<PAGE>
                                                                               .
                                                                               .
                                                                               .

EXHIBIT 13.  THE ANNUAL REPORT TO SHAREHOLDERS OF THE COMPANY


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


<TABLE>
<CAPTION>
                                                                   YEAR ENDED                         YEAR ENDED
                                                                DECEMBER 31, 2002                  DECEMBER 31, 2001

<S>                                                             <C>                                 <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Net Interest Income                                                $     2,363                         $     3,816
Non-Interest Income                                                        149                                  65
Provision for Loan Losses                                                  261                               1,985
Non-Interest Expense                                                     4,479                               5,237
Loss before Income Taxes                                                (2,228)                             (3,340)
Income Tax Benefit                                                        (151)                             (1,164)
Loss before cumulative effect of change in
accounting principle                                                    (2,077)                             (2,176)
Cumulative effect of change in accounting principle                     (2,429)                                -0-
Net Loss                                                                (4,506)                             (2,176)
CONSOLIDATED BALANCE SHEET DATA
Total Assets                                                       $    95,118                         $   125,790
Total Deposits                                                          73,733                             107,620
Loans, net                                                              56,596                              71,936
Investment Securities                                                   26,666                              29,789
Shareholders' Equity                                                     9,873                              12,593

GENERAL
Number of Employees                                             36 FTE / 7 PTE                      35 FTE / 8 PTE
Number of Shares Outstanding at December                             1,859,802                           1,549,913
Weighted Average Shares Outstanding - during year                    1,666,122                           1,549,913

PER COMMON SHARE DATA
Basic and diluted loss per Common Share before
change in accounting principle                                     $     (1.25)                        $     (1.40)
Cumulative effect in change of accounting principle                      (1.46)                                -0-
                                                                   -----------                         -----------
Basic and diluted loss per share                                   $     (2.71)                        $     (1.40)
                                                                   ===========                         ===========
SELECTED PERFORMANCE RATIOS
Return on Average Assets                                                 (3.94)%                             (1.43)%
Return on Average Equity                                                (39.70)%                            (15.14)%
Average Shareholders' Equity to Average Assets                            9.94%                               9.47%
</TABLE>


                                       29
<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", or
"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. These forward-looking statements involve risks
and uncertainties which may cause actual results to differ materially from those
in such statements. Some of the factors that may generally cause actual results
to differ materially from projection, forecasts, estimates and expectations
include changes in interest rates, competitive factors, pricing pressures,
change in legal and regulatory requirements and various economic conditions. The
following information is intended to provide an analysis of the consolidated
financial condition of Blue River Bancshares, Inc. (the "Company") as of
December 31, 2002 and the statements of operations, shareholders' equity, and
cash flows for the years ended December 31, 2002 and December 31, 2001. This
information should be read in conjunction with the Consolidated Financial
Statements and footnotes.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, SFAS No. 133, ("SFAS 133") Accounting for Derivative Instruments
and Hedging Activities, was issued. This statement was amended by Statement of
Financial Accounting Standards No. 137 ("SFAS 137"), Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS 133.
SFAS 133, as amended by SFAS 137, is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. This statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognizes all derivatives as either
assets or liabilities in the statement of financial condition and measures those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a fair value hedge, a cash flow hedge, or a hedge of
foreign currency exposure. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. The Company adopted this statement on
January 1, 2001, and the adoption of this statement had no material impact on
the financial condition, results of operations or cash flows of the Company.

Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and
Other Intangible Assets," was issued in July 2001. Under SFAS 142, goodwill
amortization ceases when the new standard is adopted. The new rules also require
an initial goodwill impairment assessment in the year of adoption and at least
annual impairment tests thereafter. SFAS 142, is effective for the Company
January 1, 2002. Annual goodwill amortization of approximately $212,000 was
ceased on January 1, 2002. Management has completed the assessment and
evaluation process of determining the impairment of goodwill in accordance with
SFAS 142 during the second quarter of 2002. The measurement of impairment
resulted in a reduction of goodwill and a cumulative change in accounting
principle of $2,429,081.

Statement of Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting
for Asset Retirement Obligations," was issued in June 2001 and is effective for
financial statements issued for fiscal years beginning after June 15, 2002. SFAS
143 addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement
costs. Management has determined that the effect, of this new standard on the
consolidated financial statements will not be material.



                                       30
<PAGE>
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets" was issued in August 2001
and is effective for financial statements issued for fiscal years beginning
after December 15, 2001, and interim periods within those fiscal years. SFAS 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. Management has determined that the effect of this new
standard on the consolidated financial statements will not be material.

Statement of Financial Accounting Standards No. 145 ("SFAS 145"), "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections," was issued in April 2002 which, among other things,
changes the way gains and losses from the extinguishment of debt are reported.
Previously, all gains and losses from the extinguishment of debt were required
to be reported as an extraordinary item, net of related tax effect. Under SFAS
No.145, gains and losses from the extinguishment of debt should be reported as
part of on-going operations, unless the extinguishment of debt meets the
criteria of both unusual and infrequent as established in APB No.30. SFAS No.
145 is effective for all fiscal years beginning after May 15, 2002, including
all prior period presentations. Management has determined that the effect of
this new standard on the consolidated financial statements will not be material.

Statement of Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting
for Costs Associated with Exit or Disposal Activities," which nullifies Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)," was issued during June 2002. SFAS No. 146
requires that liability for a cost associated with an exit or disposal activity
be recognized when the liability is incurred. SFAS No. 146 is effective for exit
and disposal activities that are initiated after December 31, 2002. Management
has determined that the effect of this new standard on the consolidated
financial statements will not be material.

Statement of Financial Accounting Standards No. 147 ("SFAS 147"), "Acquisitions
of Certain Financial Institutions," was issued in October 2002 and is effective
for acquisitions for which the date of acquisition is on or after October 1,
2002. SFAS 147 addresses the financial accounting and reporting for the
acquisition of all or part of a financial institution, except for a transaction
between two or more mutual enterprises. This statement also provides guidance on
the accounting for the impairment or disposal of acquired long-term
customer-relationship intangible assets (such as depositor- and
borrower-relationship intangible assets and credit cardholder intangible
assets), including those acquired in transactions between two or more mutual
enterprises. The adoption of the statement did not have any impact on the
financial statements in the year of adoption.

Statement of Financial Accounting Standards No. 148 ("SFAS 148"), "Accounting
for Stock-Based Compensation--Transition and Disclosure, an amendment of FASB
Statement No. 123," was issued in December 2002 and is effective for fiscal
years ending after December 15, 2002. SFAS 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method on reported
results. Management has included the new disclosure requirements in its
consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". This Interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that is has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements in this
interpretation are effective for financial statements of interim or annual
periods ending




                                       31
<PAGE>
after December 15, 2002. Loan commitments and commercial letters of credit are
excluded from the scope of this interpretation. The Company does not anticipate
the Interpretation will have a material impact on its consolidated financial
statements.

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities". This Interpretation addresses
consolidation by business enterprises of variable interest entities. Under
current practice, entities generally have been included in consolidated
financial statements because they are controlled through voting interests. This
Interpretation explains how to identify variable interest entities and how an
entity assesses its interests in a variable interest entity to decide whether to
consolidate that entity. FIN 46 requires existing unconsolidated variable
interest entities to be consolidated by their primary beneficiaries if the
entities do not effectively disperse risks among parties involved. Variable
interest entities that effectively disperse risks will not be consolidated
unless a single party holds an interest or combination of interests that
effectively recombines risks that were previously dispersed. Transferor to QSPEs
and "grandfathered" QSPEs subject to the reporting requirements of SFAS 140 are
outside the scope of FIN 46 and do not consolidate those entities. FIN 46 also
requires certain disclosures by the primary beneficiary of a variable interest
entity or an entity that holds a significant variable interest in a variable
interest entity.

FIN 46 is applicable for all entities with variable interests in variable
interest entities credited after January 31, 2003 immediately. Public companies
with a variable interest in a variable interest entity created before February
1, 2003 will have to apply the provisions of FIN 46 no later than the beginning
of the first interim reporting period beginning after June 15, 2003.

The company does not anticipate FIN 46 will have a material impact to its
consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 estimate most susceptible to change in the near term is the
allowance for loan losses.

The Company's critical accounting policies include the following:

Real estate owned represents real estate acquired through foreclosure or deed in
lieu of foreclosure and is recorded at the lower of cost or 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. Income generated from the property, if any, is
recorded as a reduction in its carrying value.

Interest on real estate, commercial and installments loans is accrued over the
term of the loans on a level yield basis. The Company discontinues accruing
interest on loans and reverses previously accrued amounts for loans that are
more than 90 days past due. Income is subsequently recognized only to the extent
that cash payments are received until, in management's judgment, the borrower's
ability to make periodic interest and principal payments returns to normal, in
which case the loan is returned to accrual status. In the event that a loan is
classified as impaired in accordance with FASB 114, "Accounting by Creditors for
impairment of a loan" before it is 90 days past due, the Company will
discontinue accruing interest unless the loan is well secured and in the process
of collection.


                                       32
<PAGE>
 An analysis of the allowance for loan losses is performed quarterly by
management to assess the appropriate levels of allowance for loan losses. The
allowance for loan losses consists of a specific reserve and a general reserve.
The components of the allowance for loan losses represent an estimation done
pursuant to either SFAS 5, "Accounting for Contingencies," or SFAS 114,
"Accounting by Creditors for Impairment of a Loan".

The specific reserve is performed to recognize reserves allocated to individual
loans which are considered classified assets due to a combination of factors
including delinquency, credit quality and collateral value. Specific reserves
for such loans are established based upon review 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 pool of loans, excluding those classified or delinquent is the
source for the general loan loss reserve. Management evaluates this general
reserve using loan loss statistics by various types of loans, as published
periodically by the OTS and multiplying such loss percentages to the Bank's
distribution of portfolio balances. The calculated reserve is compared to the
Bank's existing reserve to establish the provision necessary to bring the actual
reserve balance in compliance with the findings of the allowance analysis.

The Bank holds certain investment securities as "available for sale". Available
for sale securities are stated at their current fair value. Unrealized gains and
losses associated with available for sale securities, net of taxes, are excluded
from earnings and reported as a net amount in shareholders' equity until
realized.

The Company establishes valuation allowances in accordance with the provisions
of FASB Statement No. 109, "Accounting for Income Taxes". The Company
continually reviews the adequacy of the valuation allowance and will recognize
the benefits only as reassessment indicates that it is more likely than not that
the benefits will be realized.

OVERVIEW OF 2002

On December 31, 2001, the Company's wholly owned subsidiary, Shelby County Bank
(the "Bank"), completed the sale of two of its branches pursuant to a Branch
Purchase and Assumption Agreement (the "Agreement") entered into with Community
First Bank and Trust, an Ohio state-chartered bank ("Community") on October 17,
2001. The Agreement provided for Community's assumption of certain deposit and
other liabilities and purchase of certain assets of two branch offices of the
Bank. The affected branches, operating as First Community Bank, were located at
7131 West Jefferson Boulevard, Fort Wayne, Indiana and 6154 Saint Joe Center
Road, Fort Wayne, Indiana (collectively, the "Branches").

Under the terms of the Agreement, Community acquired the loans, personal
property, fixed assets, cash, records, and real property lease interests of the
Branches. Community also assumed specific deposit and certain other liabilities
of the Branches. The Bank retained approximately $33 million of time deposits.
The transaction involved the purchase of approximately $31 million in assets and
the assumption of approximately $11 million in liabilities. The difference
between the assets and liabilities was offset by a cash payment from Community
to the Bank of approximately $20 million. Community also retained all the
employees of the First Community branches.



                                       33
<PAGE>


Total assets as of December 31, 2002 were $95,118,000, a (24%) decrease from
December 31, 2001 balance of $125,790,000. This decrease in assets was due to
efforts by the Company to strengthen capital ratios. The Bank's loan portfolio
showed a decrease of ($15,340,000) from December 31, 2001. The Bank focused its
efforts away from larger commercial credits in order to strengthen its Qualified
Thrift Lender ("QTL") ratios and to improve its risk-based capital ratio.
However, the Bank is making efforts to originate sufficient loan volume to
stabilize the portfolio holdings. The Bank has decreased its available-for-sale
investment portfolio by ($934,000) over December 31, 2001, a decrease of 3%. The
Bank continues to focus on agency securities and mortgage-backed securities in
its investing strategies. Both of these investment products receive favorable
risk-based capital treatment.

Total liabilities at December 31, 2002 were $85,245,000 compared to $113,197,000
at December 31, 2001. This (25%) decrease was primarily comprised of a reduction
in deposits of ($33,887,000) and an increase in advances from the Federal Home
Loan Bank of Indianapolis ("FHLB") of $6,000,000. Of the decrease in deposits,
$24,600,000 related to maturities of certain Fort Wayne certificates of deposits
retained by the Bank after the sale of the Fort Wayne banking offices on
December 31, 2001. Additionally, the Bank has continued to reduce its dependency
on highly rate sensitive deposits, such as jumbo certificates of deposit and
deposits of local governmental units. The Bank increased its use of FHLB
advances, in order to stabilize the Fort Wayne certificate maturities and manage
its liquidity position.

Total equity at December 31, 2002 was $9,873,000, a decrease of ($2,720,000)
from December 31, 2001. The change in equity resulted from the net loss of
($4,506,000), offset by an increase of $385,000 from appreciation in the
Company's available-for-sale investment portfolio and a net increase in capital
of $1,401,000 from the private placement of common stock issued during the third
quarter.

The holding Company's liquidity position is the primary source of additional
capital for infusion into its banking subsidiary. In the first quarter of 2003
the Company raised $2.5 million in gross proceeds from the private placement of
common stock. During the year ended December 31, 2002, the Company has also
reduced its use of funds through improved expense controls and capital
expenditure policies. Due to the Company's current liquidity sources and its
increased use of funds, the Company does not anticipate the need for any
additional external funding over the next twelve months.

RESULTS OF OPERATIONS

NET INCOME

For the year ended December 31, 2002, the Company reported a net loss of
($4,506,000), compared to a net loss of ($2,176,000) reported for the year ended
December 31, 2001. The change was primarily due to a reduction in net interest
income of ($1,453,000) from the year ended December 31, 2001. Interest income
declined ($4,284,000), while interest expense declined ($2,831,000). Provision
for loan losses decreased ($1,724,000) to $261,000 for the year ended December
31, 2002. The reductions in net interest income resulted from the impact of
rapid declines in market interest rates and the sale of the Fort Wayne branches.
Additionally, the Bank's variable rate lending and investing assets were subject
to reduction in yields, as the indices from which their rates are derived were
rapidly falling. In December 2002, the Company recognized a valuation allowance
of ($760,000) pertaining to the recoverability of its deferred tax assets.

NET INTEREST INCOME

For the year ended December 31, 2002, net interest income before provision for
loan losses declined ($1,453,000). Interest income declined ($4,284,000) to
$6,408,000 from $10,692,000 for the year ended December 31, 2001. Interest
expense declined ($2,831,000) to $4,045,000 for the year ended December 31,
2002, compared to $6,876,000 for the year ended December 31, 2002.


                                       34
<PAGE>

The impact of the sale of the Fort Wayne branches at December 31, 2001 was the
primary cause of the reductions in interest income and interest expense. As a
result of this transaction, the Bank decreased it's loan portfolio by
$30,696,000 offset by a decrease in deposits of $11,773,000. Additionally the
Bank retained $31,188,000 in high yielding Fort Wayne certificates of deposits
of which $24,600,000 matured during 2002.

Results for 2002 were also impacted by the Banks' efforts to scale back its
growth strategy while maintaining its regulatory capital at "well capitalized"
levels.

INTEREST INCOME

For the year ended December 31, 2002, interest income declined ($4,284,000).
This reduction was comprised of a ($3,107,000) reduction due to lower average
balances in earning assets, and a ($1,177,000) reduction due to lower yields on
the Bank's earning assets.

Interest income and fees on loans were $4,825,000 for the year ended December
31, 2002, a decrease of ($4,193,000) from the year ended December 31, 2001. The
reduction in yield on loans accounted for a ($572,000) unfavorable rate
variance, while a reduction in average loan balances created a ($3,621,000)
unfavorable volume variance. The reduction in yield was largely due to increased
balances in variable rate products, as well as lower yields on new loans
originated during a period of rapidly falling market interest rates. The overall
yield on loans fell 86 basis points to 7.28% from 8.14%.

Interest income on investment securities increased by $182,000 for the year
ended December 31, 2002. This variance was comprised of an unfavorable rate
variance of ($410,000) due to lower portfolio yield, and a favorable volume
variance of $592,000. The favorable volume variance was due to a larger average
portfolio held during the year ended December 31, 2002. This portfolio increase
was largely the result of portfolio net purchases and sales of $9,564,000 during
the second quarter of 2002, which were initiated to improve the Bank's interest
rate sensitivity measures and to reduce the use of volatile funding sources.

Interest income on interest-bearing deposits held at other financial
institutions decreased ($243,000) over the year ended December 31, 2001 to
$122,000 from $365,000. This decrease was due to a ($78,000) unfavorable volume
variance from lower balances in such liquid investments, and a ($165,000)
unfavorable rate variance due to a decline in yield on such instruments. 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.

Dividends on FHLB stock declined ($30,000) from the year ended December 31,
2001, due to lower dividend yield provided by the stock. The Bank's investment
in FHLB stock was unchanged for the year ended December 31, 2002.



                                       35
<PAGE>

INTEREST EXPENSE

Interest expense decreased ($2,831,000) to $4,045,000 from $6,876,000 for the
year ended December 31, 2001. Interest expense on deposits decreased
($2,394,000) from $6,249,000 for the year ended December 31, 2001 to $3,855,000.
This decrease results from a ($1,613,000) variance due to a decrease in average
deposit balances, and a ($781,000) unfavorable rate variance due to a 106 basis
point reduction in cost. The cost of certificates of deposit decreased
($1,707,000) over 2001, ($361,000) of this decrease was due to a decrease in the
overall rate from 6.51% in 2001 to 5.86% in 2002. The decrease in cost was
primarily impacted by $24,600,000 in maturities of certain Fort Wayne
certificates of deposit that were not included in the branch sale but were
retained by the Bank from the Fort Wayne market. These certificates of deposits
were not included in the sale due to severe discounting that would have been
required by the acquirer. Interest expense from FHLB advances declined
($437,000) from 2001, due to reduction in the use of this funding source. Rates
on core deposit products such as money market accounts, savings accounts, and
NOW accounts also decreased as a result of market conditions. The effective cost
of money market accounts declined 202 basis points from 4.00% for the year ended
December 31, 2001. Savings account and NOW account rates have declined by 75 and
20 basis points, respectively.


<TABLE>
<CAPTION>
NET INTEREST INCOME                              YEAR ENDED          PERCENTAGE CHANGE
                                                 DECEMBER 31,              FROM
                                               2002         2001       2001 TO 2002
                                           ----------------------    -----------------
                                           (DOLLARS IN THOUSANDS)
<S>                                         <C>          <C>         <C>
Interest Income:
  Interest and fees on loans                 $ 4,825      $ 9,019       (46.50)%
  Interest on investment securities            1,331        1,148        15.94%
  FHLB dividends                                 130          160       (18.75)%
  Interest on interest-bearing deposits          122          365       (66.58)%
                                             -------      -------

           Total interest income               6,408       10,692       (40.07)%
                                             =======      =======

Interest Expense:
  Interest on deposits                         3,855        6,249       (38.31)%
  Interest on borrowings                         190          627       (69.70)%
                                             -------      -------

           Total interest expense              4,045        6,876       (41.17)%
                                             -------      -------

Net interest income                          $ 2,363      $ 3,816       (38.08)%
                                             =======      =======
</TABLE>



                                       36
<PAGE>
RATE VOLUME ANALYSIS OF CHANGE IN NET INCOME


<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31, 2002              YEAR ENDED DECEMBER 31, 2001
                                        VOLUME         RATE         TOTAL        VOLUME          RATE         TOTAL
                                        ----------------------------------       ----------------------------------
                                              (DOLLARS IN THOUSANDS)                    (DOLLARS IN THOUSANDS)
<S>                                    <C>           <C>           <C>           <C>           <C>           <C>
Interest Income on:
  Loans                                $(3,621)      $  (572)      $(4,193)      $  (307)      $  (569)      $  (876)
  Investment securities                    592          (410)          182          (614)         (150)         (764)
  FHLB stock                                             (30)          (30)                        (18)          (18)
  Interest-bearing deposits                (78)         (165)         (243)          332          (205)          127
                                       -------       -------       -------       -------       -------       -------

           Total interest income        (3,107)       (1,177)       (4,284)         (589)         (942)       (1,531)
                                       -------       -------       -------       -------       -------       -------

Interest Expense on:
  Deposits                              (1,613)         (781)       (2,394)          189           (28)          161
  Borrowings                              (384)          (53)         (437)         (937)            4          (933)

           Total interest expense       (1,997)         (834)       (2,831)         (748)          (24)         (772)
                                       -------       -------       -------       -------       -------       -------

Net interest income                    $(1,110)      $  (343)      $(1,453)      $   159       $  (918)      $  (759)
                                       =======       =======       =======       =======       =======       =======
</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 of accrual. Non-accruing
loans are included in the balances presented, while only amounts of interest
collected on such loans are included in the income amounts.



                                       37
<PAGE>



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

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31, 2002      YEAR ENDED DECEMBER 31, 2001
                                         --------------------------------  ---------------------------------
                                           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                     $ 30,165   $  1,331   4.41%    $ 19,991    $  1,148      5.74%
  Interest-bearing deposits                    7,586        122   1.61%       9,557         365      3.82%
  FHLB stock                                   2,153        130   6.04%       2,153         160      7.43%
  Loans (1)                                   66,286      4,825   7.28%     110,765       9,019      8.14%
                                            --------   --------   ----     --------    --------      ----

           Total earning assets              106,190      6,408   6.03%     142,466      10,692      7.50%
                                            --------   --------   ----     --------    --------      ----

Interest Bearing Liabilities:
  Savings accounts                             7,326        101   1.38%       6,478         138      2.13%
  NOW and demand deposit accounts             19,266        195   1.01%      19,488         236      1.21%
  Money market accounts                       16,083        319   1.98%      23,198         928      4.00%
  Certificates of deposit                     55,312      3,240   5.86%      75,971       4,947      6.51%
                                            --------   --------   ----     --------    --------      ----

           Total deposits                     97,987      3,855   3.93%     125,135       6,249      4.99%
  Borrowings                                   3,970        190   4.79%      10,235         627      6.12%
                                            --------   --------   ----     --------    --------      ----

       Total interest bearing liabilities   $101,957      4,045   3.97%    $135,370       6,876      5.08%
                                            ========   --------   ----     ========    --------      ----

Net interest margin                                    $  2,363   2.23%                $  3,816      2.68%
                                                       ========                        ========
</TABLE>

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

NON-INTEREST INCOME

The Company's non-interest income for the year ended December 31, 2002 was
$149,000. This represents an increase of $84,000 from the year ended December
31, 2001. The change in non-interest income results from a decrease of ($31,000)
in service charges on deposit accounts, an ($89,000) decrease in other fees, an
increase of $306,000 from the impact of sales of investment securities and other
assets offset by a penalty of ($102,000) for prepayment of FHLB advances.


                                       38
<PAGE>



NON-INTEREST INCOME


<TABLE>
<CAPTION>

                                                                                      PERCENTAGE
                                                                                      CHANGE FROM
                                                              YEAR ENDED              DECEMBER 31,
                                                              DECEMBER 31,              2001 TO
                                                           -----------------          DECEMBER 31,
                                                            2002        2001             2002
<S>                                                        <C>         <C>            <C>
Service charges on deposit accounts                        $ 223       $ 254            (12.20)%
Other service charges and fees                               188         277            (32.13)%
Securities (losses)/gains--net                                 4         (23)           117.39%
Prepayment penalty on FHLB advance                          (102)                         0.00%
Loss on sale of branches                                                (276)           100.00%
Loss on sale of real estate owned/repossessed assets         (39)        (16)          (143.75)%
Loss on disposal/impairment of premises and equipment       (125)       (151)            17.22%

Total Non-Interest Income                                  $ 149       $  65            129.23%
                                                           =====       =====
</TABLE>


NON-INTEREST EXPENSE

For the year ended December 31, 2002, non-interest expense was $4,479,000, a
decrease of ($758,000) from the year ended December 31, 2001 of $5,237,000.
Salary and benefit expenditures decreased ($672,000) from 2001. The reduction in
salary and benefit expenses is directly related to the sale of the Fort Wayne
branch offices on December 31, 2001. The salary and benefit expenditures for
2001 related to the operation of the Fort Wayne offices was $684,000. In
addition, the Company continues to concentrate on decreasing staffing
expenditures related to clerical and administrative staff while diverting such
resources to sales and customer service personnel. Premises and equipment
decreased ($252,000) mostly due to disposal of assets previously owned by the
Company related to the sale of the Fort Wayne branch offices. The premises and
equipment costs related to the Fort Wayne locations for 2001 were approximately
$231,000. Advertising and promotional expenditures decreased ($13,000) during a
period that asset growth was not being pursued. Professional fees increased
$22,000 from the year ended December 31, 2001 to $456,000. Much of this increase
was due to fees incurred relating to other real estate owned properties. Data
processing expenditures increased $416,000 over 2001 levels, which represents
the decreased effect of the elimination of the Fort Wayne branches offset by
additional charges incurred from the previous data processor for the
continuation of service during the conversion period to the new data processor,
and additional conversion expenses of $438,000. The Bank's deposit insurance
premiums increased $57,000 during the year ended December 31, 2002, due mostly
to an increase in the assessment percentage applied to the Bank's deposit base.
SFAS 142, is effective for the Company January 1, 2002, therefore annual
goodwill amortization of approximately $212,000 was ceased on January 1, 2002.
The Bank charged $112,000 to expense relating to the Voluntary Remediation
Program at the St. Paul location.



                                       39
<PAGE>


NON-INTEREST EXPENSE

<TABLE>
<CAPTION>
                                                                           YEAR ENDED         PERCENTAGE CHANGE
                                                                          DECEMBER 31,              FROM
                                                                       ------------------        DECEMBER 31,
                                                                       2002          2001       2001 TO 2002
<S>                                                                    <C>         <C>        <C>
Salaries and employee benefits                                         $1,511      $2,183         (30.78)%
Premises and equipment                                                    460         713         (35.48)%
Advertising and public relations                                           35          48         (27.08)%
Legal and professional services                                           456         434           5.07%
Data processing                                                           502         525          (4.38)%
Data processing conversion expenses                                       438           0           0.00%
FDIC insurance assessment                                                 206         149          38.26%
Bank fees and other charges                                                64          85         (24.71)%
Directors fees                                                            126         125           0.80%
Environmental charges                                                     112           0           0.00%
Goodwill amortization                                                       0         212        (100.00)%
Other                                                                     569         763         (25.43)%
                                                                       ------      ------
           Total                                                       $4,479      $5,237         (14.47)%
                                                                       ======      ======
</TABLE>


PROVISION FOR INCOME TAXES

The income tax benefit was ($151,000) for the year ended December 31, 2002
compared to a benefit of ($1,164,000) for the year ended December 31, 2001. In
December 2002, the Company recognized a valuation allowance of $760,000
pertaining to the recoverability of its deferred tax assets. The effective tax
rate was (6.8)% and (34.8)% for 2002 and 2001, respectively.

The effective tax rate was higher than the statutory tax rate for the years
ended December 31, 2002 and 2001 due to the impact of non-deductible goodwill
(2001 only) and tax exempt interest which increased the Company's income tax
benefit from its pre-tax loss and the recording of the valuation allowance in
2002.

CAPITAL RESOURCES AND CAPITAL ADEQUACY

The Company and the Bank 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". The capital ratios of the Bank had been
diminished due to two primary factors: continued operating losses and the
disallowance of the Bank's deferred tax assets in determining regulatory capital
ratios.

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 June 7, 2002, the Company entered into a stock purchase agreement with
Russell Breeden III, Wayne C. Ramsey and L. Gene Tanner for the sale of common
stock. On September 17, 2002, the Company sold 309,889 shares of common stock at
a price of $4.73 per share or approximately $1,466,000 in aggregate. The Company
has transferred $1,350,000 of this new capital to the Bank.



                                       40
<PAGE>


As a part of this purchase agreement, the Company subsequently sold 546,348
shares of the Company's common stock to the initial investors in the previous
private placement and other accredited investors at a price of $4.73 per share
or approximately $2,584,000 in aggregate. In January 2003, the Company held a
special meeting of shareholders and obtained shareholder approval for the
subsequent private placement of common stock for approximately $2,584,000 in
gross proceeds.

At the time the Company was considering the private placements, the Company had
lost $2,176,000 in 2001 and $3,132,886 for the nine months ended September 30,
2002, $2,429,081 of which was primarily attributable to the change in accounting
principle related to goodwill impairment. The Bank is currently designated by
the Office of Thrift Supervision to be in "troubled condition." Prior to the
private placements, it was not expected that the Company could grow or become
profitable in the near term. The Company believed that the additional capital to
be received by the Company in the private placements would permit it to grow and
become profitable much sooner than it otherwise would.

Pursuant to the stock purchase agreement with the investors, Russell Breeden,
III and Wayne C. Ramsey were elected to the Board of Directors of the Company
for a term ending in 2003 and 2005, respectively.

Management believes that as of December 31, 2002, the Company meets all capital
adequacy requirements to which it is 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 as of December 31, 2002:

<TABLE>
<CAPTION>
                                                                      TOTAL
                                    TANGIBLE          CORE         RISK-BASED
                                    CAPITAL          CAPITAL         CAPITAL
<S>                                 <C>             <C>             <C>
For Capital Adequacy Purposes:
  Bank Amount                       $   6,670       $   6,670       $   7,410
  Required Amount                       1,378           2,755           4,658
                                    ---------       ---------       ---------

  Excess                            $   5,292       $   3,915       $   2,752
                                    =========       =========       =========

  Bank Ratio                             7.26%           7.26%          12.73%
  Required Ratio                         1.50%           3.00%           8.00%
                                    ---------       ---------       ---------

  Ratio Excess                           5.76%           4.26%           4.73%
                                    =========       =========       =========
</TABLE>

To Be Well Capitalized Under Prompt Corrective Action Provisions:

<TABLE>
<CAPTION>
                      TIER 1           TIER 1          TOTAL
                      (CORE)         RISK-BASED      RISK-BASED
                      CAPITAL         CAPITAL         CAPITAL
<S>                  <C>             <C>             <C>
Bank Amount          $   6,670       $   6,670       $   7,410
Required Amount          4,592           3,493           5,822
                     ---------       ---------       ---------

Excess               $   2,078       $   3,177       $   1,588
                     =========       =========       =========

Bank Ratio                7.26%          11.46%          12.73%
Required Ratio            5.00%           6.00%          10.00%
                     ---------       ---------       ---------

Ratio Excess              2.26%           5.46%           2.73%
                     =========       =========       =========
</TABLE>



                                       41
<PAGE>



USE OF FUNDS

INVESTMENT SECURITIES

Investment securities are the second major category of earning assets for the
Bank. This portfolio is used to manage the Bank's 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 Bank's 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 l00% 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 interest income. The Bank has 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 27.8 % of total assets and
30.5% of total earning assets at December 31, 2002. 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.
During 2002, the Bank had built significant liquidity levels. As the loan demand
did not increase in levels which diminished liquidity or its supply of cash, the
Bank resumed purchasing securities to improve its interest income derived from
interest-earning assets. Despite these actions, liquidity levels have remained
high, due to increased repayment streams of mortgage-backed securities, and
several calls of agency securities. Management continues to concentrate on bonds
that have strong liquidity characteristics, while exhibiting acceptable levels
of market sensitivity risks.

The available-for-sale investment portfolio was $26,407,000 at fair value, with
a cost basis of $25,589,000. The held-to-maturity portfolio currently is
comprised of bonds totaling $259,000. The Company also owns $2,153,000 of stock
in the Federal Home Loan Bank of Indianapolis. This equity position is required
as a member bank of the FHLB system, and the credit policy of the FHLB states
that the member bank must own sufficient stock to serve as collateral against
funding provided through advances held by the Bank.

Weighted average yields of the investment securities portfolio were 4.89% at
December 31, 2002 compared to 5.44% at December 31, 2001. This yield was
impacted by the Bank's 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 Bank's 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 Bank's interest rate sensitivity. Mortgage-backed securities not
only contain favorable characteristics related to risk-based capital, but also
assist in the management of the Bank's Qualified Thrift Lender (QTL) ratio.



                                       42
<PAGE>


INVESTMENT SECURITIES PORTFOLIO

<TABLE>
<CAPTION>
                                                               AMORTIZED    UNREALIZED    UNREALIZED     FAIR
                                                                 COST          GAINS        LOSSES       VALUE
                                                              -------------------------------------------------
                                                                          (DOLLARS IN THOUSANDS)
<S>                                                            <C>           <C>          <C>          <C>
December 31, 2002:
  Investment securities held to maturity:
    Mortgage-backed securities                                  $    56      $     1      $     1      $    56
    Municipals                                                      203            3                       206
                                                                -------      -------      -------      -------

           Total investment securities held to maturity             259            4            1          262
                                                                -------      -------      -------      -------

Investment securities available for sale:
  Mortgage-backed securities                                     17,849          574            2       18,421
  U.S. government agencies                                        5,542          186                     5,728
  Municipals                                                      1,986           62                     2,048
  Corporate bonds                                                   212            7            9          210
                                                                -------      -------      -------      -------

           Total investment securities available for  sale       25,589          829           11       26,407
                                                                -------      -------      -------      -------

           Total investments                                    $25,848      $   833      $    12      $26,669
                                                                =======      =======      =======      =======
</TABLE>

<TABLE>
<CAPTION>
                                                              AMORTIZED     UNREALIZED   UNREALIZED     FAIR
                                                                COST          GAINS        LOSSES       VALUE
                                                              --------------------------------------------------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                                             <C>          <C>         <C>           <C>
December 31, 2001:
  Investment securities held to maturity:
    Mortgage-backed securities                                  $    88      $     1                   $    89
    Municipals                                                      206            3      $     1          208
                                                                -------      -------      -------      -------

           Total investment securities held to maturity             294            4            1          297
                                                                -------      -------      -------      -------

Investment securities available for sale:
  Mortgage-backed securities                                     14,984          152           58       15,078
  U.S. government agencies                                        9,336           61           21        9,376
  Municipals                                                      2,630           52           11        2,671
  Corporate bonds                                                   214            3            1          216
                                                                -------      -------      -------      -------

           Total investment securities available for  sale       27,164          268           91       27,341
                                                                -------      -------      -------      -------

           Total investments                                    $27,458      $   272      $    92      $27,638
                                                                =======      =======      =======      =======
</TABLE>


                                       43

<PAGE>


MATURITY DISTRIBUTION OF INVESTMENT SECURITIES

As of December 31, 2002:

<TABLE>
<CAPTION>
                                                                                HELD TO MATURITY       AVAILABLE FOR SALE
                                                                             ---------------------    ---------------------
                                                                                           FAIR                     FAIR
                                                                              COST         VALUE        COST        VALUE
                                                                                       (DOLLARS IN THOUSANDS)
<S>                                                                          <C>          <C>          <C>          <C>
Mortgage-Backed Securities:                                                  $    56      $    56      $17,849      $18,421
U.S. Government Agencies:
    Due within one year                                                         --           --            500          520
    1 to 5 Years                                                                --           --          5,042        5,208
                                                                             -------      -------      -------      -------

           Total U.S. government agencies                                       --           --          5,542        5,728
                                                                             -------      -------      -------      -------

Obligations of State and Political Subdivisions:
  Due within one year                                                            100          100          201          207
  1 to 5 Years                                                                   103          105          898          931
  5 to 10 Years                                                                 --           --            537          553
  Due after ten years                                                           --           --            350          357
                                                                             -------      -------      -------      -------

           Total obligations of state and political subdivisions                 203          205        1,986        2,048
                                                                             -------      -------      -------      -------

Corporate Bonds:
  1 to 5 Years                                                                  --           --            212          210
                                                                             -------      -------      -------      -------

           Total corporate bonds                                                --           --            212          210
                                                                             -------      -------      -------      -------

           Total investments                                                 $   259      $   261      $25,589      $26,407
                                                                             =======      =======      =======      =======
</TABLE>


                                       44
<PAGE>

As of December 31, 2001:


<TABLE>
<CAPTION>
                                                                               HELD TO MATURITY         AVAILABLE FOR SALE
                                                                                           FAIR                     FAIR
                                                                               COST        VALUE        COST        VALUE
                                                                                       (DOLLARS IN THOUSANDS)
                                                                             ----------------------------------------------
<S>                                                                          <C>          <C>          <C>          <C>
Mortgage-Backed Securities:                                                  $    88      $    89      $14,984      $15,078
U.S. Government Agencies:
    1 to 5 Years                                                                --           --          5,561        5,578
    5 to 10 Years                                                               --           --          3,275        3,296
    Due after ten years                                                         --           --            500          502
                                                                             -------      -------      -------      -------

           Total U.S. government agencies                                       --           --          9,336        9,376
                                                                             -------      -------      -------      -------

Obligations of State and Political Subdivisions:
  Due within one year                                                           --           --            215          215
  1 to 5 Years                                                                   206          208        1,197        1,234
  5 to 10 Years                                                                 --           --            868          883
  Due after ten years                                                           --           --            350          339
                                                                             -------      -------      -------      -------

           Total obligations of state and political subdivisions                 206          208        2,630        2,671
                                                                             -------      -------      -------      -------

Corporate Bonds:
  1 to 5 Years                                                                  --           --            214          216
                                                                             -------      -------      -------      -------

           Total corporate bonds                                                --           --            214          216
                                                                             -------      -------      -------      -------

           Total investments                                                 $   294      $   297      $27,164      $27,341
                                                                             =======      =======      =======      =======
</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, 2002            5.88%      4.69%     5.05%      4.89%      4.89%
December 31, 2001            4.08%      4.61%     5.37%      5.92%      5.44%
</TABLE>

                                       45

<PAGE>


LOANS

Total net loans at December 31, 2002 were $56,596,000, a ($15,340,000) decrease
from December 31, 2001. The Bank is concentrating on loan products that provide
the opportunity for shorter maturity terms and variable rate pricing in an
effort to continue to improve its interest rate sensitivity. At December 31,
2002, 48.60% of the net loan portfolio was comprised of residential mortgages,
an increase over 2001 levels. Commercial loans secured by commercial real estate
decreased to $16,659,000, accounting for 29.43% of the total net loans at
December 31, 2002. Consumer loans decreased ($3,443,000) for the twelve months
ended December 31, 2002 to $6,757,000. The decline in the consumer loans is
primarily due to the maturing of the portfolio when loan production has slowed.
The Bank has continued to pursue opportunities to expand its portfolio of home
equity loan products, with loans outstanding of $3,187,000 at December 31, 2002.
The Company continues to concentrate retail lending efforts to home equity loans
due to lower credit risks involved in loans secured by the borrower's primary
residence. However, as market rates decline, this portfolio is susceptible to
rapid repayment as borrowers refinance their principal mortgages. Commercial
lending products declined to $4,206,000 at December 31, 2002. The Commercial
lending numbers were mostly impacted by slow growth and maturities. Future
growth is expected to increase in the commercial lending market as the Bank will
focus more on this type of lending due to better capital ratios of the Bank and
the hiring of a new commercial loan officer. The Bank's capital ratios have
improved due to the private placements of common stock during the third quarter
of 2002 and the first quarter of 2003. The Bank will continue to monitor closely
its risk-weighted assets and risk-based capital to maximize returns while
striving to maintain the "well-capitalized" designation.

At December 31, 2002, the Bank 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,
                                                   2002          2001
                                                 (Dollars in thousands)
<S>                                             <C>            <C>
Real Estate Mortgage Loans:
  One-to-four family                            $ 27,504       $ 31,843
  Non residential                                 16,659         23,398
Home equity loans                                  3,187          3,520
Consumer loans                                     6,757         10,200
Commercial loans, including participations         4,206          4,866
Less allowance for loan losses                    (1,717)        (1,891)
                                                --------       --------

Net loans                                       $ 56,596       $ 71,936
                                                ========       ========
</TABLE>



                                       46
<PAGE>

COMPOSITION OF LOAN BY TYPE

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                  2002          2001
                                                (Dollars in thousands)
<S>                                              <C>           <C>
Real Estate Mortgage Loans:
  One-to-four family                             48.60%        44.27%
  Non residential                                29.43%        32.53%
  Home equity loans                               5.63%         4.89%
Consumer loans                                   11.94%        14.18%
Commercial loans, including participations        7.43%         6.76%
Less allowance for loan losses                   (3.03)%       (2.63)%
                                                ------        ------

Net loans                                       100.00%       100.00%
                                                ======        ======
</TABLE>


                                       47

<PAGE>


LENDING ACTIVITIES

<TABLE>
<CAPTION>
                                                        DECEMBER 31, 2002                DECEMBER 31, 2001
                                                     ------------------------        ------------------------
                                                                    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                                   $27,504       47.17%           $31,843        43.13%
  Non residential                                       16,659       28.57%            23,398        31.69%
Home equity                                              3,187        5.47%             3,520         4.77%
Consumer loans                                           6,757       11.58%            10,200        13.82%
Commercial loans                                         4,206        7.21%             4,866         6.59%
                                                       -------      ------            -------        ------

           Total gross loans                           $58,313      100.00%           $73,827        100.00%
                                                       =======      ======            =======        ======

Type of Security:
  One-to-four family                                   $28,122                        $39,761
  Non-residential                                       15,906                         18,207
  Other security                                         3,585                          4,210
  Multi-family                                           3,481                          2,670
  Equipment                                              2,603                          3,417
  Autos                                                  2,100                          3,463
  Unsecured                                              1,410                          1,288
  Land                                                   1,106                            811
                                                       -------                        -------

           Total gross loans                           $58,313                        $73,827
                                                       =======                        =======
</TABLE>



<TABLE>
<CAPTION>
                                                  DUE DURING THE YEARS ENDING DECEMBER 31,
                                  -------------------------------------------------------------------------
                                                                           2005         2008        2013
                                                                            TO           TO          AND
                                   TOTAL         2003         2004         2007         2012      FOLLOWING
<S>                               <C>          <C>          <C>          <C>          <C>          <C>
Mortgage Loans:
  One-to-four family              $27,504      $ 1,634      $    53      $ 3,126      $ 4,156      $18,535
  Non residential                  16,659        3,251          455        4,471        2,649        5,833
  Home equity                       3,187           40          708        1,907                       532
  Consumer loans                    6,757          432          844        1,971        1,426        2,084
  Commercial loans                  4,206        1,403          387        1,600          772           44
                                  -------      -------      -------      -------      -------      -------

           Total gross loans      $58,313      $ 6,760      $ 2,447      $13,075      $ 9,003      $27,028
                                  =======      =======      =======      =======      =======      =======
</TABLE>


                                       48
<PAGE>


LOAN DISTRIBUTION

<TABLE>
<CAPTION>
                                    DUE AFTER DECEMBER 31, 2003
                                 ---------------------------------
                                  Fixed       Variable
                                  Rates         Rates       Total
                                 ---------------------------------
                                      (Dollars in thousands)
<S>                              <C>          <C>          <C>
Real Estate Mortgage Loans:
  One-to-four family             $22,195      $ 3,675      $25,870
  Commercial                       7,958        5,450       13,408
  Home equity lines                             3,147        3,147
  Consumer loans                   6,243           82        6,325
  Commercial loan                  1,406        1,397        2,803
                                 -------      -------      -------

           Total                 $37,802      $13,751      $51,553
                                 =======      =======      =======
</TABLE>


LOAN ACTIVITY

<TABLE>
<CAPTION>
                                                               FOR THE        FOR THE
                                                              YEAR ENDED     YEAR ENDED
                                                             DECEMBER 31,   DECEMBER 31,
                                                                 2002           2001
<S>                                                          <C>             <C>
Gross Loans Receivable, beginning of year                    $  73,827       $ 113,716
Originations:
  Mortgage loans:
    Residential                                                  4,110          16,087
    Home equity                                                  1,142           1,016
    Non residential                                              2,237          11,666
                                                             ---------       ---------

           Total mortgage loans                                  7,489          28,769

  Consumer loans:
    Installment loans                                            1,843           5,146
    Loans secured by deposits                                      201             661
                                                             ---------       ---------

           Total consumer loans                                  2,044           5,807

  Commercial loans                                               1,927           5,473
                                                             ---------       ---------

           Total originations                                   11,460          40,049

Repayments and other deductions                                (26,974)        (49,282)

Sales of loans related to sale of Fort Wayne operations                        (30,656)
                                                             ---------       ---------

Gross Loans Receivable, end of year                          $  58,313       $  73,827
                                                             =========       =========
</TABLE>



                                       49
<PAGE>




LOAN QUALITY

The Company's 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 Company's primary lending products are
commercial, consumer, and single-family mortgage 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, 2002, our portfolio of commercial loans
totaled $20.9 million, or 35.8% 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 Company can
foreclose on the property for a defaulted single-family mortgage loan.

Management of the Bank and the Board of Directors of the Bank have established a
formalized, written loan policy and specific lending authority for each loan
officer based upon the loan officer's experience and performance. The Bank also
has formed two committees to review credits which exceed the lending authority
of the sponsoring officer. The first committee is the Officers Loan Committee
and is comprised of six officers of the Bank with the highest lending authority.
This Committee approves loans in excess of individual lending officer
authorities and recommends credits above the limit authorized by the Board of
Directors to the second committee which is the Directors Loan Committee, which
is chaired by the Chairman of the Board of Directors. This committee is
comprised of all directors, the President, and Chief Credit Officer.

The Directors Loan Committee also monitors loan administration, loan review and
monitors the overall quality of the Bank's loan portfolio.

A loan review program is maintained. The Bank has outsourced this function in
order to improve independence and to maintain a high level of expertise. The
provider reports to the loan committee on matters of credit quality and
documentation issues. Particular attention is focused on the largest aggregate
borrowers, and additionally to any credits recommended for reclassification. The
reviews are conducted quarterly with a written report provided to management and
the Loan Committees to provide documentation of actions necessary to correct
documentation deficiencies.

The Bank's Directors Loan Committee meets monthly to review the overall
administration of the loan portfolio, as well as many other matters. The Board
reviews problem loans; delinquency reports and discusses lending activities at
each meeting.

The Bank maintains a watch list of loans which do not meet the Bank's
established criteria. These are not under-performing loans, but simply monitored
as a precautionary matter, many based upon documentation deficiencies. This
management report also contains loans which are considered to be
under-performing or



                                       50
<PAGE>


non-performing, loans criticized by examiners or any other case where the
borrower has exhibited characteristics requiring special attention. A provision
for estimated losses on loans and real estate owned is charged to operations
based upon management's evaluation of the probable losses. Such an evaluation,
which includes a review of all 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
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 economic
conditions change substantially from the assumptions used in making the
evaluations.

Under-performing assets are defined as: (1) loans in non-accrual status where
the ultimate collection of interest is uncertain but the principal is considered
collectible; (2) loans past due ninety days or more as to principal or interest
(and where continued accrual has not 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, 2002, the Bank reported approximately $2,056,000 of impaired
loans. The Bank maintains a reserve for loan losses to cover losses incurred
when loans default. Loans are charged off when they are deemed uncollectible.

Generally, loans in all categories are charged-off when the loan is 180 days
past due or when one or a combination of the following occur; the amount of the
loss has been reasonably quantified, the loan is in the process of collection,
or when the collateral has been obtained and transferred to assets held for
sale. The loans are generally charged-off to the estimated collateral value less
selling cost.

UNDER-PERFORMING ASSETS

<TABLE>
<CAPTION>
                                                                YEAR ENDED
                                                                DECEMBER 31,
                                                           ----------------------
                                                             2002        2001
                                                           (DOLLARS IN THOUSANDS)
<S>                                                         <C>         <C>
Non-accruing loans                                          $2,056      $2,700
Ninety (90) days past due                                    1,952         516
                                                            ------      ------

           Total under-performing assets                    $4,008      $3,216
                                                            ======      ======

Under-performing assets as a percentage of total loans        6.87%       4.36%

Past due loans (90 days or more):
  Commercial                                                $   67      $   67
  Mortgage                                                   1,786         319
  Installment                                                   99         130
                                                            ------      ------

           Total                                            $1,952      $  516
                                                            ======      ======
</TABLE>


The non-accruing loans that are reported as of December 31, 2002 would have
provided approximately $275,000 of interest income had they been performing in
accordance with their contractual terms. The interest income and fees on loans
reported for the year ended December 31, 2002 included approximately $55,000
that was received from loans reported as non-accrual as of December 31, 2002.


                                       51
<PAGE>

ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                                             YEAR ENDED
                                                             DECEMBER 31,
                                                        2002          2001

<S>                                                   <C>           <C>
Beginning allowance for loan losses                   $  1,891      $  1,944
Loans charged off:
  Real estate mortgages:
    One-to-four family                                      71             9
    Non residential                                        253           810
    Home equity loans                                                     29
  Consumer loans                                           219           317
  Commercial loans, including participations               273         1,147
                                                      --------      --------

           Total charged-off loans                         816         2,312
                                                      --------      --------

Recoveries on charged-off loans:
  Real estate mortgages:
    One-to-four family
    Non residential                                          5           255
    Home equity loans
Consumer loans                                              21             7
Commercial loans, including participations                 355            12
                                                      --------      --------

           Total recoveries on charged-off loans           381           274
                                                      --------      --------

Provision for loan losses                             $    261      $  1,985
                                                      ========      ========

Ending allowance for loan losses                      $  1,717      $  1,891
                                                      ========      ========

Average loans outstanding                             $ 66,286      $110,383
Net charged-off loans to average loans                    0.66%         1.85%
</TABLE>


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 is performed to recognize specific reserves allocated to classified
assets, assess portfolio growth, and to monitor trends in loan delinquencies and
charge-offs. Specific reserves are established based upon review 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. Management establishes such specific reserves at or above minimum
percentage allocations established by the Office of Thrift Supervision ("OTS")
guidelines for each classification, including delinquent loans. The remaining
pool of loans, excluding those classified or delinquent, is the source for the
general loan loss reserve. Management evaluates this general reserve using loan
loss statistics by various types of loans, as published periodically by the OTS
and multiplying such loss percentages to the Bank's distribution of portfolio
balances since management believes this will be representative of future losses
inherent in the portfolio. The calculated reserve is compared to the Bank's
existing reserve to establish the provision necessary to bring the actual
reserve balance in compliance with the findings of the allowance analysis
performed by management. During the third quarter of 2000, the Company completed
an internal investigation related to its former president. As a result of this
investigation the Bank reviewed all consumer secured, unsecured commercial,
commercial secured, commercial real estate



                                       52
<PAGE>


and residential mortgage loans for which the former president either acted as
the loan officer, was involved through his relationship or affiliation with the
borrower, or was otherwise actively involved in the loan. During the years ended
December 31, 2002 and 2001, approximately $1,091,000 and $986,000 of such loans
were foreclosed upon with the balances reflected in the Bank's other real estate
owned totals, while approximately $2,055,000 and $1,854,000 were charged against
the allowance for loan losses. The replacement of these reserves impacted the
amounts charged to earnings in the form of provision for loan losses primarily
in 2001.

The following is a breakdown of the remaining loans identified in the review
which are classified as non-performing as of December 31, 2002 and 2001:



<TABLE>
<CAPTION>
                              DECEMBER 31, 2002          DECEMBER 31, 2001
                          ----------------------      ----------------------
                            NUMBER                     NUMBER
                           OF LOANS     BALANCES      OF LOANS      BALANCES
<S>                        <C>          <C>           <C>           <C>
Residential mortgage             1      $112,329             3      $243,909
Consumer secured                 2        19,379             2        23,778
Commercial secured               1        39,988             2       217,503
                          --------      --------      --------      --------

           Total                 4      $171,696             7      $485,190
                          ========      ========      ========      ========
</TABLE>

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                              DECEMBER 31,      PERCENT OF LOANS TO TOTAL
                        ----------------------  -------------------------
                           2002        2001       2002         2001
                        (Dollars in thousands)
<S>                       <C>         <C>         <C>          <C>
Real estate mortgages:
  One-to-four family      $  236      $  210      0.40%        0.29%
  Non residential            881       1,010      1.51%        1.37%
Home Equity                   49          37      0.08%        0.05%
Consumer                     260         262      0.45%        0.35%
Commercial                   291         372      0.50%        0.50%
                          ------      ------      ----         ----

Total                     $1,717      $1,891      2.94%        2.56%
                          ======      ======      ====         ====
</TABLE>


FUNDING SOURCES

The Bank's 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 Bank's average total deposits were $97,987,000 for the year ended December
31, 2002, compared to $125,135,000 for the year ended December 31, 2001. The
Bank has decreased funding from NOW accounts and Money Market accounts by
($7,337,000) over 2001, the average balance decrease is the result of the sale
of the Fort Wayne branch offices, while average balances of savings accounts has
increased by $848,000. Management continues to emphasize the benefits of
gathering non-certificate depository funding as a means of decreasing the Bank's
overall funding costs, improving levels of fee income derived from depository
relationships, and to encouraging a stronger relationship with its customer
base. By acquiring primary



                                       53
<PAGE>


transaction accounts, the Bank is less susceptible to loss of accounts during
periods of volatile interest rates. Funding in certificates of deposits
decreased by ($20,659,000) from 2001 to an average of $55,312,000 for the year
ended December 31, 2002. The decrease in average balances in certificates of
deposits was primarily due to the closing of the Fort Wayne branches resulting
in certificate maturities of those retained Fort Wayne certificates of deposit
by the Bank. The lack of growth in certificates of deposits was also due in part
to a lack of strong loan demand, and the resulting high levels of liquidity,
prompted management to take a less aggressive approach in pricing of such
products.

FUNDING SOURCES--AVERAGE BALANCES

<TABLE>
<CAPTION>
                                                         YEAR ENDED
                                                         DECEMBER 31,
                                                      2002          2001
                                                    ----------------------
                                                    (DOLLARS IN THOUSANDS)
<S>                                                 <C>           <C>
Core Deposits:
  Non-interest bearing demand and NOW accounts      $ 19,266      $ 19,488
  Money market accounts                               16,083        23,198
  Savings accounts                                     7,326         6,478
  Certificates of deposit                             55,312        75,971
                                                    --------      --------

           Total deposits                             97,987       125,135

FHLB advances                                          3,970        10,235
                                                    --------      --------

           Total funding sources                    $101,957      $135,370
                                                    ========      ========
</TABLE>


FUNDING SOURCES--YIELDS

<TABLE>
<CAPTION>
                                                       YEAR ENDED           PERCENTAGE
                                                       DECEMBER 31,          CHANGE
                                                     2002        2001        2002 TO
                                                                              2001
<S>                                                  <C>         <C>        <C>
Core Deposits:
  Non-interest bearing demand and NOW accounts       1.01%       1.21%      (16.53)%
  Money market accounts                              1.98%       4.00%      (50.50)%
  Savings accounts                                   1.38%       2.13%      (35.21)%
  Certificates of deposit                            5.86%       6.51%       (9.98)%
                                                    -----       -----       ------

           Total deposits                            3.93%       4.99%      (21.24)%

FHLB advances                                        4.79%       6.12%      (21.73)%
                                                    -----       -----       ------

           Total funding sources                     3.96%       5.08%      (22.05)%
                                                    =====       =====       ======
</TABLE>



                                       54
<PAGE>



<TABLE>
<CAPTION>
                                                MINIMUM             BALANCE            %            WEIGHTED
                                                OPENING           DECEMBER 31,         OF            AVERAGE
                                                BALANCE               2002          DEPOSITS          RATE
                                               ---------         -------------------------------------------
                                                                            (DOLLARS IN THOUSANDS)
<S>                                             <C>              <C>                <C>             <C>
Withdrawable:
  Savings accounts                              $     5             $ 6,916            9.38%          1.24%
  Non-interest bearing checking                      25               5,532            7.50%            -
  Now accounts                                       50              12,761           17.31%          1.42%
  Money market accounts                          10,000              14,112           19.14%          1.82%
                                                                    -------          ------

           Total withdrawable                                        39,321           53.33%
                                                                    -------          ------

Certificates (original terms):
  12 months or less                             Various               2,027            2.75%          4.19%
  13 to 36 months                                   500              11,532           15.64%          5.03%
  37 months and greater                             500              16,041           21.75%          4.93%
  Jumbo certificates                            100,000               4,812            6.53%          5.07%
                                                                    -------          ------

           Total certificates                                        34,412           46.67%          4.59%
                                                                    -------          ------

           Total deposits                                           $73,733          100.00%
                                                                    =======          ======
</TABLE>


CERTIFICATES OF DEPOSITS, BY RATE

<TABLE>
<CAPTION>
                         DECEMBER 31,
                            2002
                   ----------------------
                   (DOLLARS IN THOUSANDS)
<S>                <C>
Under 3%                  $ 9,522
3% to 3.99%                 4,174
4% to 4.99%                 5,023
5% to 5.99%                 3,857
6% to 6.99%                 5,102
7% and over                 6,734
                          -------
                          $34,412
                          =======
</TABLE>



                                       55
<PAGE>


CERTIFICATES OF DEPOSITS, 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%         $ 8,401      $   961      $            $   160      $ 9,522
3% to 3.99%          231        1,429        2,421           93        4,174
4% to 4.99%          746          463          150        3,664        5,023
5% to 5.99%        2,298          637          262          660        3,857
6% to 6.99%        3,253          441          727          681        5,102
7% and over        2,450          360        3,137          787        6,734
                 -------      -------      -------      -------      -------

                 $17,379      $ 4,291      $ 6,697      $ 6,045      $34,412
                 =======      =======      =======      =======      =======
</TABLE>

TIME DEPOSIT OF $100,000 AND OVER

<TABLE>
<CAPTION>
                                                       DECEMBER 31,
                                                  ----------------------
                                                    2002         2001
                                                  (DOLLARS IN THOUSANDS)
<S>                                                <C>          <C>
Three months or less                               $ 1,321      $ 1,623
Greater than three months through six months           300          222
Greater than six months through twelve months          713        6,008
Over twelve months                                   2,478        2,867
                                                   -------      -------

Total                                              $ 4,812      $10,720
                                                   =======      =======
</TABLE>


FHLB ADVANCES

<TABLE>
<CAPTION>
                                                                AT OR FOR THE YEAR ENDED
                                                                       DECEMBER 31,
                                                                ------------------------
                                                                   2002        2001
                                                                (DOLLARS IN THOUSANDS)
<S>                                                              <C>          <C>
FHLB advances outstandings at end of year                        $11,000      $ 5,000
Average balance for year                                           3,970       10,235
Maximum amount outstanding at any month-end during the year       11,000       20,000
Weighted average interest rate during the year                      4.77%        6.04%
Weighted average interest rate at end of year                       3.06%        5.41%
</TABLE>



                                       56
<PAGE>



LIQUIDITY AND RATE SENSITIVITY

The Company's liquidity position is the primary source of additional capital for
infusion into its banking subsidiary. During the year ended December 31, 2002,
the Bank has significantly increased its use of funds as a result of $24,600,000
in maturities of the retained Fort Wayne certificates of deposit. Due to the
Company's current liquidity sources, the private placement of common stock
during the third quarter 2002, and a subsequent private placement which occurred
during the first quarter of 2003, 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 Bank. 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
Bank, 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 Bank's balance sheet components in
its appropriate maturity and/or repricing frequency, thus allowing management to
measure the exposure to changes in interest rates. The Bank is required to
provide quarterly reporting to the Office of Thrift Supervision (OTS) in the
form of Schedule CMR, which accompanies the Bank's filing of the Thrift
Financial Report (TFR). This data is modeled by the OTS and is reported back to
the Bank representing the Bank's NPV (net portfolio value), which reflects the
economic value of the Bank's 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 Bank's status with regard to its
Asset/Liability and Interest Rate Sensitivity policies.

The Bank's Asset/Liability Committee, which sets forth guidelines under which
the Bank manages funding sources, its investments and loan portfolios, is
responsible for monitoring the Bank's sensitivity measures. The objective of
this committee is to provide for the maintenance of an adequate net interest
margin, appropriate NPV levels, and adequate level of liquidity to keep the Bank
sound and profitable during all stages of an interest rate cycle. The President
has been authorized by the Board of Directors to perform the daily management
functions related to asset/liability management and investment trading
activities for the Bank.

At December 31, 2002, $18,251,000 of the loan portfolio is due to mature or
reprice within one year, compared to $17,642,000 of the portfolio at December
31, 2001. In the investment securities category, $8,523,000 of the portfolio
matures or reprices within one year, compared to $3,926,000 at December 31,
2001. The adjustable rate mortgages prepaid rapidly during a time when fixed
rate financing could be acquired at favorable rates to the consumer. The
repayment of this portion of the portfolio was $10,712,000 offset by the net
purchases and sales of securities of 9,564,000 in 2002.

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



                                       57
<PAGE>



The cumulative GAP ratio of the Bank on December 31, 2002 was 2.34 percent for
interest rate sensitive assets and liabilities of ninety days or less and 1.91
percent for interest rate sensitive assets and liabilities for one year or less.
These ratios show a decline in the 90-day gap but an improvement in the one-year
gap when compared to 2001 levels.

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                            $    446      $  8,077       $  6,255        $ 11,069        25,847
  Interest-bearing deposits                           1,169                                                      1,169
  Loans (excluding non-accruing)                     10,693         7,558          7,898          28,156        54,305
                                                   --------      --------       --------        --------      --------

           Total earning assets                      12,308        15,635         14,153          39,225        81,321
                                                   --------      --------       --------        --------      --------

Interest-Bearing Liabilities:
  Savings and transaction deposits                    2,126         6,604         18,009           7,050        33,789
  Time deposits                                       7,935         9,444         16,819             214        34,412
  Borrowed funds                                                                  11,000                        11,000
                                                   --------      --------       --------        --------      --------

           Total interest-bearing liabilities        10,061        16,048         45,828           7,264        79,201
                                                   --------      --------       --------        --------      ========

Interest rate sensitivity gap per period           $  2,247      $   (413)      $(31,675)       $ 31,961
                                                   ========      ========       ========        ========

Cumulative interest rate gap                       $  2,247      $  1,834       $(29,841)       $  2,120
                                                   ========      ========       ========        ========

Cumulative interest sensitivity gap as
  a percentage of total assets                         2.34%         1.91%        (31.02)%          2.20%
</TABLE>



NET PORTFOLIO VALUE


<TABLE>
<CAPTION>
                           AMOUNT           CHANGE    CHANGE           RATIO       CHANGE
                                           (DOLLARS IN THOUSANDS)
<S>                      <C>               <C>         <C>            <C>         <C>
+300  bp                 $ 12,526          $ (303)      -2%            12.98%      +11 bp
+200  bp                   12,933             104       +1%            13.22%      +35 bp
+100  bp                   13,068             239       +2%            13.21%      +34 bp
   0  bp                   12,829                                      12.87%
-100  bp                   12,417            (413)      -3%            12.38%      -49 bp
</TABLE>


The OTS' Net Portfolio Value model data for December 31, 2002 excluded the -200
bp and -300 bp scenarios because of the abnormally low prevailing interest rate
environment.



                                       58
<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.







                                       59
<PAGE>

INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying consolidated balance sheets of Blue River
Bancshares, Inc. and Subsidiary (the "Company") as of December 31, 2002 and
2001, and the consolidated statements of operations, shareholders' equity, and
cash flows for the years ended December 31, 2002 and 2001. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2002
and 2001, and the results of their operations and their cash flows for the years
ended December 31, 2002 and 2001 in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill.

As discussed in Note 11 to the consolidated financial statements, on July 10,
2000, Shelby County Bank received a letter from the Office of Thrift Supervision
("OTS") which designated the Bank to be in "troubled condition" subjecting the
Bank to various restrictions as determined by the OTS. On February 7, 2001, Blue
River Bancshares, Inc. received a letter from the OTS which designated the
Company to be in "troubled condition" subjecting the Company to various
restrictions as determined by the OTS.



Deloitte & Touche LLP
Indianapolis, Indiana

March 17, 2003



                                       60
<PAGE>



BLUE RIVER BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                                                                 2002             2001

<S>                                                                              <C>              <C>
ASSETS:
  Cash and cash equivalents:
    Cash and due from banks                                                      $   2,269,908    $   4,116,043
    Interest-bearing deposits                                                        1,169,170       10,921,285
                                                                                 -------------    -------------

           Total cash and cash equivalents                                           3,439,078       15,037,328

  Securities available for sale, at fair value (amortized cost $25,588,551 and
    $27,163,802)                                                                    26,407,360       27,341,021
  Securities held to maturity, at amortized cost (fair value $261,005 and
    $296,696)                                                                          258,721          294,551
  Loans receivable, net of allowance for loan losses of ($1,717,072 and
    $1,891,366)                                                                     56,595,711       71,935,752
  Stock in FHLB of Indianapolis, at cost                                             2,153,000        2,153,000
  Accrued interest receivable                                                          582,016          718,586
  Income taxes receivable                                                                               225,000
  Deferred income taxes                                                              1,899,346        2,133,814
  Premises and equipment, net                                                        1,781,775        1,973,769
  Other real estate owned                                                            1,627,505        1,003,329
  Prepaid expenses and other assets                                                    373,454          544,293
  Goodwill, net                                                                           --          2,429,081
                                                                                 -------------    -------------

TOTAL ASSETS                                                                     $  95,117,966    $ 125,789,524
                                                                                 =============    =============

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
  Interest bearing deposits                                                      $  68,200,843    $ 107,619,674
  Non-interest bearing deposits                                                      5,531,911
  Advances from FHLB                                                                11,000,000        5,000,000
  Accrued interest on deposits and FHLB advances                                        73,759          243,207
  Accrued expenses and other liabilities                                               438,675          333,740
                                                                                 -------------    -------------

           Total liabilities                                                        85,245,188      113,196,621
                                                                                 -------------    -------------

SHAREHOLDERS' EQUITY:
  Preferred stock, no par value, 2,000,000 shares
    authorized, none issued
  Common stock, no par value, 15 million shares authorized, 1,859,802
    and 1,549,913 shares issued; 1,859,802 and 1,549,913 shares outstanding         17,980,344       16,579,196
  Accumulated deficit                                                               (8,598,851)      (4,092,623)
  Accumulated other comprehensive income, net of deferred taxes                        491,285          106,330
                                                                                 -------------    -------------

           Total shareholders' equity                                                9,872,778       12,592,903
                                                                                 -------------    -------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                       $  95,117,966    $ 125,789,524
                                                                                 =============    =============
</TABLE>


See accompanying notes to consolidated financial statements.


                                       61
<PAGE>


BLUE RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002 AND 2001
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                             2002            2001
<S>                                                                      <C>             <C>
INTEREST INCOME:
  Loans receivable                                                       $  4,825,049    $  9,018,648
  Mortgage-backed securities and investment securities                      1,330,646       1,148,468
  Interest-bearing deposits                                                   122,028         365,081
  Dividends from FHLB and other                                               130,522         160,044
                                                                         ------------    ------------

           Total interest income                                            6,408,245      10,692,241
                                                                         ------------    ------------

INTEREST EXPENSE:
  Interest expense on deposits                                              3,854,760       6,248,527
  Interest expense on FHLB advances                                           189,933         627,269
                                                                         ------------    ------------

           Total interest expense                                           4,044,693       6,875,796
                                                                         ------------    ------------

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES                        2,363,552       3,816,445

PROVISION FOR LOAN LOSSES                                                     261,187       1,985,000
                                                                         ------------    ------------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                         2,102,365       1,831,445
                                                                         ------------    ------------

NON-INTEREST INCOME:
  Service charges and fees                                                    410,951         531,235
  Loss on disposal/impairment of premises and equipment                      (125,168)       (151,099)
  Gain (Loss) on sale of securities                                             4,200         (22,968)
  Other                                                                      (141,275)       (292,052)
                                                                         ------------    ------------
                                                                              148,708          65,116
                                                                         ------------    ------------
NON-INTEREST EXPENSE:
  Salaries and employee benefits                                            1,511,369       2,183,061
  Premises and equipment                                                      460,412         712,797
  Data processing                                                             502,323         524,747
  Data processing conversion                                                  438,072
  Professional fees                                                           456,333         434,335
  Federal deposit insurance                                                   205,939         148,502
  Directors fees                                                              126,300         124,825
  Environmental expense                                                       112,000
  Goodwill amortization                                                          --           212,412

  Other                                                                       666,079         896,223
                                                                         ------------    ------------

           Total non-interest expense                                       4,478,827       5,236,902
                                                                         ------------    ------------

LOSS BEFORE INCOME TAX BENEFIT                                             (2,227,754)     (3,340,341)

INCOME TAX BENEFIT                                                           (150,607)     (1,163,966)
                                                                         ------------    ------------

NET LOSS before cumulative effect of change in accounting principle        (2,077,147)     (2,176,375)
Cumulative effect of change in accounting principle                        (2,429,081)           --
                                                                         ------------    ------------
NET LOSS                                                                 $ (4,506,228)   $ (2,176,375)
                                                                         ============    ============
Basic and diluted loss per share before change in accounting principle   $      (1.25)   $      (1.40)
Cumulative effect of change in accounting principle                             (1.46)           --
                                                                         ------------    ------------
BASIC AND DILUTED LOSS PER SHARE                                         $      (2.71)   $      (1.40)
                                                                         ============    ============
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC AND DILUTED)                     1,666,122       1,549,913
</TABLE>

See accompanying notes to consolidated financial statements.

                                       62
<PAGE>

BLUE RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 2001 TO DECEMBER 31, 2002
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                   ACCUMULATED
                                                                                                      OTHER
                                                                                                  COMPREHENSIVE
                                                                                                     INCOME,
                                                                                                      NET OF          TOTAL
                                               COMPREHENSIVE          COMMON          ACCUMULATED    DEFERRED     SHAREHOLDERS'
                                                   LOSS               STOCK             DEFICIT       TAXES           EQUITY
<S>                                            <C>                <C>                <C>           <C>            <C>
BALANCE, January 1, 2001                                          $ 16,579,196       $(1,916,248)   $ (91,206)    $ 14,571,742

  NET LOSS                                     $(2,176,375)                           (2,176,375)                   (2,176,375)
                                               -----------

  Other comprehensive income:
    Unrealized gain on securities, net
    of reclassification adjustment                 197,536                                            197,536          197,536
                                               -----------

  Other comprehensive income                       197,536
                                               -----------

COMPREHENSIVE LOSS                             $(1,978,839)
                                               ===========        ------------       -----------     --------      -----------

BALANCE, December 31, 2001                                          16,579,196        (4,092,623)     106,330       12,592,903

  NET LOSS                                     $(4,506,228)                           (4,506,228)                   (4,506,228)
                                               -----------

PROCEEDS FROM PRIVATE PLACEMENT
  OFFERING                                                           1,401,148                                       1,401,148
    Other comprehensive income:
      Unrealized gain on securities, net
       of reclassification adjustment              384,955                                            384,955          384,955
                                               -----------

  Other comprehensive income                       384,955
                                               -----------
COMPREHENSIVE LOSS                             $(4,121,273)
                                               ===========        ------------       -----------     --------      -----------

BALANCE, December 31, 2002                                        $ 17,980,344       $(8,598,851)    $491,285      $ 9,872,778
                                                                  ============       ===========     ========      ===========
</TABLE>


See accompanying notes to consolidated financial statements.




                                       63
<PAGE>
BLUE RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                    2002            2001
<S>                                                                            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                     $ (4,506,228)   $ (2,176,375)
  Adjustments to reconcile net loss to net cash from operating activities:
    Depreciation and amortization                                                   562,918         489,330
    Net amortization of premiums and discounts                                       89,684         117,404
    Cumulative effect of change in accounting principle                           2,429,081
    Loss on sale of Fort Wayne branches                                                             275,927
    Loss (Gain) on sale of securities available for sale                             (4,200)         22,968
    Prepayment penalty on FHLB advance                                              102,255
    Impairment charge to premises and equipment                                     100,000         139,907
    Loss on sale/disposal of premises and equipment                                  64,189           7,192
    Provision for loan losses                                                       261,187       1,985,000
    Deferred income taxes                                                           203,015        (952,867)
  Changes in assets and liabilities:
    Accrued interest receivable                                                     136,570         379,878
    Other assets                                                                    131,819        (607,043)
    Other liabilities                                                               (64,513)       (299,687)
                                                                               ------------    ------------

           Net cash from operating activities                                      (494,223)       (618,366)
                                                                               ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Loans funded net of collections                                                14,014,924       6,193,787
  Proceeds from sale of loans, including those sold with Fort Wayne branches                     30,656,502
  Maturities of securities available for sale                                    10,616,623      10,283,905
  Proceeds from sale of securities available for sale                             4,925,735         654,064
  Purchase of securities available for sale                                     (14,292,006)    (18,729,690)
  Proceeds from sale of premises and equipment included in sale
    of Fort Wayne branches                                                                          456,422
  Purchase of premises and equipment                                               (131,346)         35,741
  Proceeds from sale of real estate owned                                           344,648
                                                                               ------------    ------------
           Net cash provided by investing activities                             15,478,578      29,550,731
                                                                               ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of FHLB advances and other borrowings                                (5,102,255)    (17,500,000)
  Proceeds from FHLB advances and other borrowings                               11,000,000      10,000,000
  Net decrease in deposits                                                      (33,881,498)    (13,706,364)
  Sale of deposits included in sale of Fort Wayne branches                                      (11,772,950)
  Proceeds from issuance of common stock, net of offering costs of $64,627        1,401,148
                                                                               ------------    ------------

           Net cash used in financing activities                                (26,582,605)    (32,979,314)
                                                                               ------------    ------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                       (11,598,250)     (4,046,949)

CASH AND CASH EQUIVALENTS, Beginning of year                                     15,037,328      19,084,277
                                                                               ------------    ------------

CASH AND CASH EQUIVALENTS, End of year                                         $  3,439,078    $ 15,037,328
                                                                               ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Interest paid during the year                                                $  4,214,000    $  6,888,000
                                                                               ============    ============

  Income tax refund                                                            $    353,000
                                                                               ============    ============

  Loans transferred to other real estate owned                                 $    684,000    $    991,000
                                                                               ============    ============
</TABLE>


See notes to consolidated financial statements.

                                       64
<PAGE>

* BLUE RIVER BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
-------------------------------------------------------------------------------


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 subsidiary Shelby County Bank
      (the "Bank") and the wholly owned subsidiaries of the Bank. All
      significant intercompany balances and transactions have been eliminated.

      DESCRIPTION OF BUSINESS--The Bank provides financial services to south
      central Indiana through its main office in Shelbyville and three other
      full service branches in Shelbyville, Morristown, and St. Paul, Indiana.

      On December 31, 2001, the Company completed the sale of its two Fort Wayne
      branches pursuant to a Branch Purchase and Assumption Agreement ("the
      Agreement") entered into with Community First Bank and Trust, an Ohio
      state-chartered bank ("Community") on October 17, 2001. The Agreement
      provided for Community's assumption of certain deposit and other
      liabilities and purchase of certain assets of two branch offices. Under
      the terms of the Agreement, Community acquired the loans, personal
      property, fixed assets, cash, records, and real property lease interests
      of the two Branches located in Fort Wayne, Indiana. The transaction
      involved the purchase of approximately $31 million in assets and the
      assumption of approximately $11 million in liabilities. The difference
      between the assets and liabilities was offset by a cash payment from
      Community to the Company of approximately $20 million. Community also
      retained all the employees of the First Community branches.

      The Bank is subject to competition from other financial institutions and
      is regulated by certain federal agencies and undergoes periodic
      examinations by those regulatory authorities. (See Note 10).

      USE OF ESTIMATES--The preparation of financial statements in conformity
      with accounting principles generally accepted in the United States of
      America 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 and the fair value of securities.

      CASH AND CASH EQUIVALENTS--All highly liquid investments with an original
      maturity of three months or less are considered to be cash equivalents.

      SECURITIES--Securities are required to be classified as held to maturity,
      available for sale or trading. Debt securities that the Bank has the
      positive intent and ability to hold to maturity are classified as held to
      maturity. Debt and equity securities not classified as either held to
      maturity or trading securities are classified as available for sale. Only
      those securities classified as held to maturity are reported at amortized
      cost, with those available for sale reported at fair value with unrealized
      gains and losses excluded from earnings and reported as other
      comprehensive income. 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.

      REVENUE RECOGNITION--Interest on real estate, commercial and installments
      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.



                                       65
<PAGE>

      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 FASB 114,
      "Accounting by Creditors for Impairment of a Loan" before it is 90 days
      past due, the Company 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.

      PROVISION FOR LOAN LOSSES--A provision for estimated losses on loans and
      real estate owned 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. The allowance for loan losses
      consists of a specific reserve and a general reserve. The components of
      the allowance for loan losses represent an estimation done pursuant to
      either SFAS 5, "Accounting for Contingencies", or SFAS 114, "Accounting
      for Creditors for Impairment of a Loan".

      The specific reserve analysis is performed to recognize reserves allocated
      to individual loans which are considered classified assets due to a
      combination of factors including delinquency, credit quality and
      collateral value. Specific reserves for such loans 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 licensed appraisers.

      The remaining pool of loans, excluding those classified or delinquent, is
      the source for the general loan loss reserve. Management evaluates this
      general reserve using loan loss statistics by various types of loan
      categories, as published periodically by the OTS and multiplying such loss
      percentages to the Bank's distribution of portfolio balances. The
      calculated reserve is compared to the Bank's existing reserve to establish
      the provision necessary to bring the actual reserve balance incompliance
      with the findings of 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 it's evaluations, future allowance adjustments may be
      necessary if economic conditions change substantially from the assumptions
      used in making the evaluations.

      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.

      REAL ESTATE OWNED--Real estate owned represents real estate acquired
      through foreclosure or deed in lieu of foreclosure and is recorded at the
      lower of cost or 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 subsidiary file
      consolidated income tax returns. 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.


                                       66
<PAGE>


      INCOME TAX VALUATION ALLOWANCE--The Company establishes valuation
      allowances in accordance with the provisions of FASB Statement No. 109,
      "Accounting for Income Taxes". The Company continually reviews the
      adequacy of the valuation allowance and will recognize the benefits only
      as reassessment indicates that it is more likely than not that the
      benefits will be realized.

      LOSS PER COMMON SHARE--Loss per share of common stock are based on the
      weighted average number of basic shares and dilutive shares outstanding
      during the year.

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

<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                               DECEMBER 31,
                                                          ----------------------
                                                             2002        2001
<S>                                                       <C>         <C>
Basic earnings per share:
  Weighted average common shares                          1,666,122   1,549,913
                                                          =========   =========

Diluted earnings per share:
  Weighted average common shares and incremental shares   1,666,122   1,549,913
                                                          =========   =========
</TABLE>


      During the years ended December 31, 2002 and 2001, there were no
      incremental shares relating to the dilutive effect of stock options.

      COMPREHENSIVE INCOME--Reclassification adjustments have been determined
      for all components of other comprehensive income reported in the
      consolidated statements of changes in shareholders' equity. Amounts
      presented within those statements for the years ended December 31, 2002
      and December 31, 2001 are as follows:

<TABLE>
<CAPTION>
                                                                     2002         2001
<S>                                                               <C>          <C>
Other comprehensive income:
  Net unrealized holding gains                                    $ 643,225    $ 304,942
  Less, reclassification adjustment for (gains) losses realized      (4,200)      22,968
                                                                  ---------    ---------

Other comprehensive income before tax                               639,025      327,910
Income tax expense related to items of other
  comprehensive income                                              254,070      130,374
                                                                  ---------    ---------

Other comprehensive income, net of tax                            $ 384,955    $ 197,536
                                                                  =========    =========
</TABLE>


      SEGMENT INFORMATION--The Company has disclosed all required information
      relating to its one operating segment.

      STOCK BASED COMPENSATION--At December 31, 2002, the company has
      stock-based employee compensation plans, which are described more fully in
      Note 14. The Company accounts for those plans under the recognition and
      measurement principles of APB Opinion No. 25, "Accounting for Stock Issued
      to Employees," and related interpretations. No stock-based employee
      compensation cost is 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 loss and loss per share if the company had
      applied the fair value recognition provisions of FASB Statement No. 123,
      "Accounting for Stock-Based Compensation," to stock-based employee
      compensation.


                                       67
<PAGE>


<TABLE>
<CAPTION>
                                                                   2002             2001

Net loss:
<S>                                                          <C>              <C>
  Net loss as reported                                       $  (4,506,228)   $  (2,176,375)
    Deduct total stock based employee compensation
      expense determined under fair value based method for
      all awards, net of related tax effects                       (76,775)          64,228
                                                             -------------    -------------
  Pro forma, net loss                                        $  (4,583,003)   $  (2,240,603)
                                                             =============    =============
Net loss per share:
  Basic loss per share                                       $       (2.71)   $       (1.40)
  Diluted loss per share                                     $       (2.71)   $       (1.40)

Pro forma loss per share:
  Basic loss per share                                       $       (2.75)   $       (1.45)
  Diluted loss per share                                     $       (2.75)   $       (1.45)
</TABLE>

      NEW ACCOUNTING PRONOUNCEMENTS--Statement of Financial Accounting Standards
      ("SFAS") No. 142, Goodwill and Other Intangible Assets, was issued in July
      2001. Under SFAS 142, goodwill amortization ceases when the new standard
      is adopted. The new rules also require an initial goodwill impairment
      assessment in the year of adoption and at least annual impairment tests
      thereafter. SFAS 142, is effective for the Company January 1, 2002. Annual
      goodwill amortization of approximately $212,000 was ceased on January 1,
      2002.

      Management completed the assessment and evaluation process of determining
      the impairment of goodwill in accordance with SFAS 142 during the second
      quarter of 2002. The measurement of impairment was considered necessary as
      the Company had several consecutive quarters of losses.

      Based on the pattern of losses and a significant reduction in the market
      capitalization of the Company, an independent third party valuation
      specialist performed a valuation analysis of the Company. Based on the
      third party valuation, management completed its initial assessment and
      determined that the goodwill was impaired in accordance with SFAS 142
      during the second quarter of 2002. The measurement of the impairment
      resulted in a reduction of goodwill and a cumulative change in accounting
      principle of $2,429,081.

<TABLE>
<CAPTION>
                                                                                           TWELVE MONTH PERIODS ENDED
                                                                                                   DECEMBER 31,
                                                                                        ---------------------------------
                                                                                           2002                 2001
<S>                                                                                      <C>                 <C>
Reported net loss before cumulative effect of change in
  accounting principle                                                                   $(2,077,147)        $ (2,176,375)

Addback Goodwill Amortization                                                                                     212,412
                                                                                         -----------         ------------

Adjusted net loss before cumulative effect of change in
  accounting principle                                                                   $(2,077,147)        $ (1,963,963)
                                                                                         ===========         ============

Basic and diluted loss per share before cumulative effect of
  change in accounting principle                                                             $ (1.25)             $ (1.40)

Addback  Goodwill Amortization                                                                                       0.13
                                                                                         -----------         ------------

Adjusted basic and diluted loss per share before cumulative
  effect of change in accounting principle                                                   $ (1.25)             $ (1.27)
                                                                                         ===========         ============
</TABLE>





                                       68
<PAGE>

      SFAS No. 143, "Accounting for Asset Retirement Obligations", was issued in
      June 2001 and is effective for financial statements issued for fiscal
      years beginning after June 15, 2002. SFAS 143 addresses financial
      accounting and reporting for obligations associated with the retirement of
      tangible long-lived assets and the associated asset retirement costs.
      Management has determined that the effect of this new standard on the
      consolidated financial statements will not be material.

      SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
      Assets", was issued in August 2001 and is effective for financial
      statements issued for fiscal years beginning after December 15, 2001, and
      interim periods within those fiscal years. SFAS 144 addresses financial
      accounting and reporting for the impairment or disposal of long-lived
      assets. Management has determined that the effect of this new standard on
      the consolidated financial statements will not be material.

      In April 2002, the Financial Accounting Standards Board issued SFAS No.
      145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
      Statement No. 13, and Technical Corrections," which, among other things,
      changes the way gains and losses from the extinguishment of debt are
      reported. Previously, all gains and losses from the extinguishment of debt
      were required to be reported as an extraordinary item, net of related tax
      effect. Under SFAS No.145, gains and losses from the extinguishment of
      debt should be reported as part of on-going operations, unless the
      extinguishment of debt meets the criteria of both unusual and infrequent
      as established in APB No.30. SFAS No. 145 is effective for all fiscal
      years beginning after May 15, 2002, including all prior period
      presentations. Management has determined that the effect of this new
      standard on the consolidated financial statements will not be material.

      During June 2002, the Financial Accounting Standards Board issued SFAS No.
      146, "Accounting for Costs Associated with Exit or Disposal Activities,"
      which nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
      Recognition for Certain Employee Termination Benefits and Other Costs to
      Exit an Activity (including Certain Costs Incurred in a Restructuring)."
      SFAS No. 146 requires that a liability for a cost associated with an exit
      or disposal activity be recognized when the liability is incurred. SFAS
      No. 146 is effective for exit and disposal activities that are initiated
      after December 31, 2002. Management has determined that the effect of this
      new standard on the consolidated financial statements will not be
      material.

      SFAS 147, "Acquisitions of Certain Financial Institutions," was issued in
      October 2002 and is effective for acquisitions for which the date of
      acquisition is on or after October 1, 2002. SFAS 147 addresses the
      financial accounting and reporting for the acquisition of all or part of a
      financial institution, except for a transaction between two or more mutual
      enterprises. This statement also provides guidance on the accounting for
      the impairment or disposal of acquired long-term customer-relationship
      intangible assets (such as depositor- and borrower-relationship intangible
      assets and credit cardholder intangible assets), including those acquired
      in transactions between two or more mutual enterprises. The adoption of
      the statement did not have any impact on the financial statements in the
      year of adoption.

      SFAS 148, "Accounting for Stock-Based Compensation--Transition and
      Disclosure, an amendment of FASB Statement No. 123," was issued in
      December 2002 and is effective for fiscal years ending after December 15,
      2002. SFAS 148 provides alternative methods of transition for a voluntary
      change to the fair value based method of accounting for stock-based
      employee compensation. In addition, SFAS 148 amends the disclosure
      requirements of Statement 123 to require prominent disclosures in both
      annual and interim financial statements about the method of accounting for
      stock-based employee compensation and the effect of the method on reported
      results. Management has included the new disclosure requirements in its
      consolidated financial statements.

      In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness of Others". This Interpretation elaborates on
      the disclosures to be made by a guarantor in its interim and annual


                                       69
<PAGE>


      financial statements about its obligation under certain guarantees that it
      has issued. It also clarifies that a guarantor is required to recognize,
      at the inception of a guarantee a liability for the fair value of the
      obligation undertaken in issuing the guarantee. The initial recognition
      and initial measurement provisions of this Interpretation are applicable
      on a prospective basis to guarantees issued or modified after December 31,
      2002. The disclosure requirements in this interpretation are effective for
      financial statements of interim or annual periods ending after December
      15, 2002. Loan commitments and commercial letters of credit are excluded
      from the scope of this interpretation. The Company does not anticipate the
      Interpretation will have a material impact on its consolidated financial
      statements.

      In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
      "Consolidation of Variable Interest Entities". This Interpretation
      addresses consolidation by business enterprises of variable interest
      entities. Under current practice, entities generally have been included in
      consolidated financial statements because they are controlled through
      voting interests. This Interpretation explains how to identify variable
      interest entities and how an entity assesses its interests in a variable
      interest entity to decide whether to consolidate that entity. FIN 46
      requires existing unconsolidated variable interest entities to be
      consolidated by their primary beneficiaries if the entities do not
      effectively disperse risks among parties involved. Variable interest
      entities that effectively disperse risks will not be consolidated unless a
      single party holds an interest or combination of interests that
      effectively recombines risks that were previously dispersed. Transferor to
      QSPEs and "grandfathered" QSPEs subject to the reporting requirements of
      SFAS 140 are outside the scope of FIN 46 and do not consolidate those
      entities. FIN 46 also requires certain disclosures by the primary
      beneficiary of a variable interest entity or an entity that holds a
      significant variable interest in a variable interest entity.

      FIN 46 is applicable for all entities with variable interests in variable
      interest entities credited after January 31, 2003 immediately. Public
      companies with a variable interest in a variable interest entity created
      before February 1, 2003 will have to apply the provisions of FIN 46 no
      later than the beginning of the first interim reporting period beginning
      after June 15, 2003.

      The company does not anticipate FIN 46 will have a material impact to its
      consolidated financial statements.

      RECLASSIFICATION--Certain amounts in the year ended December 31, 2001 have
      been reclassified to conform to the 2002 presentation.

2.    SECURITIES

      Securities at December 31, 2002 are as follows:

<TABLE>
<CAPTION>
                                                                      GROSS UNREALIZED
                                                    ------------------------------------------------------
                                                     AMORTIZED                                    FAIR
                                                        COST         GAINS         LOSSES         VALUE
<S>                                                 <C>           <C>           <C>            <C>
Securities available for sale:
  Mortgage-backed securities                        $17,849,169   $   573,742   $    (1,600)   $18,421,311
  Corporate bonds                                       211,460         7,412        (9,000)       209,872
  Obligations of State and Political Subdivisions     1,986,077        62,389                    2,048,466
  U.S. Treasury and agency securities                 5,541,845       185,866                    5,727,711
                                                    -----------   -----------   -----------    -----------

Total available for sale                            $25,588,551   $   829,409   $   (10,600)   $26,407,360
                                                    ===========   ===========   ===========    ===========

Securities held to maturity:
  Mortgage-backed securities                        $    55,721   $       764   $      (771)   $    55,714
  Municipal bonds                                       203,000         2,753          (462)       205,291
                                                    -----------   -----------   -----------    -----------

Total held to maturity                              $   258,721   $     3,517   $    (1,233)   $   261,005
                                                    ===========   ===========   ===========    ===========
</TABLE>


                                       70
<PAGE>


      Securities at December 31, 2001 are as follows:

<TABLE>
<CAPTION>
                                                                   GROSS UNREALIZED
                                                    ------------------------------------------------------
                                                     AMORTIZED                                    FAIR
                                                        COST          GAINS       LOSSES          VALUE
<S>                                                 <C>           <C>           <C>            <C>
Securities available for sale:
  Mortgage-backed securities                        $14,984,431   $   152,248   $   (58,945)   $15,077,734
  Corporate bonds                                       213,490         3,331          (461)       216,360
  Obligations of State and Political Subdivisions     2,629,979        51,960       (10,766)     2,671,173
  U.S. Treasury and agency securities                 9,335,902        60,456       (20,604)     9,375,754
                                                    -----------   -----------   -----------    -----------

Total available for sale                            $27,163,802   $   267,995   $   (90,776)   $27,341,021
                                                    ===========   ===========   ===========    ===========

Securities held to maturity:
  Mortgage-backed securities                        $    88,580   $       849   $      (237)   $    89,192
  Municipal bonds                                       205,971         2,992        (1,459)       207,504
                                                    -----------   -----------   -----------    -----------

Total held to maturity                              $   294,551   $     3,841   $    (1,696)   $   296,696
                                                    ===========   ===========   ===========    ===========
</TABLE>

      The carrying value of mortgage-backed securities, corporate bonds, and
      U.S. treasury and agencies at December 31, 2002 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 FOR SALE         HELD TO MATURITY
                                                    AMORTIZED      FAIR         AMORTIZED      FAIR
                                                      COST         VALUE          COST         VALUE
<S>                                               <C>           <C>           <C>           <C>
Mortgage-backed securities:
  Due after one year through five years                                       $     1,042   $     1,073
  Due after five years through ten years          $ 4,071,958   $ 4,223,191         8,898         9,426
  Due after ten years                              13,777,212    14,198,120        45,782        45,216
Corporate bonds:
  Due after one year through five years               211,460       209,872
Obligation of State and Political Subdivisions:
  Due within one year                                 201,004       207,300        99,989        99,527
  Due after one year through five years               897,552       931,918       103,010       105,763
  Due after five years through ten years              537,443       552,689
  Due after ten years                                 350,077       356,560
U.S. Treasury and agency securities:
  Due after one year through five years               500,000       520,125
  Due after five years through ten years            5,041,845     5,207,585
                                                  -----------   -----------   -----------   -----------

Total                                             $25,588,551   $26,407,360   $   258,721   $   261,005
                                                  ===========   ===========   ===========   ===========
</TABLE>


      Securities totaling approximately $14.2 million are pledged to secure
      Federal Home Loan Bank Advances (see Note 6).



                                       71
<PAGE>


3.    LOANS RECEIVABLE

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

<TABLE>
<CAPTION>
                                  2002            2001

Real estate mortgage loan:
<S>                          <C>             <C>
  One-to-four family         $ 27,503,516    $ 31,843,376
  Non Residential              16,658,767      23,397,672
Home equity loans               3,187,104       3,520,294
Consumer loans                  6,757,173      10,199,602
Commercial loans                4,206,223       4,866,174
Allowance for loan losses      (1,717,072)     (1,891,366)
                             ------------    ------------

                             $ 56,595,711    $ 71,935,752
                             ============    ============
</TABLE>

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

<TABLE>
<CAPTION>
                                 2002           2001

<S>                         <C>            <C>
Beginning balance           $ 1,891,366    $ 1,943,741
Provision for loan losses       261,187      1,985,000
Charge-offs                    (816,280)    (2,311,520)
Recoveries                      380,799        274,145
                            -----------    -----------

Ending balance              $ 1,717,072    $ 1,891,366
                            ===========    ===========
</TABLE>

      As of December 31, 2002 and 2001, loans which were impaired in accordance
      with SFAS No.'s 114 and 118 totaled approximately $2,056,000 and
      $7,576,000, respectively. Specific reserves for credit losses allocated to
      these loans totaled approximately $1,559,000 and $1,617,000 as of December
      31, 2002 and 2001, respectively. The Bank's policy for recognizing income
      on impaired loans is to accrue interest until a loan is classified as
      impaired. For loans that are determined to be impaired, interest accrued
      in excess of 90 days past the due date is charged against current
      earnings. No interest is accrued after a loan is classified as impaired.
      All payments received for loans which are classified as impaired are
      utilized to reduce the principal balance outstanding.

      The average recorded investment in total impaired loans for the years
      ended December 31, 2002 and 2001 amounted to $2,377,000 and $3,161,000,
      respectively. Interest income that would have been recognized had such
      loans been performing in accordance with their original terms would have
      been $138,000 and $241,000, respectively.



                                       72
<PAGE>


4.    PREMISES AND EQUIPMENT

      Premises and equipment at December 31 consists of the following:

<TABLE>
<CAPTION>
                                     2002           2001

<S>                             <C>            <C>
Land and improvements           $   288,009    $   288,009
Buildings and improvements        1,814,666      1,921,524
Furniture and equipment             950,270      1,083,647
                                -----------    -----------
                                  3,052,945      3,293,180
Less accumulated depreciation    (1,271,170)    (1,319,411)
                                -----------    -----------

                                $ 1,781,775    $ 1,973,769
                                ===========    ===========
</TABLE>

      During the second quarter of 2002, the Company completed the transfer of
      the Rampart Bank Branch facility from the holding company of the Bank. As
      required by the Office of Thrift and Supervision, this transfer was
      completed at fair value. An independent third party valuation specialist
      completed an appraisal. Based on the appraisal, management concluded that
      the Rampart Bank Branch was impaired. The measurement of impairment
      resulted in a write-down of property of approximately $100,000 and a
      corresponding charge included in other expense.

5.    DEPOSITS

      Deposits at December 31 are as follows:

<TABLE>
<CAPTION>
                                                     2002                   2001
                                        -------------------------  -----------------------
                                                        WEIGHTED                  WEIGHTED
                                                        AVERAGE                   AVERAGE
                                           AMOUNT         RATE       AMOUNT         RATE

<S>                                     <C>             <C>       <C>             <C>
Passbook Savings Account                $  6,916,341      1.24%   $  6,388,497      2.10%
Non-interest Bearing Checking              5,531,940                 1,939,845
Interest-Bearing Demand Deposit
  Accounts                                12,759,764      1.42%     18,832,364      2.04%
Money Market Accounts                     14,112,278      1.82%     14,562,834      2.54%
                                        ------------      ----    ------------      ----

           Total Transaction Accounts     39,320,323      1.33%     41,723,540      2.13%
                                        ------------      ----    ------------      ----

Certificate Accounts:
  Under 12 Months                          4,276,125      1.96%     47,817,841      6.36%
  12 to 23 Months                          6,010,252      2.58%      9,057,097      6.17%
  24 to 35 Months                          9,500,791      5.02%      2,280,353      5.32%
  36 to 59 Months                          3,530,965      5.77%      6,691,352      6.64%
  Over 60 Months                          11,094,298      5.95%         49,491      7.25%
                                        ------------      ----    ------------      ----
                                          34,412,431      4.59%     65,896,134      6.33%
                                        ------------      ----    ------------      ----

                                        $ 73,732,754      2.85%   $107,619,674      4.70%
                                        ============      ====    ============      ====
</TABLE>


                                       73
<PAGE>
      A summary of certificate accounts by scheduled maturities at December 31,
2002 is as follows:

<TABLE>
<CAPTION>
                       2003             2004           2005            2006            2007       THEREAFTER        TOTAL

<S>                 <C>             <C>             <C>             <C>             <C>            <C>            <C>
Under 3%            $  8,400,557    $   961,292                                                    $ 160,684      $ 9,522,533
3% - 3.99%               230,478      1,429,162     $ 2,420,414     $    93,622                                     4,173,676
4% - 4.99%               746,242        463,099         149,457       1,569,681     $2,094,282                      5,022,761
5% - 5.99%             2,298,244        636,868         262,458         659,654                                     3,857,224
6% - 6.99%             3,253,321        440,387         727,294         681,561                                     5,102,563
Over 7%                2,450,537        359,828       3,136,652         733,588                       53,069        6,733,674
                    ------------    -----------     -----------     -----------     ----------     ---------     ------------

                    $ 17,379,379    $ 4,290,636     $ 6,696,275     $ 3,738,106     $2,094,282     $ 213,753     $ 34,412,431
                    ============    ===========     ===========     ===========     ==========     =========     ============
</TABLE>



      Certificates of deposit of $100,000 and over at December 31, 2002 are as
follows:

<TABLE>
<S>                                             <C>
Three Months or Less                            $1,320,954
Greater than Three Months Through Six Months       300,000
Greater than Six Months Through Twelve Months      713,659
Over Twelve Months                               2,477,880
                                                ----------

           Total                                $4,812,493
                                                ==========
</TABLE>

      A summary of interest expense for the periods indicated for the years
      ended December 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                2002         2001
<S>                                          <C>          <C>
Account type:
  Passbook Savings Accounts                  $  101,061   $  138,338
  Interest-Bearing Demand Deposit Accounts      194,520      235,969
  Money Market Accounts                         318,922      927,649
  Certificates                                3,240,257    4,946,571
                                             ----------   ----------

                                             $3,854,760   $6,248,527
                                             ==========   ==========
</TABLE>


6.    FEDERAL HOME LOAN BANK ADVANCES

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

<TABLE>
<CAPTION>

                                     2002                                2001
                           ----------------------------     -----------------------------
                                            WEIGHTED                            WEIGHTED
FISCAL                                       AVERAGE                            AVERAGE
YEAR                                        INTEREST                            INTEREST
MATURITY                       AMOUNT         RATES             AMOUNT           RATES
<S>                         <C>             <C>             <C>                 <C>
2002                                                        $ 2,500,000          5.37%
2004                        $ 2,000,000       2.46%           2,500,000          5.44%
2005                          1,000,000       3.15%
2006                          3,000,000       2.64%
2007                          5,000,000       3.53%
                            -----------                     -----------

                            $11,000,000       3.06%         $ 5,000,000          5.41%
                            ===========                     ===========
</TABLE>


      The advances from the Federal Home Loan Bank ("FHLB") are collateralized
      by mortgage loans and investment securities pledged by the Bank. The FHLB
      holds original notes and mortgages of the pledged loan products and
      provides safekeeping services related to the pledged investment
      securities. All FHLB advances are due at maturity and are neither callable
      nor convertible.


                                       74
<PAGE>

7.    STOCK OPTION PLANS

      The Company has adopted separate stock option plans for Directors of the
      Company and the Bank (the 1997 Directors' Stock Option Plan and the 2000
      Directors' Stock Option Plan) and the officers and key employees of the
      Company and the Bank (the 1997 Key Employee Stock Option Plan, 2000 Key
      Employee Stock Option Plan and the 2002 Key Employee 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 option exercise price per share for the
      1997 plans is the greater of $12.00 per share or the fair value of a share
      on the date of grant, for the 2000 plans is $8.27 per share or the fair
      value on the date of the grant, and $4.98 per share or the fair value on
      the date of the grant for options granted under the 2002 plan. The stock
      options 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 employee stock option plan and fifteen years under the Directors'
      Stock Option Plan from the grant date. The options are nontransferable and
      are forfeited upon termination of employment or as a director.

      The following is an analysis of the activity for the years ended December
      31, 2002 and 2001 and the stock options outstanding at the end of the
      respective years:

<TABLE>
<CAPTION>
                                                WEIGHTED
                                                AVERAGE
         OPTIONS                     SHARES      RATES

<S>                                  <C>       <C>
Outstanding at December 31, 2000     87,850    $   11.11
Forfeited or expired                 (4,500)   $    8.27
                                    -------

Outstanding at December 31, 2001     83,350    $   10.96
Granted                              69,000    $    4.98
Forfeited or expired                   (350)   $    8.27
                                    -------

Outstanding at December 31, 2002    152,000    $    8.26
                                    =======
</TABLE>

<TABLE>
<CAPTION>
                                                                    WEIGHTED AVERAGE
                                 NUMBER OF SHARES                    EXERCISE PRICE                WEIGHTED-
                          ----------------------------        -----------------------------         AVERAGE
  EXERCISE                                                                                       REMAINING LIFE
    PRICE                 OUTSTANDING      EXERCISABLE        OUTSTANDING      EXERCISABLE        (IN YEARS)
<S>                       <C>              <C>                <C>              <C>               <C>
       $ 4.75                37,500                               1.17                                2.34
         5.25                31,500                               1.09                                1.97
         8.27                22,750            9,100              1.24              1.31              1.23
        12.00                60,250           48,200              4.76             10.09              4.36
                            -------          -------             -----            ------              ----

Total                       152,000           57,300              8.26             11.40              9.90
                           ========          =======             =====            ======              ====
</TABLE>


      At December 31, 2002, there were 57,650 options exercisable with a
      weighted average exercise price of $11.40.

      As of December 31, 2002 and 2001, options outstanding had a weighted
      average exercise price of $8.26 and $10.96, respectively and a weighted
      average remaining contractual life of approximately 10 and 11 years,
      respectively.

      The weighted average fair value of options granted was $3.05 per share in
      2002. The fair value of the options granted are estimated on the date of
      grant using the Black-Scholes option pricing model



                                       75
<PAGE>


      with the following assumptions: no dividend yield, risk-free interest rate
      of 5.6% in 2002, annualized volatility of 31% in 2002, and an expected
      life of five years. The pro forma amounts may not be representative of the
      effects on reported net loss for future years.

8.    INCOME TAXES

      An analysis of the income tax provision for the years ended December 31,
      2002 and 2001 are as follows:


<TABLE>
<CAPTION>
                           2002           2001
<S>                   <C>            <C>
Current:
  Federal                            $   (27,466)
  State                                    7,934
Deferred              $  (910,607)    (1,144,434)
Valuation allowance       760,000
                      -----------    -----------

                      $  (150,607)   $(1,163,966)
                      ===========    ===========
</TABLE>

      A reconciliation between the effective tax rate and the statutory tax rate
      for the years ended December 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                         2002       2001

<S>                                                      <C>        <C>
U.S. Federal Statutory Rate                              (34.0)%    (34.0)%
State Income Tax, Net of Federal Income Tax Benefit       (5.1)%     (4.2)%
Tax exempt interest                                       (2.2)%     (0.6)%
Nondeductible Goodwill                                                2.5 %
Increase in valuation allowance                           34.1 %
Other, net                                                 0.4 %     (1.5)%
                                                        ------     ------

Effective Tax Rate                                        (6.8)%    (34.8)%
                                                        ======     ======
</TABLE>

      The significant components of the Company's net deferred tax asset as of
      December 31, 2002 are as follows:

<TABLE>
<CAPTION>
                                                2002           2001

<S>                                         <C>            <C>
Accrued expenses not currently deductible   $    35,664    $    80,824
Allowance for loan losses                     1,453,167        781,981
Net operating loss carryforwards              1,609,132      1,494,341
Investment securities available for sale       (331,123)       (71,071)
Other, net                                     (107,494)      (152,261)
Valuation allowance                            (760,000)
                                            -----------    -----------

Net deferred tax asset                      $ 1,899,346    $(2,133,814)
                                            ===========    ===========
</TABLE>

      The Company recorded a valuation allowance against a portion of the
      deferred taxes because management believes it is more likely than not that
      a portion of the benefit associated with this deferred tax asset will not
      be realized. However, before 2002, no valuation allowance was considered
      necessary as management believed it was more likely than not that benefits
      associated



                                       76
<PAGE>



      with the deferred assets would be realized. The Company has generated
      federal and state operating losses carryforwards totaling $4.1 million.
      The net operating loss carryforwards, if unused, will begin to expire in
      2018 through 2022.

      Under the Internal Revenue Code, prior to 1997, the Bank was allowed a
      special bad debt deduction for additions to tax bad debt reserves
      established for the purpose of absorbing losses. Subject to certain
      limitations, the allowable bad debt deduction was computed based on one of
      two alternative methods: (1) a percent of taxable income before such
      deduction or (2) loss experience method. The Bank generally computed its
      annual addition to its tax bad debt reserves using the percentage of
      taxable income prior to 1997.

      Beginning in fiscal 1997, the Bank is no longer allowed a special bad debt
      deduction using the percentage of taxable income method and is required to
      recapture its excess tax bad debt reserve over its 1987 base year reserve
      over a six-year period. This amount has been provided for the Bank's net
      deferred tax liability.

      Approximately $1.1 million, for which no provision for Federal income
      taxes has been made, represents allocations of earnings to tax bad debt
      deductions prior to 1987 for federal income tax purposes. Reduction of
      amounts so allocated for purposes other than tax bad debt losses will
      create taxable income, which will be subject to the then current corporate
      income tax rate. It is not contemplated that amounts allocated to bad debt
      deductions will be used in any manner to create taxable income.

9.    PRIVATE PLACEMENT

      On June 7, 2002, the Company entered into a stock purchase agreement with
      a group of investors for the sale of common stock. On September 17, 2002,
      the Company sold 309,889 shares of common stock at a price of $4.73 per
      share or approximately $1,466,000 in the aggregate net proceeds totaled
      $1,401,148. As part of the stock purchase agreement, the Company would in
      a subsequent closing sell 546,348 shares of the Company's common stock to
      individuals of high net worth identified by the initial investors at a
      price of $4.73 per share or approximately $2,584,000 in the aggregate. The
      Company obtained shareholder approval for the subsequent private placement
      of common stock in January 2003 and received gross proceeds of $2,584,000
      in February 2003.

      Pursuant to the stock purchase agreement with the investors, Russell
      Breeden, III and Wayne C. Ramsey were elected to the Board of Directors of
      the Company for a term ending in 2003 and 2005, respectively.

10.   RELATED PARTY TRANSACTIONS

      In the ordinary course of business, the Company has 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 $680,000 and $1,083,000 at December 31, 2002 and 2001,
      respectively.

      A law firm in which a director is a member received payments of $15,322
      and $18,968 for 2002 and 2001, respectively. The firm provides legal
      services primarily in loan-related matters.

      A real estate appraisal company, owned by a director, received payments of
      $18,475 and $16,950 for 2002 and 2001, respectively.

      A company, owned by a director, which provides title and abstract work for
      Shelby County Bank received payments of $7,404 and $3,926 for 2002 and
      2001, respectively.



                                       77
<PAGE>

      An oil company, owned by a director was paid $1,294 and $700 for 2002 and
      2001, respectively, for petroleum products and auto maintenance related to
      company-owned vehicles used for courier services between the banking
      offices.

      A travel company, co-owned by a director, received payments of $3,514 and
      $1,338 for 2002 and 2001, respectively for travel services related to
      meetings and conferences attended by executive officers of the Company.

11.   REGULATORY CAPITAL REQUIREMENTS

      The Bank is 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 Bank's financial statements. Under
      capital adequacy guidelines and the regulatory framework for prompt
      corrective action, the Bank must meet specific capital guidelines that
      involve quantitative measures of the Bank's assets, liabilities and
      certain off-balance sheet items as calculated under regulatory accounting
      practices.

      The Bank's 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 Bank to maintain minimum capital amounts and
      ratios (set forth in the table below). The Bank's primary regulatory
      agency, the OTS, requires that the Bank 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 Bank is also subject to prompt
      corrective action capital requirement regulations set forth by the Federal
      Deposit Insurance Corporation ("FDIC"). The FDIC requires the Bank 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, 2002, management believes that the Bank meets
      all capital adequacy requirements to which it is subject.

      As of December 31, 2002 and 2001, the most recent notifications from the
      OTS categorized the Bank as "well-capitalized" under the regulatory
      framework for prompt corrective action. To be categorized as "well
      capitalized", the Bank must maintain minimum total risk based, Tier 1 risk
      based, and Tier 1 leverage ratios as set forth in the table below:

<TABLE>
<CAPTION>


                                                                               AS OF DECEMBER 31, 2002
                                                            ---------------------------------------------------------------
                                                                    ACTUAL CAPITAL                   REQUIRED CAPITAL
                                                            -------------------------------   -----------------------------
                                                                 AMOUNT          RATIO             AMOUNT         RATIO
<S>                                                             <C>                <C>            <C>             <C>
OTS capital adequacy:
  Tangible capital                                              $ 6,670,000        7.3%           $1,378,000      1.5%
  Core capital                                                    6,670,000        7.3%            2,755,000      3.0%
  Total risk-based capital                                        7,410,000       12.7%            4,658,000      8.0%
FDICIA regulations to be classified "well capitalized":
  Tier 1 leverage capital                                         6,670,000        7.3%            4,592,000      5.0%
  Tier 1 risk based capital                                       6,670,000       11.5%            3,493,000      6.0%
  Total risk-based capital                                        7,410,000       12.7%            5,822,000     10.0%
</TABLE>


                                       78
<PAGE>

<TABLE>
<CAPTION>
                                                                               AS OF DECEMBER 31, 2001
                                                          ---------------------------------------------------------------
                                                                   ACTUAL CAPITAL                   REQUIRED CAPITAL
                                                            -------------------------------   -----------------------------
                                                                   AMOUNT         RATIO             AMOUNT        RATIO
<S>                                                             <C>                <C>            <C>            <C>
OTS capital adequacy:
  Tangible capital                                              $ 6,784,000        5.7%           $1,799,000      1.5%
  Core capital                                                    6,784,000        5.7%            3,597,000      3.0%
  Total risk-based capital                                        7,734,000       10.3%            6,002,000      8.0%
FDICIA regulations to be classified "well capitalized":
  Tier 1 leverage capital                                         6,784,000        5.7%            5,996,000      5.0%
  Tier 1 risk based capital                                       6,784,000        9.0%            4,501,000      6.0%
  Total risk-based capital                                        7,734,000       10.3%            7,502,000     10.0%
</TABLE>


      On July 10, 2000 the Office of Thrift Supervision (the "OTS") issued a
      letter which formally designated Shelby County Bank to be in "troubled
      condition" based upon the preliminary findings of the OTS' then ongoing
      examination of the Bank. The OTS expressed supervisory concern relating to
      the Bank's management, operating losses, interest rate risk sensitivity,
      internal controls and loan documentation. Pursuant to the letter, the Bank
      is subject to the following restrictions: (i) no increase in total assets
      during any quarter in excess of an amount equal to interest credited on
      deposits during the quarter without prior written approval of the OTS,
      (ii) prior OTS approval of all executive compensation and agreements and
      the hiring of any executive officer, director or consultant or changing
      the responsibilities of any current executive officer, (iii) prior notice
      to the OTS of all transactions between the Bank and its affiliates, (iv)
      prior OTS approval of all transactions between the Bank and third parties
      outside the normal course of business.

      On February 7, 2001 the OTS issued a letter which formally designated Blue
      River Bancshares to be in "troubled condition" pursuant to the results of
      the March 13, 2000 examination. This letter places restrictions on the
      Company to notify the OTS at least 30 days prior to adding or replacing of
      members of the board of directors, or employing or changing
      responsibilities of senior executive officers. The letter also prohibits
      golden parachute payments unless such payments are permitted by
      regulation.

      On April 5, 2001, the OTS notified Shelby County Bank in writing that the
      business plan and budget submitted by the Bank had been approved. Although
      the Bank is no longer subject to the growth restrictions previously
      imposed by the OTS, the Bank may not make any significant changes to its
      business plan and budget without prior approval of the OTS. The Bank has
      submitted a revised business plan and budget to the OTS. This new plan and
      budget provides for the growth of the Bank by utilizing the additional
      $1,500,000 of capital which has been contributed to the Bank during the
      third quarter of 2002. On March 17, 2003 the OTS issued a letter stating
      no objection to the growth projections as set forth in the business plan
      and budget.

12.   EMPLOYEE BENEFIT PLANS

      The Company has an employee 401(k) plan established for substantially all
      full-time employees, as defined. The Company has elected to match
      contributions equal to 50% of the employee contributions, up to a maximum
      of 6% of an individual's total eligible salary, as defined. Contributions
      totaled approximately $24,000 and $41,000 for the years ended December 31,
      2002 and 2001, respectively.



                                       79
<PAGE>


13.   COMMITMENTS

      In the normal course of business, the Bank makes various commitments to
      extend credit, which are not reflected in the accompanying consolidated
      financial statements. At December 31, 2002 and 2001, the Bank had loan
      commitments approximating $673,000 and $577,000, respectively, excluding
      undisbursed portions of loans in process, and unused portions of lines of
      credit of approximately $1,541,000 and $2,436,000, respectively.
      Outstanding letters of credit totaled approximately $637,000 and $642,000
      at December 31, 2002 and 2001, respectively.

      In the event of nonperformance by the other parties to the financial
      instruments, the Bank's exposure to credit loss for commitments to extend
      credit is represented by the contract amount of those instruments.

      The Bank uses the same credit policies and collateral requirements in
      making commitments as it does for on-balance sheet financial instruments.

14.   PARENT COMPANY FINANCIAL INFORMATION

      Condensed Balance Sheet as of December 31:

<TABLE>
<CAPTION>
                                                 2002          2001
<S>                                          <C>           <C>
Assets:
  Cash and cash equivalents                  $   461,602   $   826,292
  Securities available for sale                   91,000        99,539
  Investment in subsidiary                     9,168,384    10,932,189
  Other                                          238,455       816,184
                                             -----------   -----------

Total assets                                 $ 9,959,441   $12,674,204
                                             ===========   ===========

Liabilities and Shareholders' Equity:
  Other liabilities                          $    86,663   $    81,301
  Shareholders' equity                         9,872,778    12,592,903
                                             -----------   -----------

Total liabilities and shareholders' equity   $ 9,959,441   $12,674,204
                                             ===========   ===========
</TABLE>


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

<TABLE>
<CAPTION>
                                                         2002           2001

<S>                                                  <C>            <C>
Interest income, net of interest expense             $    14,150    $    35,670
Non-interest income                                       28,200       (126,125)
Non-interest expense                                    (303,140)      (240,218)
                                                     -----------    -----------
Loss before income taxes and equity
  in undistributed earnings of Shelby County Bank       (260,790)      (330,673)
Income tax expense (benefit)                            (591,555)      (128,008)
                                                     -----------    -----------
Loss before equity in undistributed
  earnings of Shelby County Bank                        (852,345)      (202,665)
Equity in undistributed loss of Shelby County Bank    (3,653,883)    (1,973,710)
                                                     -----------    -----------

Net loss                                             $(4,506,228)   $(2,176,375)
                                                     ===========    ===========

</TABLE>




                                       80
<PAGE>




      Condensed Statements of cash flows for the years ended December 31, 2002
      and 2001 are as follows:

<TABLE>
<CAPTION>
                                                                     2002           2001
<S>                                                              <C>            <C>
Cash flows from operating activities:
  Net loss                                                       $(4,506,228)   $ 2,176,375
  Adjustments to reconcile net cash from operating activities:
    Equity in undistributed earnings (loss) of subsidiary          3,653,883      1,973,710
    Impairment charge to premises and equipment                      100,000
    Loss on sale of securities                                                       22,968
    Depreciation and amortization                                     12,586         37,733
    (Increase) decrease in other assets                              577,729        (95,859)
    Increase (decrease) in other liabilities                           5,362        (25,754)
                                                                 -----------    -----------

    Net cash from operating activities                              (156,668)      (263,577)

Cash flows from investing activities:
  Proceeds from sale of available-for-sale securities                               677,032
  Proceeds from sale of premises and equipment                                      146,271
                                                                 -----------    -----------

           Net cash from investing activities                                       823,303
                                                                 -----------    -----------

Cash flows from financing activities:
  Proceeds from issuance of common stock                           1,401,148
                                                                 -----------    -----------

           Net cash from financing activities                      1,401,148
                                                                 -----------    -----------

  Net increase in cash and cash equivalents                        1,244,480        559,726
  Cash and cash equivalents, beginning of year                       826,292        266,566
                                                                 -----------    -----------

  Cash and cash equivalents, end of year                         $ 2,070,772    $   826,292
                                                                 ===========    ===========

</TABLE>


15.   FAIR VALUE OF FINANCIAL INSTRUMENTS

      The following disclosure of fair value information is made in accordance
      with the requirements of Statement of Financial Accounting Standards No.
      107, Disclosures About Fair Value of Financial Instruments. SFAS No. 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.

      The following schedule includes the book value and estimated fair value of
      all financial assets and liabilities, as well as certain off balance sheet
      items, at December 31, 2002.


                                       81
<PAGE>
      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--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 OF INDIANAPOLIS--The fair value of FHLB stock is based on
      the price at which it may be resold to the FHLB.

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

      FHLB ADVANCES--The fair values of the FHLB advances approximate carrying
      values as the interest rates are variable and adjust to market rates.

      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.

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

<TABLE>
<CAPTION>
                                                                       2002                                   2001
                                                         -------------------------------       --------------------------------
                                                           CARRYING          ESTIMATED            CARRYING         ESTIMATED
                                                            AMOUNT          FAIR VALUE             AMOUNT         FAIR VALUE
<S>                                                       <C>               <C>                  <C>              <C>
Assets:
  Cash and cash equivalents                               $ 3,439,000       $ 3,439,000          $ 15,037,000     $ 15,037,000
  Investment securities, held to maturity                     259,000           295,000               295,000          297,000
  Investment securities, available for sale                25,589,000        26,407,000            27,164,000       27,341,000
  Loans receivable                                         58,313,000        61,595,000            73,827,000       74,856,000
  Stock in FHLB of Indianapolis                             2,153,000         2,153,000             2,153,000        2,153,000
  Accrued interest receivable                                 582,000           582,000               718,000          718,000
Liabilities:
  Deposits                                                 73,733,000        75,264,000           107,620,000      109,961,000
  FHLB advances                                            11,000,000        11,110,000             5,000,000        5,091,000
  Accrued interest payable                                     74,000            74,000               243,000          243,000
</TABLE>


                                     ******

                                       82
<PAGE>



BLUE RIVER BANCSHARES, INC.

SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------



STOCK INFORMATION

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

The Company had 196 shareholders of record as of March 25, 2003

SALE PRICE PER SHARE

<TABLE>
<CAPTION>
                                      2002                             2001
QUARTER                        HIGH           LOW               HIGH            LOW

<S>                          <C>            <C>                <C>            <C>
First quarter                $ 5.50         $ 4.15             $ 4.25         $ 3.06
Second quarter                 5.23           4.40               4.85           3.43
Third quarter                  4.88           4.26               4.70           3.31
Fourth quarter                 4.90           4.25               4.65           3.45
</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 Terry Smith, Director of Investor Relations, Blue River Bancshares, Inc.

Independent Auditor       Legal Counsel              Corporate Offices
DELOITTE & TOUCHE LLP     KRIEG DEVAULT LLP          BLUE RIVER BANCSHARES, INC.
111 Monument Circle       One Indiana Square         29 E. Washington St.
Suite 2000                Suite 2800                 Shelbyville, IN 46176
Indianapolis, IN 46204    Indianapolis, IN 46204     888-842-2265



                                       83
<PAGE>




BLUE RIVER BANCSHARES, INC.

DIRECTORS AND OFFICERS
--------------------------------------------------------------------------------

<TABLE>
<S>                                           <C>
BOARD OF DIRECTORS                            BOARD OF DIRECTORS
BLUE RIVER BANCSHARES, INC.                   SHELBY COUNTY BANK
---------------------------                   ------------------
STEVEN R. ABEL                                STEVEN R. ABEL
Owner                                         Owner
Hoosier Appraisal Service                     Hoosier Appraisal Service
Chairman of the Board & CEO                   Chairman of the Board

LAWRENCE T. TOOMBS                            LAWRENCE T. TOOMBS
President                                     President & CEO

WENDELL L. BERNARD                            WENDELL L. BERNARD
Owner                                         Owner
Bernard Realty                                Bernard Realty

D. WARREN ROBISON                             D. WARREN ROBISON
Owner                                         Owner
Hale Abstract                                 Hale Abstract

PETER G. DEPREZ                               PETER G. DEPREZ
Attorney                                      Attorney
Brown, Linder & DePrez                        Brown, Linder & DePrez

MICHAEL J. VAUGHT                             MICHAEL J. VAUGHT
Owner                                         Owner
Economy Oil Corporation                       Economy Oil Corporation

RALPH W. VAN NATTA                            RALPH W. VAN NATTA
Retired                                       Retired

RUSSELL BREEDEN, III                          RUSSELL BREEDEN, III
Self Employed                                 Self Employed

WAYNE C. RAMSEY
Vice President
Lynch & Associates

OFFICERS                                      OFFICERS
BLUE RIVER BANCSHARES, INC.                   SHELBY COUNTY BANK
---------------------------                   ------------------
STEVEN R. ABEL                                STEVEN R. ABEL
Chairman of the Board & CEO                   Chairman of the Board

LAWRENCE T. TOOMBS                            LAWRENCE T. TOOMBS
President                                     President

D. WARREN ROBISON                             RANDY J. COLLIER
Senior Vice President, Secretary              Executive Vice President, Chief Credit
                                              Officer

RANDY J. COLLIER                              PATRICE M. LIMA
Exec. Vice President                          Senior Vice President, Chief Financial
                                              Officer

PATRICE M. LIMA                               TERRY A. SMITH
Vice President, Chief Financial Officer       Vice President, Marketing & HR

TERRY A. SMITH                                RICHARD E. WALKE
Vice President, Marketing & HR                Vice President, Audit

RICHARD E. WALKE                              RONALD L. LANTER
Vice President, Auditor                       Vice President, Lending

                                              JOYCE E. FORD
                                              Vice President, Mortgage
</TABLE>


                                       84