 2005 with the
reversal of the valuation allowance being the primary cause of the fluctuation
in rate. Prior year's changes in the valuation allowance offset tax expense;
however, with last year's decision to reverse the valuation allowance on the
Company's deferred tax asset, the Company has now recognized tax expense against
current earnings. The Company has generated federal operating loss carryforwards
of approximately $4.9 million. The net operating loss carryforwards, if unused
will expire in 2020 through 2024. The Company has generated net state operating
loss carryforwards of approximately $5.3 million, which, if unused, will expire
in 2015 through 2019.

CAPITAL RESOURCES AND CAPITAL ADEQUACY

The Banks are subject to various capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
financial statements. The Board of Directors of the Company has set as an
objective to maintain capital levels required for qualification as
"well-capitalized".

Capital amounts and classification are also subject to qualitative judgments by
regulators involving capital components, risk weights and other factors. The
risk weights assigned to various financial instruments are taken into
consideration in setting operating parameters related to the mix of loans and
investments with the objective to maximize earnings attained through the use of
available equity capital.

On April 20, 2006, the Company established a Delaware trust subsidiary, Blue
River Bancshares Trust I, which completed the sale of $7 million of trust
preferred securities. Blue River Bancshares Trust I issued the trust preferred
securities at a rate equal to the three-month LIBOR rate plus 1.55%. The trust
preferred securities mature in 30 years and may be called without penalty on or
after June 30, 2011. Blue River Bancshares Trust I simultaneously issued 217 of
the trust's common securities to the Company for a purchase price of $217,000,
which, together with the trust preferred securities, constitutes all of the
issued and outstanding securities of the trust. Blue River Bancshares Trust I
used the proceeds from the sale of the trust preferred securities to purchase
the Company's unsecured junior subordinated deferrable interest notes due June
30, 2036 (the "Debenture"). The net proceeds from the offering were used by the
Company to pay all amounts due under and terminate, its $6 million credit
facility with Union Federal Bank of Indianapolis. In conjunction with the
termination of the Credit Agreement, all collateral securing the obligations
under the Credit Agreement, including the capital stock of Shelby County Bank
and Paramount Bank and the $500,000 deposit was released. The additional
proceeds were used for general corporate purposes.

At the holding company level, the Company uses cash to pay dividends to
shareholders. At December 31, 2006, the sources of funding for the holding
company include dividends from its subsidiary, Shelby County Bank. As discussed
in Note 1 to the Consolidated Financial Statements regarding Dividend
Restriction, the Company's bank subsidiaries are subject to regulation and may
be limited in its ability to pay dividends or otherwise transfer funds to the
holding company. In 2006, the Company declared and paid cash dividends totaling
$114,000.


                                       43

<PAGE>

With the proposed sale of Paramount Bank's charter to FirstAtlantic Holdings,
Inc., (see Note 18 to the Consolidated Financial Statements included herein)
expected during the second quarter of 2007, the Company anticipates net proceeds
of approximately $1,525,000. At this time management is considering several uses
for the cash payment, however no final decisions have been made.

Management believes that as of December 31, 2006, the Banks meet all capital
adequacy requirements to which they are subject as well as objectives set by the
Company's management and Board of Directors. The following table sets forth the
actual and minimum capital amounts and ratios of Shelby County Bank as of
December 31, 2006:

<TABLE>
<CAPTION>
                                                            AS OF DECEMBER 31, 2006
                                         -------------------------------------------------------------
                                                                                    FDICIA REGULATIONS
                                                                   MINIMUM FOR             TO BE
                                            ACTUAL CAPITAL      CAPITAL ADEQUACY    "WELL CAPITALIZED"
                                         -------------------   ------------------   ------------------
                                            AMOUNT     RATIO     AMOUNT     RATIO     AMOUNT     RATIO
                                         -----------   -----   ----------   -----   ----------   -----
<S>                                      <C>           <C>     <C>          <C>     <C>          <C>
Tangible capital ratio                   $12,300,000    9.1%   $2,032,000    1.5%          N/A    N/A
Core capital to average assets            12,300,000    9.1%    5,419,000    4.0%    6,773,000    5.0%
Tier 1 capital to risk weighted assets    12,300,000   11.6%          N/A    N/A     6,378,000    6.0%
Total capital to risk weighted assets     12,950,000   12.2%    8,504,000    8.0%   10,630,000   10.0%
</TABLE>

The following table sets forth the actual and minimum capital amounts and ratios
of Paramount Bank as of December 31, 2006:

<TABLE>
<CAPTION>
                                                            AS OF DECEMBER 31, 2006
                                         -------------------------------------------------------------
                                                                                    FDICIA REGULATIONS
                                                                   MINIMUM FOR             TO BE
                                            ACTUAL CAPITAL      CAPITAL ADEQUACY    "WELL CAPITALIZED"
                                         -------------------   ------------------   ------------------
                                            AMOUNT     RATIO     AMOUNT     RATIO     AMOUNT     RATIO
                                         -----------   -----   ----------   -----   ----------   -----
<S>                                      <C>           <C>     <C>          <C>     <C>          <C>
Tangible capital ratio                    $6,823,000    7.9%   $1,295,000    1.5%          N/A    N/A
Core capital to average assets             6,823,000    7.9%    3,453,000    4.0%    4,317,000    5.0%
Tier 1 capital to risk weighted assets     6,823,000    9.5%          N/A    N/A     4,310,000    6.0%
Total capital to risk weighted assets      7,638,000   10.6%    5,747,000    8.0%    7,184,000   10.0%
</TABLE>

USE OF FUNDS

INVESTMENT SECURITIES

Investment securities are a major category of earning assets for the Banks. This
portfolio is used to manage the Banks' interest rate sensitivity and liquidity
as other components of the balance sheet change. Additionally, investment
securities receive favorable treatment for the purpose of computing the Banks'
risk-based capital ratios. Government issued and government agency issued bonds,
as well as certain agency-backed mortgage backed securities contain low risk
weight factors and can be used to mitigate the 100% risk weight associated with
commercial and consumer lending products. Management's objective is to maximize,
within quality standards, its net interest margin while providing a stable
source of liquidity through the scheduled stream of maturities and


                                       44

<PAGE>

interest income. The Banks have adopted an investment policy which sets certain
guidelines related to the portfolio mix, duration, and maximum allowable
investments within certain investment categories.

Available-for-sale investment securities comprise 9.7 % of total assets and
10.4% of total earning assets at December 31, 2006. The Company has classified
all of its investment purchases as available-for-sale to maintain liquidity.
Additionally, the Company has concentrated efforts on acquiring investments with
favorable risk-based capital treatment, as well as increasing its holdings in
adjustable rate mortgage-backed securities to reduce interest rate sensitivity.

The available-for-sale investment portfolio was $21,907,000 at fair value, with
a cost basis of $22,637,000. The held-to-maturity portfolio currently is
comprised of bonds totaling $14,000. Shelby County Bank owns $1,745,000 of stock
in the Federal Home Loan Bank of Indianapolis and Paramount Bank owns $619,000
of stock in the Federal Home Loan Bank of Cincinnati. This equity position is
required as a member bank of the FHLB system, and the credit policy of the FHLB
states that member banks must own sufficient stock to serve as collateral
against funding provided through advances held by the Banks. In addition,
Paramount Bank also owns $38,000 of restricted stock in the Bankers Bank of
Kentucky.

Weighted average yields of the investment securities portfolio were 4.37% at
December 31, 2006 compared to 4.35% at December 31, 2005. The investment
strategy of the Banks' is to position in adjustable-rate mortgage-backed
securities acquired to assist in reducing interest rate sensitivity, purchasing
of new securities in a period of significantly lower market rates, and increased
repayments related to bonds with higher coupon rates.

Investment securities held in the Banks' portfolio consist primarily of U.S.
government agency issued debt securities, mortgage-backed securities with both
fixed and adjustable interest rates, municipal bonds, and corporate debt issues.
The mortgage-backed securities are subject to both prepayment and interest rate
risk. Management continues the use of adjustable-rate mortgage-backed securities
to reduce the Banks' interest rate sensitivity. Mortgage-backed securities not
only contain favorable characteristics related to risk-based capital, but also
assist in the management of the Banks' Qualified Thrift Lender (QTL) ratio.


                                       45

<PAGE>

INVESTMENT SECURITIES PORTFOLIO

<TABLE>
<CAPTION>
                                                                         GROSS        GROSS     ESTIMATED
                                                          AMORTIZED   UNREALIZED   UNREALIZED     FAIR
                                                             COST        GAINS       LOSSES       VALUE
                                                          ---------   ----------   ----------   ---------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                                       <C>         <C>          <C>          <C>
December 31, 2006:
   Investment securities held to maturity:
      Mortgage-backed securities                           $    14        $--        $  --       $    14
                                                           -------        ---        -----       -------
         Total investment securities held to maturity           14         --           --            14
                                                           -------        ---        -----       -------
Investment securities available for sale:
   Mortgage-backed securities                               13,241         --         (402)       12,839
   U.S. government agencies                                  8,999         --         (326)        8,673
   Municipals                                                  397         --           (2)          395
                                                           -------        ---        -----       -------
         Total investment securities available for sale     22,637          0         (730)       21,907
                                                           -------        ---        -----       -------
         Total investments                                 $22,651        $ 0        $(730)      $21,921
                                                           =======        ===        =====       =======
</TABLE>

<TABLE>
<CAPTION>
                                                                         GROSS        GROSS     ESTIMATED
                                                          AMORTIZED   UNREALIZED   UNREALIZED     FAIR
                                                             COST        GAINS       LOSSES       VALUE
                                                          ---------   ----------   ----------   ---------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                                       <C>         <C>          <C>          <C>
December 31, 2005:
   Investment securities held to maturity:
      Mortgage-backed securities                           $    16        $--         $  --      $    16
                                                           -------        ---         -----      -------
         Total investment securities held to maturity           16         --            --           16
                                                           -------        ---         -----      -------
Investment securities available for sale:
   Mortgage-backed securities                               16,058         11          (405)      15,664
   U.S. government agencies                                  8,998         --          (337)       8,661
   Municipals                                                  398         --            (2)         396
                                                           -------        ---         -----      -------
         Total investment securities available for sale     25,454         11          (744)      24,721
                                                           -------        ---         -----      -------
         Total investments                                 $25,470        $11         $(744)     $24,737
                                                           =======        ===         =====      =======
</TABLE>


                                       46

<PAGE>

MATURITY DISTRIBUTION OF INVESTMENT SECURITIES

As of December 31, 2006

<TABLE>
<CAPTION>
                                                              HELD TO MATURITY   AVAILABLE FOR SALE
                                                              ----------------   ------------------
                                                                        FAIR           FAIR
                                                                COST   VALUE           VALUE
                                                                ----   -----          -------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                                           <C>      <C>       <C>
Mortgage-Backed Securities:
   Due within one year                                           $--    $--           $    --
   1 to 5 Years                                                    1      1                --
   5 to 10 Years                                                  12     12                --
   Due after ten years                                             1      1            12,839
                                                                 ---    ---           -------
      Total Mortgage-Backed                                       14     14            12,839
                                                                 ---    ---           -------
U.S. Government Agencies:
   Due within one year                                            --     --                --
   1 to 5 Years                                                   --     --             7,711
   5 to 10 Years                                                  --     --               962
   Due after ten years                                            --     --                --
                                                                 ---    ---           -------
      Total U.S. government agencies                              --     --             8,673
                                                                 ---    ---           -------
Obligations of State and Political Subdivisions:
   Due within one year                                            --     --               190
   1 to 5 Years                                                   --     --               205
   5 to 10 Years                                                  --     --                --
                                                                 ---    ---           -------
      Total obligations of state and political subdivisions       --     --               395
                                                                 ---    ---           -------
      Total investments                                          $14    $14           $21,907
                                                                 ===    ===           =======
</TABLE>


                                       47

<PAGE>

As of December 31, 2005:

<TABLE>
<CAPTION>
                                                              HELD TO MATURITY   AVAILABLE FOR SALE
                                                              ----------------   ------------------
                                                                        FAIR            FAIR
                                                                COST   VALUE           VALUE
                                                                ----   -----          -------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                                           <C>      <C>       <C>
Mortgage-Backed Securities:                                      $--    $--           $    --
   Due within one year
   1 to 5 Years                                                    2      2                --
   5 to 10 Years
   Due after ten years                                            14     14           $15,664
                                                                 ---    ---           -------
      Total Mortgage -Backed                                      16     16            15,664
                                                                 ---    ---           -------
U.S. Government Agencies:
   Due within one year                                            --     --                --
   1 to 5 Years                                                   --     --             2,894
   5 to 10 Years                                                  --     --             5,767
   Due after ten years                                            --     --                --
                                                                 ---    ---           -------
      Total U.S. government agencies                              --     --             8,661
                                                                 ---    ---           -------
Obligations of State and Political Subdivisions:
   Due within one year                                            --     --                --
   1 to 5 Years                                                   --     --               396
   5 to 10 Years                                                  --     --                --
                                                                 ---    ---           -------
      Total obligations of state and political subdivisions       --     --               396
                                                                 ---    ---           -------
      Total investments                                          $16    $16           $24,721
                                                                 ===    ===           =======
</TABLE>

INVESTMENT SECURITIES WEIGHTED AVERAGE YIELD

<TABLE>
<CAPTION>
                      DUE     ONE     FIVE    DUE
                    WITHIN     TO      TO    AFTER
                      ONE     FIVE    TEN     TEN
                     YEAR    YEARS   YEARS   YEARS   TOTAL
                    ------   -----   -----   -----   -----
<S>                 <C>      <C>     <C>     <C>     <C>
December 31, 2006    6.55%   4.13%   4.53%   4.48%   4.37%
December 31, 2005    0.00%   4.31%   4.17%   4.42%   4.35%
</TABLE>


                                       48
<PAGE>

LOANS

Net loans at December 31, 2006 were $181,875,000, a $19,459,000 increase from
December 31, 2005. This represents an increase in the net loan portfolio of 12%
over the December 31, 2005 levels. The majority of this increase, or $14,148,000
is related to loan growth at both banks primarily in non-residential and
commercial loans. Commercial loans secured by commercial real estate increased
to $46,929,000, representing 25.80% of total net loans at December 31, 2006. At
December 31, 2006, commercial loans increased to $37,110,000 from the December
31, 2005 level comprising 20.40% of the net loan portfolio. There was also an
increase of $5,141,000 in residential mortgages over the 2005 levels. The Banks
have continued to pursue opportunities to expand their portfolios of home equity
loan products, with outstanding loans of $36,998,000 at December 31, 2006. These
loans have increased $1,971,000 over the 2005 levels. Consumer loans of
$9,843,000 offset these increases, as those loans decreased $1,480,000 for the
year ended December 31, 2006 compared to the year ended December 31, 2005. Loan
growth continued to accelerate in the commercial lending market as well as in
the home equity market during the year ended December 31, 2006. These loan
products provide the opportunity for increased profitability and continued
improvement in interest rate sensitivity while maintaining the Banks' "well
capitalized" status. The Company expects this acceleration to continue during
2007. Sustained loan growth is anticipated in existing markets coupled with
increased expansion into the northern Indianapolis, Indiana markets as a result
of the recent opening of a loan production office in Fishers, Indiana. The Banks
will also continue to concentrate retail lending efforts to home equity loans
due to lower credit risks involved in loans secured by the borrower's primary
residence. In the past, the Company benefited from historical increases in the
prime lending rate. However, the Banks have reduced their asset sensitivity. As
a result, the Company would no longer gain as much benefit if the prime lending
rate would increase as it has in the past. Therefore, the Banks are now
concentrating on loan products that provide the opportunity for longer maturity
terms and fixed rate pricing as a result of the lack of volatility in the
interest rate environment. At December 31, 2006, the Banks did not have any
significant outstanding loan concentration in similar industries that could
cause an adverse impact during an economic downturn in any one industry segment.

LOAN PORTFOLIO

<TABLE>
<CAPTION>
                                                  DECEMBER 31,
                                              -------------------
                                                2006       2005
                                              --------   --------
                                             (DOLLARS IN THOUSANDS)
<S>                                           <C>        <C>
Real Estate Mortgage Loans:
   One-to-four family                         $ 52,892   $ 47,751
   Non residential                              46,929     39,441
   Home equity loans                            36,998     35,027
Consumer loans                                   9,843     11,323
Commercial loans, including participations      37,110     30,450
Less allowance for loan losses                  (1,897)    (1,576)
                                              --------   --------
Net loans                                     $181,875   $162,416
                                              ========   ========
</TABLE>


                                       49

<PAGE>

COMPOSITION OF LOANS BY TYPE

<TABLE>
<CAPTION>
                                                            DECEMBER 31, 2006        DECEMBER 31, 2005
                                                         ----------------------   ----------------------
                                                                      PERCENT                   PERCENT
                                                           AMOUNT    OF TOTAL        AMOUNT    OF TOTAL
                                                          --------   --------       --------   --------
                                                         (DOLLARS IN THOUSANDS)   (DOLLARS IN THOUSANDS)
<S>                                                      <C>         <C>          <C>          <C>
Mortgage Loans:
   One to four family                                     $ 52,892     28.78%       $ 47,751     29.12%
   Non residential                                          46,929     25.54%         39,441     24.05%
   Home equity                                              36,998     20.13%         35,027     21.36%
Consumer loans                                               9,843      5.36%         11,323      6.90%
Commercial loans                                            37,110     20.19%         30,450     18.57%
                                                          --------    ------        --------    ------
      Total gross loans                                   $183,772    100.00%       $163,992    100.00%
                                                          ========    ======        ========    ======
Type of Collateral:
   One-to-four family                                     $ 84,584                  $ 77,551
   Non-residential                                          34,863                    30,963
   Inventory, Accounts Receivables, Securities, other       34,798                    27,372
   Multi-family                                              5,134                     5,432
   Equipment                                                 1,328                     2,446
   Autos                                                     1,772                     2,205
   Unsecured                                                10,025                    10,045
   Land                                                     11,268                     7,978
                                                          --------                  --------
      Total gross loans                                   $183,772                  $163,992
                                                          ========                  ========
</TABLE>

<TABLE>
<CAPTION>
                                    DUE DURING THE YEARS ENDING DECEMBER 31,
                          -----------------------------------------------------------
                                             (DOLLARS IN THOUSANDS)
                                                           2009     2012       2017
                                                            TO       TO        AND
                            TOTAL      2007      2008      2011     2016    FOLLOWING
                          --------   -------   -------   -------   ------   ---------
<S>                       <C>        <C>       <C>       <C>       <C>      <C>
Mortgage Loans:
   One-to-four family     $ 52,892   $16,857   $ 5,211   $12,247   $2,485    $16,092
   Non residential          46,929    17,473     6,694    14,703    2,362      5,697
   Home equity              36,998       888        87        11    1,031     34,981
Consumer loans               9,843     6,040       441     2,444      646        272
Commercial loans            37,110    18,218     1,218    13,358    3,406        910
                          --------   -------   -------   -------   ------    -------
      Total gross loans   $183,772   $59,476   $13,651   $42,763   $9,930    $57,952
                          ========   =======   =======   =======   ======    =======
</TABLE>


                                       50

<PAGE>

LOAN DISTRIBUTION

<TABLE>
<CAPTION>
                         DUE AFTER DECEMBER 31, 2007
                        -----------------------------
                         FIXED    VARIABLE
                         RATES      RATES      TOTAL
                        -------   --------   --------
                            (DOLLARS IN THOUSANDS)
<S>                     <C>       <C>        <C>
Mortgage Loans:
   One-to-four family   $33,556    $ 2,479   $ 36,035
   Non residential       23,314      6,142     29,456
   Home equity lines         --     36,110     36,110
Consumer loans            3,654        149      3,803
Commercial loans         13,667      5,225     18,892
                        -------    -------   --------
      Total             $74,191    $50,105   $124,296
                        =======    =======   ========
</TABLE>

LOAN ACTIVITY

<TABLE>
<CAPTION>
                                               FOR THE       FOR THE
                                             YEAR ENDED     YEAR ENDED
                                            DECEMBER 31,   DECEMBER 31,
                                                2006           2005
                                            ------------   ------------
                                               (DOLLARS IN THOUSANDS)
<S>                                         <C>            <C>
Gross Loans Receivable, beginning of year    $ 163,992      $ 157,427
Mortgage loan originations:
   One to four family                           30,527         35,749
   Home equity                                  24,077         22,260
   Non residential                              25,590         39,526
                                             ---------      ---------
      Total mortgage loans                      80,194         97,535
Consumer loans:
   Installment loans                             6,434          8,490
   Loans secured by deposits                     1,104          1,611
                                             ---------      ---------
      Total consumer loans                       7,538         10,101
Commercial loans                                37,749         33,149
                                             ---------      ---------
      Total originations                       125,481        140,785
Repayments and other deductions               (105,701)      (134,220)
                                             ---------      ---------
Gross Loans Receivable, end of year          $ 183,772      $ 163,992
                                             =========      =========
</TABLE>


                                       51

<PAGE>

LOAN QUALITY

The Banks' loan portfolios are subject to varying degrees of credit risk. Credit
risk is mitigated through portfolio diversification, limiting exposure to any
single industry or customer, collateral protection, and standard lending
policies and underwriting criteria. The Banks' primary lending products are
commercial, consumer, and single-family mortgage loans including home equity
loans.

Commercial loans generally have shorter terms and higher interest rates than
residential mortgage loans and usually involve more credit risk than mortgage
loans because of the type and nature of the collateral. Commercial loans rely
primarily on the operations of the borrower for repayment and secondarily on the
underlying collateral. At December 31, 2006, our portfolio of commercial and
commercial real estate loans totaled $84 million, or 45.7% of total gross loans.
Commercial loans generally expose a lender to greater risk of non-payment and
loss than one-to-four family residential mortgage loans because repayment of the
loans often depends on the successful operations and the income stream of the
borrowers. Such loans typically involve larger loan balances to single borrowers
or groups of related borrowers compared to one-to-four family residential
mortgage loans.

Consumer lending collections are dependent on the borrower's continuing
financial stability, and are thus likely to be adversely affected by job loss,
illness and personal bankruptcy. In many cases, repossessed collateral for a
defaulted consumer loan will not provide an adequate source of repayment of the
outstanding loan balance because of depreciation of the underlying collateral.

Single-family mortgage lending collections are dependent on the borrower's
continuing financial stability, and are thus likely to be adversely affected by
job loss, illness and personal bankruptcy. Secondarily, the Banks can foreclose
on the property for a defaulted single-family mortgage loan.

Management of the Banks and the Board of Directors of the Banks have established
a formalized, written loan policy and specific lending authority for each loan
officer based upon the loan officer's experience and performance. Each of the
Banks has also formed two additional levels of review for credits which exceed
the lending authority of the sponsoring officer. The Officer Loan Committees
approve loans in excess of individual lending officer limits. The Board of
Directors or Director Loan Committee approve all credits in excess of the
Officer Loan Committee limits up to the Banks' in-house limits.

The Board of Directors and or the Directors Loan Committee also monitor loan
administration, loan review and the overall quality of the Banks' loan
portfolio.

A loan review program is maintained. This function improves independence and
maintains a high level of expertise. Currently, this function is outsourced to a
third party. Particular attention is focused on the largest aggregate borrowers,
and additionally to any credits recommended for reclassification. The reviews
are conducted annually at Shelby County Bank and semi-annually at Paramount Bank
with written reports provided to management and the Loan Committees to provide
documentation of actions necessary to correct documentation deficiencies.

The Board of Directors and or the Directors Loan Committee meet monthly to
review the overall administration of the loan portfolio, as well as many other
matters. The Boards at each of the Banks review problem loans; delinquency
reports and discuss lending activities at each meeting.

Both of the Banks maintain a watch list of loans which do not meet the Banks'
established criteria. While these are not necessarily under-performing loans,
they are monitored as a precautionary matter. This management report also
contains loans which are considered to be loans that are under-performing or
non-performing, loans criticized by examiners or any other case where the
borrower has exhibited characteristics requiring special attention. A provision
for probable incurred losses on loans is charged to operations based upon
management's evaluation of the probable losses. Such an evaluation, which
includes a review of loans for which full collectibility may not be reasonably
assured considers, among other matters, the estimated net realizable value of
the underlying collateral, as applicable, economic conditions, historical loan
loss experience and other factors that are particularly


                                       52

<PAGE>

susceptible to changes that could result in a material adjustment in the near
term. While management endeavors to use the best information available in making
its evaluations, future allowance adjustments may be necessary if conditions
change substantially from the assumptions used in making the evaluations.

Non-performing assets are defined as: (1) loans in non-accrual status where the
ultimate collection of interest is uncertain; (2) loans past due ninety days or
more as to principal or interest (and where continued accrual has been
specifically approved); and (3) loans which have been renegotiated to provide a
reduction or deferral of interest or principal because of deterioration in the
financial condition of the borrower. At December 31, 2006, the Company reported
approximately $2,820,000 of impaired and non-accrual loans and $1,858,000 in
loans ninety days or more past due. This is an increase in non-accrual loans of
$1,128,000 from December 31, 2005 and an increase in ninety days or more past
due loans of $593,000 from December 31, 2005. The increase in non-accrual loans
was primarily the result of an additional $1,959,000 in new non-accrual loans
and the reclassification of $77,000 in ninety day past due loans to non-accrual
status. These increases were offset by $831,000 in charge-offs and repayments,
and $77,000 in non-accrual loans that were returned to accrual status. The
primary reason for the increase in past due loans ninety days or more was the
result of an additional $1,331,000 of loans in this category, primarily
increases in home equity and commercial. This increase was offset by the $77,000
shift that occurred from the ninety day past due loans to non-accrual loans,
$445,000 in other loans that were removed from ninety days past due as a result
of renewals, payoffs and charge offs, and one loan of $216,000 that was
transferred to other real estate owned. The majority of this increase primarily
represents loans in bankruptcy foreclosure status. There was an increase in the
non-performing loans to total gross loans from 1.63% at December 31, 2005 to
2.39% at December 31, 2006. The Banks maintain a reserve for loan losses to
cover losses incurred when loans default. Loans in all categories are
charged-off when they are deemed uncollectible.

NON-PERFORMING ASSETS

<TABLE>
<CAPTION>
                                                            YEAR ENDED
                                                           DECEMBER 31,
                                                      ----------------------
                                                          2006     2005
                                                         ------   ------
                                                      (DOLLARS IN THOUSANDS)
<S>                                                   <C>         <C>
Non-accruing loans                                       $2,531   $1,403
Ninety (90) days past due                                 1,858    1,265
                                                         ------   ------
         Total non-performing loans                      $4,389   $2,668
                                                         ======   ======
Non-performing loans as a percentage of total loans        2.39%    1.63%
Past due loans (90 days or more):
   Real estate mortgages:
      One to four family                                 $  726   $  980
      Non residential                                        54      105
      Home equity loans                                     763      149
  Consumer loans                                             28       29
  Commercial loans, including participations                287        2
                                                         ------   ------
         Total                                           $1,858   $1,265
                                                         ======   ======
</TABLE>

The non-accruing loans that are reported as of December 31, 2006 would have
provided approximately $201,000 of interest income in 2006 had they been
performing in accordance with their contractual terms. The interest income and
fees on loans reported for the year ended December 31, 2006 included
approximately $50,000 that was received from loans reported as non-accrual as of
December 31, 2006.


                                       53
<PAGE>

ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                                      YEAR ENDED
                                                     DECEMBER 31,
                                                 -------------------
                                                   2006       2005
                                                 --------   --------
                                                      (DOLLARS
                                                    IN THOUSANDS)
<S>                                              <C>        <C>
Beginning allowance for loan losses              $  1,576   $  1,919
Loans charged off:
   Real estate mortgages:
      One-to-four family                               38         51
      Non residential                                  --         65
      Home Equity Loans                               123         25
   Consumer loans                                     337         82
   Commercial loans, including participations         128        344
                                                 --------   --------
         Total charged-off loans                      626        567
                                                 --------   --------
Recoveries on charged-off loans:
   Real estate mortgages:
      One-to-four family                                1          5
      Non residential                                  40         70
Consumer loans                                         42         21
Commercial loans, including participations              6          2
                                                 --------   --------
         Total recoveries on charged-off loans         89         98
                                                 --------   --------
         Net charge-offs                              537        469
                                                 --------   --------
Provision for loan losses                             858        126
                                                 --------   --------
Ending allowance for loan losses                 $  1,897   $  1,576
                                                 ========   ========
Average loans outstanding                        $171,891   $159,454
Net charged-off loans to average loans               0.31%      0.29%
</TABLE>

Since December 31 2005, the Company's allowance for loan losses and related
provision expense increased. The provision for loan losses for the year ended
December 31, 2006, was $858,000 versus $126,000 for the year ended December 31,
2005. This increase was primarily due to increased allocations for specific
loans. Specific allocations totaled $1,339,000 at December 31, 2006 compared to
$853,000 at December 31, 2005. The increase in the specific allocations is
attributable to both an increase in the total watch listed loans and special
reserves for potential problem loans, and the reallocation of pooled reserves to
specific reserves. The increase in specific allocations was partially offset by
a decrease in pooled allocations from $492,000 at December 31, 2005 to $352,000
at December 31, 2006. There was also an increase in net charge-offs of $537,000
for the year ending December 31, 2006 compared to $469,000 for the year ending
December 31, 2005. The increase in net-charge offs coupled with increases of
total loan balances were additional contributing factors for the increase in the
provision for loan losses over the period.

An analysis of the allowance for loan losses is performed monthly by the Banks'
management to assess the appropriate levels of allowance for loan losses.
Specific allocations are established based upon review of individual borrowers
identified in the classified loan list, establishing the probable incurred
losses associated with such borrowers, including comparison of loan balances
versus estimated liquidation values of collateral based upon independent
information sources or appraisals performed by board-approved licensed
appraisers. The remaining pools of loans, excluding those classified or
delinquent are analyzed for the general loan loss allowance.


                                       54

<PAGE>

Management evaluates this general allowance using loan loss statistics by
various types of loans, including statistics published periodically by the OTS
and FDIC, the Banks' historical losses and recommendations by the Chief Credit
Officer. Appropriate loss percentages are applied to the Banks' distribution of
portfolio balances since management believes this will be representative of
future losses inherent in the portfolio. The calculated allocations are compared
to the Banks' existing allocations to establish the provision necessary to bring
the actual allowance balance in compliance with the findings of the allowance
analysis. The following is a breakdown of the loans identified in the review
which are classified as non-performing as of December 31, 2006:

<TABLE>
<CAPTION>
                             DECEMBER 31, 2006
                           ---------------------
                            NUMBER
                           OF LOANS    BALANCES
                           --------   ----------
<S>                        <C>        <C>
Residential mortgage           36     $2,592,826
Non residential mortgage        5        599,706
Consumer secured                5         49,395
Commercial secured              2        287,386
Commercial unsecured            3        859,665
                              ---     ----------
   Total                       51     $4,388,978
                              ===     ==========
</TABLE>

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                              PERCENT OF
                           DECEMBER 31,     LOANS TO TOTAL
                         ---------------   ---------------
                          2006     2005     2006     2005
                         ------   ------   ------   ------
                            (DOLLARS
                          IN THOUSANDS)
<S>                      <C>      <C>      <C>      <C>
Real estate mortgages:
   One-to-four family    $  741   $  227    28.78%   29.12%
   Non residential          119       81    25.54%   24.05%
   Home Equity              204      161    20.13%   21.36%
Consumer                     60      201     5.36%    6.90%
Commercial                  557      676    20.19%   18.57%
Unallocated                 216      230       --       --
                         ------   ------   ------   ------
Total                    $1,897   $1,576   100.00%  100.00%
                         ======   ======   ======   ======
</TABLE>

FUNDING SOURCES

The Banks' primary funding source is its base of core customer deposits, which
includes interest and non-interest bearing demand deposits, savings accounts,
money market accounts and certificates of deposit. Other sources of funds have
been through advances from FHLB. The following table presents information with
respect to the average balances of these funding sources.

The Banks' average total deposits were $174,574,000 for the year ended December
31, 2006, compared to $167,010,000 for the year ended December 31, 2005.
Management continues to emphasize the benefits of gathering non-certificate
depository funding as a means of decreasing the Banks' overall funding costs,
improving levels of fee income derived from depository relationships, and
encouraging a stronger relationship with its customer base. By acquiring primary
transaction accounts, the Banks are less susceptible to loss of accounts during
periods of volatile interest rates.


                                       55

<PAGE>

FUNDING SOURCES--AVERAGE BALANCES

<TABLE>
<CAPTION>
                                                       YEAR ENDED
                                                      DECEMBER 31,
                                                  -------------------
                                                    2006       2005
                                                  --------   --------
                                                       (DOLLARS
                                                     IN THOUSANDS)
<S>                                               <C>        <C>
Core Deposits:
   Non-interest bearing demand and NOW accounts   $ 39,837   $ 39,625
   Money market accounts                            34,543     23,289
   Savings accounts                                 12,020      9,644
   Certificates of deposit                          88,174     94,452
                                                  --------   --------
      Total deposits                               174,574    167,010
FHLB advances and other borrowings                  21,690     21,084
                                                  --------   --------
      Total funding sources                       $196,264   $188,094
                                                  ========   ========
</TABLE>

FUNDING SOURCES--COST OF FUNDS

<TABLE>
<CAPTION>
                                                   YEAR ENDED
                                                  DECEMBER 31,    CHANGE
                                                  ------------   2005 TO
                                                  2006    2005     2006
                                                  ----   -----   -------
<S>                                               <C>    <C>     <C>
Core Deposits:
   Non-interest bearing demand and NOW accounts   0.71%  0.68%   0.03%
   Money market accounts                          3.91%  2.40%   1.51%
   Savings accounts                               2.25%  1.64%   0.61%
   Certificates of deposit                        4.19%  3.41%   0.78%
                                                  ----   ----
      Total deposits                              3.59%  2.81%   0.78%
FHLB advances and other borrowings                5.19%  4.28%   0.91%
                                                  ----   ----
      Total funding sources                       3.79%  3.00%   0.79%
                                                  ----   ----    ----
</TABLE>


                                       56

<PAGE>

<TABLE>
<CAPTION>
                                   MINIMUM RANGE       BALANCE         %      WEIGHTED
                                     OF OPENING     DECEMBER 31,      OF       AVERAGE
                                      BALANCES          2006       DEPOSITS     RATE
                                   --------------   ------------   --------   --------
                                                  (DOLLARS IN THOUSANDS)
<S>                                <C>              <C>            <C>        <C>
Withdrawable:
   Savings accounts                  $5 - $2,500      $ 12,998        7.06%     2.51%
   Non-interest bearing checking       25 - 50          27,425       14.90%       --
   NOW accounts                       50 - 500          16,129        8.76%     0.70%
   Money market accounts           1,000 - 10,000       35,446       19.25%     3.99%
                                                      --------      ------
      Total withdrawable                                91,998       49.97%
                                                      --------      ------
Certificates (original terms):
   12 months or less                   Various          30,631       16.64%     4.94%
   13 to 36 months                   50 - 1,000         14,141        7.68%     3.74%
   37 months and greater             50 - 1,000         11,550        6.27%     3.92%
   Jumbo certificates                  100,000          35,793       19.44%     4.94%
                                                      --------      ------
      Total certificates                                92,115       50.03%     4.63%
                                                      --------      ------
      Total deposits                                  $184,113      100.00%
                                                      ========      ======
</TABLE>

CERTIFICATES OF DEPOSIT, BY RATE

<TABLE>
<CAPTION>
                   DECEMBER 31,
                       2006
              ----------------------
              (DOLLARS IN THOUSANDS)
<S>           <C>
Under 3%              $ 1,962
3% to 3.99%            16,711
4% to 4.99%            30,827
5% to 5.99%            42,543
6% to 6.99%                --
7% and over                72
                      -------
                      $92,115
                      =======
</TABLE>


                                       57
<PAGE>

CERTIFICATES OF DEPOSIT, BY RATE AND TERM

<TABLE>
<CAPTION>
                                           GREATER
              ONE YEAR                       THAN
                 OR        TWO     THREE    THREE
                LESS      YEARS    YEARS    YEARS     TOTAL
              --------   ------   ------   -------   -------
                          (DOLLARS IN THOUSANDS)
<S>           <C>        <C>      <C>      <C>       <C>
Under 3%       $ 1,941   $   10   $   --    $   10   $ 1,961
3% to 3.99%     11,329    3,443    1,939        --    16,711
4% to 4.99%     21,552    3,324    4,147     1,804    30,827
5% to 5.99%     40,021    1,756      541       226    42,544
6% to 6.99%         --       --       --        --        --
7% and over          2       --       --        70        72
               -------   ------   ------    ------   -------
               $74,845   $8,533   $6,627    $2,110   $92,115
               =======   ======   ======    ======   =======
</TABLE>

TIME DEPOSITS OF $100,000 AND OVER

<TABLE>
<CAPTION>
                                                   DECEMBER 31,
                                                -----------------
                                                  2006      2005
                                                -------   -------
                                                   (DOLLARS IN
                                                    THOUSANDS)
<S>                                             <C>       <C>
Three months or less                            $14,035   $ 1,727
Greater than three months through six months      3,958       847
Greater than six months through twelve months    10,877    13,548
Over twelve months                                6,923    11,520
                                                -------   -------
Total                                           $35,793   $27,642
                                                =======   =======
</TABLE>

FHLB ADVANCES

<TABLE>
<CAPTION>
                                                                AT OR FOR THE
                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                              -----------------
                                                                2006      2005
                                                              -------   -------
                                                                 (DOLLARS IN
                                                                  THOUSANDS)
<S>                                                           <C>       <C>
FHLB advances outstandings at end of year                     $16,038   $17,826
Average balance for year                                       13,569    16,170
Maximum amount outstanding at any month-end during the year    25,166    18,950
Weighted average interest rate during the year                   4.13%     3.40%
Weighted average interest rate at end of year                    3.47%     3.80%
</TABLE>

LIQUIDITY AND RATE SENSITIVITY

The Company's liquidity position is the primary source of additional capital for
infusion into its banking subsidiaries. During the first quarter of 2006,
Paramount Bank had high rate, long term certificates of deposit, which matured.
Rather than match all of their competitor's rates, Paramount Bank temporarily
replaced these certificates with borrowings. During the second quarter of 2006,
Paramount successfully increased certificate of deposit balances through
brokered certificates of deposits and thereby decreased borrowings. Shelby
County Bank has continued to obtain deposits from many local governmental
entities. These deposits are subject to significant


                                       58

<PAGE>

volatility and Shelby County Bank must maintain alternative sources of funding,
in order to satisfy large withdrawals. In an effort to reduce our borrowing
costs and provide additional funds, the Company established a new Delaware trust
subsidiary, Blue River Bancshares Trust I, which completed the sale of
$7,000,000 of trust preferred securities on April 20, 2006 (see Note 8 to the
Consolidated Financial Statements included herein). Six million dollars of the
net proceeds from the offering were used by the Company to pay all amounts due
under and terminate its $6,000,000 credit facility with Union Federal Bank of
Indianapolis. The additional proceeds were used for general corporate purposes.
Based upon current projections, the Company does not anticipate the need for any
additional external funding over the next twelve months.

The primary function of liquidity and interest rate sensitivity management is to
provide for and assure an ongoing flow of funds that is adequate to meet all
current and future financial needs of the Banks. Such financial needs include
funding credit commitments, satisfying deposit withdrawal requests, purchasing
property and equipment and paying operating expenses. The funding sources of
liquidity are principally the maturing assets, payments on loans issued by the
Banks, net deposit growth, and other borrowings. The purpose of liquidity
management is to match sources of funds with anticipated customer borrowings and
withdrawals and other obligations along with ensuring a dependable funding base.
Alternative sources of liquidity include acquiring jumbo certificates resulting
from local government bidding, liquidation of marketable investment securities,
sales and/or securitization of pools of loans, and additional draws against
available credit at the FHLB.

Rate sensitivity analysis places each of the Banks' balance sheet components in
its appropriate maturity and/or repricing frequency, thus allowing management to
measure the exposure to changes in interest rates. The Banks are required to
provide quarterly reporting to the Office of Thrift Supervision (OTS) in the
form of Schedule CMR, which accompanies the Banks' filing of the Thrift
Financial Report (TFR). This data is modeled by the OTS and is reported back to
the Banks representing the Banks' NPV (net portfolio value), which reflects the
economic value of the Banks' balance sheet when discounted against current
market rates and assumptions regarding prepayments and other factors influencing
cash flows of the financial instruments contained therein. The base value is
then shocked against assumed changes in market interest rates with particular
attention to the scenario of rates increasing 200 basis points. This information
is reviewed by management to determine appropriate action to be taken to
reposition the balance sheet to reduce the sensitivity of the institution. The
results of the OTS modeling and management's strategies are then presented to
the Board of Directors to establish the Banks' status with regard to its
Asset/Liability and Interest Rate Sensitivity policies.

The Banks' Asset/Liability Committees, which set forth guidelines under which
the Banks manage funding sources and their investments and loan portfolios are
responsible for monitoring the Banks' sensitivity measures. The objective of
these committees is to provide for the maintenance of an adequate net interest
margin, appropriate NPV levels, and adequate level of liquidity to keep the
Banks sound and profitable during all stages of an interest rate cycle. The
Presidents of each Bank have been authorized by the Boards of Directors to
perform the daily management functions related to asset/liability management and
investment trading activities for the Banks.

At December 31, 2006, $105,637,000 of the loan portfolio is due to mature or
reprice within one year, compared to $102,556,000 of the portfolio at December
31, 2005. In the investment securities category, $10,593,000 of the portfolio
matures or reprices within one year, compared to $11,286,000 at December 31,
2005. The adjustable rate mortgages prepaid at a slower speed during 2006
compared to 2005. The repayment of this portion of the portfolio was $2,784,000
in 2006 compared to $3,618,000 in 2005. There were no sales and maturities of
available-for-sale securities for the year ended December 31, 2006 compared to
net sales and maturities of available-for-sale securities of $3,401,000 for the
year ended December 31, 2005.

Management's objective in interest rate sensitivity is to reduce the Banks'
vulnerability to future interest rate fluctuations while providing for growth
and stability of net interest margin.

The cumulative GAP ratio of the Banks on December 31, 2006 was 1.81% for
interest rate sensitive assets and liabilities of ninety days or less and
(14.86%) for interest rate sensitive assets and liabilities for 91 days to one
year or less. These ratios show a deterioration in the 90-day and one-year gap
when compared to 2005 levels and an improvement in the one-five year, and beyond
levels.


                                       59

<PAGE>

INTEREST RATE SENSITIVITY ANALYSIS

<TABLE>
<CAPTION>
                                             1-90      91-365       1-5      BEYOND
                                             DAYS       DAYS       YEARS    5 YEARS     TOTAL
                                           --------   --------   --------   -------   --------
                                                          (DOLLARS IN THOUSANDS)
<S>                                        <C>        <C>         <C>       <C>       <C>
Earning Assets:
   Investment securities                   $  9,630   $    963    $ 9,416   $ 2,642   $ 22,651
   FHLB stock                                 2,364         --         --        --      2,364
   Restricted stock                              38         --         --        --         38
   Interest-bearing deposits                  5,187         --         --        --      5,187
   Other earning assets                         217         --         --        --        217
   Loans (excluding non-accruing and
      90 days past due)                      94,648     10,989     51,516    22,230    179,383
                                           --------   --------    -------   -------   --------
      Total earning assets                  112,084     11,952     60,932    24,872    209,840
                                           --------   --------    -------   -------   --------
Interest-Bearing Liabilities:
   Savings and transaction deposits          64,573         --         --        --     64,573
   Time deposits                             29,534     44,551     18,020        10     92,115
   Subordinated debt                          7,217         --         --        --      7,217
   Borrowed funds                             6,651      5,153      2,236     1,998     16,038
                                           --------   --------    -------   -------   --------
      Total interest-bearing liabilities    107,975     49,704     20,256     2,008    179,943
                                           --------   --------    -------   -------   ========
Interest rate sensitivity gap per period   $  4,109   $(37,752)   $40,676   $22,864
                                           ========   ========    =======   =======
Cumulative interest rate gap               $  4,109   $(33,643)   $ 7,033   $29,897
                                           ========   ========    =======   =======
Cumulative interest sensitivity gap as
   a percentage of total assets                1.81%    (14.86)%     3.11%    13.21%
</TABLE>

NET PORTFOLIO VALUE

<TABLE>
<CAPTION>
           AMOUNT    CHANGE   CHANGE   RATIO    CHANGE
          -------   -------   ------   -----   -------
                    (DOLLARS IN THOUSANDS)
<S>       <C>       <C>       <C>      <C>     <C>
+300 bp   $25,581   $(3,295)   -11%    11.34%  -116 bp
+200 bp    26,485    (2,391)    -8%    11.66%   -84 bp
+100 bp    27,567    (1,309)    -5%    12.05%   -46 bp
   0 bp    28,876                      12.51%
-100 bp    29,590       714      2%    12.73%    23 bp
-200 bp    29,954     1,078      4%    12.82%    32 bp
</TABLE>

The OTS' Net Portfolio Value model data for the Banks as of December 31, 2006
excluded the -300 bp scenarios because of the abnormally low prevailing interest
rate environment.


                                       60

<PAGE>

OFF BALANCE SHEET COMMITMENTS AND CONTRACTUAL OBLIGATIONS

The Company currently does not have any off balance sheet commitments, other
than letters of credit as discussed below and in Note 14 to the consolidated
financial statements.

The Banks use the same credit policies and collateral requirements in making
commitments as they do for on-balance sheet financial instruments. The following
table details the amounts and expected maturities of significant commitments as
of December 31, 2006.

<TABLE>
<CAPTION>
                                               ONE YEAR      ONE TO      THREE TO    OVER FIVE
                                                OR LESS   THREE YEARS   FIVE YEARS     YEARS      TOTAL
                                               --------   -----------   ----------   ---------   -------
                                                             (DOLLARS IN THOUSANDS)
<S>                                            <C>        <C>           <C>          <C>         <C>
Commitments to extend credit:
   Commercial                                   $12,046     $    62       $  240       $2,300    $14,648
   Residential real estate                        6,354         159           12           --      6,525
   Revolving Home Equity                         17,572          --           --           --     17,572
   Other                                          2,113          --           --           --      2,113
Standby letters of credit                           197          --           --           --        197
Commercial letters of credit                        573       1,500           --          224      2,297
Net commitments to sell mortgage
   loans and mortgage-backed
   securities                                     1,182          --           --           --      1,182
Contractual obligations:
   Principal maturities of subordinated debt         --          --           --        7,217      7,217
   Principal maturities of FHLB advances             --      11,838          656        3,430     15,924
   Principal maturities of leases                   300         557          353          525      1,735
   Term certificates of deposit                  74,845      15,160        2,099           11     92,115
</TABLE>

Commitments to extend credit, including loan commitments, standby letters of
credit, and commercial letters of credit do not necessarily represent future
cash requirements, in that these commitments often expire without being drawn
upon.


                                       61

<PAGE>

EFFECTS OF INFLATION

The assets and liabilities of a banking entity are unlike companies with
investments in inventory, plant and equipment. Assets are primarily monetary in
nature and differ from the assets of most non-financial services companies. The
performance of a bank is affected more by changes in interest rates than by
inflation.

Because of the relatively low rate of inflation over the past years, the impact
upon the Company's balance sheet and levels of income and expense has been
minimal.


                                       62
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Blue River Bancshares, Inc.
Shelbyville, Indiana

We have audited the accompanying consolidated balance sheets of Blue River
Bancshares, Inc. (the "Company") as of December 31, 2006 and 2005, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2006 and 2005, and the results of its operations and its cash flows for the
years then ended, in conformity with U.S. generally accepted accounting
principles.

As discussed in Note 1, the Company adopted Staff Accounting Bulletin No.108
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" and accordingly adjusted
assets and liabilities at the beginning of 2006 with an off-setting adjustment
to the opening balance of retained earnings.


                                        /s/ Crowe Chizek and Company LLC

Indianapolis, Indiana
March 21, 2007


                                       63

<PAGE>

BLUE RIVER BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                                       2006           2005
                                                                   ------------   ------------
<S>                                                                <C>            <C>
ASSETS

ASSETS:
   Cash and cash equivalents:
      Cash and due from banks                                      $  4,525,905   $  7,955,266
      Interest-bearing deposits                                       5,187,485     12,221,600
                                                                   ------------   ------------
         Total cash and cash equivalents                              9,713,390     20,176,866
   Securities available for sale, at fair value                      21,906,818     24,720,805
   Securities held to maturity, (fair value $13,839 and $16,292)         13,661         16,019
   Loans receivable, net of allowance for loan losses of
      $1,896,618 and $1,575,511                                     181,875,004    162,416,186
   Stock in FHLB and other restricted stock, at cost                  2,401,700      3,011,600
   Current and deferred income taxes, net                             2,901,625      3,312,203
   Premises and equipment, net                                        2,178,238      1,970,992
   Other real estate owned                                              232,740        468,666
   Accrued interest receivable and other assets                       1,890,536      1,678,703
   Core deposit intangible                                              241,378        310,342
   Goodwill                                                           3,159,051      3,159,051
                                                                   ------------   ------------
TOTAL ASSETS                                                       $226,514,141   $221,241,433
                                                                   ============   ============
LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
   Interest bearing deposits                                       $156,687,627   $154,367,308
   Non-interest bearing deposits                                     27,425,491     24,391,830
   Advances from FHLB                                                16,037,854     17,826,422
   Note payable                                                              --      6,000,000
   Subordinated debt                                                  7,217,000             --
   Accrued interest and other liabilities                             1,326,104      1,185,898
                                                                   ------------   ------------
          Total liabilities                                         208,694,076    203,771,458
                                                                   ------------   ------------
COMMITMENTS (Note 14)
SHAREHOLDERS' EQUITY:
   Preferred stock, no par value, 2,000,000 shares authorized,
      none issued                                                            --             --
   Common stock, no par value, 15,000,000 shares authorized,
      3,507,150 shares issued and outstanding                        25,157,039     25,129,517
   Accumulated deficit                                               (6,889,272)    (7,209,062)
   Accumulated other comprehensive (loss)                              (447,702)      (450,480)
                                                                   ------------   ------------
         Total shareholders' equity                                  17,820,065     17,469,975
                                                                   ------------   ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                         $226,514,141   $221,241,433
                                                                   ============   ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       64

<PAGE>

BLUE RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                                        2006          2005
                                                                    -----------   -----------
<S>                                                                 <C>           <C>
INTEREST INCOME:
   Loans receivable                                                 $13,344,914   $10,507,405
   Taxable securities                                                 1,027,889     1,225,605
   Interest-bearing deposits                                            191,661       191,035
   Dividends from FHLB and other equity securities                      158,620       131,937
                                                                    -----------   -----------
      Total interest income                                          14,723,084    12,055,982
                                                                    -----------   -----------
INTEREST EXPENSE:
   Interest expense on deposits                                       5,440,952     4,054,596
   Interest expense on FHLB advances and other borrowings             1,126,182       901,783
                                                                    -----------   -----------
      Total interest expense                                          6,567,134     4,956,379
                                                                    -----------   -----------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES                  8,155,950     7,099,603

PROVISION FOR LOAN LOSSES                                               857,605       125,500
                                                                    -----------   -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                   7,298,345     6,974,103
                                                                    -----------   -----------
NON-INTEREST INCOME:
   Service charges and fees on deposit accounts                         608,298       452,014
   Secondary market mortgage fees                                       292,370       595,400
   Gain on sale of securities                                                --        34,055
   Gain (Loss) on sale and impairment of fixed assets, other real
      estate owned, repossessed assets and other assets                (225,600)       32,922
   Other                                                                253,582       216,249
                                                                    -----------   -----------
      Total non-interest income                                         928,650     1,330,640
                                                                    -----------   -----------
NON-INTEREST EXPENSE:
   Salaries and employee benefits                                     3,885,834     3,764,936
   Premises and equipment                                               852,259       789,687
   Federal deposit insurance, KY state tax and OTS assessment           199,332       234,020
   Data processing                                                      665,922       618,627
   Advertising and promotion                                            119,903       177,740
   Bank fees and charges                                                105,976       107,061
   Directors fees                                                       118,900       134,900
   Professional fees                                                    671,650       560,738
   Stationary, supplies and printing                                    121,014       125,884
   Insurance                                                             54,698        67,498
   ORE and repossession                                                  15,507        59,339
   Core deposit intangible amortization                                  68,964        68,964
   Merger expense                                                            --        73,171
   Other                                                                381,997       378,818
                                                                    -----------   -----------
      Total non-interest expense                                      7,261,956     7,161,383
                                                                    -----------   -----------
INCOME BEFORE INCOME TAX EXPENSE (BENEFIT)                              965,039     1,143,360

INCOME TAX (BENEFIT)                                                    366,113      (430,000)
                                                                    -----------   -----------
NET INCOME                                                          $   598,926   $ 1,573,360
                                                                    ===========   ===========
BASIC AND DILUTED EARNINGS PER SHARE                                $      0.17   $      0.45
                                                                    ===========   ===========
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING                             3,507,150     3,472,561
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING                           3,512,311     3,473,556
</TABLE>

See accompanying notes to consolidated financial statements.


                                       65
<PAGE>

BLUE RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                                                                       ACCUMULATED
                                                               NUMBER OF                                  OTHER          TOTAL
                                               COMPREHENSIVE     SHARES       COMMON    ACCUMULATED   COMPREHENSIVE  SHAREHOLDERS'
                                               INCOME (LOSS)  OUTSTANDING     STOCK       DEFICIT     INCOME (LOSS)     EQUITY
                                               -------------  -----------  -----------  -----------   -------------  -------------
<S>                                            <C>            <C>          <C>          <C>           <C>            <C>
BALANCE, January 1, 2005                                       3,406,150   $24,635,162  $(8,782,422)    $ (68,475)    $15,784,265
Net Income                                      $1,573,360                                1,573,360                     1,573,360
Issuance of Common Stock, net of
   offering costs of $10,645                                     101,000       494,355                                    494,355
Other comprehensive loss:
   Unrealized loss on securities, net
      of reclassification adjustment and tax      (382,005)                                              (382,005)       (382,005)
                                                ----------
COMPREHENSIVE INCOME                            $1,191,355
                                                ==========     ---------   -----------  -----------     ---------     -----------
BALANCE, December 31, 2005                                     3,507,150    25,129,517   (7,209,062)     (450,480)     17,469,975
Adjustment to initially apply SAB 108, net
   of tax (Note 1)                                                                         (165,153)                     (165,153)
Net Income                                      $  598,926                                  598,926                       598,926
Dividends declared ($.0325 per share)                                                      (113,983)                     (113,983)
Stock based compensation expense                                                27,522                                     27,522
Other comprehensive income:
   Unrealized gain on securities, net
   of tax                                            2,778                                                  2,778           2,778
                                                ----------
COMPREHENSIVE INCOME                            $  601,704
                                                ==========     ---------   -----------  -----------     ---------     -----------
BALANCE, December 31, 2006                                     3,507,150   $25,157,039  $(6,889,272)    $(447,702)    $17,820,065
                                                               =========   ===========  ===========     =========     ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       66

<PAGE>

BLUE RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                                                           2006           2005
                                                                                       ------------   ------------
<S>                                                                                    <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                          $    598,926   $  1,573,360
   Adjustments to reconcile net income (loss) to net cash from operating activities:
      Depreciation and amortization                                                         387,278         (5,456)
      Net amortization (accretion) of securities                                             35,386         41,903
      Gain on sale of securities available for sale                                              --        (34,055)
      Gain on sale of real estate owned                                                     (20,341)       (33,949)
      Loss on sale/disposal/impairment of premises, equipment and other assets              245,941          1,027
      Stock compensation expense                                                             27,522             --
      Provision for loan losses                                                             857,605        125,500
      FHLB stock dividends                                                                  (34,600)       (77,700)
   Changes in assets and liabilities:
      Accrued interest receivable                                                          (204,528)       (13,980)
      Other assets                                                                           95,913       (966,002)
      Other liabilities                                                                      76,666        193,661
                                                                                       ------------   ------------
         Net cash from operating activities                                               2,065,768        804,309
                                                                                       ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Loans funded, net of collections                                                     (20,659,089)    (7,451,239)
   Maturities and paydowns of securities available for sale and held to maturity          2,784,148      4,621,127
   Proceeds from sale of securities available for sale                                           --      2,401,119
   Proceeds from the repurchase of FHLB stock                                               644,500             --
   Purchase of restricted stock                                                                  --        (37,500)
   Purchase of premises and equipment                                                      (527,720)      (229,248)
   Proceeds from sales of premises and equipment                                              5,168             --
   Proceeds from sale of real estate owned                                                  494,207      1,225,134
                                                                                       ------------   ------------
         Net cash from investing activities                                             (17,258,786)       529,393
                                                                                       ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common stock, net of offering costs of $10,645                      --        494,355
   Dividends paid                                                                          (113,983)            --
   Net change in fed funds purchased                                                             --       (427,000)
   Repayment of FHLB advances                                                           (72,914,891)   (44,944,726)
   Proceeds from FHLB advances                                                           71,143,855     47,697,287
   Proceeds from Note payable                                                                    --      2,000,000
   Repayment of Note payable                                                             (6,000,000)            --
   Proceeds from subordinated debt                                                        7,217,000             --
   Net increase in deposits                                                               5,397,561      8,908,240
                                                                                       ------------   ------------
         Net cash from financing activities                                               4,729,542     13,728,156
                                                                                       ------------   ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    (10,463,476)    15,061,858
CASH AND CASH EQUIVALENTS, Beginning of year                                             20,176,866      5,115,008
                                                                                       ------------   ------------
CASH AND CASH EQUIVALENTS, End of year                                                 $  9,713,390   $ 20,176,866
                                                                                       ============   ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Interest paid during the year                                                       $  6,417,718   $  4,868,112
                                                                                       ============   ============
   Income tax paid                                                                     $     30,000   $         --
                                                                                       ============   ============
   Net loans transferred to other real estate owned                                    $    237,940   $    244,500
                                                                                       ============   ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       67
<PAGE>

BLUE RIVER BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The accounting policies of Blue River Bancshares, Inc. (the "Company")
     conform to accounting principles generally accepted in the United States of
     America and prevailing practices within the banking and thrift industry. A
     summary of the more significant accounting policies follows:

     BASIS OF PRESENTATION--The consolidated financial statements include the
     accounts of the Company and its wholly owned subsidiaries Shelby County
     Bank and Paramount Bank (collectively the "Banks") and the wholly owned
     subsidiaries of Shelby County Bank. All significant intercompany balances
     and transactions have been eliminated.

     DESCRIPTION OF BUSINESS--The Banks provide financial services to south
     central Indiana through its main office in Shelbyville, three other full
     service branches in Shelbyville, Morristown, and St. Paul, and a recently
     opened loan production office located in Fishers, Indiana, and to the city
     of Lexington, and Fayette County, Kentucky through one office located in
     Lexington, Kentucky.

     The Banks are subject to competition from other financial institutions and
     other financial services providers and are regulated by certain federal
     agencies and undergo periodic examinations by those regulatory authorities.
     (See Note 12).

     USE OF ESTIMATES--The preparation of financial statements in conformity
     with U.S. generally accepted accounting principles requires management to
     make estimates and assumptions that affect the amounts reported in the
     financial statements and accompanying notes. Actual results could differ
     from those estimates. Estimates most susceptible to change in the near term
     include the allowance for loan losses, valuation of real estate owned, and
     the deferred tax valuation allowance.

     CASH AND CASH EQUIVALENTS--All highly liquid investments with an original
     maturity of three months or less are considered to be cash equivalents. Net
     cash flows are reported for customer loan and deposit transactions,
     interest bearing deposits in other financial institutions, and federal
     funds purchased and repurchase agreements.

     SECURITIES--Securities are classified as held to maturity or available for
     sale. Debt securities that the Banks have the positive intent and ability
     to hold to maturity are classified as held to maturity. Debt and equity
     securities that may be sold before maturity are classified as available for
     sale. Securities classified as held to maturity are reported at amortized
     cost, and those available for sale are reported at fair value with
     unrealized gains and losses excluded from earnings and reported as other
     comprehensive income (loss). Premiums and discounts are amortized over the
     contractual lives of the related securities using the level yield method.
     Gain or loss on sale of securities is based on the specific identification
     method.

     Declines in the fair value of securities below their cost that are other
     than temporary are reflected as realized losses. In estimating
     other-than-temporary losses, management considers: (1) the length of time
     and extent that fair value has been less than cost, (2) the financial
     condition and near term prospects of the issuer, and (3) the Company's
     ability and intent to hold the security for a period sufficient to allow
     for any anticipated recovery in fair value.


                                       68

<PAGE>

     LOANS--Loans that management has the intent and ability to hold for the
     foreseeable future or until maturity or payoff are reported at the
     principal balance outstanding, net of unearned interest, deferred loan fees
     and costs and an allowance for loan losses. Interest on loans is accrued
     over the term of the loans on a level yield basis. The recognition of
     interest income is discontinued when, in management's judgment, the
     interest will not be collectible in the normal course of business.

     Nonrefundable loan origination fees, net of certain direct loan origination
     costs, are deferred and recognized as a yield adjustment over the life of
     the underlying loan. Any unamortized net fees on loans sold are included as
     part of the gain (loss) on sale of loans at time of sale.

     Generally, any loan greater than 90 days past due must be well secured and
     in the process of collection to continue accruing interest. In the event
     that a loan is classified as impaired in accordance with SFAS 114,
     "Accounting by Creditors for Impairment of a Loan" before it is 90 days
     past due, the Banks will discontinue accruing interest unless the loan is
     well secured and in the process of collection. Cash payments received on
     nonaccrual loans generally are applied against principal, and interest
     income is only recorded once principal recovery is reasonably assured.
     Loans are not reclassified as accruing until principal and interest
     payments are brought current and future payments appear reasonably certain.

     ALLOWANCE FOR LOAN LOSSES--A provision for probable incurred losses on
     loans is charged to operations based upon management's evaluation of the
     probable losses. Such an analysis of the allowance for loan losses is
     performed quarterly by management to assess the appropriate levels of
     allowance for loan losses. This analysis includes specific reserves
     allocated to classified assets. Specific reserves are established based
     upon an analysis of individual borrowers identified in the classified loan
     list, establishing the probability of loss associated with such borrowers,
     including comparison of loan balances versus estimated liquidation values
     of collateral based upon independent information sources or appraisals
     performed by board-approved licensed appraisers. The remaining pools of
     loans, excluding those classified or delinquent, are analyzed for the
     general loan loss reserve. Management evaluates this general reserve using
     loan loss statistics by various types of loan categories, including
     statistics published periodically by the OTS and FDIC, the Banks'
     historical losses, and recommendations by the Chief Credit Officer.
     Appropriate loss percentages are applied to the Banks' distribution of
     portfolio balances. The calculated reserve is compared to the Banks'
     existing reserve to establish the provision necessary to bring the actual
     reserve balance in compliance with the allowance analysis. Such an analysis
     is susceptible to changes that could result in a material adjustment in the
     near term. While management endeavors to use the best information available
     in making its evaluations, future allowance adjustments may be necessary if
     conditions change substantially from the assumptions used in making the
     evaluations.

     Loan impairment is reported when full repayment under the terms of the loan
     is not expected. If a loan is impaired, a portion of the allowance is
     allocated so that the loan is reported net, at the present value of
     estimated future cash flows using the loan's existing rate, or at the fair
     value of collateral if repayment is expected solely from the collateral.
     Commercial and agricultural loans are evaluated individually for
     impairment. Smaller balance homogeneous loans are evaluated for impairment
     in total. Such loans include real estate loans secured by one-to-four
     family residences and loans to individuals for household, family and other
     personal expenditures. Individually evaluated loans on non-accrual are
     generally considered impaired. Impaired loans, or portions thereof, are
     charged off when deemed uncollectible.

     FHLB STOCK--Federal law requires a member institution of the Federal Home
     Loan Bank ("FHLB") system to hold common stock of its district FHLB
     according to a predetermined formula. This investment is stated at cost,
     which represents redemption value, and may be pledged to secure FHLB
     advances. FHLB stock is evaluated for impairment based on ultimate recovery
     at par value. Both cash and stock dividends are reported as income.


                                       69

<PAGE>

     REAL ESTATE OWNED-- Real estate owned represents real estate acquired
     through foreclosure or deed in lieu of foreclosure. Real estate owned is
     recorded at fair value less estimated costs to sell. When property is
     acquired, it is recorded at the lower of cost or estimated fair value at
     the date of acquisition, with any resulting write-down charged against the
     allowance for loan losses. Any subsequent deterioration of the property is
     charged directly to real estate owned expense. Costs relating to the
     development and improvement of real estate owned are capitalized, whereas
     costs relating to holding and maintaining the property are charged to
     expense as incurred.

     PREMISES AND EQUIPMENT--Premises and equipment are carried at cost less
     accumulated depreciation. Depreciation is computed on the straight-line
     method over the estimated useful lives that range from 2 to 40 years.

     INCOME TAXES--The Company and its wholly owned subsidiaries file
     consolidated income tax returns. Income tax expense/benefit is the total of
     current year income due or refundable and the change in deferred tax assets
     and liabilities. Deferred income tax assets and liabilities reflect the
     impact of temporary differences between amounts of assets and liabilities
     for financial reporting purposes and the basis of such assets and
     liabilities as measured by tax laws and regulations. A valuation allowance
     is established, if needed, to reduce deferred tax assets to the amount more
     likely than not to be realized.

     EARNINGS PER COMMON SHARE--Income (loss) per share of common stock is based
     on the weighted average number of common shares and the dilutive effect of
     stock options outstanding during the year.

     The following is a reconciliation of the weighted average common shares for
     the basic and diluted income (loss) per share computations:

<TABLE>
<CAPTION>
                                                       2006        2005
                                                    ---------   ---------
<S>                                                 <C>         <C>
Basic earnings per share:
   Weighted average common shares                   3,507,150   3,472,561
                                                    =========   =========

Diluted earnings per share:
   Weighted average common shares                   3,507,150   3,472,561
   Dilutive effect of stock options                     5,161         995
                                                    ---------   ---------
   Weighted average common and incremental shares   3,512,311   3,473,556
                                                    =========   =========
</TABLE>

     During the years ended December 31, 2006 and 2005, 112,950 and 158,950
     stock options were not considered in the calculation of the dilutive effect
     of stock options as they were anti-dilutive.


                                       70

<PAGE>

     COMPREHENSIVE INCOME --Comprehensive income consists of net income and
     other comprehensive income. Other comprehensive income includes unrealized
     gains and losses on securities available for sale which are also recognized
     as separate components of equity.

     SEGMENT INFORMATION--While the chief decision-makers monitor the revenue
     streams of the various products and services, operations are managed and
     financial performance is evaluated on a Company-wide basis. Operating
     segments are aggregated into one as operating results for all segments are
     similar. Accordingly, all of the financial service operations are
     considered by management to be aggregated in one reportable segment.

     STOCK BASED COMPENSATION-- Effective January 1, 2006, the Company adopted
     Statement of Financial Accounting Standards ("SFAS") No. 123(R),
     Share-based Payment. The Company elected to use the modified prospective
     transition method; therefore, prior period results were not restated.
     Accordingly, the Company has recorded stock-based employee compensation
     cost using the fair value method starting in 2006. For 2006, adopting this
     standard resulted in a reduction of income before income taxes of $28,000,
     a reduction in net income of $17,000, and a decrease in basic and diluted
     earnings per share of $.01.

     Prior to January 1, 2006, employee compensation expense under stock options
     was reported using the intrinsic value method; therefore, no stock-based
     compensation cost is reflected in net income for the year ending December
     31, 2005, as all options granted had an exercise price equal to or greater
     than the market price of the underlying common stock at date of grant.

     GOODWILL AND OTHER INTANGIBLE ASSETS--Goodwill results from business
     acquisitions and represents the excess of the purchase price over the fair
     value of the tangible assets and liabilities and identifiable intangible
     assets. Goodwill is assessed at least annually for impairment and any such
     impairment will be recognized in the period identified. Other intangible
     assets consist of core deposit intangible assets arising from whole bank
     acquisitions. They are initially measured at fair value and then amortized
     on the straight-line method over their estimated lives.

     LOAN COMMITMENTS AND RELATED FINANCIAL INSTRUMENTS-- Financial instruments
     include off-balance sheet credit instruments, such as commitments to make
     loans and commercial letters of credit, issued to meet customer financing
     needs. The face amount for these items represents the exposure to loss,
     before considering customer collateral or ability to repay. Such financial
     instruments are recorded when they are funded.

     LOSS CONTINGENCIES-- Loss contingencies, including claims and legal actions
     arising in the ordinary course of business, are recorded as liabilities
     when the likelihood of loss is probable and an amount or range of loss can
     be reasonably estimated. Management does not believe there now are such
     matters that will have a material effect on the financial statements.

     DIVIDEND RESTRICTION-- Banking regulations require maintaining certain
     capital levels and may limit the dividends paid by the bank to the holding
     company or by the holding company to shareholders. These restrictions pose
     no practical limit on the ability of the bank or holding company to pay
     dividends at historical levels.

     NEW ACCOUNTING PRONOUNCEMENTS-- Effective January 1, 2006, the Company
     adopted SFAS No. 123(R), Share-based Payment. See "Stock Compensation"
     above for further discussion of the effect of adopting this standard.

     In September 2006, the Financial Accounting Standards Board (FASB) issued
     SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other
     Postretirement Plans - an amendment of FASB


                                       71

<PAGE>

     Statements No. 87, 88, 106 and 132(R). This Statement requires an employer
     to recognize the over-funded or under-funded status of a defined benefit
     postretirement plan (other than a multiemployer plan) as an asset or
     liability in its balance sheet, beginning with year end 2006, and to
     recognize changes in the funded status in the year in which the changes
     occur through comprehensive income beginning in 2007. Additionally, defined
     benefit plan assets and obligations are to be measured as of the date of
     the employer's fiscal year-end, starting in 2008. The Company does not
     provide any defined benefit postretirement plans, and accordingly, the
     provisions of SFAS No. 158 will have no material impact on the Company's
     results of operations or financial position.

     In September 2006, the Securities and Exchange Commission (SEC) released
     Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year
     Misstatements when Quantifying Misstatements in Current Year Financial
     Statements (SAB 108), which is effective for fiscal years ending on or
     after November 15, 2006. SAB 108 provides guidance on how the effects of
     prior-year uncorrected financial statement misstatements should be
     considered in quantifying a current year misstatement. SAB 108 requires
     public companies to quantify misstatements using both an income statement
     (rollover) and balance sheet (iron curtain) approach and evaluate whether
     either approach results in a misstatement that, when all relevant
     quantitative and qualitative factors are considered, is material. If prior
     year errors that had been previously considered immaterial now are
     considered material based on either approach, no restatement is required so
     long as management properly applied its previous approach and all relevant
     facts and circumstances were considered. Adjustments considered immaterial
     in prior years under the method previously used, but now considered
     material under the dual approach required by SAB 108, are to be recorded
     upon initial adoption of SAB 108. The amount so recorded is shown as a
     cumulative effect adjustment in opening retained earnings as of January 1,
     2006. The Company has initially applied SAB 108 with a cumulative effect
     adjustment in connection with preparation of the annual financial
     statements for the year ended December 31, 2006.

     After a review of federal and state income tax expense and the associated
     deferred tax assets, the Company determined it was necessary to record to
     retained earnings in accordance with SAB 108, a net under-accrual of income
     tax expense for prior years in the amount of $107,761. This amount slowly
     arose over a period of many years and is not attributable to a significant
     difference in any one period. Additionally, the Company determined there
     was the need to accelerate the amortization of leasehold improvements of
     $27,559 due to using an amortization period which was longer than the
     contract term, which affected the previous periods of 2003 through 2005
     with no one period materially impacted. Finally, an adjustment of $63,540
     was made to recognize a liability for rent expense, as an increase in rent
     payments over the term of the lease had not been recognized in the previous
     periods of 2003 through 2005 (i.e., rent expense had not been appropriately
     recognized straight-line over the lease term). The associated income tax
     effect of the latter two adjustments was $33,707, resulting in a net
     reduction of $165,153 to opening retained earnings.

     The following table illustrates the components of the SAB 108 adjustments
     for the year ended December 31, 2006:


                                       72

<PAGE>

<TABLE>
<S>                                                                <C>
Impact to net deferred tax assets                                  $(107,761)
Impact of amortization of leasehold improvements to fixed assets     (27,559)
Impact of lease payments to increase other liabilities               (63,540)
Federal income tax effect of adjustments                              33,707
                                                                   ---------
Total SAB 108 adjustment to prior period retained earnings         $(165,153)
                                                                   =========
</TABLE>

     NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET EFFECTIVE-- In February
     2006, the Financial Accounting Standards Board (FASB) issued Statement No.
     155, Accounting for Certain Hybrid Financial Instruments-an amendment to
     FASB Statements No. 133 and 140. This Statement permits fair value
     re-measurement for any hybrid financial instruments, clarifies which
     instruments are subject to the requirements of Statement No. 133, and
     establishes a requirement to evaluate interests in securitized financial
     assets and other items. The new standard is effective for financial assets
     acquired or issued after the beginning of the entity's first fiscal year
     that begins after September 15, 2006. Management does not expect the
     adoption of this statement to have a material impact on its consolidated
     financial position or results of operations.

     In September 2006, the FASB issued Statement No. 157, Fair Value
     Measurements. This Statement defines fair value, establishes a framework
     for measuring fair value and expands disclosures about fair value
     measurements. This Statement establishes a fair value hierarchy about the
     assumptions used to measure fair value and clarifies assumptions about risk
     and the effect of a restriction on the sale or use of an asset. The
     standard is effective for fiscal years beginning after November 15, 2007.
     The Company has not completed its evaluation of the impact of the adoption
     of this standard.

     In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
     Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109
     (FIN 48), which prescribes a recognition threshold and measurement
     attribute for a tax position taken or expected to be taken in a tax return.
     FIN 48 also provides guidance on de-recognition, classification, interest
     and penalties, accounting in interim periods, disclosure and transition.
     FIN 48 is effective for fiscal years beginning after December 15, 2006. The
     Company has determined that the adoption of FIN 48 will not have a material
     effect on the financial statements.

     RECLASSIFICATIONS--Certain amounts in the 2005 financial statements have
     been reclassified to conform to the 2006 presentation.


                                       73
<PAGE>

2.   SECURITIES

     The fair value of securities available for sale and the related gross
     unrealized gains and losses recognized in accumulated other comprehensive
     income (loss) were as follows:

<TABLE>
<CAPTION>
                                                                    GROSS UNREALIZED
                                                         FAIR      -----------------
                                                        VALUE      GAINS     LOSSES
                                                     -----------   -----   ---------
<S>                                                  <C>           <C>     <C>
2006:
   Mortgage-backed securities                        $12,839,202    $--    $(401,680)
   Obligations of State and Political Subdivisions       395,426     --       (1,786)
   U.S. Treasury and agency securities                 8,672,190     --     (326,246)
                                                     -----------    ---    ---------
Total available for sale                             $21,906,818    $      $(729,712)
                                                     ===========    ===    =========
</TABLE>

<TABLE>
<CAPTION>
                                                                     GROSS UNREALIZED
                                                         FAIR      -------------------
                                                        VALUE       GAINS      LOSSES
                                                     -----------   -------   ---------
<S>                                                  <C>           <C>       <C>
2005:
   Mortgage-backed securities                        $15,664,344   $11,058   $(405,174)
   Obligations of State and Political Subdivisions       395,611        --      (1,602)
   U.S. Treasury and agency securities                 8,660,850        --    (337,183)
                                                     -----------   -------   ---------
Total available for sale                             $24,720,805   $11,058   $(743,959)
                                                     ===========   =======   =========
</TABLE>


                                       74

<PAGE>

     The carrying amount, unrecognized gains and losses and fair value of
     securities held to maturity were as follows:

<TABLE>
<CAPTION>
                                                GROSS
                                            UNRECOGNIZED
                                CARRYING   --------------     FAIR
                                 AMOUNT    GAINS   LOSSES    VALUE
                                --------   -----   ------   -------
<S>                             <C>        <C>     <C>      <C>
2006:
   Mortgage-backed securities    $13,661    $178     $--    $13,839
                                 =======    ====     ===    =======
</TABLE>

<TABLE>
<CAPTION>
                                                GROSS
                                            UNRECOGNIZED
                                CARRYING   --------------     FAIR
                                 AMOUNT    GAINS   LOSSES    VALUE
                                --------   -----   ------   -------
<S>                             <C>        <C>     <C>      <C>
2005:
   Mortgage-backed securities    $16,019    $273     $--    $16,292
                                 =======    ====     ===    =======
</TABLE>

     The carrying value of securities at December 31, 2006 are shown below by
     their contractual maturity date. Actual maturities will differ because
     borrowers may have the right to call or prepay obligations with or without
     call or prepayment penalties.

<TABLE>
<CAPTION>
                                                  AVAILABLE      HELD TO MATURITY
                                                   FOR SALE    -------------------
                                                     FAIR      AMORTIZED     FAIR
                                                    VALUE         COST      VALUE
                                                 -----------   ---------   -------
<S>                                              <C>           <C>         <C>
Mortgage-backed securities:
   Due within one year                                          $    12    $    12
   Due after one year through five years         $        --      1,391      1,432
   Due after five years through ten years                 --     11,982     12,101
   Due after ten years                            12,839,202        276        294
Municipal bonds, U.S. treasuries and agencies:
   Due within one year                               190,201
   Due after one year through five years           7,915,535         --         --
   Due after five years through ten years            961,880         --         --
   Due after ten years                                    --         --         --
                                                 -----------    -------    -------
Total                                            $21,906,818    $13,661    $13,839
                                                 ===========    =======    =======
</TABLE>

     Securities totaling approximately $11.7 million are pledged to secure
     Federal Home Loan Bank advances (see Note 6).


                                       75

<PAGE>

     The following tables provide the gross unrealized losses and fair value
     aggregated by investment category and length of time the individual
     securities have been in a continuous unrealized loss position, at December
     31 (dollars in thousands):

<TABLE>
<CAPTION>
                                         LESS THAN 12 MONTHS       12 MONTHS OR MORE               TOTAL
                                      -----------------------   -----------------------   -----------------------
                                                   UNREALIZED
                                                      GAIN                   UNREALIZED                UNREALIZED
                                      FAIR VALUE     (LOSS)     FAIR VALUE     (LOSS)     FAIR VALUE     (LOSS)
                                      ----------   ----------   ----------   ----------   ----------   ----------
<S>                                   <C>          <C>          <C>          <C>          <C>          <C>
2006:
Available for Sale:
U.S. Treasury and agency securities      $ --          $--        $ 8,672      $(326)       $ 8,672      $(326)
Agency mortgage-backed securities          64           --         12,775       (402)        12,839       (402)
Other bonds, note and debentures          396           (2)            --         --            396         (2)
                                         ----          ---        -------      -----        -------      -----
Total                                    $460          $(2)       $21,447      $(728)       $21,907      $(730)
                                         ====          ===        =======      =====        =======      =====
2006:
Held to Maturity
Agency mortgage-backed securities          --           --             --         --             --         --
                                         ----          ---        -------      -----        -------      -----
Total                                    $  0          $ 0        $     0      $   0        $     0      $   0
                                         ====          ===        =======      =====        =======      =====
</TABLE>

<TABLE>
<CAPTION>
                                        LESS THAN 12 MONTHS        12 MONTHS OR MORE               TOTAL
                                      -----------------------   -----------------------   -----------------------
                                                   UNREALIZED                UNREALIZED                UNREALIZED
                                      FAIR VALUE     (LOSS)     FAIR VALUE     (LOSS)     FAIR VALUE     (LOSS)
                                      ----------   ----------   ----------   ----------   ----------   ----------
<S>                                   <C>          <C>          <C>          <C>          <C>          <C>
2005:
Available for Sale:
U.S. Treasury and agency securities     $   --       $  --        $ 8,661      $(337)       $ 8,661      $(337)
Agency mortgage-backed securities        6,335        (143)         9,232       (262)        15,567       (405)
Other bonds, note and debentures           396          (2)            --         --            396         (2)
                                        ------       -----        -------      -----        -------      -----
Total                                   $6,731       $(145)       $17,893      $(599)       $24,624      $(744)
                                        ======       =====        =======      =====        =======      =====
2005:
Held to Maturity
Agency mortgage-backed securities           --          --             --         --             --         --
                                        ------       -----        -------      -----        -------      -----
Total                                   $    0       $   0        $     0      $   0        $     0      $   0
                                        ======       =====        =======      =====        =======      =====
</TABLE>

     As of December 31, 2006, there were a total of $21,896,000 securities in an
     unrealized loss position, approximately 98% of which were comprised of
     securities issued by U.S. Government agencies, U.S. Government sponsored
     agencies and agency mortgage-backed securities. The Company believes that
     the price movements in these securities are dependent upon the fluctuations
     in market interest rates given the negligible inherent credit risk of these
     securities. At December 31, 2006, the percentage of unrealized losses in
     the available-for-sale security portfolio represented by bonds was less
     than 2%. No credit issues have been identified that cause management to
     believe the declines in the market value are other than temporary and
     management has the intent and ability to hold these securities for the
     foreseeable future.

     During the years ended December 31, 2006 and 2005 the gross realized gains
     on securities was $0 and $34,055. The gross losses for both periods were
     $0.


                                       76
<PAGE>

3.   LOANS RECEIVABLE

     Loans receivable at December 31 by major categories are as follows:

<TABLE>
<CAPTION>
                                     2006           2005
                                 ------------   ------------
<S>                              <C>            <C>
Real estate mortgage loan:
   One-to-four family            $ 52,892,428   $ 47,751,168
   Non Residential                 46,928,914     39,440,479
   Home equity loans               36,997,433     35,027,100
Consumer loans                      9,843,237     11,323,347
Commercial loans                   37,109,610     30,449,603
                                 ------------   ------------
Gross loans                       183,771,622    163,991,697
Less allowance for loan losses     (1,896,618)    (1,575,511)
                                 ------------   ------------
                                 $181,875,004   $162,416,186
                                 ============   ============
</TABLE>

     Activity in the allowance for loan losses for the years ended December 31
     is as follows:

<TABLE>
<CAPTION>
                               2006         2005
                            ----------   ----------
<S>                         <C>          <C>
Beginning balance           $1,575,511   $1,919,193
Provision for loan losses      857,605      125,500
Charge-offs                   (626,378)    (567,130)
Recoveries                      89,880       97,948
                            ----------   ----------
Ending balance              $1,896,618   $1,575,511
                            ==========   ==========
</TABLE>

     Currently, the majority of loans considered impaired are on non-accrual.
     The Banks' policy for recognizing income on non-accrual loans is to accrue
     interest until a loan is classified as non-accrual. For loans that are
     determined to be non-accrual, interest accrued in excess of 90 days past
     the due date is reversed against current earnings. No interest is accrued
     after a loan is classified as non-accrual. All payments received for loans
     which are classified as non-accrual are utilized to reduce the principal
     balance outstanding. In certain circumstances, loans can be deemed impaired
     while not being classified as non-accrual. A portion of the allowance for
     loan losses can be allocated to these impaired yet still accruing loans,
     determined by management on a loan by loan basis.


                                       77

<PAGE>

     Impaired and past due loans 90 days for the years ended December 31 are as
     follows:

<TABLE>
<CAPTION>
                                                              2006     2005
                                                             ------   ------
                                                               (DOLLARS IN
                                                                THOUSANDS)
<S>                                                          <C>      <C>
Impaired loans with allowance for loan losses allocated      $2,820   $1,403
Impaired loans with no allowance for loan losses allocated      656       --
                                                             ------   ------
Total impaired loans                                         $3,476   $1,403
Allowance for loan losses allocated to impaired loans         1,179      408
Average balance of impaired loans                             2,957    1,307
Non-recognized interest income on impaired loans                201       91
Interest income recognized during impairment                    125       --
Interest income recognized on cash basis                         91       41
Past due loans 90 days and still accruing                     1,858    1,265
</TABLE>

4.   PREMISES AND EQUIPMENT

     Premises and equipment at December 31 consists of the following:

<TABLE>
<CAPTION>
                                    2006          2005
                                -----------   -----------
<S>                             <C>           <C>
Land and improvements           $   289,384   $   289,384
Buildings and improvements        1,801,437     1,707,615
Furniture and equipment           2,483,967     2,272,154
                                -----------   -----------
                                  4,574,788     4,269,153
Less accumulated depreciation    (2,396,550)   (2,298,161)
                                -----------   -----------
                                $ 2,178,238   $ 1,970,992
                                ===========   ===========
</TABLE>

     Depreciation expense was $274,701 and $249,578 for 2006 and 2005.


                                       78

<PAGE>

5.   DEPOSITS

     Deposits at December 31 are as follows:

<TABLE>
<CAPTION>
                                             2006                      2005
                                   -----------------------   -----------------------
                                                  WEIGHTED                  WEIGHTED
                                                   AVERAGE                   AVERAGE
                                      AMOUNT        RATE        AMOUNT        RATE
                                   ------------   --------   ------------   --------
<S>                                <C>            <C>        <C>            <C>
Passbook Savings Account           $ 12,998,465     2.51%    $ 12,628,201     2.14%
Non-interest Bearing Checking        27,425,491       --       24,391,830       --
Interest-Bearing Demand Deposit
   Accounts                          16,128,661     0.70%      18,404,752     1.25%
Money Market Accounts                35,445,718     3.99%      35,617,574     3.09%
                                   ------------     ----     ------------     ----
   Total Transaction Accounts        91,998,335     2.01%      91,042,357     1.76%
                                   ------------     ----     ------------     ----
Certificate Accounts                 92,114,783     4.63%      87,716,781     4.04%
                                   ------------     ----     ------------     ----
                                   $184,113,118     3.32%    $178,759,138     2.88%
                                   ============     ====     ============     ====
</TABLE>


                                       79

<PAGE>

     A summary of time deposit accounts by scheduled maturities at December 31,
     2006 is as follows:

<TABLE>
<S>          <C>
2007          74,844,692
2008           8,532,864
2009           6,627,412
2010           1,642,279
2011             457,108
Thereafter        10,428
             -----------
             $92,114,783
             ===========
</TABLE>

     Time deposits of $100,000 and over at December 31, 2006 are $35,792,794.
     Time deposits of $100,000 and over at December 31, 2005 were $27,642,302.

6.   FEDERAL HOME LOAN BANK ADVANCES

     Federal Home Loan Bank advances at December 31 are as follows:

<TABLE>
<CAPTION>
                            2006                     2005
                   ----------------------   ----------------------
                                 WEIGHTED                 WEIGHTED
                                  AVERAGE                  AVERAGE
YEAR OF                          INTEREST                 INTEREST
MATURITY             AMOUNT        RATES       AMOUNT       RATES
--------           -----------   --------   -----------   --------
<S>                <C>           <C>        <C>           <C>
2006               $        --    $  --     $ 7,500,000     3.56%
2007                11,350,000     4.53%      5,000,000     3.53%
2008                    88,086     4.28%        100,000     4.28%
2009                   400,000     3.09%        400,000     3.09%
2010                   655,893     4.25%        675,000     4.25%
2012                   893,670     4.36%      1,228,955     4.36%
2015                 1,752,740     4.59%      1,800,000     4.59%
2017                   783,962     4.71%        991,432     4.71%
Purchase premium       113,503       --         131,035       --
                   -----------              -----------
                   $16,037,854     3.47%    $17,826,422     3.80%
                   ===========              ===========
</TABLE>

     Advances from the Federal Home Loan Bank ("FHLB") are collateralized by
     specific first mortgage loans and eligible investment securities totaling
     $29,400,000 at December 31, 2006 and $20,900,000 at December 31, 2005. At
     Paramount Bank, there is a blanket pledge on real estate loan collateral.
     Pledged mortgage loans at Paramount Bank are included in the above totals
     and represent the ending balance of that Bank's FHLB advances. The FHLB
     provides safekeeping services related to the pledged investment securities.
     All FHLB advances are due at maturity and are neither callable nor
     convertible.


                                       80
<PAGE>

7.   OTHER BORROWINGS

     The Company had a note payable with Union Federal Bank in the amount of
     $6,000,000 at December 31, 2005, which was to mature on June 30, 2008. The
     loan was secured by the capital stock of the Banks. On April 20, 2006 this
     note was paid in full and all credit agreements and debt covenants were
     terminated with Union Federal Bank (see Note 8 to the Consolidated
     Financial Statements included herein).

     Paramount Bank has a line of credit of $4.9 million from Bankers Bank of
     Kentucky and $500,000 from Farmers Bank & Trust of Georgetown, Kentucky. As
     of December 31, 2006, Paramount Bank had no outstanding balances on those
     lines of credit.

8.   SUBORDINATED DEBENTURES

     On April 20, 2006, the Company established a new Delaware trust subsidiary,
     Blue River Bancshares Trust I, which completed the sale of $7 million of
     trust preferred securities. Blue River Bancshares Trust I issued the trust
     preferred securities at a rate equal to the three-month LIBOR rate plus
     1.55% which was 6.92% at December 31, 2006. The trust preferred securities
     mature in 30 years and may be called without penalty on or after June 30,
     2011. Blue River Bancshares Trust I simultaneously issued 217 of the
     trust's common securities to the Company for a purchase price of $217,000,
     which, together with the trust preferred securities, constitutes all of the
     issued and outstanding securities of the trust. Blue River Bancshares Trust
     I used the proceeds from the sale of the trust preferred securities to
     purchase the Company's unsecured junior subordinated deferrable interest
     notes due June 30, 2036 (the "Debenture"). The net proceeds from the
     offering were used by the Company to pay all amounts due under and
     terminate its $6 million credit facility with Union Federal Bank of
     Indianapolis. The additional proceeds were used for general corporate
     purposes.

     The Debenture was issued pursuant to a Junior Subordinated Indenture
     between the Company and Wilmington Trust Company dated April 20, 2006, (the
     "Indenture"). The interest payments by the Company will be used by the
     trust to pay the quarterly distributions to the holders of the trust
     preferred securities. The Indenture permits the Company to redeem the
     Debenture after June 30, 2011.

     Pursuant to a Guarantee Agreement dated April 20, 2006, between the Company
     and Wilmington Trust Company, the Company has guaranteed the payment of
     distributions and payments on liquidation or redemption of the trust
     preferred securities. The obligations of the Company under the Guarantee
     Agreement are unsecured and subordinate to all of the Company's senior
     debt.

     The Company has the right, at any time and from time to time during the
     term of the Security, to defer the payment of interest on the Securities
     for a period of up to twenty (20) consecutive quarterly interest periods,
     during which the Company has the right to make no payments or partial
     payments of interest on any interest payment due date.

     In accordance with FASB Interpretation No. 46R (as revised in December
     2003), the trust will not be consolidated with the Company's financial
     statements. Accordingly, the Company will not report the securities issued
     by the trust as liabilities, and instead will report as liabilities the
     subordinated debentures issued by the Company and held by the trust. The
     Company's investment in the common stock of the trust was $217,000 and is
     included in other assets.

     The subordinated debentures may be included in Tier I capital (with certain
     limitations applicable) under current regulatory guidelines and
     interpretations. Associated with the subordinated debt there are certain
     debt covenants which include tangible capital requirements, term debt
     service coverage, well capitalized


                                       81

<PAGE>

     ratios and non-performing loan requirements. As of December 31, 2006, the
     Company met all debt covenants.

9.   STOCK BASED COMPENSATION

     Effective January 1, 2006, the Company adopted Statement of Financial
     Accounting Standards ("SFAS") No. 123R, "Share Based Payment." The Company
     elected to use the modified prospective transition method; therefore, prior
     period results were not restated. Prior to the adoption of SFAS 123R,
     stock-based compensation expense related to stock options was not
     recognized in the results of operations if the exercise price was at least
     equal to the market value of the common stock on the grant date, in
     accordance with Accounting Principles Board Opinion No. 25, "Accounting for
     Stock Issued to Employees". Prior to 2006, stock-based employee
     compensation cost is not reflected in net income, as all options granted
     under those plans had an exercise price equal to the market value of the
     underlying common stock on the date of grant. The following table
     illustrates the effect on net income and earnings per share if the company
     had applied the fair value recognition provisions of SFAS 123, "Accounting
     for Stock-Based Compensation," to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                                      2005
                                                                   ----------
<S>                                                                <C>
Net income:
   Net income as reported                                          $1,573,360
      Deduct total stock based employee compensation
         expense determined under fair value based method for
         all awards, net of related tax effects and reversals of
         prior period expense due to forfeitures                        9,280
                                                                   ----------
   Pro forma, net income                                           $1,582,640
                                                                   ==========
Net earnings per share:
   Basic earnings per share                                        $     0.45
   Diluted earnings per share                                      $     0.45
Pro forma earnings per share:
   Basic earnings per share                                        $     0.46
   Diluted earnings per share                                      $     0.46
</TABLE>

     SFAS 123R requires all share-based payments to employees, including grants
     of employee stock options, to be recognized as compensation expense over
     the service period (generally the vesting period) in the consolidated
     financial statements based on their fair values. Under the modified
     prospective method, awards that are granted, modified, or settled on or
     after January 1, 2006 are measured and accounted for in accordance with
     SFAS 123R. Unvested stock options that were granted prior to January 1,
     2006 will continue to be accounted for in accordance with SFAS 123, except
     that all options are recognized in the results of operations over the
     remaining vesting periods. The impact of forfeitures that may occur prior
     to vesting is also estimated and considered in the amount recognized.

     The Company has adopted separate stock option plans for Directors of the
     Company and subsidiaries (the 1997 Directors' Stock Option Plan and the
     2000 Directors' Stock Option Plan) and the officers and key employees of
     the Company and subsidiaries (the 1997 Key Employee Stock Option Plan, 2000
     Key


                                       82

<PAGE>

     Employee Stock Option Plan and the 2002 Key Employee Stock Option Plan).
     The Company has also adopted a plan for the directors, officers and key
     employees of the Company and its subsidiaries (the 2004 Stock Option Plan).
     The Company has reserved a total of 62,400 shares pursuant to the
     Directors' Stock Option Plans and 103,000 shares pursuant to the Key
     Employee Stock Option Plans. The maximum number of shares to be delivered
     upon exercise of all options granted under the 2004 Plan will not exceed
     seven percent of the outstanding shares of the Company, from time to time
     less the number of shares covered by outstanding or exercised options under
     the Key Employees Stock Option Plans or the Directors' Stock Option Plans.

     The option exercise price per share for the 1997 Directors' Stock Option
     Plan is the greater of $12.00 per share or the fair value of a share on the
     date of grant. The option exercise price for the 2000 Director's Stock
     Option Plan is the greater of $8.27 per share or the fair value of a share
     on the date of the grant. The option exercise price for the Key Employee
     Stock Option Plans is the fair value of a share on the date of grant. The
     option exercise price per share for each nonqualified stock option grant
     will not be less than the fair market value of the shares on the date on
     which the option was granted.

     The stock options granted under the Directors' Stock Option Plans and the
     Key Employee Stock Option Plans are exercisable at any time within the
     maximum term of five years for incentive stock options and ten years for
     non-qualified stock options of the Key Employee Stock Option Plans and
     fifteen years under the Directors' Stock Option Plans from the grant date.
     The options are nontransferable and are forfeited upon termination of
     employment or as a director.

     The fair value of stock options is estimated at the grant date using the
     Black Scholes Option Pricing Model. This model requires a number of
     assumptions, including expected dividend yields, expected stock price
     volatility, risk-free interest rates and an expected life of the options.
     Although the assumptions are used to reflect management's best estimate,
     they involve uncertainties based on market conditions generally outside the
     control of the Company. If future market conditions are different than the
     assumptions used, stock-based employee compensation expense could be
     considerably different.

     The weighted average volatility for the current period was developed using
     historical volatility for periods equal to the expected life of the
     options. An increase in the weighted average volatility assumption will
     increase stock compensation expense. The risk-free interest rate was
     developed using U.S. Treasury yields for periods equal to the expected life
     of the options on the grant date. An increase in the risk-free interest
     rate will increase stock compensation expense. The expected option life
     currently used in the pricing model for all awards is the vesting period of
     the option, or five years. The post-vesting termination behavior is based
     on historical data. In the future, the Company will monitor the average
     period of vesting in order to adjust assumptions of the expected life of
     the options as well as the post-vesting termination rate.


                                       83

<PAGE>

     The following table summarizes the assumptions used to calculate the
     weighted average volatility, risk-free interest rates, expected life and
     the fair value of the stock option grants for the years ended December 31,
     2006 and 2005.

<TABLE>
<CAPTION>
                                                 December 31,   December 31,
                                                     2006           2005
                                                 ------------   ------------
<S>                                              <C>            <C>
Weighted average volatility                          28.8%          30.1%
Risk-free interest rate                              5.25%          3.73%
Expected life (in years)                              5.0            5.0
Weighted average fair value of options granted      $1.86          $1.74
</TABLE>

     The following is an analysis of the activity for the years ended December
     31, 2006 and 2005 and the stock options outstanding at the end of the
     respective years:

<TABLE>
<CAPTION>
                                                           AVERAGE
                                               AVERAGE    REMAINING
                                              EXERCISE   CONTRACTUAL   INTRINSIC
OPTIONS                              SHARES     PRICE        TERM        VALUE
-------                             -------   --------   -----------   ---------
<S>                                 <C>       <C>        <C>           <C>
Outstanding at January 1, 2006      181,450      8.04
Granted                              18,500      5.25
Expired                                  --        --
Forfeited                              (500)     6.00
                                    -------
Outstanding at December 31, 2006    199,450     $7.79        6.8        $79,000
                                    =======                  ===        =======
Excercisable at December 31, 2006   160,850     $8.23        6.5        $60,000
                                    =======                  ===        =======
</TABLE>

     The intrinsic value for stock options is calculated based on the exercise
     price of the underlying awards and the market price of our common stock as
     of the reporting date. As of December 31, 2006, the Company expensed
     approximately $28,000 pre-tax in stock based employee compensation. The
     remaining un- recognized compensation expense of $55,000 will be recognized
     through the year ending December 31, 2010 in accordance with SFAS 123R.


                                       84

<PAGE>

10.  INCOME TAXES

     An analysis of the income tax provision for the years ended December 31,
     2006 and 2005 is as follows:

<TABLE>
<CAPTION>
                                      2006        2005
                                    --------   ---------
<S>                                 <C>        <C>
Deferred                            $ (9,936)  $ 424,600
Current                               12,826          --
Utilization of net operating loss    363,223       4,720
Valuation allowance                       --    (859,320)
                                    --------   ---------
                                    $366,113   $(430,000)
                                    ========   =========
</TABLE>

     A reconciliation between the effective tax rate and the statutory tax rate
     for the years ended December 31, 2006 and 2005 are as follows:

<TABLE>
<CAPTION>
                                                      2006    2005
                                                      ----   -----
<S>                                                   <C>    <C>
U.S. federal statutory rate                           34.0%   34.0%
State income tax, net of federal income tax benefit    3.3     2.3
Increase (decrease) in valuation allowance             0.0   (75.2)
Other, net                                             0.6     1.3
                                                      ----   -----
Effective Tax Rate                                    37.9%  (37.6)%
                                                      ====   =====
</TABLE>


                                       85

<PAGE>

     The significant components of the Company's net deferred tax asset as of
     December 31, 2006 and 2005 are as follows:

<TABLE>
<S>                                                         <C>          <C>
Deferred tax assets:
   Allowance for loan losses                                $  718,231   $  599,518
   Net operating loss carryforwards                          2,093,445    2,456,668
   Fixed assets depreciation                                        --        8,874
   Net unrealized loss on available for sale securities        282,010      282,421
   Other real estate write-downs                                55,455      251,391
   Fair market value of net assets acquired allocated for
      financial reporting purposes to loans                     12,595           --
                                                            ----------   ----------
Total deferred tax assets                                    3,161,736    3,598,872
Deferred tax liabilities:
   Fair market value of net assets acquired allocated for
      financial reporting purposes to deposits              $  (46,768)  $  (49,449)
   Fair market value of net assets acquired allocated for
      financial reporting purposes to loans                         --      (26,005)
   Deferred loan fees                                         (174,672)    (172,361)
   Fixed assets depreciation                                   (28,005)          --
   Other, net                                                  (29,201)     (40,215)
                                                            ----------   ----------
Total deferred tax liabilities                                (278,646)    (288,030)
                                                            ----------   ----------
Net deferred tax asset                                      $2,883,090   $3,310,842
                                                            ==========   ==========
</TABLE>

     In the year ended December 31, 2002, the Company recorded a valuation
     allowance against a portion of the deferred tax asset because at that time
     management believed it was more likely than not that a portion of the
     benefit associated with the deferred tax asset would not be realized. In
     2005, management concluded that the valuation allowance on the deferred tax
     asset was no longer necessary given the Company's sustained income and
     growth through the year and projected net income in the future, and the
     valuation allowance was fully reversed. The Company has generated federal
     net operating loss carryforwards of approximately $4.9 million. The net
     operating loss carryforwards, if unused will expire in 2020 through 2024.
     The Company has generated net state operating loss carryforwards of
     approximately $5.3 million which, if unused, will expire in 2015 through
     2019.

11.  RELATED PARTY TRANSACTIONS

     In the ordinary course of business, the Banks have loan, deposit and other
     transactions with executive officers, directors and principal shareholders,
     and with organizations and individuals with which they are financially or
     otherwise closely associated. As defined, total loans to executive
     officers, directors and principal shareholders were approximately
     $3,090,000 and $1,665,000 at December 31, 2006 and 2005, respectively. In
     2006 there were $2,834,000 in advances, $1,399,000 in repayments, and
     $10,000 in reductions due to the release of a guarantee.


                                       86

<PAGE>

     A law firm in which a director is a member received payments of $13,000 and
     $17,000 for 2006 and 2005, respectively. The firm provides legal services
     primarily in loan-related matters. Another law firm in which a director is
     a member received payments of $46,000 in 2006 and $31,000 in 2005.

     A real estate appraisal company, owned by an employee who is also a
     director, received payments of $32,000 and $19,000 for 2006 and 2005,
     respectively.

     A company, owned by a director, which provides title and abstract work for
     Shelby County Bank received payments of $9,000 and $3,000 for 2006 and
     2005, respectively.

12.  REGULATORY CAPITAL REQUIREMENTS

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

     The Banks' capital amounts and classification are also subject to
     qualitative judgments by the regulators about components, risk weightings,
     and other factors.

     Quantitative measures that have been established by regulation to ensure
     capital adequacy require the Banks to maintain minimum capital amounts and
     ratios (set forth in the table below). The Banks' primary regulatory
     agency, the OTS, requires that the Banks maintain minimum ratios of
     tangible capital (as defined in the regulations) of 1.5%, core capital (as
     defined) of 4%, or 3% for banks with a composite rating of "1" and total
     risk-based capital (as defined) of 8%. The Banks are also subject to prompt
     corrective action capital requirement regulations set forth by the Federal
     Deposit Insurance Corporation ("FDIC"). The FDIC requires the Banks to
     maintain minimum capital amounts and ratios of weighted assets (as
     defined), and of Tier 1 capital (as defined) to average assets (as
     defined). As of December 31, 2006, management believes that the Banks meet
     all capital adequacy requirements to which they are subject.


                                       87
<PAGE>

     As of December 31, 2006 and 2005, the most recent notifications from the
     OTS categorized the Banks as "well-capitalized" under the regulatory
     framework for prompt corrective action. There are no conditions or events
     since that notification that management believes have changed the
     institutions' categories. To be categorized as "well capitalized", the
     Banks must maintain minimum total risk based, Tier 1 risk based, and Tier 1
     leverage ratios as set forth in the tables below.

     Capital ratios for Shelby County Bank are as follows:

<TABLE>
<CAPTION>
                                                             AS OF DECEMBER 31, 2006
                                         --------------------------------------------------------------
                                                                                     FDICIA REGULATIONS
                                                               MINIMUM FOR CAPITAL       TO BE "WELL
                                            ACTUAL CAPITAL           ADEQUACY           CAPITALIZED"
                                         -------------------   -------------------   ------------------
                                            AMOUNT     RATIO      AMOUNT     RATIO     AMOUNT     RATIO
                                         -----------   -----   -----------   -----   ----------   -----
<S>                                      <C>           <C>     <C>           <C>     <C>          <C>
Tangible capital ratio                   $12,300,000    9.1%    $2,032,000    1.5%          N/A    N/A
Core capital to average assets            12,300,000    9.1%     5,419,000    4.0%    6,773,000    5.0%
Tier 1 capital to risk weighted assets    12,300,000   11.6%           N/A    N/A     6,378,000    6.0%
Total capital to risk weighted assets     12,950,000   12.2%     8,504,000    8.0%   10,630,000   10.0%
</TABLE>

<TABLE>
<CAPTION>
                                                             AS OF DECEMBER 31, 2005
                                         --------------------------------------------------------------
                                                                                     FDICIA REGULATIONS
                                                               MINIMUM FOR CAPITAL       TO BE "WELL
                                            ACTUAL CAPITAL           ADEQUACY           CAPITALIZED"
                                         -------------------   -------------------   ------------------
                                            AMOUNT     RATIO      AMOUNT     RATIO     AMOUNT     RATIO
                                         -----------   -----   -----------   -----   ----------   -----
<S>                                      <C>           <C>     <C>           <C>     <C>          <C>
Tangible capital ratio                   $11,196,000    8.5%    $1,987,000    1.5%          N/A    N/A
Core capital to average assets            11,196,000    8.5%     5,299,000    4.0%    6,623,000    5.0%
Tier 1 capital to risk weighted assets    11,196,000   11.4%           N/A    N/A     5,908,000    6.0%
Total capital to risk weighted assets     12,018,000   12.2%     7,877,000    8.0%    9,846,000   10.0%
</TABLE>

     Capital ratios for Paramount Bank are as follows:

<TABLE>
<CAPTION>
                                                             AS OF DECEMBER 31, 2006
                                         --------------------------------------------------------------
                                                                                     FDICIA REGULATIONS
                                                               MINIMUM FOR CAPITAL       TO BE "WELL
                                            ACTUAL CAPITAL           ADEQUACY           CAPITALIZED"
                                         -------------------   -------------------   ------------------
                                            AMOUNT     RATIO      AMOUNT     RATIO     AMOUNT     RATIO
                                         -----------   -----   -----------   -----   ----------   -----
<S>                                      <C>           <C>     <C>           <C>     <C>          <C>
Tangible capital ratio                    $6,823,000    7.9%    $1,295,000    1.5%          N/A    N/A
Core capital to average assets             6,823,000    7.9%     3,453,000    4.0%    4,317,000    5.0%
Tier 1 capital to risk weighted assets     6,823,000    9.5%           N/A    N/A     4,310,000    6.0%
Total capital to risk weighted assets      7,638,000   10.6%     5,747,000    8.0%    7,184,000   10.0%
</TABLE>


                                       88

<PAGE>

<TABLE>
<CAPTION>
                                                             AS OF DECEMBER 31, 2005
                                         --------------------------------------------------------------
                                                                                     FDICIA REGULATIONS
                                                               MINIMUM FOR CAPITAL       TO BE "WELL
                                            ACTUAL CAPITAL           ADEQUACY           CAPITALIZED"
                                         -------------------   -------------------   ------------------
                                            AMOUNT     RATIO      AMOUNT     RATIO     AMOUNT     RATIO
                                         -----------   -----   -----------   -----   ----------   -----
<S>                                      <C>           <C>     <C>           <C>     <C>          <C>
Tangible capital ratio                    $6,534,000    7.9%    $1,247,000    1.5%          N/A    N/A
Core capital to average assets             6,534,000    7.9%     3,324,000    4.0%    4,156,000    5.0%
Tier 1 capital to risk weighted assets     6,534,000   10.5%           N/A    N/A     3,718,000    6.0%
Total capital to risk weighted assets      7,288,000   11.8%     4,957,000    8.0%    6,197,000   10.0%
</TABLE>

     PRIVATE PLACEMENT-- On April 26, 2005, the Board of Directors of the
     Company approved the offer and sale of up to $600,000 worth of its common
     stock to certain accredited investors, including, without limitation, the
     officers and directors of the Company in a private placement under Section
     4(2) of the Securities Act of 1933 and Rule 506 of Regulation D promulgated
     thereunder. On April 29, 2005, the price of $5.00 per share was determined
     by the Executive Committee of the Board of Directors of the Company.
     Subsequently, the Company sold 101,000 shares of common stock at a price of
     $5.00 per share, or $505,000 in gross proceeds. Offerings costs as of
     September 30, 2005 were $10,645. The private placement closed on May 6,
     2005.

13.  EMPLOYEE BENEFIT PLANS

     The Company has a 401(k) plan established for substantially all full-time
     employees, as defined. The Company has elected to match contributions equal
     to 100% on the first 3% of the employee contributions, and 50% on the next
     2% up to a maximum of 4% of an individual's total eligible salary, as
     defined. Contributions totaled approximately $114,000 and $74,000 for the
     years ended December 31, 2006 and 2005, respectively.


                                       89

<PAGE>

14.  COMMITMENTS

     In the normal course of business, the Banks make various commitments to
     extend credit, which are not reflected in the accompanying consolidated
     financial statements. The commitments primarily have variable rates of
     interest. The following table illustrates these contractual commitments:

<TABLE>
<CAPTION>
                                     DECEMBER 31,   DECEMBER 31,
                                         2006           2005
                                     ------------   ------------
                                        (DOLLARS IN THOUSANDS)
<S>                                  <C>            <C>
Loan Commitments                        $23,286        $24,705
Unused portions of lines of credit       17,572         13,922
Commitments to sell mortgage loans        1,182          1,023
Standby letters of credit                   197            865
Commercial letters of credit              2,297          1,657
                                        -------        -------
Total Commitments                       $44,534        $42,172
                                        =======        =======
</TABLE>

     In the event of nonperformance by the other parties to the financial
     instruments, the Banks' exposure to credit loss for commitments to extend
     credit is represented by the contract amount of those instruments. The
     Banks use the same credit policies and collateral requirements in making
     commitments as they do for on-balance sheet financial instruments.

     The Banks have three leased premises under operating leases. The Company
     also pays rent for office space at an offsite location. During the years
     ended 2006 and 2005, the Banks incurred lease and rent expenses of $305,690
     and $281,554 respectively. The following table summarizes future lease
     commitments of property.

     Lease Payments

<TABLE>
<S>          <C>
2007            254,993
2008            251,827
2009            253,238
2010            254,677
2011             89,978
Thereafter      524,543
             ----------
             $1,629,256
             ==========
</TABLE>

     The cash balance required to be maintained on hand or on deposit with the
     Federal Reserve was $715,000 and $923,000 at December 31, 2006 and 2005.
     These reserves do not earn interest.


                                       90
<PAGE>

15.  PARENT COMPANY FINANCIAL INFORMATION

     Condensed Balance Sheets as of December 31:

<TABLE>
<CAPTION>
                                                                       2006          2005
                                                                   -----------   -----------
<S>                                                                <C>           <C>
Assets:
   Cash and cash equivalents                                       $ 1,187,724   $   564,299
   Loans receivable net of allowance for loan losses of $400,000       100,000            --
   Investment in banking subsidiaries                               22,297,272    21,590,313
   Investment in unconsolidated subsidiary                             217,000            --
   Other                                                             1,318,152     1,381,261
                                                                   -----------   -----------
Total assets                                                       $25,120,148   $23,535,873
                                                                   ===========   ===========
Liabilities and Shareholders' Equity:
   Term debt                                                       $        --   $ 6,000,000
   Subordinated debt                                                 7,217,000            --
   Other liabilities                                                    83,083        65,898
   Shareholders' equity                                             17,820,065    17,469,975
                                                                   -----------   -----------
Total liabilities and shareholders' equity                         $25,120,148   $23,535,873
                                                                   ===========   ===========
</TABLE>


                                       91

<PAGE>

     Condensed Statement of Operations for the years ended December 31 is as
     follows:

<TABLE>
<CAPTION>
                                                         2006         2005
                                                      ---------   -----------
<S>                                                   <C>         <C>
Dividends from subsidiaries                           $ 900,000   $   150,000
Interest income, net of interest expense               (478,424)     (336,297)
Provision for loan losses                              (400,000)           --
Non-interest income                                     (78,764)           --
Non-interest expense                                   (809,826)     (640,484)
                                                      ---------   -----------
Loss before income taxes and equity
   in undistributed earnings (loss) of subsidiaries    (867,014)     (826,781)
Income tax (benefit)                                   (670,661)   (1,219,051)
                                                      ---------   -----------
Income (loss) before equity in undistributed
   earnings of subsidiaries                            (196,353)      392,270
Equity in undistributed earnings of subsidiaries        795,279     1,181,090
                                                      ---------   -----------
Net income (loss)                                     $ 598,926   $ 1,573,360
                                                      =========   ===========
</TABLE>


                                       92

<PAGE>

     Condensed Statements of Cash Flows for the years ended December 31, 2006
     and 2005 are as follows:

<TABLE>
<CAPTION>
                                                                      2006          2005
                                                                  -----------   -----------
<S>                                                               <C>           <C>
Cash flows from operating activities:
   Net income (loss)                                              $   598,926   $ 1,573,360
   Adjustments to reconcile net cash from operating activities:
      Equity in undistributed (earnings) of subsidiary               (795,279)   (1,181,090)
      Depreciation and amortization                                    12,177        10,251
      Provision for loan losses                                       400,000            --
      (Increase) decrease in other assets                               4,399    (1,224,796)
      Increase (decrease) in other liabilities                         17,185      (112,235)
                                                                  -----------   -----------
      Net cash from operating activities                              237,408      (934,510)
Cash flows from investing activities:
   Capital contribution to Banks                                           --    (1,800,000)
   Investment in unconsolidated subsidiary                           (217,000)
   Purchase of loans                                                 (500,000)           --
                                                                  -----------   -----------
      Net cash from investing activities                             (717,000)   (1,800,000)
Cash flows from financing activities:
   Proceeds from issuance of note payable                                  --     2,000,000
   Repayment of note payable                                       (6,000,000)
   Proceeds from issuance of subordinated debt                      7,217,000            --
   Proceeds from issuance of common stock
      net of offering costs of $10,645                                     --       494,355
   Dividends paid                                                    (113,983)           --
                                                                  -----------   -----------
      Net cash from financing activities                            1,103,017     2,494,355
   Net increase (decrease) in cash and cash equivalents               623,425      (240,155)
   Cash and cash equivalents, beginning of year                       564,299       804,454
                                                                  -----------   -----------
   Cash and cash equivalents, end of year                         $ 1,187,724   $   564,299
                                                                  ===========   ===========
</TABLE>


                                       93
<PAGE>

16.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following disclosure of fair value information is made in accordance
     with the requirements of SFAS 107, Disclosures About Fair Value of
     Financial Instruments. SFAS 107 requires disclosure of fair value
     information about financial instruments, whether or not recognized in the
     balance sheet, for which it is practicable to estimate fair value. The
     estimated fair value amounts have been determined by the Company using
     available market information and other appropriate valuation techniques.
     These techniques are significantly affected by the assumptions used, such
     as the discount rate and estimates of future cash flows. Accordingly, the
     estimates made herein are not necessarily indicative of the amounts the
     Company could realize in a current market exchange and the use of different
     market assumptions and/or estimation methods may have a material effect on
     the estimated fair value amount.

     CASH AND CASH EQUIVALENTS--For these instruments, the carrying amount is a
     reasonable estimate of fair value.

     INVESTMENT SECURITIES--For investment securities, fair values are based on
     quoted market prices, if available. For securities where quoted prices are
     not available, fair value is estimated based on market prices of similar
     securities.

     LOANS RECEIVABLE--The fair value of loans is estimated by discounting
     future cash flows using current rates at which similar loans would be made
     to borrowers with similar credit ratings and for the same remaining
     maturities.

     DEPOSITS--The fair value of non-interest bearing demand deposits and
     savings and NOW accounts is the amount payable as of the reporting date.
     The fair value of fixed-maturity certificates of deposit is estimated using
     rates currently offered for deposits of similar remaining maturities.

     STOCK IN FHLB AND OTHER RESTRICTED STOCK --The fair value of FHLB and other
     restricted stock approximates carrying value.

     ACCRUED INTEREST RECEIVABLE--The fair value approximates carrying value.

     FED FUNDS PURCHASED-- The fair value approximates carrying value.

     FHLB ADVANCES--The fair values of FHLB advances are based on quoted market
     prices as the majority of FHLB advances have fixed interest rates.

     NOTE PAYABLE AND SUBORDINATED DEBT--The fair value approximates cost as the
     interest rate is variable.

     ACCRUED INTEREST PAYABLE--The fair value approximates carrying value.

     COMMITMENTS--The commitments to originate and purchase loans have terms
     that are consistent with current market conditions. Accordingly, the
     Company estimated that the face amounts of these commitments approximate
     carrying values (zero).


                                       94

<PAGE>

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

<TABLE>
<CAPTION>
                                                            2006                            2005
                                               -----------------------------   -----------------------------
                                                  CARRYING       ESTIMATED        CARRYING       ESTIMATED
                                                   AMOUNT        FAIR VALUE        AMOUNT        FAIR VALUE
                                               -------------   -------------   -------------   -------------
<S>                                            <C>             <C>             <C>             <C>
Assets:
   Cash and cash equivalents                   $   9,713,000   $   9,713,000   $  20,177,000   $  20,177,000
   Investment securities, held to maturity            14,000          14,000          16,000          16,000
   Investment securities, available for sale      21,907,000      21,907,000      24,721,000      24,721,000
   Loans receivable                              181,875,000     182,537,000     162,416,000     162,926,000
   Stock in FHLB and other restricted stock        2,402,000       2,402,000       3,012,000       3,012,000
   Accrued interest receivable                     1,209,000       1,209,000       1,005,000       1,005,000

Liabilities:
   Deposits                                     (184,113,000)   (184,984,000)   (178,759,000)   (178,016,000)
   FHLB advances                                 (16,038,000)    (15,795,000)    (17,826,000)    (17,539,000)
   Note payable                                          (--)            (--)     (6,000,000)     (6,000,000)
   Subordinated debt                              (7,217,000)     (7,217,000)            (--)            (--)
   Accrued interest payable                         (593,000)       (593,000)       (444,000)       (444,000)
</TABLE>

17.  AFFILIATION AND MERGER

     On August 31, 2004, the Company and Heartland Bancshares, Inc.
     ("Heartland"), Franklin, Indiana, entered into an Agreement of Affiliation
     and Merger which provided for Heartland to merge with and into to the
     Company. On February 10, 2005, the Company and Heartland mutually agreed to
     terminate the merger agreement and certain other related agreements,
     including the reciprocal stock option agreements entered into by the
     Company and Heartland in connection with the merger agreement. During the
     third and fourth quarters of 2004, the Company incurred costs of $274,000
     related to the proposed merger and $134,000 of severance payments made to
     the Company's former President, as a result of our proposed merger with
     Heartland Bancshares, Inc. These costs were expensed by the Company since
     it was expected that Heartland would be the acquiring entity in the merger.
     Additional costs of $73,000 related to this merger were expensed during the
     year ended December 31, 2005.

18.  PROPOSED CHARTER SALE

     On September 19, 2006, the Company entered into an Agreement and Plan of
     Reorganization with FirstAtlantic Financial Holdings, Inc. The Agreement
     provides for the transfer of all operating assets of Paramount Bank, a
     wholly-owned subsidiary of the Company in an inter-company transaction with
     another of the Company's wholly-owned subsidiaries, Shelby County Bank. The
     Agreement also provides for the sale of the charter of Paramount Bank to
     FirstAtlantic Financial Holdings, Inc. through a stock sale. In
     consideration thereof, FirstAtlantic Financial Holdings will make a cash
     payment to the Company in the amount of $1,675,000. After regulatory
     approval and following the completion of the transaction, the Company will
     operate Paramount Bank as a division of Shelby County Bank. The Company
     anticipates completing the transaction during the second quarter of 2007.


                                       95

<PAGE>

19.  OTHER COMPREHENSIVE INCOME

     Other comprehensive income (loss) components and related tax effects for
     the years ended December 31, 2006 and December 31, 2005 are as follows:

<TABLE>
<CAPTION>
                                                              2006       2005
                                                             ------   ---------
<S>                                                          <C>      <C>
Other comprehensive income (loss):
   Net unrealized holding gains (losses)                     $3,189   $(579,476)
   Reclassification adjustment for (gains) losses realized       --     (34,055)
                                                             ------   ---------
Other comprehensive income (loss) before income tax           3,189    (613,531)
Income tax benefit (expense) related to items of other
   comprehensive income                                        (411)    231,526
                                                             ------   ---------
Other comprehensive income (loss), net of tax                $2,778   $(382,005)
                                                             ======   =========
</TABLE>


                                       96

<PAGE>

20.  OTHER INTANGIBLE ASSETS

     The following table shows changes in carrying amounts of core deposit
     intangibles for the year ended December 31, 2006:

     Acquired Intangible Assets

<TABLE>
<CAPTION>
                                                 2006                            2005
                                    -----------------------------   -----------------------------
                                    Gross Carrying    Accumulated   Gross Carrying    Accumulated
                                        Amount       Amortization       Amount       Amortization
                                    --------------   ------------   --------------   ------------
<S>                                 <C>              <C>            <C>              <C>
Amortization of intangible assets
   Core deposit intangible             $459,764        $218,386        $459,764        $149,422
</TABLE>

     Projected annual intangible amortization for the years 2007 through 2010 is
     included in the table as follows:

<TABLE>
<S>    <C>
2007     68,964
2008     68,964
2009     68,964
2010     34,486
       --------
       $241,378
       ========
</TABLE>


                                       97
<PAGE>

BLUE RIVER BANCSHARES, INC.

SHAREHOLDER INFORMATION

STOCK INFORMATION

The Company's common stock is traded on the NASDAQ Capital Market under the
symbol "BRBI".

The Company had 182 Shareholders of Record as of March 22, 2007.

SALE PRICE PER SHARE

<TABLE>
<CAPTION>
                      2006            2005
                 -------------   -------------
QUARTER           HIGH    LOW     HIGH    LOW
-------          -----   -----   -----   -----
<S>              <C>     <C>     <C>     <C>
First quarter    $6.94   $5.14   $5.57   $5.05
Second quarter    6.92    6.25    5.34    4.77
Third quarter     6.94    6.00    5.40    5.04
Fourth quarter    6.50    5.92    5.41    5.00
</TABLE>

ANNUAL REPORT ON FORM 10-KSB

A copy of the company's annual report on Form 10-KSB, filed with the Securities
and Exchange Commission, is available without charge by writing:

          Patrice M. Lima
          Vice President
          Controller
          Blue River Bancshares, Inc.
          29 E. Washington Street
          Shelbyville, IN 46176

STOCK TRANSFER AGENT

Inquiries regarding stock transfer, registration, lost certificates or changes
in name and address should be directed to the stock transfer agent and registrar
by writing:

     Continental Stock Transfer & Trust Co.
     17 Battery Place
     New York, NY 10004

INVESTOR INFORMATION

Stockholders, investors, and analysts interested in additional information may
contact Russell Breeden, III, Chief Executive Officer, Chairman of the Board and
President of Blue River Bancshares, Inc.

<TABLE>
<S>                      <C>                           <C>
Legal Counsel            Corporate Offices             Accountants
KRIEG DEVAULT LLP        BLUE RIVER BANCSHARES, INC.   CROWE CHIZEK AND COMPANY LLC
One Indiana Square       29 E. Washington St.          3815 River Crossing Pkwy.
Suite 2800               Shelbyville, IN 46176         Suite 300
Indianapolis, IN 46204   888-842-2265                  Indianapolis, IN 46240
</TABLE>


                                       98

<PAGE>

BLUE RIVER BANCSHARES, INC.

DIRECTORS AND OFFICERS

<TABLE>
<CAPTION>
BOARD OF DIRECTORS                               BOARD OF DIRECTORS                            BOARD OF DIRECTORS
BLUE RIVER BANCSHARES, INC.                      SHELBY COUNTY BANK                              PARAMOUNT BANK
---------------------------         -------------------------------------------   -------------------------------------------
<S>                                 <C>                                           <C>
RUSSELL BREEDEN, III                STEVEN R. ABEL                                RUSSELL BREEDEN, III
Chairman of the Board,              Owner                                         Chairman of the Board,
Chief Executive Officer,            Hoosier Appraisal Service                     Chief Executive Officer,
President                           Chairman of the Board, Chief Credit Officer   President of Blue River Bancshares
                                    Shelby County Bank

STEVEN R. ABEL                      RUSSELL BREEDEN, III                          STEVEN R. ABEL
Owner                               Chairman of the Board,                        Owner
Hoosier Appraisal Service           Chief Executive Officer,                      Hoosier Appraisal Service
Vice Chairman                       President of Blue River Bancshares            Vice Chairman, Blue River Bancshares, Inc.
Chairman of the Board,                                                            Chairman of the Board, Chief Credit Officer
Chief Credit Officer                                                              Shelby County Bank
Shelby County Bank

WENDELL L. BERNARD                  RANDY J. COLLIER                              JOHN ROBERT OWENS
Owner                               President, Chief Executive Officer            President
Bernard Realty                      Shelby County Bank                            Risk Placement Services, Inc.

PETER G. DEPREZ                     WENDELL L. BERNARD                            WAYNE C. RAMSEY
Attorney                            Owner                                         Vice President
Brown, DePrez & Johnson             Bernard Realty                                Lynch & Associates

JOHN ECKART                         PETER G. DEPREZ                               STEVE SINGLETON
Commissioner, Revenue Dept          Attorney                                      President & CFO/CFO
State of Indiana                    Brown, DePrez & Johnson                       Specialized Technical Services, Inc.

JOHN ROBERT OWENS                   WAYNE C. RAMSEY                               TIMOTHY C. WILLS
President                           Vice President                                Partner
Risk Placement Services, Inc.       Lynch & Associates                            Bowles, Rice, McDavid, Graff & Love, LLP

WAYNE C. RAMSEY                     D. WARREN ROBISON
Vice President                      Owner
Lynch & Associates                  Hale Abstract

ROBERT J. SALYERS
Attorney
Salyers, Eiteljorg, & Pulce, P.C.
</TABLE>


                                       99

<PAGE>

<TABLE>
<CAPTION>
OFFICERS                                                OFFICERS                                    OFFICERS
BLUE RIVER BANCSHARES, INC.                        SHELBY COUNTY BANK                            PARAMOUNT BANK
---------------------------            -----------------------------------------   -----------------------------------------
<S>                                    <C>                                         <C>
RUSSELL BREEDEN, III                   STEVEN R. ABEL                              RUSSELL BREEDEN, III
Chairman of the Board,                 Chairman of the                             Chairman of the Board
Chief Executive Officer & President    Board Chief Credit Officer

STEVEN R. ABEL                         RANDY J. COLLIER                            OLIN W. BRYANT, JR.
Vice Chairman                          President, Chief Executive Officer          President, Chief Executive Officer

RANDY J. COLLIER                       PATRICE M. LIMA                             SARITA S. GRACE
Executive Vice President, Secretary    Senior Vice President, Chief Financial      Executive Vice President, Chief Financial
                                       Officer                                     Officer

PATRICE M. LIMA                        LAWRENCE E. LUX                             RODNEY L. MITCHELL
Vice President, Controller             Senior Vice President, Commercial Lending   Senior Vice President

RICHARD E. WALKE                       RONALD L. LANTER                            JOEY C. MILLS
Vice President, Director of Internal   Vice President, Lending                     Vice President, Chief Credit Officer
Audit
                                       JAMES E. MATSON                             SUSAN POTTER
                                       Vice President, Consumer Lending            Vice President, Loan Officer

                                       MEL A. NOVILLA
                                       Vice President, Commercial Lending

                                       TERRY A. SMITH
                                       Vice President, Retail Banking

                                       PAUL W. STOREY
                                       Vice President, Commercial Lending
</TABLE>


                                       100