River Valley Bancorp
P.O. Box 1590 o Madison, Indiana 47250-0590 o (812)273-4949 o Fax (812)273-4944





To Our Shareholders:

It is my pleasure to present to you River Valley  Bancorp's  third Annual Report
to Shareholders covering the year ending December 31, 1998.

This past year has been one of great  achievement for River Valley  Bancorp.  At
this time last year,  I reported  that we were  spending  much of our efforts on
developing a strategy to take advantage of the strengths of both banks. In 1998,
that strategy allowed us to come a long way toward meshing two distinct cultures
into one great bank and, although the process is not complete, we are encouraged
by the results reflected in the day to day operations.

Our strategic  planning  process  established  critical  guidelines that we will
continue to address in the upcoming  years in order for River  Valley  Financial
Bank to be an effective leader in this region.  Providing a distinct  difference
in the personal  service  offered to our customers,  matched with  technology to
provide increased access, will make us the bank of choice.

Net earnings for 1998 totaled $1,253,000,  or basic earnings per share of $1.13,
compared  to  $1,310,000  reported  in 1997.  The  results in 1997  reflected  a
one-time pre-tax gain on the sale of a branch in Hanover of $206,000, while 1998
earnings  reflected a one-time  pre-tax gain on the sale of premises of $57,000.
Current year  earnings were  favorably  impacted by increased  secondary  market
activity  which  resulted  in  $339,000  in gains on sale of loans,  compared to
$127,000  in gains  recorded  in 1997.  The current  year  reflected  additional
general and  administrative  costs  related  mainly to  increased  staffing  and
advertising.

During 1998 we continued to implement our capital  management  strategy with the
declaration of dividends  totaling $0.22 per share,  compared to $0.13 per share
in 1997. Our  shareholders  also benefited from the fact that the dividends paid
in 1998 and 1997 were  considered  a 100%  return of capital and thus no federal
taxes were due upon their receipt.

Additionally,  during 1998, we commenced a stock repurchase  program targeted at
acquiring 5% of  outstanding  shares.  At December 31, 1998, we had  repurchased
18,000 shares.  The repurchase of shares will serve to increase return on equity
and earnings per share in future periods.

It is now time for us to focus on setting the  standard of personal  service and
increased  access  that  will make us the bank of  choice  for our  area.  As we
continue this journey,  we again extend a special  thanks to all our friends and
shareholders who have supported us with their business and referrals.  Thank you
for your trust and support.

Sincerely,



/s/ James E. Fritz
James E. Fritz
President



<PAGE>

                              River Valley Bancorp

                            BUSINESS OF RIVER VALLEY


River  Valley  Bancorp  ("River  Valley"  or  the  "Corporation"),   an  Indiana
corporation, was formed in 1996 for the primary purpose of purchasing all of the
issued and  outstanding  common stock of River Valley  Financial  Bank (formerly
Madison First Federal Savings and Loan  Association;  hereinafter  "River Valley
Financial"  or the "Bank") in its  conversion  from  mutual to stock  form.  The
conversion  offering  was  completed  on  December  20,  1996,  with the sale of
1,190,250  common shares at an initial  offering  price of $10.00 per share.  On
December 23, 1996, the Corporation  utilized  approximately  $3.0 million of the
net conversion  proceeds to purchase 95.6% of the  outstanding  common shares of
Citizens  National  Bank of  Madison  ("Citizens")  in a  transaction  that  was
accounted for using the purchase  method of accounting.  River Valley  Financial
and Citizens  merged on November 20, 1997.  Future  references  to River Valley,
River  Valley  Financial  and  Citizens  are  utilized  herein,  as the  context
requires.

The activities of River Valley have been limited  primarily to holding the stock
of the Bank.  River Valley Financial was organized in 1875 under the laws of the
United States of America.  River Valley Financial  conducts  operations from its
five  full-service  office locations in Jefferson County and offers a variety of
deposit and lending  services to consumer and commercial  customers in Jefferson
and surrounding counties. The Corporation is subject to regulation,  supervision
and  examination by the Office of Thrift  Supervision of the U.S.  Department of
Treasury  (the  "OTS").   River  Valley  Financial  is  subject  to  regulation,
supervision  and  examination  by the  OTS  and the  Federal  Deposit  Insurance
Corporation  (the "FDIC").  Deposits in River Valley Financial are insured up to
applicable  limits by the Savings  Association  Insurance  Fund  ("SAIF") of the
FDIC.


                 MARKET PRICE OF THE CORPORATION'S COMMON SHARES
                         AND RELATED SHAREHOLDER MATTERS

There were 1,173,440 common shares of River Valley Bancorp  outstanding at March
11, 1999, held of record by 422  shareholders.  The number of shareholders  does
not reflect  the number of persons or entities  who may hold stock in nominee or
"street name." Since December of 1996, the Corporation's common shares have been
listed on The Nasdaq SmallCap Market ("Nasdaq"), under the symbol "RIVR".

Presented  below are the high and low sale prices for the  Corporation's  common
shares,  as well as cash  distributions  paid thereon since December 1996.  Such
sales prices do not include retail financial markups,  markdowns or commissions.
Information relating to sales prices has been obtained from Nasdaq.



<PAGE>


                 MARKET PRICE OF THE CORPORATION'S COMMON SHARES
                   AND RELATED SHAREHOLDER MATTERS (CONTINUED)


Quarter Ended               High       Low      Cash Distributions (1)

1998
  December 31, 1998       $ 16.00     $13.25         $   0.060
  September 30, 1998        19.00      13.75             0.055
  June 30, 1998             20.75      18.38             0.055
  March 31, 1998            19.75      18.50             0.050

1997
  December 31, 1997       $ 19.00     $16.25         $   0.050
  September 30, 1997        17.25      14.75             0.040
  June 30, 1997             15.00      13.63             0.040
  March 31, 1997            15.50      13.00                --

1996
  December 31, 1996       $ 12.50     $10.00         $      --



(1)  River  Valley  Financial  had filed a  request  with the  Internal  Revenue
     Service ("IRS") in 1995 to deconsolidate the Bank's  subsidiaries in future
     federal  income  tax  return  filings.  In  August  1998,  the  Corporation
     finalized a closing agreement with the IRS that enabled the Corporation and
     each of its subsidiaries to file separate returns. By definition,  the 1998
     and 1997 cash distributions have been deemed a tax-free return of capital.

The high and low sales prices for River Valley's common shares between  December
31, 1998 and March 10, 1999 were $15.75 and $14.00, respectively.

Under OTS regulations applicable to converted savings associations, River Valley
Financial is not  permitted to pay a cash  dividend on its common  shares if the
regulatory  capital of River Valley  Financial would, as a result of the payment
of such  dividend,  be reduced  below the amount  required  for the  liquidation
account (which was  established  for the purpose of granting a limited  priority
claim on the  assets  of River  Valley  Financial,  in the  event of a  complete
liquidation,  to those members of River Valley  Financial  before the Conversion
who maintain a savings  account at River Valley  Financial after the Conversion)
or applicable regulatory capital requirements prescribed by the OTS.

Regulations of the OTS impose  limitations on the payment of dividends and other
capital  distributions  by savings  associations.  The OTS recently  amended its
capital  distribution  regulation in a final rule which takes effect on April 1,
1999. Because the Bank is a subsidiary of a savings and loan holding company, it
is  required  to file a notice  with the OTS 30 days  before  making any capital
distributions  to the Holding  Company.  It may also have to file an application
for approval of a proposed capital  distribution with the OTS if the Bank is not
eligible for expedited  treatment under the OTS's application  processing rules,
or the total amount of all capital distributions, including the proposed capital
distribution,  for the applicable  calendar year would exceed an amount equal to
the  Bank's net  earnings  for that year to date plus the  Bank's  retained  net
earnings for the preceding two years. The Bank must also file an application for
approval  of  a  proposed  capital   distribution  if,  following  the  proposed
distribution,  the Bank would not be at least adequately  capitalized  under the
OTS prompt corrective action regulations,  or if the proposed distribution would
violate a  prohibition  contained  in any  applicable  statute,  regulation,  or
agreement between the OTS or the FDIC.




<PAGE>


           SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA


The following tables set forth certain  information  concerning the consolidated
financial  condition,  earnings,  and other data  regarding  River Valley at the
dates and for the periods  indicated.  All financial  information  prior to 1996
relates to River Valley Financial as a mutual savings association.
<TABLE>
<CAPTION>


Selected consolidated financial condition data:  (1)                               At December 31,
                                                                   1998        1997        1996        1995        1994
Total amount of:                                                                     (In thousands)
<S>                                                            <C>         <C>         <C>          <C>         <C>
  Assets                                                       $138,369    $136,933    $145,541     $86,604     $87,072
  Loans receivable - net (2)                                    112,385     111,887     108,994      57,945      56,287
  Cash and cash equivalents (3)                                  12,307       5,765       8,785       2,689       2,416
  Mortgage-backed and related securities (4)                      5,986       8,978      12,846       9,917      11,328
  Investment securities (4)                                       1,283       4,272       8,948      13,018      14,097
  Deposits                                                      118,151     114,955     125,656      75,233      75,458
  FHLB advances and other borrowings                                270       2,000       1,100       4,471       4,986
  Shareholders' equity- net (5)                                  18,613      17,989      16,805       6,574       6,304

Summary of consolidated earnings data: (1)                                         Year Ended December 31,
                                                                   1998        1997        1996        1995        1994
                        (In thousands, except share data)

Total interest income                                           $10,108     $10,362  $    5,875    $  5,794    $  5,419
Total interest expense                                            4,842       5,049       3,412       3,594       2,854
                                                                -------     -------   ---------     -------     -------
     Net interest income                                          5,266       5,313       2,463       2,200       2,565
Provision for losses on loans                                       275         304          22         150          29
                                                               --------    -------- -----------    --------   ---------
     Net interest income after provision for
       losses on loans                                            4,991       5,009       2,441       2,050       2,536
Other income:
  Insurance commissions                                              -           -          200         175         181
  Gain on sale of loans                                             339         127          -           -           -
  Service fees, charges and other operating                         792         807         246         187         189
  Gain on sale of subsidiary                                         -           -          141          -           -
  Gain on sale of office premises and equipment                      57         206          -           -           -
  Loss on sale of investment, mortgage-backed
    and related securities                                           -           (6)          (9)        -           -
                                                                -------  ---------- ------------    -------     ------
     Total other income                                           1,188       1,134         578         362         370
General, administrative and other expense:
  Employee compensation and benefits                              2,309       2,165       1,203         998         888
  Occupancy and equipment                                           484         527         284         212         193
  Data processing                                                   127         224         282         237         243
  Federal deposit insurance premiums                                 42          50         684         177         178
  Other                                                           1,131       1,037         417         342         356
                                                                -------   ---------  ----------    --------    --------
     Total general, administrative and other expense              4,093       4,003       2,870       1,966       1,858
                                                                -------   ---------   ---------     -------     -------
Earnings before income tax expense                                2,086       2,140         149         446       1,048
Income tax expense                                                  833         830          76         188         412
                                                               --------    -------- -----------    --------    --------

     Net earnings                                              $  1,253    $  1,310$         73   $     258   $     636
                                                                =======     ======= ===========    ========    ========

     Basic earnings per share (6)                                $1.13        $1.20         N/A         N/A         N/A
                                                                  ====         ====         ===         ===         ===
     Diluted earnings per share (6)                              $1.12        $1.18         N/A         N/A         N/A
                                                                  ====         ====         ===         ===         ===
</TABLE>


(1)  River Valley acquired Citizens as of December 20, 1996. The acquisition was
     accounted for using the purchase  method of  accounting.  The 1998 and 1997
     consolidated  financial  statements reflect the results of operations for a
     full year while the 1996 financial  statements  reflect only eleven days of
     activity with respect to Citizens.

(2)  Includes loans held for sale.

(3)  Includes certificates of deposit in other financial institutions.

(4)  Includes securities designated as available for sale.

(5)  Consists solely of retained earnings at December 31, 1994 and 1995.

(6)  Earnings per share is not applicable for the years ended December 31, 1996,
     1995 and 1994 as River Valley converted to stock form in 1996.


<PAGE>





                 SELECTED CONSOLIDATED FINANCIAL INFORMATION AND
                             OTHER DATA (CONTINUED)


Selected financial ratios and other data:
<TABLE>
<CAPTION>


                                                                  Year ended December 31,
                                                  1998        1997        1996         1995         1994

<S>                                                <C>         <C>         <C>          <C>          <C>
Interest rate spread during period                 3.66%       3.64%       2.79%        2.36%        3.00%
Net yield on interest-earning assets (1)           4.08        4.00        2.98         2.61         3.15
Return on assets (2)                               0.92        0.99        0.08         0.30         0.74
Return on equity (3)                               6.85        7.53        1.05         4.01        10.62
Equity to assets (4)                              13.45       13.12       11.55         7.59         7.24
Average interest-earning assets to
  average interest-bearing liabilities           111.07      109.56      104.64       105.62       104.43
Non-performing assets to total assets (4)          1.47        0.58        0.56         0.01         0.01
Allowance for loan losses to total
  loans outstanding (4)                            1.28        1.13        1.06         0.70         0.45
Allowance for loan losses to
  non-performing loans (4)                        75.78      177.72      145.30     5,087.50     1,938.46
Net charge-offs to average total
  loans outstanding                                0.06        0.20        0.01         0.01         0.01
General, administrative and other expense
  to average assets (5) (6)                        3.01        2.83        3.33         2.26         2.20
Number of full service offices (4)                 5           6           6            3            3
</TABLE>




(1)  Net interest income divided by average interest-earning assets.
(2)  Net earnings divided by average total assets.
(3)  Net earnings divided by average total equity.
(4)  At end of period.
(5)  General, administrative and other expense divided by average total assets.
(6)  Includes a $503,000  charge  (or .94% of  weighted-average  assets) in 1996
     related to the SAIF recapitalization assessment.



<PAGE>




                              River Valley Bancorp

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


General

As discussed  previously,  River Valley was incorporated for the primary purpose
of owning all of the outstanding shares of River Valley Financial.  As a result,
the  discussion  that  follows  focuses on River  Valley  Financial's  financial
condition and results of  operations  for the periods  presented.  The following
discussion  and analysis of the financial  condition as of December 31, 1998 and
River  Valley's  results of operations  for periods prior to that date should be
read in conjunction  with the  consolidated  financial  statements and the notes
thereto, included elsewhere in this Annual Report.

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

     1.   Management's  determination  as to the amount and adequacy of the loan
          loss allowance;

     2.   The effect of changes in interest  rates on  financial  condition  and
          results of operations;

     3.   The effects of proposed  legislation  that would eliminate the federal
          thrift charter and the separate federal regulation of thrifts;

     4.   Management's   opinion   as  to  the   effect  of  recent   accounting
          pronouncements on River Valley's  consolidated  financial position and
          results of operations;

     5.   Management's  opinion  as to the  effect  of the  Year  2000 on  River
          Valley's information technology systems.

Discussion of Changes in Financial  Condition from December 31, 1997 to December
31, 1998

At December 31, 1998, River Valley's consolidated assets totaled $138.4 million,
representing  an increase of $1.4 million,  or 1.0%,  over the December 31, 1997
total. The increase in assets was funded  primarily by a $3.2 million,  or 2.8%,
increase in deposits and undistributed  period earnings of $992,000,  which were
partially offset by a $1.7 million decrease in borrowings.

Liquid assets (i.e.,  cash,  federal funds sold,  interest-earning  deposits and
certificates of deposit) increased by $7.5 million from December 31, 1997 levels
to a total of $12.3 million at December 31, 1998.  Investment securities totaled
$1.3 million at December 31, 1998, a decrease of $3.0  million,  or 70.0%,  from
December 31, 1997 levels,  due to maturities of investment  securities  totaling
$3.0 million during 1998.  Mortgage-backed securities decreased by $3.0 million,
or 33.3%,  to a total of $6.0  million at December 31,  1998,  primarily  due to
principal repayments.



<PAGE>
                              River Valley Bancorp

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Discussion of Changes in Financial  Condition from December 31, 1997 to December
31, 1998 (continued)

Loans  receivable,  including  loans held for sale,  totaled  $112.4  million at
December 31,  1998,  an increase of $498,000,  or .4%,  over the $111.9  million
total  at  December  31,  1997.  The  increase  resulted   primarily  from  loan
originations  during  1998 of $69.5  million,  which  were  partially  offset by
principal  repayments  of  $51.6  million  and  sales  of  $17.0  million.  Loan
origination  volume for 1998 exceeded that of 1997 by $15.9  million,  or 29.7%.
The volume of loan sales into the secondary  mortgage  market  increased  during
1998 over 1997 volume by $10.1 million, or 145.7%.

River Valley's  consolidated  allowance for loan losses totaled $1.5 million and
$1.3  million at December  31, 1998 and 1997,  respectively,  which  represented
1.28% and 1.13% of total loans at those dates.  Nonperforming  loans (defined as
loans  delinquent  greater than 90 days and loans on nonaccrual  status) totaled
$1.9  million  and  $718,000 at December  31, 1998 and 1997,  respectively.  The
consolidated allowance for loan losses represented 76% and 178% of nonperforming
loans at December 31, 1998 and 1997, respectively.

Although  management believes that its allowance for loan losses at December 31,
1998 was adequate based upon the available facts and circumstances, there can be
no assurance  that  additions to such  allowance will not be necessary in future
periods, which could negatively affect the Corporation's results of operations.

Deposits  increased by $3.2 million,  or 2.8%,  to a total of $118.2  million at
December 31, 1998,  compared to the $115.0  million  total at December 31, 1997.
Savings and demand  deposits  increased by $1.4 million,  or 2.7%,  during 1998,
while  certificates of deposit increased by $1.8 million,  or 2.8%. The increase
in deposits can be attributed to management's  efforts to obtain a moderate rate
of growth primarily through marketing and pricing strategies.

Advances from the Federal Home Loan Bank and other  borrowed  money  declined by
$1.7 million from the total at December 31, 1997, as current  period  borrowings
of $6.3 million were offset by repayments of $8.0 million.

Shareholders'  equity totaled $18.6 million at December 31, 1998, an increase of
$624,000,  or 3.5%,  over the $18.0  million  total at December  31,  1997.  The
increase  resulted  primarily  from net  earnings  of $1.3  million,  which were
partially  offset by cash dividends of $261,000,  repurchases of shares totaling
$270,000 and a net increase in shares for stock benefit plans of $194,000.

Comparison  of Results of Operations  for the Years Ended  December 31, 1998 and
1997

General

River Valley's net earnings for the year ended  December 31, 1998,  totaled $1.3
million, a decrease of $57,000, or 4.4%, from net earnings reported in 1997. The
decrease  in net  earnings in the 1998 period was  primarily  attributable  to a
decrease  in  net   interest   income  of  $47,000,   an  increase  in  general,
administrative and other expense of $90,000 and an increase in the provision for
federal income taxes of $3,000, which were partially offset by a decrease in the
provision  for losses on loans of $29,000  and an  increase  in other  income of
$54,000.


<PAGE>


                              River Valley Bancorp

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Comparison  of Results of Operations  for the Years Ended  December 31, 1998 and
1997 (continued)

Net Interest Income

Total interest  income for the year ended  December 31, 1998,  amounted to $10.1
million,  a decrease of $254,000,  or 2.5%, from the 1997 total,  reflecting the
effects  of a  $3.5  million,  or  2.6%,  decline  in  the  balance  of  average
interest-earning assets outstanding  year-to-year.  Interest income on loans and
mortgage-backed securities totaled $9.7 million for 1998, a decrease of $38,000,
or .4%, from 1997.  The decrease  resulted  primarily  from a $315,000,  or .3%,
decrease  in  the  average  balance  of  loans  and  mortgage-backed  securities
outstanding  year-to-year,  coupled with a one basis point decrease in yield, to
7.97% in 1998.  Interest  income on investments  and  interest-earning  deposits
decreased  by  $216,000,  or 36.1%,  due to a decrease  in the  average  balance
outstanding of $3.2 million, coupled with an approximate 45 basis point decrease
in yield from the comparable 1997 period.

Interest expense on deposits decreased by $232,000,  or 4.7%, to a total of $4.7
million for the year ended  December 31, 1998,  due  primarily to a $5.1 million
decrease in the  average  balance of deposits  outstanding,  coupled  with a one
basis point decline in the  weighted-average  cost of deposits to 4.12% in 1998.
Interest expense on borrowings  totaled $160,000 for the year ended December 31,
1998,  an  increase of  $25,000,  or 18.5%,  over 1997.  The  increase  resulted
primarily  from an  increase  in average  borrowings  outstanding  year-to-year,
coupled with an increase in average cost.

As a result of the foregoing  changes in interest  income and interest  expense,
net interest income decreased during 1998 by $47,000,  or .9%, compared to 1997.
The interest  rate spread  increased by two basis points for 1998, to 3.66% from
3.64% in the 1997  period,  while the net interest  margin  amounted to 4.08% in
1998 and 4.00% in 1997.

Provision for Losses on Loans

A  provision  for  losses on loans is  charged  to  earnings  to bring the total
allowance for loan losses to a level considered  appropriate by management based
upon historical  experience,  the volume and type of lending  conducted by River
Valley  Financial,  the  status of past due  principal  and  interest  payments,
general  economic  conditions,  particularly  as such  conditions  relate to the
primary market area, and other factors related to the collectibility of the loan
portfolio.  As a  result  of  such  analysis,  management  recorded  a  $275,000
provision for losses on loans in 1998, a decrease of $29,000,  or 9.5%, compared
to the  $304,000  provision  recorded  in 1997.  The  current  period  provision
generally reflects growth in the loan portfolio, coupled with an increase in the
level of nonperforming loans year-to-year.  Net charge-offs  amounted to $74,000
in 1998,  compared to  $218,000  in 1997.  While  management  believes  that the
allowance  for losses on loans is  adequate  at December  31,  1998,  based upon
available facts and circumstances,  there can be no assurance that the loan loss
allowance  will be  adequate  to cover  losses  on  nonperforming  assets in the
future.



<PAGE>
                              River Valley Bancorp

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Comparison  of Results of Operations  for the Years Ended  December 31, 1998 and
1997 (continued)

Other Income

Other income  amounted to $1.2 million for the year ended  December 31, 1998, an
increase of $54,000, or 4.8%, compared to 1997, due primarily to a $212,000,  or
166.9%,  increase in gain on sale of loans and a $57,000  gain on sale of office
premises and equipment,  which were partially  offset by a nonrecurring  gain on
sale of branch office and related deposits in 1997 totaling  $206,000.  The 1997
gain on sale of office premises  resulted from River Valley  Financial's sale of
the Hanover branch facility,  which was consummated in accordance with the terms
of regulatory approval of the Citizens acquisition.

General, Administrative and Other Expense

General,  administrative  and other  expense  totaled  $4.1 million for the year
ended December 31, 1998, an increase of $90,000,  or 2.2%,  over the 1997 total.
This increase resulted primarily from a $144,000,  or 6.7%, increase in employee
compensation and benefits,  and a $94,000,  or 9.3%, increase in other operating
expense,  which  were  partially  offset  by a  $43,000,  or 8.2%,  decrease  in
occupancy  and  equipment  expense  and a $97,000,  or 43.3%,  decrease  in data
processing.   The  increase  in  employee  compensation  and  benefits  resulted
primarily  from  normal  merit  increases  coupled  with an increase in staffing
levels year to year.  The  increase in other  operating  expense  resulted  from
increases in advertising,  office supplies,  and pro-rata increases in operating
expenses due to the Corporation's  overall growth  year-to-year.  The decline in
occupancy  and equipment  resulted from reduced costs  following the sale of the
Hanover branch  location in 1997. The decrease in data processing was due to the
conversion to the in-house  data  processing  system used by Citizens  after the
merger in November 1997.

Income Taxes

The provision for income taxes  increased by $3,000,  or .4%, for the year ended
December 31, 1998,  as compared to 1997.  The effective tax rates were 39.9% and
38.8% for the years ended December 31, 1998 and 1997, respectively.


Comparison  of Results of Operations  for the Years Ended  December 31, 1997 and
1996

Increases in the level of income and expenses during the year ended December 31,
1997, as compared to 1996,  were primarily due to River Valley's  acquisition of
Citizens, which was consummated on December 23, 1996. As stated previously,  the
business  combination was accounted for using the purchase method of accounting,
which does not provide  for  restatement  of the  financial  statements  to give
effect to the  combination.  Accordingly,  the  statement  of  earnings  and the
statement of cash flows for the year ended December 31, 1996,  were not restated
for the acquisition.



<PAGE>


                              River Valley Bancorp

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Comparison  of Results of Operations  for the Years Ended  December 31, 1997 and
1996 (continued)

General

River Valley's net earnings for the year ended  December 31, 1997,  totaled $1.3
million,  an increase of $1.2 million over the $73,000 net earnings  reported in
the comparable 1996 period.  The increase in net earnings in the 1997 period was
primarily attributable to an increase in net interest income of $2.9 million and
an  increase  of $556,000 in other  income,  which were  partially  offset by an
increase  in the  provision  for losses on loans of  $282,000,  an  increase  in
general, administrative and other expense of $1.1 million and an increase in the
provision for federal income taxes of $754,000.

Net Interest Income

Total interest  income for the year ended  December 31, 1997,  amounted to $10.4
million, an increase of $4.5 million,  or 76.4%, over the 1996 year,  reflecting
the effects of growth in average  interest-earning  assets outstanding,  coupled
with  an  increase  in  yield   year-to-year.   Interest  income  on  loans  and
mortgage-backed  securities  totaled $9.8 million for 1997,  an increase of $4.6
million,  or 90.5%, over the 1996 year. The increase resulted primarily from the
$53.3  million,  or  77.2%,  increase  in  the  average  balance  of  loans  and
mortgage-backed  securities  outstanding  year-to-year,  coupled with a 56 basis
point increase in yield,  to 7.98% in 1997.  Interest  income on investments and
interest-earning  deposits decreased by $151,000, or 20.1%, due to a decrease in
the  average  balance  outstanding  of  $3.2  million,  partially  offset  by an
approximate 24 basis point increase in yield from the comparable 1996 period.

Interest expense on deposits increased by $1.6 million,  or 46.7%, to a total of
$4.9  million for the year ended  December 31,  1997,  due  primarily to a $41.2
million  increase in the  average  balance of  deposits  outstanding,  which was
partially  offset by an 18 basis point decline in the  weighted-average  cost of
deposits to 4.13% in 1997.  Interest expense on borrowings  totaled $135,000 for
the year ended December 31, 1997, an increase of $72,000,  or 114.3%, over 1996.
The  increase  resulted   primarily  from  an  increase  in  average  borrowings
outstanding year-to-year, coupled with an increase in average cost.

As a result of the foregoing  changes in interest  income and interest  expense,
net interest income increased during 1997 by $2.9 million,  or 115.7%,  compared
to 1996. The interest rate spread increased by approximately 85 basis points for
1997,  to 3.64% from 2.79% in the 1996  period,  while the net  interest  margin
amounted to approximately 4.00% in 1997 and 2.98% in 1996.

Provision for Losses on Loans

A  provision  for  losses on loans is  charged  to  earnings  to bring the total
allowance for loan losses to a level considered  appropriate by management based
upon historical  experience,  the volume and type of lending  conducted by River
Valley  Financial,  the  status of past due  principal  and  interest  payments,
general  economic  conditions,  particularly  as such  conditions  relate to the
primary market area, and other factors related to the collectibility of the loan
portfolio.  As a  result  of  such  analysis,  management  recorded  a  $304,000
provision  for losses on loans in 1997.  The provision  generally  reflected the
higher charge-off  experience attendant to Citizens' installment loan portfolio,
as  compared  to the  primarily  residential  loan  portfolio  of  River  Valley
Financial prior to the acquisition.


<PAGE>

                              River Valley Bancorp

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Comparison  of Results of Operations  for the Years Ended  December 31, 1997 and
1996 (continued)

Other Income

Other income  increased by $556,000,  or 96.2%,  for the year ended December 31,
1997,  as compared to 1996,  due  primarily to a $206,000 gain on sale of office
premises  and  equipment,  coupled  with a $561,000  increase  in service  fees,
charges and other operating  income and a $127,000 gain on sale of loans,  which
were  partially  offset  by  a  decline  of  $200,000,  or  100%,  in  insurance
commissions  year-to-year.  The gain on sale of office  premises  resulted  from
River  Valley  Financial's  sale  of the  Hanover  branch  facility,  which  was
consummated in accordance with the terms of regulatory  approval of the Citizens
acquisition.  The decline in insurance  commissions  year-to-year  resulted from
River Valley's sale of its insurance agency  subsidiary  during the last quarter
of 1996. The increase in the service fees,  charges,  and other operating income
primarily  reflects the beneficial  effects of Citizens'  operations on the 1997
year.

General, Administrative and Other Expense

General,  administrative and other expense increased by $1.1 million,  or 39.5%,
during 1997, compared to 1996. This increase resulted primarily from a $962,000,
or 80.0%,  increase in employee compensation and benefits, a $243,000, or 85.6%,
increase in occupancy and equipment expense and a $600,000, or 146.3%,  increase
in other operating expense, which were partially offset by a $634,000, or 92.7%,
decrease in federal deposit insurance  premiums.  As previously  discussed,  the
1997  consolidated  statements of  operations  include the accounts of Citizens,
while the 1996  statements  have not been restated to include the acquisition of
Citizens. The increase in general,  administrative and other expense during 1997
was primarily attributable to the Citizens' acquisition,  offset somewhat by the
absence of the $503,000 SAIF recapitalization assessment recorded in 1996.

Income Taxes

The provision for income taxes increased by $754,000 for the year ended December
31, 1997, as compared to 1996. This increase resulted primarily from an increase
in net earnings  before tax of $2.0 million.  The effective tax rates were 38.8%
and 51.0% for the years ended December 31, 1997 and 1996, respectively.



<PAGE>

                  AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA

The following  table  presents  certain  information  relating to River Valley's
average balance sheet and reflects the average yield on interest-earning  assets
and the average cost of interest-bearing  liabilities for the periods indicated.
Such yields and costs are derived by  dividing  annual  income or expense by the
average  monthly  balance  of   interest-earning   assets  or   interest-bearing
liabilities, respectively, for the years presented. Average balances are derived
from month-end balances, which include nonaccruing loans in the loan portfolio.
<TABLE>
<CAPTION>


                                                                                                  Year ended December 31,
                                                                        1998                                  1997
                                                           Average   Interest                    Average   Interest
                                                       outstanding    earned/     Yield/     outstanding    earned/    Yield/
                                                           balance       paid     rate           balance       paid    rate
                                                                                                 (Dollars in thousands)
Interest-earning assets:
<S>                                                     <C>         <C>               <C>     <C>         <C>            <C>
  Interest-earning deposits and other                   $    4,337  $     233         5.37%   $    5,351  $     322      6.02%
  Investment securities (1)                                  2,871        150         5.22         5,043        277      5.49
  Mortgage-backed and related securities (1)                 7,542        462         6.13        10,874        733      6.74
  Loans receivable, net (2)                                114,440      9,263         8.09       111,423      9,030      8.10
                                                           -------    -------     --------       -------    -------  --------

         Total interest-earning assets                    $129,190     10,108         7.82      $132,691     10,362      7.81
                                                           =======                               =======

Interest-bearing liabilities:
  Deposits                                                $113,770      4,682         4.12      $118,872      4,914      4.13
  FHLB advances and other borrowings                         2,549        160         6.28         2,244        135      6.02
                                                         ---------   --------     --------     ---------   --------  --------

         Total interest-bearing liabilities               $116,319      4,842         4.16      $121,116      5,049      4.17
                                                           =======    -------     --------       =======    -------  --------

Net interest income                                                  $  5,266                              $  5,313
                                                                      =======                               =======

Interest rate spread (3)                                                              3.66%                              3.64%
                                                                                  ========                           ========

Net yield on weighted average interest-earning
  assets (4)                                                                          4.08%                              4.00%
                                                                                  ========                           ========

Average interest-earning assets to average
  interest-bearing liabilities                                                    111.07%                            109.56%
                                                                                  ======                             ======
</TABLE>


<TABLE>
<CAPTION>
                                                                          1996
                                                              Average   Interest
                                                          outstanding    earned/    Yield/
                                                              balance       paid    rate

Interest-earning assets:
<S>                                                          <C>         <C>            <C>
  Interest-earning deposits and other                        $  3,291    $   188        5.71%
  Investment securities (1)                                    10,295        562        5.46
  Mortgage-backed and related securities (1)                    9,176        574        6.26
  Loans receivable, net (2)                                    59,828      4,551        7.61
                                                               ------      -----    --------

         Total interest-earning assets                        $82,590      5,875        7.11
                                                               ======

Interest-bearing liabilities:
  Deposits                                                    $77,710      3,349        4.31
  FHLB advances and other borrowings                            1,221         63        5.16
                                                              -------    -------    --------

         Total interest-bearing liabilities                   $78,931      3,412        4.32
                                                               ======      -----    --------

Net interest income                                                       $2,463
                                                                           =====

Interest rate spread (3)                                                                2.79%
                                                                                    ========

Net yield on weighted average interest-earning
  assets (4)                                                                            2.98%
                                                                                    ========

Average interest-earning assets to average
  interest-bearing liabilities                                                      104.64%
                                                                                    ======
</TABLE>


(1)  Includes securities  available for sale at amortized cost prior to SFAS No.
     115 adjustments.

(2) Total loans less loans in process plus loans held for sale.

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

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



<PAGE>




                              River Valley Bancorp

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Rate/Volume Table

The following  table describes the extent to which changes in interest rates and
changes in volume of interest-related assets and liabilities have affected River
Valley's  interest  income  and  expense  during the years  indicated.  For each
category   of   interest-earning   assets  and   interest-bearing   liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume  multiplied by prior year rate),  (ii) changes in rate (change in rate
multiplied  by prior year  volume),  and (iii) total changes in rate and volume.
The  combined  effects  of  changes in both  volume  and rate,  which  cannot be
separately identified,  have been allocated proportionately to the change due to
volume and the change due to rate:


<TABLE>
<CAPTION>

                                                                            Year ended December 31,
                                                             1998 vs. 1997                          1997 vs. 1996
                                                          Increase                             Increase
                                                         (decrease)                           (decrease)
                                                           due to                               due to
                                                     Volume       Rate      Total          Volume       Rate      Total
                                                                                (In thousands)
Interest-earning assets:
<S>                                                   <C>       <C>        <C>            <C>          <C>      <C>
  Interest-earning deposits and other                 $ (57)    $  (32)    $  (89)        $   123      $  11    $   134
  Investment securities                                (114)       (13)      (127)           (288)         3       (285)
  Mortgage-backed and related securities               (210)       (61)      (271)            112         47        159
  Loans receivable, net                                 244        (11)       233           4,168        311      4,479
                                                        ---      -----       ----           -----        ---      -----
     Total                                             (137)      (117)      (254)          4,115        372      4,487

Interest-bearing liabilities:
  Deposits                                             (210)       (22)      (232)          1,699       (134)     1,565
  FHLB advances and other borrowings                     19          6         25              60         12         72
                                                       ----     ------      -----         -------       ----    -------
     Total                                             (191)       (16)      (207)          1,759       (122)     1,637
                                                        ---      -----       ----           -----        ---      -----

Net change in interest income                         $  54      $(101)    $  (47)         $2,356       $494     $2,850
                                                       ====       ====      =====           =====        ===      =====

</TABLE>

Asset and Liability Management

Like other financial institutions, River Valley Financial is subject to interest
rate risk to the extent that  interest-earning  assets reprice  differently than
interest-bearing  liabilities.  As part of its  effort  to  monitor  and  manage
interest  rate risk,  River Valley  Financial is using the Net  Portfolio  Value
("NPV")  methodology  adopted  by the OTS as part  of its  capital  regulations.
Although  River Valley  Financial is not subject to the NPV  regulation  because
such regulation  does not apply to  institutions  with less than $300 million in
assets and  risk-based  capital  in excess of 12%,  the  application  of the NPV
methodology  can  illustrate  River Valley  Financial's  degree of interest rate
risk.

Presented below is an analysis of River Valley  Financial's  interest rate risk,
as of September 30, 1998 (the latest  information  available)  and September 30,
1997, as measured by changes in NPV for an instantaneous and sustained  parallel
shift of 100 through 400 basis points in market interest rates.






<PAGE>




                              River Valley Bancorp


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Asset and Liability Management (continued)

As illustrated in the tables,  River Valley Financial's NPV is more sensitive to
rising  rates than  declining  rates.  Such  difference  in  sensitivity  occurs
principally  because, as rates rise, borrowers do not prepay fixed-rate loans as
quickly as they do when interest rates are declining.  As a result,  in a rising
interest rate  environment,  the amount of interest River Valley Financial would
receive on loans would  increase  relatively  slowly as loans are slowly prepaid
and new loans at higher  rates are made.  Moreover,  the  interest  River Valley
Financial  would pay on  deposits  would  increase  rapidly  because  the Bank's
deposits generally have shorter periods of repricing.

<TABLE>
<CAPTION>

                                          As of September 30, 1998
                                           (Dollars in thousands)

Change in
Interest Rates              Estimated                                 Amount
(basis points)                    NPV                              of Change                 Percent

<S>                           <C>                                    <C>                      <C>
+400                          $14,046                                $(2,875)                 (17)%
+300                           15,746                                 (1,175)                   (7)
+200                           16,651                                   (270)                   (2)
+100                           16,947                                     26                    -
     -                         16,921                                     -                     -
-100                           16,470                                   (451)                  (3)
-200                           16,009                                   (912)                  (5)
-300                           15,857                                 (1,064)                  (6)
-400                           15,788                                 (1,133)                  (7)

                                          As of September 30, 1997
                                           (Dollars in thousands)

Change in
Interest Rates              Estimated                                 Amount
(basis points)                    NPV                              of Change                 Percent

+400                          $ 9,294                                $(4,234)                 (31)%
+300                           10,986                                 (2,542)                 (19)
+200                           12,410                                 (1,118)                   (8)
+100                           13,255                                   (273)                   (2)
     -                         13,528                                     -                     -
-100                           13,273                                   (255)                   (2)
-200                           12,921                                   (607)                   (4)
-300                           12,744                                   (784)                   (6)
-400                           12,544                                   (984)                   (7)

</TABLE>



<PAGE>




                              River Valley Bancorp


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Asset and Liability Management (continued)

As with any method of measuring  interest rate risk,  certain  shortcomings  are
inherent  in  the  NPV  approach.  For  example,  although  certain  assets  and
liabilities may have similar maturities or periods of repricing,  they may react
in different  degrees to changes in market  interest  rates.  Also, the interest
rates on certain  types of assets and  liabilities  may  fluctuate in advance of
changes in market  interest  rates,  while interest rates on other types may lag
behind  changes in market rates.  Further,  in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed  securities and
early  withdrawal  levels from  certificates  of deposit  would  likely  deviate
significantly from those assumed in making the risk calculations.

If interest rates rise,  River  Valley's net interest  income will be negatively
affected.  Moreover,  rising interest rates may negatively affect River Valley's
earnings due to diminished loan demand.

Liquidity and Capital Resources

The   Corporation's   principal   sources  of  funds  are  deposits,   loan  and
mortgage-backed securities repayments,  maturities of securities, borrowings and
other funds provided by operations. While scheduled loan repayments and maturing
investments   are   relatively   predictable,   deposit   flows   and  loan  and
mortgage-backed  securities  prepayments  are more influenced by interest rates,
general  economic   conditions  and  competition.   The  Corporation   maintains
investments in liquid assets based upon management's  assessment of (1) the need
for funds,  (2) expected  deposit flows,  (3) the yield  available on short-term
liquid assets and (4) the objectives of the asset/liability management program.

OTS regulations  presently require River Valley Financial to maintain an average
daily  balance  of cash,  investments  in  United  States  Treasury  and  agency
securities  and other  investments  in an amount equal to 4% of the sum of River
Valley Financial's  average daily balance of net withdrawable  deposit accounts.
The liquidity requirement,  which may be changed from time to time by the OTS to
reflect  changing  economic  conditions,  is  intended  to  provide  a source of
relatively  liquid funds upon which River Valley Financial may rely if necessary
to fund deposit  withdrawals or other short-term  funding needs. At December 31,
1998,  River Valley  Financial's  regulatory  liquidity ratio was 16.2%. At such
date,  River Valley  Financial had  commitments to originate loans totaling $2.8
million  and, in addition,  had  undisbursed  loans in process,  unused lines of
credit and standby  letters of credit  totaling  $7.2  million.  At December 31,
1998,  River Valley  Financial had $3.7 million in commitments to sell loans and
no outstanding  commitments to purchase loans.  The Corporation  considers River
Valley   Financial's   liquidity  and  capital  resources   sufficient  to  meet
outstanding  short- and long-term  needs.  At December 31, 1998, the Corporation
had no material commitments for capital expenditures.










<PAGE>




                              River Valley Bancorp


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Liquidity and Capital Resources (continued)

The Corporation's liquidity, primarily represented by cash and cash equivalents,
is a result of the funds  provided  by or used in the  Corporation's  operating,
investing and financing  activities.  These  activities are summarized below for
the years ended December 31, 1998, 1997, and 1996:

<TABLE>
<CAPTION>


                                                                                 Year ended December 31,
                                                                       1998              1997             1996
                                                                                  (In thousands)

<S>                                                                 <C>               <C>            <C>
Cash flows from operating activities                                $(1,913)          $ 2,395        $    (194)

Cash flows from investing activities:
  Investment maturities/sales                                         3,000             4,698            5,653
  Mortgage-backed securities purchases                                   -             (1,350)            (729)
  Mortgage-backed securities repayments                               2,970             3,072            2,110
  Net loan (originations) repayments                                  2,145            (3,859)            (458)
  Other                                                                 731             1,374            2,279

Cash flows from financing activities:
  Net increase (decrease) in deposits                                 3,196           (10,701)          (6,222)
  Net increase (decrease) in borrowings                              (1,730)              900           (6,371)
  Net proceeds from issuance of common stock                             -                 -            10,221
  Other                                                                (960)             (346)               7
                                                                    -------           -------       ----------

Net increase (decrease) in cash and cash
  equivalents                                                       $ 7,439           $(3,817)        $  6,296
                                                                     ======            ======          =======

</TABLE>

River Valley  Financial is required by  applicable  law and  regulation  to meet
certain minimum capital  standards.  Such capital  standards  include a tangible
capital  requirement,  a core  capital  requirement,  or leverage  ratio,  and a
risk-based capital requirement.

The tangible  capital  requirement  requires  savings  associations  to maintain
"tangible  capital" of not less than 1.5% of the  association's  adjusted  total
assets.  Tangible  capital is defined in OTS  regulations  as core capital minus
intangible assets.  "Core capital" is comprised of common  shareholders'  equity
(including  retained  earnings),   noncumulative  preferred  stock  and  related
surplus,    minority   interests   in   consolidated    subsidiaries,    certain
nonwithdrawable  accounts  and  pledged  deposits  of mutual  associations.  OTS
regulations require savings associations to maintain core capital of at least 3%
of the  association's  total  assets.  The OTS has  proposed  to  increase  such
requirement  to 4% or  5%,  except  for  those  associations  with  the  highest
examination rating and acceptable levels of risk.






<PAGE>




                              River Valley Bancorp


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Liquidity and Capital Resources (continued)

OTS regulations require that savings associations  maintain "risk-based capital"
in an amount not less than 8% of "risk-weighted  assets."  Risk-based capital is
defined as core capital plus certain  additional items of capital,  which in the
case of River Valley  Financial  includes a general loan loss  allowance of $1.4
million at December 31, 1998.

River Valley Financial  exceeded all of its regulatory  capital  requirements at
December 31, 1998.  The  following  table  summarizes  River Valley  Financial's
regulatory capital requirements and regulatory capital at December 31, 1998:

<TABLE>
<CAPTION>

                                    OTS Requirement                              Actual Amount
                            Percent of                        Percent of                              Amount
                                Assets         Amount             Assets (1)        Amount         of Excess
                             (Dollars in thousands)

<S>                             <C>            <C>               <C>               <C>               <C>
Tangible capital                1.5%           $2,079            13.5%             $18,729           $16,650
Core capital (2)                3.0             4,159            13.5               18,729            14,570
Risk-based capital              8.0             7,793            20.6               20,084            12,291
</TABLE>




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

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







<PAGE>




                              River Valley Bancorp


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Effect of Recent Accounting Pronouncements (continued)

In June 1996,  the  Financial  Accounting  Standards  Board (the "FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 125,  "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
that provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities.  SFAS No. 125 introduces an
approach to accounting  for transfers of financial  assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial  interest in the assets,  retains  rights or  obligations,  makes use of
special  purpose  entities  in the  transaction,  or  otherwise  has  continuing
involvement with the transferred assets. The new accounting method,  referred to
as the financial components  approach,  provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values.  SFAS No. 125 provides  criteria for  determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer  does not qualify as a sale,  it is  accounted  for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements,  securitizations of financial
assets,  loan   participations,   factoring   arrangements,   and  transfers  of
receivables with recourse.

An entity that undertakes an obligation to service  financial assets  recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets,  and all the securitized  assets are retained and
classified  as  held-to-maturity).  A  servicing  asset  or  liability  that  is
purchased or assumed is initially recognized at its fair value. Servicing assets
and  liabilities are amortized in proportion to and over the period of estimated
net  servicing  income  or net  servicing  loss and are  subject  to  subsequent
assessments for impairment based on fair value.

SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor  either pays the creditor and is relieved of its  obligation  for the
liability or is legally released from being the primary obligor.

SFAS No. 125 is effective for  transfers  and servicing of financial  assets and
extinguishment  of liabilities  occurring  after December 31, 1997, and is to be
applied  prospectively.  Earlier or  retroactive  application  is not permitted.
Management adopted SFAS No. 125 effective January 1, 1998, as required,  without
material effect on River Valley's consolidated  financial position or results of
operations.

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





<PAGE>




                              River Valley Bancorp


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Effect of Recent Accounting Pronouncements (continued)

SFAS  No.  130  requires  that  an  enterprise   (a)  classify  items  of  other
comprehensive  income by their nature in a financial  statement  and (b) display
the accumulated balance of other  comprehensive  income separately from retained
earnings and additional  paid-in  capital.  SFAS No. 130 is effective for fiscal
years  beginning  after  December  15,  1997.   Reclassification   of  financial
statements for earlier periods  provided for  comparative  purposes is required.
Management adopted SFAS No. 130 effective January 1, 1998, as required,  without
material impact on the Corporation's consolidated financial statements.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise and Related  Information." SFAS No. 131 significantly changes the way
that public business  enterprises report information about operating segments in
annual financial  statements and requires that those enterprises report selected
information  about reportable  segments in interim  financial  reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management  approach" to disclose  financial and descriptive  information about
the way that management  organizes the segments within the enterprise for making
operating  decisions  and  assessing  performance.  For  many  enterprises,  the
management  approach  will likely  result in more segments  being  reported.  In
addition,  SFAS No. 131 requires  significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements  and also requires that selected  information  be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Management adopted SFAS No. 131 effective January 1, 1998, as
required,  without material impact on the Corporation's  consolidated  financial
statements.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities,"  which requires  entities to recognize all
derivatives  in their  financial  statements  as either  assets  or  liabilities
measured at fair value.  SFAS No. 133 also  specifies  new methods of accounting
for hedging  transactions,  prescribes  the items and  transactions  that may be
hedged,  and  specifies  detailed  criteria  to be  met  to  qualify  for  hedge
accounting.

The definition of a derivative  financial instrument is complex, but in general,
it is an instrument  with one or more  underlyings,  such as an interest rate or
foreign exchange rate, that is applied to a notional  amount,  such as an amount
of currency,  to determine the settlement  amount(s).  It generally  requires no
significant initial investment and can be settled net or by delivery of an asset
that is  readily  convertible  to cash.  SFAS No.  133  applies  to  derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.

SFAS No. 133 is effective  for fiscal years  beginning  after June 15, 1999.  On
adoption, entities are permitted to transfer held-to-maturity debt securities to
the  available-for-sale  or trading category without calling into question their
intent to hold other debt securities to maturity in the future.  SFAS No. 133 is
not  expected  to  have a  material  impact  on the  Corporation's  consolidated
financial statements.








<PAGE>




                              River Valley Bancorp


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Year 2000 Compliance Matters

As with all providers of financial  services,  the Bank's operations are heavily
dependent  on  information  technology  systems.  The  Bank  is  addressing  the
potential  problems  associated  with the  possibility  that the computers  that
control or operate the Bank's  information  technology system and infrastructure
may not be  programmed  to read  four-digit  date codes and, upon arrival of the
year 2000,  may  recognize  the  two-digit  code "00" as the year 1900,  causing
systems to fail to function or to generate  erroneous  data. The Bank is working
with the companies that supply or service its information  technology systems to
identify and remedy any year 2000 related problems.

The Bank's core data processing  relative to customer loan and deposit accounts,
as well as the general ledger, is performed  in-house through use of a purchased
software  product.  Management  has been advised,  and certain  testing has been
performed to verify,  that the system will  continue to function upon arrival of
the year 2000.  Additional  testing is scheduled  to be  performed  through June
1999.

In addition,  financial  institutions may experience  increases in problem loans
and credit losses in the event that borrowers fail to prepare  properly for Year
2000,  and higher  funding  costs would result if  consumers  react to publicity
about the issue by withdrawing deposits.  The Bank has assessed such risks among
its customers; specifically,  management has sent letters to its commercial loan
borrowers with outstanding  balances greater than $250,000,  to request specific
information  as to the  borrowers  awareness  and  status  of  their  Year  2000
compliance efforts. Because the Bank's loan portfolio is highly diversified with
regard to individual  borrowers and types of businesses  and the Bank's  primary
market area is not  significantly  dependent upon one employer or industry,  the
Bank does not expect any significant or prolonged  difficulties that will affect
net earnings or cash flow. The Bank could also be materially  adversely affected
if  other  third  parties,  such  as  governmental  agencies,  clearing  houses,
telephone  companies,  utilities,  and other service  providers  fail to prepare
properly. The Bank is therefore attempting to assess these risks and take action
to minimize their effect.

The Bank has established a budget of approximately $65,000 for Year 2000 related
costs.  As of the date of this Annual Report,  the Bank has  identified  certain
expenses, totaling $15,000, that will be incurred by the Bank in connection with
this issue.  During the year ended  December  31,  1998,  the Bank has  incurred
charges totaling approximately $8,000. From a review of the systems and vendors,
management  believes the budgeted amount should be sufficient.  No assurance can
be given,  however,  that  significant  expense  will not be  incurred in future
periods.  In the  event  that  the  Bank  is  ultimately  required  to  purchase
replacement  computer  systems,  programs and  equipment,  or incur  substantial
expense to make the Bank's  current  systems,  programs and equipment  Year 2000
compliant,  the Bank's net earnings and financial  condition  could be adversely
affected.

Management  has  developed a contingency  plan in connection  with the Year 2000
issue, which includes the Bank's ability to process transactions manually should
the  purchased  software  be unable to  function,  or given an  interruption  in
electrical power, upon arrival of the Year 2000. Management of the Bank does not
consider contingency planning to be a static process;  therefore,  the plan will
be amended should testing results indicate greater concern.


<PAGE>




                              River Valley Bancorp


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Impact of Inflation and Changing Prices

The  consolidated  financial  statements and notes thereto  included herein have
been prepared in accordance with generally accepted accounting principles, which
require River Valley to measure financial  position and results of operations in
terms of historical dollars with the exception of investment and mortgage-backed
securities  available-for-sale,  which are carried at fair value. Changes in the
relative  value of  money  due to  inflation  or  recession  are  generally  not
considered.

In  management's  opinion,  changes  in  interest  rates  affect  the  financial
condition of a financial institution to a far greater degree than changes in the
rate of inflation. While interest rates are greatly influenced by changes in the
rate of inflation,  they do not change at the same rate or in the same magnitude
as the rate of inflation.  Rather,  interest rate volatility is based on changes
in the  expected  rate of  inflation,  as well  changes in  monetary  and fiscal
policies.







<PAGE>




                          PAGE LEFT BLANK INTENTIONALLY




<PAGE>




               Report of Independent Certified Public Accountants


Board of Directors
River Valley Bancorp

We have audited the accompanying  consolidated statements of financial condition
of River  Valley  Bancorp as of  December  31,  1998 and 1997,  and the  related
consolidated statements of earnings, comprehensive income, shareholders' equity,
and cash flows for each of the three  years in the  period  ended  December  31,
1998. These  consolidated  financial  statements are the  responsibility  of the
Corporation's  management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position of River Valley
Bancorp as of December 31, 1998 and 1997,  and the  consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1998, in conformity with generally accepted accounting principles.







Cincinnati, Ohio
March 4, 1999









<PAGE>




                              River Valley Bancorp


                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                  December 31,
                        (In thousands, except share data)
<TABLE>
<CAPTION>



         ASSETS                                                                                1998                1997

<S>                                                                                      <C>                 <C>
Cash and due from banks                                                                  $    4,014          $    3,542
Federal funds sold                                                                              825                 300
Interest-earning deposits in other financial institutions                                     7,468               1,026
                                                                                          ---------           ---------
         Cash and cash equivalents                                                           12,307               4,868

Certificates of deposit in other financial institutions                                          -                  897
Investment securities designated as available for sale - at market                              283                 772
Investment securities held to maturity - at amortized cost, approximate
  market value of $980 and $3,444 as of December 31, 1998 and 1997                            1,000               3,500
Mortgage-backed and related securities designated as available
  for sale - at market                                                                        2,796               3,604
Mortgage-backed and related securities held to maturity - at cost, approximate
  market value of $3,220 and $5,432 as of December 31, 1998 and 1997                          3,190               5,374
Loans receivable - net                                                                      108,684             111,203
Loans held for sale - at lower of cost or market                                              3,701                 684
Real estate acquired through foreclosure                                                         82                  82
Office premises and equipment - at depreciated cost                                           2,023               2,065
Federal Home Loan Bank stock - at cost                                                          943                 943
Accrued interest receivable on loans                                                            987                 916
Accrued interest receivable on mortgage-backed and related securities                            40                 117
Accrued interest receivable on investments and interest-earning deposits                         29                  65
Goodwill - net of accumulated amortization                                                       50                 245
Cash surrender value of life insurance                                                          818                 776
Prepaid expenses and other assets                                                               373                 141
Prepaid federal income taxes                                                                    405                  -
Deferred tax asset                                                                              658                 681
                                                                                         ----------          ----------

         Total assets                                                                      $138,369            $136,933
                                                                                            =======             =======
</TABLE>


<PAGE>
<TABLE>
<CAPTION>



         LIABILITIES AND SHAREHOLDERS' EQUITY                                                  1998                1997

<S>                                                                                        <C>                 <C>
Deposits                                                                                   $118,151            $114,955
Advances from the Federal Home Loan Bank                                                         -                2,000
Other borrowed money                                                                            270                  -
Advances by borrowers for taxes and insurance                                                    34                  53
Accrued interest payable                                                                        468                 463
Other liabilities                                                                               763               1,408
Dividends payable                                                                                70                  60
Accrued federal income taxes                                                                     -                    5
                                                                                          ---------        ------------
         Total liabilities                                                                  119,756             118,944


Commitments                                                                                      -                   -



Shareholders' equity
  Preferred stock - 2,000,000 shares without par value
    authorized; no shares issued                                                                 -                   -
  Common stock - 5,000,000 shares without par value authorized;
    1,173,440 and 1,190,250 shares issued and outstanding                                        -                   -
  Additional paid in capital                                                                 11,036              11,229
  Retained earnings - substantially restricted                                                8,789               7,797
  Shares acquired by stock benefit plans                                                     (1,199)             (1,005)
  Unrealized losses on securities designated as available for sale,
    net of related tax effects                                                                  (13)                (32)
                                                                                        -----------         -----------
         Total shareholders' equity                                                          18,613              17,989
                                                                                           --------            --------

         Total liabilities and shareholders' equity                                        $138,369            $136,933
                                                                                            =======             =======
</TABLE>


The accompanying notes are an integral part of these statements.


<PAGE>






                              River Valley Bancorp

                       CONSOLIDATED STATEMENTS OF EARNINGS

                             Year ended December 31,
                        (In thousands, except share data)

<TABLE>
<CAPTION>


                                                                                      1998            1997           1996
Interest income
<S>                                                                               <C>             <C>              <C>
  Loans                                                                           $  9,263        $  9,030         $4,551
  Mortgage-backed and related securities                                               462             733            574
  Investment securities                                                                150             277            562
  Interest-earning deposits and other                                                  233             322            188
                                                                                  --------        --------         ------
         Total interest income                                                      10,108          10,362          5,875

Interest expense
  Deposits                                                                           4,682           4,914          3,349
  Borrowings                                                                           160             135             63
                                                                                  --------        --------        -------
         Total interest expense                                                      4,842           5,049          3,412
                                                                                   -------         -------          -----

         Net interest income                                                         5,266           5,313          2,463

Provision for losses on loans                                                          275             304             22
                                                                                  --------        --------        -------

         Net interest income after provision for losses on loans                     4,991           5,009          2,441

Other income
  Insurance commissions                                                                 -               -             200
  Gain on sale of loans                                                                339             127             -
  Gain on sale of Hanover branch and related deposits                                   -              206             -
  Loss on sale of investment, mortgage-backed and related securities                    -               (6)            (9)
  Gain on sale of office premises                                                       57              -              -
  Gain on sale of subsidiary                                                            -               -             141
  Service fees, charges and other operating                                            792             807            246
                                                                                  --------        --------         ------
         Total other income                                                          1,188           1,134            578

General, administrative and other expense
  Employee compensation and benefits                                                 2,309           2,165          1,203
  Occupancy and equipment                                                              484             527            284
  Federal deposit insurance premiums                                                    42              50            684
  Amortization of goodwill                                                              27              27              7
  Data processing                                                                      127             224            282
  Other operating                                                                    1,104           1,010            410
                                                                                   -------         -------         ------
         Total general, administrative and other expense                             4,093           4,003          2,870
                                                                                   -------         -------          -----

         Earnings before income taxes                                                2,086           2,140            149

Income taxes
  Current                                                                              819             893            124
  Deferred                                                                              14             (63)           (48)
                                                                                 ---------       ---------        -------
         Total income taxes                                                            833             830             76
                                                                                  --------        --------        -------

         NET EARNINGS                                                             $  1,253        $  1,310       $     73
                                                                                   =======         =======        =======

         EARNINGS PER SHARE
           Basic                                                                     $1.13           $1.20            N/A
                                                                                      ====            ====            ===

           Diluted                                                                   $1.12           $1.18            N/A
                                                                                      ====            ====            ===

</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>


                              River Valley Bancorp

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                        For the years ended December 31,
                                 (In thousands)

<TABLE>
<CAPTION>


                                                              1998      1997      1996

<S>                                                          <C>       <C>       <C>
Net earnings                                                 $1,253    $1,310    $   73

Other comprehensive income, net of tax:
  Unrealized holding gains (losses) on securities
    during the period                                            19        15       (69)
  Reclassification adjustment for realized losses
    included in earnings, net of tax of $2 and $3 for the
    years ended December 31, 1997 and 1996                       --         4         6
                                                             ------    ------    ------

Comprehensive income                                         $1,272    $1,329    $   10
                                                             ======    ======    ======
</TABLE>





The accompanying notes are an integral part of these statements.


<PAGE>


                              River Valley Bancorp

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                  Years ended  December 31, 1998,  1997 and 1996 (In  thousands,
                        except share data)

<TABLE>
<CAPTION>


                                                                                       Unrealized
                                                                          Shares      gains (losses)
                                                                          acquired   on securities
                                                             Additional   by stock      designated
                                                      Common    paid-in    benefit    as available    Retained
                                                       stock    capital      plans        for sale    earnings         Total

<S>                                                    <C>    <C>         <C>               <C>        <C>         <C>
Balance at January 1, 1996                              $ -    $     -     $    -            $  12      $6,562      $  6,574

Reorganization to common stock form and
  issuance of shares in connection therewith - net        -      11,173       (952)             -           -         10,221
Net earnings for the year ended December 31, 1996         -          -          -               -           73            73
Unrealized losses on securities designated as
  available for sale, net of related tax effects          -          -          -              (63)         -            (63)
                                                         ---    -------     ------           -----       -----     ---------

Balance at December 31, 1996                              -      11,173       (952)            (51)      6,635        16,805

Purchase of shares for stock benefit plans                -          -        (174)             -           -           (174)
Amortization expense related to stock benefit plans       -          56        121              -            7           184
Cash dividends of $0.13 per common share                  -          -          -               -         (155)         (155)
Net earnings for the year ended December 31, 1997         -          -          -               -        1,310         1,310
Unrealized gains on securities designated as
  available for sale, net of related tax effects          -          -          -               19          -             19
                                                         ---    -------     ------            ----       -----     ---------

Balance at December 31, 1997                              -      11,229     (1,005)            (32)      7,797        17,989

Purchase of shares                                        -        (270)        -               -           -           (270)
Issuance of shares under stock option plan                -          18         -               -           -             18
Purchase of shares for stock benefit plans                -          -        (428)             -           -           (428)
Amortization expense related to stock benefit plans       -          59        234              -           -            293
Cash dividends of $0.22 per common share                  -          -          -               -         (261)         (261)
Net earnings for the year ended December 31, 1998         -          -          -               -        1,253         1,253
Unrealized gains on securities designated as
  available for sale, net of related tax effects          -          -          -               19          -             19
                                                          --    -------     ------            ----       -----     ---------

Balance at December 31, 1998                             $-     $11,036    $(1,199)          $ (13)     $8,789       $18,613
                                                          ==     ======     ======            ====       =====        ======
</TABLE>



The accompanying notes are an integral part of these statements.


<PAGE>


                              River Valley Bancorp
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                         For the year ended December 31,
                                 (In thousands)
<TABLE>
<CAPTION>


                                                                                    1998            1997           1996
<S>                                                                             <C>             <C>          <C>
Cash flows from operating activities:
  Net earnings for the year                                                     $  1,253        $  1,310     $       73
  Adjustments to reconcile net earnings to net cash provided
  by (used in) operating activities:
    Amortization of premiums and discounts on
      investments, mortgage-backed and related securities - net                       39               1              2
    Loss on sale of investment, mortgage-backed and related securities
      designated as available for sale                                                -                6              9
    Depreciation and amortization                                                    223             223             91
    Gain on sale of office premises                                                  (57)             -              -
    Gain on sale of Hanover branch and related deposits                               -             (206)            -
    Gain on sale of subsidiary                                                        -               -            (141)
    Loans originated for sale in the secondary market                            (20,042)         (6,538)        (1,076)
    Proceeds from sale of loans in the secondary market                           17,194           6,996             -
    Gain on sale of loans in the secondary market                                   (169)            (66)            -
    Amortization of deferred loan origination costs                                   99              73             83
    Provision for losses on loans                                                    275             304             22
    Amortization of goodwill                                                          27              27              7
    Amortization expense of stock benefit plans                                      293             184             -
    Increase (decrease) in cash, net of acquisition of Citizens National Bank in
      1996, due to changes in:
      Accrued interest receivable on loans                                           (71)            (97)            29
      Accrued interest receivable on mortgage-backed and related securities           77             (39)            (1)
      Accrued interest receivable on investments and interest-earning deposits        36             106            100
      Prepaid expenses and other assets                                             (232)             28            262
      Accrued interest payable                                                         5             184            (41)
      Other liabilities                                                             (467)            (47)           413
      Income taxes
        Current                                                                     (410)              9             22
        Deferred                                                                      14             (63)           (48)
                                                                              ----------       ---------      ---------
         Net cash provided by (used in) operating activities                      (1,913)          2,395           (194)

Cash flows provided by (used in) investing activities:
  Proceeds from maturity of investment securities                                  3,000           2,000          3,500
  Proceeds from sales of investment securities designated as
    available for sale                                                                -            2,698          2,153
  Purchase of mortgage-backed and related securities designated as available
    for sale                                                                          -           (1,350)          (729)
  Principal repayments on mortgage-backed and related securities                   2,970           3,072          2,110
  Proceeds from sale of mortgage-backed and related securities
    designated as available for sale                                                  -            2,146             -
  Loan principal repayments                                                       51,624          43,220         17,114
  Loan disbursements                                                             (49,479)        (47,079)       (17,572)
  Additions to real estate acquired through foreclosure                               -               (1)            -
  Proceeds from sale of office premises and equipment                                 67             405             -
  Purchase of office premises and equipment                                         (191)           (430)            (9)
  (Increase) decrease in certificates of deposit in other financial institutions     897            (797)           200
  Purchase of Federal Reserve Bank stock                                              -              (64)            -
  Proceeds from sale of Federal Reserve Bank stock                                    -              144             -
  Purchase of single premium life insurance                                           -               -            (188)
  Increase in cash surrender value of life insurance                                 (42)            (29)           (24)
  Proceeds from sale of subsidiary - net                                              -               -             282
  Acquisition of Citizens National Bank common stock - net                            -               -           2,018
                                                                                 -------         -------        -------
         Net cash provided by investing activities                                 8,846           3,935          8,855
                                                                                 -------         -------        -------

         Net cash provided by operating and investing
           activities (subtotal carried forward)                                   6,933           6,330          8,661
                                                                                 -------         -------        -------

</TABLE>

<PAGE>




                              River Valley Bancorp

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                             Year ended December 31,
                                 (In thousands)

<TABLE>
<CAPTION>



                                                                                    1998            1997           1996
<S>                                                                             <C>             <C>            <C>
         Net cash provided by operating and investing
           activities (subtotal brought forward)                                $  6,933        $  6,330       $  8,661

Cash flows provided by (used in) financing activities:
  Increase (decrease) in deposit accounts                                          3,196          (3,913)        (6,222)
  Decrease in deposit accounts due to the sale of a branch                            -           (6,788)            -
  Proceeds from Federal Home Loan Bank advances                                    6,000           7,000             -
  Repayment of Federal Home Loan Bank advances                                    (8,000)         (6,100)        (6,371)
  Proceeds from other borrowed money                                                 270              -              -
  Advances by borrowers for taxes and insurance                                      (19)            (17)             7
  Purchase of shares                                                                (270)             -              -
  Stock options exercised                                                             18              -              -
  Proceeds from issuance of common stock                                              -               -          11,173
  Acquisition of common stock for stock benefit plans                               (428)           (174)          (952)
  Dividends on common stock                                                         (261)           (155)            -
                                                                                --------        --------        ------
         Net cash provided by (used in) financing activities                         506         (10,147)        (2,365)
                                                                               ---------          ------        -------

Net increase (decrease) in cash and cash equivalents                               7,439          (3,817)         6,296

Cash and cash equivalents at beginning of year                                     4,868           8,685          2,389
                                                                                 -------         -------        -------

Cash and cash equivalents at end of year                                         $12,307        $  4,868       $  8,685
                                                                                  ======         =======        =======


Supplemental disclosure of cash flow information: Cash paid during the year for:
    Federal income taxes                                                        $  1,014       $     618     $       84
                                                                                 =======        ========      =========

    Interest on deposits and borrowings                                         $  4,837        $  4,865       $  3,201
                                                                                 =======         =======        =======


Supplemental disclosure of noncash investing activities:
  Transfers from loans to real estate acquired through foreclosure              $     -       $       81       $     -
                                                                                 =======       =========        ======

  Unrealized gains (losses) on securities designated as available
    for sale, net of related tax effects                                      $       19      $       19     $      (63)
                                                                               =========       =========      =========

  Recognition of mortgage servicing rights in accordance with
    SFAS No. 125                                                               $     170      $       61       $     -
                                                                                ========       =========        ======

  Liabilities assumed and cash paid in acquisition of
    Citizens National Bank                                                      $     -         $     -         $64,055

  Less:  Fair value of assets received                                                -               -          63,783
                                                                                 -------         -------         ------

  Amount assigned to goodwill                                                   $     -        $      -       $     272
                                                                                 =======        ========       ========


</TABLE>


The accompanying notes are an integral part of these statements.



<PAGE>


                              River Valley Bancorp

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    On March 5, 1996,  the Board of  Directors of River  Valley  Financial  Bank
    (formerly  Madison First Federal Savings and Loan  Association;  hereinafter
    "River  Valley  Financial"  or  the  "Bank")  adopted  an  overall  plan  of
    conversion and reorganization (the "Plan") whereby the Bank would convert to
    the stock  form of  ownership,  through  the  issuance  of all of the Bank's
    outstanding  stock to a newly formed holding  company,  River Valley Bancorp
    (the "Corporation").  Pursuant to the Plan, the Corporation offered for sale
    up to 1,190,250 common shares to certain  depositors of the Bank and members
    of the  community.  The  conversion  was completed on December 20, 1996, and
    resulted  in the  issuance of  1,190,250  common  shares of the  Corporation
    which,  after  consideration of offering and acquisition  expenses  totaling
    approximately  $730,000, and shares purchased by the ESOP totaling $952,000,
    resulted in net capital  proceeds of $10.2  million.  In December  1996, the
    Corporation  utilized  approximately  $3.0  million  of the  net  conversion
    proceeds to purchase  Citizens  National Bank of Madison  ("Citizens")  in a
    transaction  accounted  for using the  purchase  method  of  accounting.  On
    November 20, 1997,  Citizens and River Valley  Financial  merged.  Condensed
    financial statements of the Corporation are presented in Note M.

    The Corporation is a savings and loan holding  company whose  activities are
    primarily limited to holding the stock of River Valley  Financial.  The Bank
    conducts a general banking  business in southeastern  Indiana which consists
    of attracting  deposits from the general  public and applying those funds to
    the origination of loans for consumer,  residential and commercial purposes.
    River Valley  Financial's  profitability is  significantly  dependent on net
    interest income,  which is the difference  between interest income generated
    from  interest-earning  assets (i.e. loans and investments) and the interest
    expense paid on  interest-bearing  liabilities  (i.e.  customer deposits and
    borrowed  funds).  Net interest income is affected by the relative amount of
    interest-earning  assets and  interest-bearing  liabilities and the interest
    received  or paid on these  balances.  The level of  interest  rates paid or
    received  by the  Bank  can  be  significantly  influenced  by a  number  of
    competitive factors,  such as governmental monetary policy, that are outside
    of management's control.

    The consolidated financial information presented herein has been prepared in
    accordance  with  generally  accepted  accounting  principles  ("GAAP")  and
    general  accounting  practices within the financial  services  industry.  In
    preparing  financial  statements  in  accordance  with GAAP,  management  is
    required to make estimates and assumptions  that affect the reported amounts
    of assets  and  liabilities  and the  disclosure  of  contingent  assets and
    liabilities  at the  date  of the  financial  statements  and  revenues  and
    expenses during the reporting period.  Actual results could differ from such
    estimates.

    The following is a summary of significant  accounting  policies,  which have
    been   consistently   applied  in  the   preparation  of  the   accompanying
    consolidated financial statements.



<PAGE>




                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    1.  Principles of Consolidation

    The  consolidated   financial   statements   include  the  accounts  of  the
    Corporation and its subsidiary,  the Bank and its subsidiary,  Madison First
    Service Corporation ("First Service"). All significant intercompany balances
    and  transactions  have been  eliminated  in the  accompanying  consolidated
    financial statements.

    2.  Investment Securities and Mortgage-Backed and Related Securities

    The Corporation  accounts for investment  securities and mortgage-backed and
    related  securities in  accordance  with  Statement of Financial  Accounting
    Standards ("SFAS") No. 115,  "Accounting for Certain Investments in Debt and
    Equity Securities." SFAS No. 115 requires that investments be categorized as
    held-to-maturity,  trading, or available for sale.  Securities classified as
    held-to-maturity  are  carried  at  cost  only  if the  Corporation  has the
    positive  intent and ability to hold these  securities to maturity.  Trading
    securities and securities  available for sale are carried at fair value with
    resulting unrealized gains or losses recorded to operations or shareholders'
    equity,  respectively.  At  December  31, 1998 and 1997,  the  Corporation's
    shareholders' equity included unrealized losses on securities  designated as
    available  for sale,  net of related tax  effects,  of $13,000 and  $32,000,
    respectively.   Realized  gains  and  losses  on  sales  of  investment  and
    mortgage-backed  and related  securities are  recognized  using the specific
    identification method.

    3.  Loans Receivable

    Loans held in  portfolio  are stated at the  principal  amount  outstanding,
    adjusted  for  unamortized  yield   adjustments,   including  deferred  loan
    origination  costs  and  capitalized  mortgage  servicing  rights,  and  the
    allowance for loan losses.  The yield adjustments are amortized and accreted
    to  operations  using  the  interest  method  over the  average  life of the
    underlying loans.

    Interest is accrued as earned  unless the  collectibility  of the loan is in
    doubt.  Uncollectible  interest on loans that are contractually  past due is
    charged off, or an allowance is established  based on management's  periodic
    evaluation.  The  allowance is  established  by a charge to interest  income
    equal  to all  interest  previously  accrued,  and  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  has  returned  to  normal,  in  which  case the loan is
    returned to accrual status.

    Loans  held for sale  are  carried  at the  lower  of cost  (less  principal
    payments received) or fair value (market value),  calculated on an aggregate
    basis.  At December  31, 1998 and 1997,  loans held for sale were carried at
    cost, which approximated fair value.

    At December 31, 1998 and 1997,  the Bank was servicing  approximately  $34.3
    million and $28.6  million,  respectively,  of mortgage loans that have been
    sold to the Federal Home Loan Mortgage Corporation.



<PAGE>

                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    3.  Loans Receivable (continued)

    The Bank  retains  the  servicing  on loans  sold and agrees to remit to the
    investor loan principal and interest at agreed-upon rates. The Bank accounts
    for mortgage  servicing  rights  pursuant to the provisions of SFAS No. 125,
    "Accounting   for   Transfers   and   Servicing  of  Financial   Assets  and
    Extinguishments  of Liabilities,"  which requires that the Bank recognize as
    separate assets, rights to service mortgage loans for others,  regardless of
    how those  servicing  rights are  acquired.  An  institution  that  acquires
    mortgage  servicing  rights  through  either the purchase or  origination of
    mortgage  loans and sells those loans with servicing  rights  retained would
    allocate some of the cost of the loans to the mortgage servicing rights.

    SFAS No. 125 requires that securitization of mortgage loans be accounted for
    as sales of mortgage loans and acquisitions of  mortgage-backed  securities.
    Additionally,  SFAS No. 125 requires  that  capitalized  mortgage  servicing
    rights  and  capitalized  excess  servicing   receivables  be  assessed  for
    impairment. Impairment is measured based on fair value.

    The mortgage servicing rights recorded by the Bank, calculated in accordance
    with  the  provisions  of SFAS No.  125,  were  segregated  into  pools  for
    valuation purposes, using as pooling criteria the loan term and coupon rate.
    Once pooled,  each grouping of loans was evaluated on a discounted  earnings
    basis to determine  the present  value of future  earnings  that a purchaser
    could expect to realize from each portfolio.  Earnings were projected from a
    variety of sources including loan servicing fees,  interest earned on float,
    net interest earned on escrows,  miscellaneous  income, and costs to service
    the loans.  The present value of future earnings is the "economic" value for
    the pool,  i.e.,  the net  realizable  present  value to an  acquirer of the
    acquired servicing.

    The Bank recorded amortization related to mortgage servicing rights totaling
    approximately  $34,000 and $18,000 for the years ended December 31, 1998 and
    1997,  respectively.  The  Bank  had  a  valuation  allowance  for  mortgage
    servicing  rights  totaling  $27,000 at December 31,  1998.  The Bank had no
    valuation allowance at December 31, 1997. At December 31, 1998 and 1997, the
    fair  value  of  the   Corporation's   mortgage   servicing  rights  totaled
    approximately $222,000 and $113,000, respectively.

    4.  Loan Origination Fees and Costs

    The Corporation  accounts for loan  origination fees and costs in accordance
    with SFAS No. 91,  "Accounting for  Nonrefundable  Fees and Costs Associated
    with  Originating  or Acquiring  Loans and Initial  Direct Costs of Leases."
    Pursuant to the  provisions of SFAS No. 91, all  origination  fees received,
    net of certain  direct  origination  costs,  are deferred on a  loan-by-loan
    basis and  amortized to interest  income using the interest  method,  giving
    effect to  actual  loan  prepayments.  Additionally,  SFAS No. 91  generally
    limits  the  definition  of  loan  origination  costs  to the  direct  costs
    attributable  to  originating a loan,  i.e.,  principally  actual  personnel
    costs.

    Fees received for loan commitments that are expected to be drawn upon, based
    on the Corporation's  experience with similar commitments,  are deferred and
    amortized over the life of the related loan using the interest method.  Fees
    for  other  loan  commitments  are  deferred  and  amortized  over  the loan
    commitment period on a straight-line basis.



<PAGE>

                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    5.  Allowance for Losses on Loans

    It is the Corporation's policy to provide valuation allowances for estimated
    losses  on loans  based on past  loss  experience,  trends  in the  level of
    delinquent  and  specific  problem  loans,  loan  concentrations  to  single
    borrowers,  changes  in the  composition  of  the  loan  portfolio,  adverse
    situations  that may affect the borrower's  ability to repay,  the estimated
    value of any  underlying  collateral  and current and  anticipated  economic
    conditions  in its primary  lending  areas.  When the  collection  of a loan
    becomes doubtful, or otherwise troubled, the Corporation records a loan loss
    provision  equal to the  difference  between the fair value of the  property
    securing the loan and the loan's  carrying  value.  Such  provision is based
    upon management's  estimate of the fair value of the underlying  collateral,
    taking  into  consideration  the current and  currently  anticipated  future
    operating or sales conditions.  As a result, such estimates are particularly
    susceptible to changes that could result in a material adjustment to results
    of operations in the near term.

    The Corporation accounts for impaired loans in accordance with SFAS No. 114,
    "Accounting  by Creditors  for  Impairment of a Loan." SFAS No. 114 requires
    that  impaired  loans be measured  based upon the present  value of expected
    future cash flows discounted at the loan's effective interest rate or, as an
    alternative,  at the  loans  observable  market  price or fair  value of the
    collateral.

    Under SFAS No.  114, a loan is defined as  impaired  when,  based on current
    information  and events,  it is probable  that a creditor  will be unable to
    collect all  amounts  due  according  to the  contractual  terms of the loan
    agreement.  In applying  the  provisions  of SFAS No. 114,  the  Corporation
    considers  its  investment  in  one-to-four  family  residential  loans  and
    consumer  installment  loans to be homogeneous  and therefore  excluded from
    separate  identification  for evaluation of impairment.  With respect to the
    Corporation's  investment in  nonresidential,  commercial,  and  multifamily
    residential  real estate loans,  and its  evaluation of impairment  thereof,
    such loans are generally  collateral dependent and, as a result, are carried
    as a practical expedient at the lower of cost or fair value.

    It is generally the  Corporation's  policy to charge off  unsecured  credits
    that are more than ninety days delinquent.  Similarly,  collateral dependent
    loans  which  are  more  than  ninety  days  delinquent  are  considered  to
    constitute  more than a minimum  delay in repayment  and are  evaluated  for
    impairment under SFAS No. 114 at that time.

    At December  31,  1998 and 1997,  the  Corporation  had  approximately  $1.3
    million and $420,000 of loans defined as impaired under SFAS No. 114.





<PAGE>

                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    6.  Real Estate Acquired through Foreclosure

    Real  estate  acquired  through  foreclosure  is carried at the lower of the
    loan's unpaid principal  balance (cost) or fair value less estimated selling
    expenses  at the  date of  acquisition.  Real  estate  loss  provisions  are
    recorded if the property's fair value subsequently  declines below the value
    determined at the recording  date. In determining  the lower of cost or fair
    value at  acquisition,  costs  relating to  development  and  improvement of
    property are  considered.  Costs  relating to holding  real estate  acquired
    through  foreclosure,  net of rental income, are charged against earnings as
    incurred.

    7.  Office Premises and Equipment

    Depreciation  of  office  premises  and  equipment  is  computed  using  the
    straight-line  method  over  the  estimated  useful  lives  of  the  assets,
    estimated to be thirty to forty-five years for buildings, three to ten years
    for furniture and equipment, and three years for automobiles.

    8.  Amortization of Goodwill

    Amortization of goodwill arising from the Corporation's acquisition of 95.6%
    of the common stock of Citizens is provided using the  straight-line  method
    over an estimated  life of ten years.  During 1998,  goodwill was reduced by
    approximately   $168,000   for   the   favorable   resolution   of   certain
    pre-acquisition  contingencies,  and for the purchase of the remaining  4.4%
    minority  interest  shares of Citizens at a price below the value  initially
    assigned at acquisition.

    Management periodically evaluates the carrying value of goodwill in relation
    to the  continuing  earnings  capacity  of the  acquired  assets and assumed
    liabilities.

    9.  Income Taxes

    The  Corporation  accounts  for  income  taxes  pursuant  to SFAS  No.  109,
    "Accounting for Income Taxes." Pursuant to the provisions of SFAS No. 109, a
    deferred  tax  liability  or deferred  tax asset is computed by applying the
    current  statutory  tax  rates  to  net  taxable  or  deductible   temporary
    differences  between the tax basis of an asset or liability and its reported
    amount in the  consolidated  financial  statements  that will  result in net
    taxable or  deductible  amounts in future  periods.  Deferred tax assets are
    recorded  only to the  extent  that the amount of net  deductible  temporary
    differences  or  carryforward  attributes  may be utilized  against  current
    period earnings,  carried back against prior years' earnings, offset against
    taxable temporary  differences  reversing in future periods,  or utilized to
    the extent of management's  estimate of future taxable  income.  A valuation
    allowance  is provided  for deferred tax assets to the extent that the value
    of net deductible temporary differences and carryforward  attributes exceeds
    management's  estimates of taxes payable on future taxable income.  Deferred
    tax   liabilities  are  provided  on  the  total  amount  of  net  temporary
    differences taxable in the future.

    The Corporation's  principal temporary  differences between pretax financial
    income  and  taxable  income  result  primarily  from  different  methods of
    accounting for deferred loan origination  costs, the allowance for valuation
    decline on mortgage-related securities, the general loan loss allowance, the
    percentage  of  earnings  bad  debt  deduction  and  certain  components  of
    retirement   expense.   A  temporary   difference  is  also  recognized  for
    depreciation  expense computed using accelerated  methods for federal income
    tax purposes.


<PAGE>
                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    10.  Retirement and Incentive Plans

    The  Bank's  employees  are  covered by a defined  benefit  non-contributory
    pension plan  administered by the Pentegra  Group,  previously the Financial
    Institutions  Retirement Fund (the "Fund").  Contributions are determined to
    cover  the  normal  cost  of  pension  benefits,  the  one-year  cost of the
    pre-retirement  death and disability  benefits and the  amortization  of any
    unfunded accrued liabilities.

    The Fund had  previously  advised the Bank that the  pension  plan meets the
    criteria  of a  multi-employer  pension  plan as  defined  in SFAS  No.  87,
    "Employers'  Accounting for  Pensions." In accordance  with SFAS No. 87, net
    pension cost is recognized for any required  contribution  for the period. A
    liability is recognized for any contributions due and unpaid. Because of the
    continuing  overfunded status of the Fund, no contributions were made to the
    pension plan during the years ended  December 31, 1998,  1997, and 1996. The
    provision for pension expense was computed by the Fund's actuaries utilizing
    the  projected  unit credit  cost method and  assuming a 7.5% return on Fund
    assets.

    During 1997, the Corporation implemented a contributory 401(k) plan covering
    all employees who have attained the age of 21 and have completed one year of
    service. Contributions to the plan are voluntary and are subject to matching
    by the employer.  The Bank's contributions to the plan totaled approximately
    $28,000  and  $48,000  for the  years  ended  December  31,  1998 and  1997,
    respectively.

    The  Bank has a  supplemental  retirement  plan  which  provides  retirement
    benefits to all directors.  The Bank's  obligations under the plan have been
    funded via the  purchase of key man life  insurance  policies,  of which the
    Bank is the  beneficiary.  Costs of the purchase of the single  premium life
    insurance  policies  amounted  to  $668,000.  Expense  recognized  under the
    supplemental  retirement  plan  totaled  approximately  $22,000 for the year
    ended December 31, 1998, and $3,000 for each of the years ended December 31,
    1997 and 1996.

    In  conjunction  with its  reorganization  to stock  form,  the  Corporation
    implemented  an Employee Stock  Ownership  Plan ("ESOP").  The ESOP provides
    retirement  benefits for  substantially all employees who have completed one
    year of service and have  attained the age of 21. The  Corporation  accounts
    for  the  ESOP  in  accordance   with  Statement  of  Position  (SOP)  93-6,
    "Employers'  Accounting  for  Employee  Stock  Ownership  Plans."  SOP  93-6
    requires the measure of compensation  expense recorded by employers to equal
    the fair value of ESOP shares  allocated  to  participants  during the year.
    Expense  recognized  related  to the ESOP  totaled  approximately  $200,000,
    $200,000 and $65,000 for the years ended  December 31, 1998,  1997 and 1996,
    respectively.

    The  Corporation  also has a Recognition  and  Retention  Plan ("RRP") which
    provides for the issuance and grant of 47,610 shares to members of the Board
    of Directors and management.  During 1998 and 1997, the RRP purchased 32,316
    shares of the Corporation's common stock in the open market. At December 31,
    1998, 32,316 shares had been granted.  Expense recognized under the RRP plan
    totaled approximately  $113,000 and $61,000 for the years ended December 31,
    1998 and  1997,  respectively.  Common  stock  granted  under  the RRP vests
    ratably over a five-year period, commencing with the date of the award.



<PAGE>
                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    11.  Earnings Per Share

    Basic earnings per share is computed based upon the weighted-average  shares
    outstanding during the period,  less shares in the ESOP that are unallocated
    and  not   committed  to  be  released.   Weighted-average   common   shares
    outstanding,  which  gives  effect to 83,124  and  95,220  unallocated  ESOP
    shares,  totaled  1,105,930 and  1,095,030 for the years ended  December 31,
    1998 and 1997, respectively.

    Diluted  earnings  per share is computed  taking into  consideration  common
    shares  outstanding and dilutive  potential common shares to be issued under
    the Corporation's stock option plan.  Weighted-average  common shares deemed
    outstanding  for purposes of computing  diluted  earnings per share  totaled
    1,121,986  and  1,106,858  for the years ended  December  31, 1998 and 1997,
    respectively. There were 16,056 and 11,828 incremental shares related to the
    assumed  exercise of stock options  included in the  computation  of diluted
    earnings  per  share  for the  years  ended  December  31,  1998  and  1997,
    respectively.

    The  provisions of SFAS No. 128,  "Earnings Per Share," were not  applicable
    for the year ended  December  31, 1996,  as the  Corporation  completed  its
    conversion to stock form in December 1996.

    12.  Cash and Cash Equivalents

    For purposes of reporting  cash flows,  cash and cash  equivalents  includes
    cash and due from banks, federal funds sold, and  interest-earning  deposits
    in other financial institutions with original maturities of less than ninety
    days.

    13.  Reclassifications

    Certain  prior year  amounts have been  reclassified  to conform to the 1998
    consolidated financial statement presentation.

    14.  Fair Value of Financial Instruments

    SFAS No.  107,  "Disclosures  About  Fair Value of  Financial  Instruments",
    requires disclosure of the fair value of financial instruments,  both assets
    and liabilities  whether or not recognized in the consolidated  statement of
    financial condition,  for which it is practicable to estimate that value. In
    cases where quoted market prices are not available, fair values are based on
    estimates  using  present  value  or  other  valuation   techniques.   Those
    techniques are significantly affected by the assumptions used, including the
    discount  rate and  estimates  of future cash  flows.  In that  regard,  the
    derived  fair value  estimates  cannot be  substantiated  by  comparison  to
    independent  markets and, in many cases,  could not be realized in immediate
    settlement  of the  instrument.  SFAS No.  107  excludes  certain  financial
    instruments   and  all   non-financial   instruments   from  the  disclosure
    requirements. Accordingly, the aggregate fair value amounts presented do not
    represent the underlying value of the Corporation.

    The  following  methods  and  assumptions  were used by the  Corporation  in
    estimating its fair value disclosures for financial instruments.  The use of
    different market  assumptions  and/or  estimation  methodologies  may have a
    material effect on the estimated fair value amounts.



<PAGE>
                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    14.  Fair Value of Financial Instruments (continued)


                  Cash and cash equivalents and certificates of deposit in other
                  financial institutions:  The carrying amounts presented in the
                  consolidated  statements  of financial  condition for cash and
                  cash   equivalents  and   certificates  of  deposit  in  other
                  financial institutions are deemed to approximate fair value.

                  Investment and mortgage-backed  and related  securities:  Fair
                  values  for   investment  and   mortgage-backed   and  related
                  securities  are  based on  quoted  market  prices  and  dealer
                  quotes.

                  Loans receivable:  The loan portfolio has been segregated into
                  categories with similar  characteristics,  such as one-to-four
                  family    residential,     multi-family     residential    and
                  nonresidential  real  estate.  These  categories  were further
                  delineated into fixed-rate and adjustable-rate loans. The fair
                  values  for  the  resultant   categories   were  computed  via
                  discounted  cash flow analysis,  using current  interest rates
                  offered for loans with  similar  terms to borrowers of similar
                  credit quality.  For loans on deposit  accounts,  and consumer
                  and other loans, fair values were deemed to equal the historic
                  carrying values.

                  Federal Home Loan Bank stock: The carrying amount presented in
                  the consolidated  statements of financial  condition is deemed
                  to approximate fair value.

                  Deposits: The fair values of deposits with no stated maturity,
                  such as NOW and  super NOW  accounts,  passbook  accounts  and
                  money market  demand  accounts are deemed to  approximate  the
                  amount payable on demand as of December 31, 1998 and 1997. The
                  fair values for fixed-rate  certificates  of deposit are based
                  on  the  discounted  value  of  contractual  cash  flows.  The
                  discount rate is estimated using the rates  currently  offered
                  for deposits of similar remaining maturities.

                  Advances from Federal Home Loan Bank:  The fair value of these
                  advances is estimated  using the rates  currently  offered for
                  similar  advances  of similar  remaining  maturities  or, when
                  available, quoted market prices.

                  Advances by borrowers  for taxes and  insurance:  The carrying
                  amount of advances by  borrowers  for taxes and  insurance  is
                  deemed to approximate fair value.

                  Other  borrowed  money:  The carrying value for these variable
                  rate borrowings is deemed to approximate fair value.



<PAGE>

                             River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    14.  Fair Value of Financial Instruments (continued)

                  Commitments   to   extend    credit:    For   fixed-rate   and
                  adjustable-rate  loan  commitments,  the fair  value  estimate
                  considers the  difference  between  current levels of interest
                  rates and committed  rates.  The  difference  between the fair
                  value and notional amount of outstanding  loan  commitments at
                  December 31, 1998 and 1997, was not material.

                  Based on the foregoing  methods and assumptions,  the carrying
                  value   and  fair   value  of  the   Corporation's   financial
                  instruments are as follows at December 31:
<TABLE>
<CAPTION>


                                                                            1998                              1997
                                                               Carrying           Fair            Carrying         Fair
                                                                  value          value               value        value
                                                                                      (In thousands)
<S>                                                           <C>            <C>                <C>          <C>
    Financial assets
      Cash and cash equivalents                               $  12,307      $  12,307          $    4,868   $    4,868
      Certificates of deposit in other financial institutions        -              -                  897          897
      Investment securities designated as available for sale        283            283                 772          772
      Investment securities held to maturity                      1,000            980               3,500        3,444
      Mortgage-backed and related securities designated
        as available for sale                                     2,796          2,796               3,604        3,604
      Mortgage-backed and related securities held to
        maturity                                                  3,190          3,220               5,374        5,432
      Loans receivable - net                                    112,385        120,163             111,887      114,560
      Federal Home Loan Bank stock                                  943            943                 943          943
                                                             ----------     ----------          ----------   ----------
                                                               $132,904       $140,692            $131,845     $134,520
                                                                =======        =======             =======      =======

    Financial liabilities
      Deposits                                                 $118,151       $118,496            $114,955     $113,974
      Advances from the Federal Home Loan Bank                       -              -                2,000        2,000
      Other borrowed money                                          270            270                  -            -
      Advances by borrowers for taxes and insurance                  34             34                  53           53
                                                            -----------    -----------         -----------  -----------

                                                               $118,455       $118,800            $117,008     $116,027
                                                                =======        =======             =======      =======
</TABLE>

    15.  Comprehensive Income

    The Corporation adopted SFAS No. 130, "Reporting  Comprehensive  Income," as
    of January 1, 1998.  SFAS No. 130  establishes  standards  for reporting and
    presentation  of  comprehensive  income and its  components in a full set of
    general-purpose  financial  statements.  It requires that all items that are
    required to be  recognized  under  accounting  standards  as  components  of
    comprehensive  income be reported in a financial statement that is presented
    with the  same  prominence  as  other  financial  statements.  SFAS No.  130
    requires that companies (i) classify items of other comprehensive  income by
    their  nature in a financial  statement  and (ii)  display  the  accumulated
    balance of other comprehensive  income separately from retained earnings and
    additional  paid-in capital.  Financial  statements for earlier periods have
    been restated for comparative  purposes.  Accumulated  comprehensive  income
    consists  solely of the  change in  unrealized  gains/losses  on  securities
    designated as available for sale in accordance with SFAS No. 115.



<PAGE>
                             River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES

    Amortized  cost and  estimated  fair  values  of  investment  securities  at
    December 31 are summarized as follows:

<TABLE>
<CAPTION>


                                                              1998                             1997
                                                                    Estimated                        Estimated
                                                     Amortized           fair         Amortized           fair
                                                          cost          value              cost          value
                                                                            (In thousands)
<S>                                                     <C>           <C>                <C>            <C>
    Held to maturity:
      U.S. Government agency obligations                $1,000        $   980            $3,500         $3,444

    Available for sale:
      U.S. Government agency obligations                    -              -                498            494
      Municipal obligations                                276            283               276            278
                                                        ------         ------            ------         ------
                                                           276            283               774            772
                                                        ------         ------            ------         ------

         Total investment securities                    $1,276         $1,263            $4,274         $4,216
                                                         =====          =====             =====          =====

</TABLE>

    At December 31, 1998 and 1997, the cost carrying value of the  Corporation's
    investment  securities  held to maturity  exceeded fair value by $20,000 and
    $56,000, respectively, comprised solely of gross unrealized losses.

    The  amortized  cost and  estimated  fair value of U. S.  Government  agency
    obligations  designated  as  held  to  maturity  at  December  31 by term to
    maturity  are shown  below.  Maturity  dates do not reflect  effects of call
    provisions inherent in the bonds' contractual terms.

<TABLE>
<CAPTION>

                                                            1998                               1997
                                                                  Estimated                          Estimated
                                                   Amortized           fair           Amortized           fair
                                                        cost          value                cost          value
                                                                           (In thousands)

<S>                                                   <C>              <C>               <C>            <C>
    Due in one year or less                           $1,000           $980              $2,500         $2,492
    Due in one to three years                             -              -                1,000            952
                                                       -----             --               -----         ------

                                                      $1,000           $980              $3,500         $3,444
                                                       =====            ===               =====          =====

</TABLE>

<PAGE>




                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)

    The  amortized  cost and  estimated  fair  value of U.S.  Government  agency
    obligations  and municipal  obligations  designated as available for sale at
    December 31, 1998 and 1997, by term to maturity are shown below.

                                       1998                       1997
                                          Estimated                   Estimated
                                Amortized    fair         Amortized     fair
                                  cost       value          cost        value
                                                (In thousands)

    Due in three to five years    $100        $102         $498        $494
    Due in five to ten years       176         181          276         278
                                   ---         ---          ---         ---

                                  $276        $283         $774        $772
                                   ===         ===          ===         ===

    The amortized cost, gross  unrealized  gains,  gross  unrealized  losses and
    estimated fair values of mortgage-backed  and related securities  designated
    as held to maturity at December 31, 1998 and 1997 are shown below.

<TABLE>
<CAPTION>

                                                                                            1998
                                                                                   Gross           Gross      Estimated
                                                                Amortized     unrealized      unrealized           fair
                                                                     cost          gains          losses          value
                                                                                       (In thousands)
<S>                                                                <C>               <C>          <C>            <C>
    Federal Home Loan Mortgage Corporation
      participation certificates                                   $1,343            $-           $   (2)        $1,341
    Government National Mortgage Association
      participation certificates                                    1,190             22              -           1,212
    Federal National Mortgage Association
      participation certificates                                      639             10              -             649
      Interest-only certificates                                       18             -               -              18
                                                                  -------             --              --        -------

                                                                   $3,190          $  32          $   (2)        $3,220
                                                                    =====           ====           =====          =====
</TABLE>

<TABLE>
<CAPTION>

                                                                                            1997
                                                                                   Gross           Gross      Estimated
                                                                Amortized     unrealized      unrealized           fair
                                                                     cost          gains          losses          value
                                                                                       (In thousands)
<S>                                                                <C>            <C>              <C>           <C>
    Federal Home Loan Mortgage Corporation
      participation certificates                                   $2,448         $    6           $ (17)        $2,437
    Government National Mortgage Association
      participation certificates                                    1,935             46              -           1,981
    Federal National Mortgage Association
      participation certificates                                      973             23              -             996
      Interest-only certificates                                       18             -               -              18
                                                                  -------             --              --        -------

                                                                   $5,374          $  75           $ (17)        $5,432
                                                                    =====           ====            ====          =====
</TABLE>


<PAGE>

                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)

    The  amortized  cost  of  mortgage-backed  and  related  securities  held to
    maturity at December 31, 1998,  by  contractual  terms to maturity are shown
    below.  Expected maturities will differ from contractual  maturities because
    borrowers may generally prepay obligations without prepayment penalties.

                                                    Amortized cost
                                                    (In thousands)

    Due within one year                                    $   447
    Due after one to three years                             1,048
    Due after three to five years                                6
    Due after ten to twenty years                              987
    Due after twenty years                                     702
                                                            ------

                                                            $3,190

    The amortized cost, gross  unrealized  gains,  gross  unrealized  losses and
    estimated fair values of mortgage-backed  and related securities  designated
    as available for sale at December 31, 1998 and 1997 are shown below.
<TABLE>
<CAPTION>

                                                                                    1998
                                                                           Gross          Gross      Estimated
                                                       Amortized      unrealized     unrealized           fair
                                                            cost           gains         losses          value
                                                                               (In thousands)
<S>                                                      <C>              <C>               <C>        <C>
    Federal Home Loan Mortgage Corporation
      participation certificates                         $   644          $    7            $-         $   651
    Government National Mortgage Association
      participation certificates                             277               1             (1)           277
    Federal National Mortgage Association
      participation certificates                           1,275               3            (29)         1,249
    Collateralized mortgage obligations                      627              -              (8)           619
                                                          ------              --          -----         ------

                                                          $2,823           $  11          $ (38)        $2,796
                                                           =====            ====           ====          =====
</TABLE>

<TABLE>
<CAPTION>
                                                                                    1997
                                                                           Gross          Gross      Estimated
                                                       Amortized      unrealized     unrealized           fair
                                                            cost           gains         losses          value
                                                                                  (In thousands)
<S>                                                      <C>               <C>            <C>          <C>
    Federal Home Loan Mortgage Corporation
      participation certificates                         $   915           $  11          $  (1)       $   925
    Government National Mortgage Association
      participation certificates                             451              -              (1)           450
    Federal National Mortgage Association
      participation certificates                           1,657               4            (44)         1,617
    Collateralized mortgage obligations                      627              -             (15)           612
                                                          ------              --            ---         ------

                                                          $3,650           $  15           $(61)        $3,604
                                                           =====            ====            ===          =====

</TABLE>

<PAGE>
                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)

    The amortized cost of mortgage-backed  and related securities  designated as
    available  for sale at December 31, 1998, by  contractual  terms to maturity
    are shown below. Expected maturities will differ from contractual maturities
    because  borrowers  may  generally  prepay  obligations  without  prepayment
    penalties.
                                                  Amortized cost
                                                  (In thousands)

    Due after one to three years                        $     13
    Due after three to five years                            370
    Due after five to ten years                              213
    Due after ten to twenty years                            783
    Due after twenty years                                 1,444
                                                           -----

                                                          $2,823


NOTE C - LOANS RECEIVABLE

    The composition of the loan portfolio at December 31 is as follows:

                                                     1998             1997
                                                          (In thousands)
    Residential real estate
      One-to-four family residential               $  62,206        $  71,388
      Multi-family residential                         1,775            2,781
      Construction                                     8,126            3,652
    Nonresidential real estate and land               13,904           14,703
    Commercial                                        12,461            4,871
    Consumer and other                                12,640           14,981
    Deferred loan origination costs                      200              202
                                                  ----------       ----------

                                                     111,312          112,578
    Less:
      Undisbursed portion of loans in process          1,151               99
      Allowance for loan losses                        1,477            1,276
                                                   ---------        ---------

                                                    $108,684         $111,203

    As depicted above, the Bank's lending efforts have  historically  focused on
    one-to-four family residential real estate loans,  multi-family  residential
    real  estate  loans and  construction  real  estate  loans,  which  comprise
    approximately $71.0 million, or 65%, of the total loan portfolio at December
    31,  1998  and  approximately  $77.7  million,  or 70%,  of the  total  loan
    portfolio at December 31, 1997. Generally, such loans have been underwritten
    on  the  basis  of no  more  than  an 80%  loan-to-value  ratio,  which  has
    historically  provided  the Bank with  adequate  collateral  coverage in the
    event of default.  Nevertheless,  the Bank, as with any lending institution,
    is subject to the risk that residential real estate values could deteriorate
    in its  primary  lending  areas of  southeastern  Indiana  and  northwestern
    Kentucky, thereby impairing collateral values. However, management is of the
    belief that  residential  real estate values in the Bank's  primary  lending
    areas are presently stable.



<PAGE>
                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE C - LOANS RECEIVABLE (continued)

    In the ordinary  course of business,  the Bank has granted  loans to some of
    its officers,  directors and their related business interests. Related party
    loans are made on the same terms,  including  interest rates and collateral,
    as those prevailing at the time for comparable  transactions  with unrelated
    persons and do not involve more than the normal risk of collectibility.  The
    aggregate  dollar  amount  of  loans  outstanding  to  related  parties  was
    approximately   $540,000  and  $462,000  at  December  31,  1998  and  1997,
    respectively.


NOTE D - ALLOWANCE FOR LOAN LOSSES

    The activity in the  allowance  for loan losses is summarized as follows for
    the years ended December 31:
<TABLE>
<CAPTION>


                                                  1998           1997           1996
                                                             (In thousands)

<S>                                               <C>            <C>           <C>
    Balance at beginning of year                  $1,276         $1,190        $   407
    Provision for losses on loans                    275            304             22
    Allowance for loan losses of Citizens             -              -             764
    Charge-offs of loans                            (223)          (269)            (3)
    Recoveries of loan losses                        149             51             -
                                                  ------        -------          ----

    Balance at end of year                        $1,477         $1,276         $1,190
                                                   =====          =====          =====
</TABLE>

    As of December 31, 1998,  the  Corporation's  allowance  for loan losses was
    comprised of a general loan loss  allowance of  approximately  $1.4 million,
    which is includible as a component of regulatory  risk-based capital,  and a
    specific loan loss allowance of approximately $122,000.

    The Corporation had nonperforming loans totaling $1.9 million,  $718,000 and
    $819,000 at December 31, 1998, 1997 and 1996, respectively.

    The  Corporation  had no material  loss of interest  income  related to such
    nonperforming  loans during the years ended  December 31,  1998,  1997,  and
    1996.


NOTE E - OFFICE PREMISES AND EQUIPMENT

    Office premises and equipment at December 31 are comprised of the following:

                                              1998                1997
                                                    (In thousands)

    Land and improvements                  $   675             $   662
    Office buildings and improvements        1,758               1,750
    Leasehold improvements                     117                 115
    Furniture, fixtures and equipment        2,113               1,943
    Automobiles                                 18                  32
                                           -------             -------
                                             4,681               4,502
    Less accumulated depreciation            2,658               2,437
                                             -----               -----

                                            $2,023              $2,065
                                             =====               =====


<PAGE>




                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE F - DEPOSITS

    Deposits consist of the following major classifications at December 31:
<TABLE>
<CAPTION>


    Deposit type and                                     1998                      1997
    weighted-average interest rate               Amount         %             Amount        %
                             (Dollars in thousands)

<S>                                          <C>                  <C>     <C>                 <C>
    Non-interest bearing accounts            $    8,365           7.0%    $    5,628         4.9%
    NOW accounts
      1998 - 2.60%                               14,417          12.2
      1997 - 2.57%                                                            15,424        13.4
    Money market demand accounts
      1998 - 2.92%                                6,984           5.9
      1997 - 2.93%                                                             8,257         7.2
    Savings accounts
      1998 - 3.70%                               22,378          19.0
      1997 - 3.42%                                                            21,411        18.7
                                           ------------       ---------     --------      ------
    Total demand, transaction and
      savings deposits                           52,144          44.1         50,720        44.2

    Certificates of deposit
      3.00 - 4.99%
        4.78% in 1998                            23,200          19.6
        4.82% in 1997                                                         13,016        11.3
      5.00 - 5.99%
        5.34% in 1998                            31,364          26.6
        5.40% in 1997                                                         36,010        31.3
      6.00 - 6.99%
        6.18% in 1998                            11,229           9.5
        6.22% in 1997                                                         12,312        10.7
      7.00 - 7.99%
        7.86% in 1998                               214            .2
        7.50% in 1997                                                          2,896         2.5
      8.00 - 8.99%
        8.25% in 1997                                -              -              1           -
                                              ---------       -------       --------      ------

    Total certificates of deposit                66,007          55.9         64,235        55.8
                                               --------       ------        --------      ------

    Total deposit accounts                     $118,151         100.0%      $114,955       100.0%
                                                =======       =======        =======      ======

</TABLE>

    The aggregate amount of certificates of deposit with a minimum  denomination
    of  $100,000  totaled  approximately  $15.1  million  and $11.0  million  at
    December 31, 1998 and 1997, respectively.



<PAGE>
                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE F - DEPOSITS (continued)

    Interest  expense on deposits for the years ended  December 31 is summarized
as follows:

                                         1998           1997           1996
                                                   (In thousands)

    Savings                            $   768        $   708        $   539
    NOW accounts                           344            435            206
    Money market deposit accounts          211            480            234
    Certificates of deposit              3,359          3,291          2,370
                                         -----          -----          -----

                                        $4,682         $4,914         $3,349
                                         =====          =====          =====

    Maturities of outstanding  certificates of deposit are summarized as follows
    at December 31:

                                      1998             1997
                                          (In thousands)

    Less than one year               $53,931          $45,842
    One year to three years           10,880           16,970
    More than three years              1,196            1,423
                                     -------          -------

                                     $66,007          $64,235
                                      ======           ======

    As a  result  of the  Corporation's  acquisition  of  Citizen's,  regulatory
    authorities  required  the  sale of one of the  Bank's  retail  branches.  A
    definitive  agreement was reached in 1996,  which provided for the purchaser
    to acquire the branch facility for a price  approximating  book value, while
    assuming the branch deposits,  which totaled $6.8 million,  for a premium on
    core deposits.  The  transaction  was consummated in 1997 and resulted in an
    approximate after-tax gain of $125,000.


NOTE G - ADVANCES FROM FEDERAL HOME LOAN BANK

    Federal Home Loan Bank  advances,  collateralized  at December 31, 1997,  by
    certain  residential  mortgage  loans  totaling  $3.2 million and the Bank's
    investment in Federal Home Loan Bank stock, are shown below:

                  Interest          Maturing year
                     rate             ending in                 1997
                                    (In thousands)

                    6.12%                 1998                  $2,000
                                                                ======


NOTE H - OTHER BORROWED MONEY

    Other borrowed money  consisted of a  variable-rate  two-year line of credit
    advance, bearing interest at December 31, 1998 of 6.63%, scheduled to mature
    in  November  2000.  The  advance  was  collateralized  by a  pledge  of the
    Corporation's stock of River Valley Financial.




<PAGE>
                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE I - INCOME TAXES

    The provision for income taxes on earnings differs from that computed at the
expected statutory corporate tax rate at December 31 as follows:

<TABLE>
<CAPTION>


                                                         1998         1997         1996
                                                              (Dollars in thousands)
<S>                                                      <C>          <C>           <C>
    Federal income taxes computed at
      expected statutory rate                            $709         $728          $51
    State taxes, net of federal benefits                  122          125            9
    Increase (decrease) in taxes resulting from:
      Amortization of goodwill                              9            9            2
      Other (primarily nontaxable income in 1997)          (7)         (32)          14
                                                        -----         ----           --
    Income tax provision per consolidated
      financial statements                               $833         $830          $76
                                                          ===          ===           ==

    Effective tax rate                                   39.9%        38.8%        51.0%
                                                         ====         ====         ====
</TABLE>

    The composition of the  Corporation's  net deferred tax asset at December 31
    is as follows:
<TABLE>
<CAPTION>


    Taxes (payable) refundable on temporary                     1998           1997
    differences at statutory rate:                                (In thousands)

<S>                                                         <C>            <C>
    Deferred tax liabilities:
      Deferred loan origination costs                       $    (68)      $    (69)
      Difference between book and tax depreciation               (93)           (63)
      Percentage of earnings bad debt deduction                 (210)          (248)
      Mortgage servicing rights                                  (85)           (38)
                                                             -------        -------
         Total deferred tax liabilities                         (456)          (418)

    Deferred tax assets:
      Deferred compensation                                       97             59
      Allowance for valuation decline on
        mortgage-related securities                               90             90
      General loan loss allowance                                628            542
      Benefit plan expense                                        65             62
      Unrealized loss on securities designated as
        available for sale                                         7             16
      Purchase accounting adjustments related to asset
        valuation adjustments                                    227            329
      Other                                                       -               1
                                                             -------       --------
         Total deferred tax assets                             1,114          1,099
                                                               -----          -----

         Net deferred tax asset                              $   658        $   681
                                                              ======         ======

</TABLE>


<PAGE>
                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE I - INCOME TAXES (continued)

    Madison  First Federal was allowed a special bad debt  deduction  based on a
    percentage of earnings  generally  limited to 8% of otherwise taxable income
    or the amount of qualifying and nonqualifying loans outstanding, and subject
    to certain limitations based on aggregate loans and savings account balances
    at the end of the year.  Retained  earnings at December 31,  1998,  includes
    approximately  $2.4  million for which  federal  income  taxes have not been
    provided.  If the amounts that qualify as deductions  for federal income tax
    purposes  are  later  used for  purposes  other  than  for bad debt  losses,
    including  distributions in liquidation,  such distributions will be subject
    to federal income taxes at the then current  corporate  income tax rate. The
    approximate  amount of unrecognized  deferred tax liability  relating to the
    cumulative  bad debt  deduction was  approximately  $705,000 at December 31,
    1998. See Note O for additional  information  regarding future percentage of
    earnings bad debt deductions.


NOTE J - LOAN COMMITMENTS


    The Bank is a party to financial instruments with  off-balance-sheet risk in
    the normal course of business to meet the  financing  needs of its customers
    including commitments to extend credit. Such commitments involve, to varying
    degrees,  elements of credit and interest-rate  risk in excess of the amount
    recognized in the consolidated statements of financial condition.

    The Bank's  exposure  to credit loss in the event of  nonperformance  by the
    other party to the financial  instrument for commitments to extend credit is
    represented by the  contractual  notional amount of those  instruments.  The
    Bank uses the same credit  policies in making  commitments  and  conditional
    obligations as those utilized for on-balance-sheet instruments.

    At December 31, 1998, the Bank had outstanding  commitments of approximately
    $1.4 million to originate residential  one-to-four family variable-rate real
    estate loans at interest rates ranging from 7.0% to 7.5%. Additionally,  the
    Bank had  commitments  to  originate  loans  secured  by other  real  estate
    totaling  $1.4  million as of December  31,  1998.  The Bank also had unused
    lines  of  credit   under  home  equity  loans  and   commercial   loans  of
    approximately $2.1 million and $3.8 million,  respectively,  at December 31,
    1998, and standby  letters of credit  totaling  $97,000 at that date. In the
    opinion of management,  all loan commitments  equaled or exceeded  prevalent
    market  interest  rates as of December 31, 1998, and such  commitments  have
    been  underwritten on the same basis as that of the existing loan portfolio.
    Management  believes that all loan commitments are able to be funded through
    cash flows from operations and existing excess  liquidity.  Fees received in
    connection with these commitments have not been recognized in earnings.



<PAGE>
                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE J - LOAN COMMITMENTS (continued)

    Commitments to extend credit are agreements to lend to a customer as long as
    there  is no  violation  of  any  condition  established  in  the  contract.
    Commitments  generally  have  fixed  expiration  dates or other  termination
    clauses and may require  payment of a fee. Since many of the commitments may
    expire  without  being  drawn  upon,  the total  commitment  amounts  do not
    necessarily  represent  future cash  requirements.  The Bank  evaluates each
    customer's   creditworthiness   on  a  case-by-case  basis.  The  amount  of
    collateral  obtained,  if it is deemed necessary by the Bank, upon extension
    of credit,  is based on management's  credit evaluation of the counterparty.
    Collateral  on  loans  may  vary  but the  preponderance  of  loans  granted
    generally include a mortgage interest in real estate as security.


NOTE K - LEASES

    In connection  with the acquisition of Citizens,  the Corporation  assumed a
    lease of branch banking facilities. The lease of the banking facility in the
    Wal-Mart Supercenter in Madison requires the Corporation to make payments of
    approximately $23,000 in 1999. The original lease expires in September 1999,
    but does contain two renewable  five year options at a maximum lease payment
    of approximately $29,000 per year.


NOTE L - STOCK OPTION PLAN

    In June  1997,  the  Corporation  adopted  the 1997 Stock  Option  Plan that
    provides  for the  issuance of 119,025  shares of common  stock.  Options to
    purchase  117,648 shares were granted during 1997 at an exercise price equal
    to the fair value at the date of grant.

    In 1996, the Corporation  adopted SFAS No. 123,  "Accounting for Stock-Based
    Compensation,"   which  contains  a  fair  value-based  method  for  valuing
    stock-based  compensation that entities may use, which measures compensation
    cost at the grant date based on the fair value of the award. Compensation is
    then  recognized  over the  service  period,  which is usually  the  vesting
    period. Alternatively,  SFAS No. 123 permits entities to continue to account
    for stock options and similar equity instruments under Accounting Principles
    Board ("APB")  Opinion No. 25,  "Accounting  for Stock Issued to Employees."
    Entities that continue to account for stock options using APB Opinion No. 25
    are required to make pro forma  disclosures of net earnings and earnings per
    share, as if the fair value-based method of accounting defined in SFAS No.
    123 had been applied.



<PAGE>
                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE L - STOCK OPTION PLAN (continued)

    The Corporation  applies APB Opinion No. 25 and related  Interpretations  in
    accounting for its stock option plan. Accordingly,  no compensation cost has
    been recognized for the plan. Had  compensation  cost for the  Corporation's
    stock option plan been determined based on the fair value at the grant dates
    for awards under the plan consistent with the accounting  method utilized in
    SFAS No. 123,  the  Corporation's  net earnings and earnings per share would
    have been reduced to the pro forma amounts indicated below:

                                                     1998        1997

    Net earnings (in thousands)     As reported     $1,253      $1,310
                                                     =====       =====

                                      Pro-forma     $1,253      $1,269
                                                     =====       =====

    Earnings per share
      Basic                         As reported      $1.13       $1.20
                                                      ====        ====

                                      Pro-forma      $1.13       $1.16
                                                      ====        ====

      Diluted                       As reported      $1.12       $1.18
                                                      ====        ====

                                      Pro-forma      $1.12       $1.15
                                                      ====        ====

    The fair value of each option  grant is estimated on the date of grant using
    the  modified   Black-Scholes   options-pricing  model  with  the  following
    weighted-average  assumptions used for grants in fiscal 1997: dividend yield
    of 1.013%,  expected  volatility of 10.0%, a risk-free interest rate of 5.5%
    and expected lives of ten years.

    A  summary  of the  status  of the  Corporation's  stock  option  plan as of
    December  31, 1998 and 1997,  and changes  during the periods  then ended is
    presented below:

<TABLE>
<CAPTION>


                                                               1998                            1997
                                                                    Weighted-                        Weighted-
                                                                      average                          average
                                                                     exercise                         exercise
                                                      Shares            price            Shares          price

<S>                                                  <C>               <C>                          <C>
    Outstanding at beginning of year                 105,149           $14.81                -      $    -
    Granted                                               -                -            117,648          14.81
    Exercised                                          1,190            14.78                -           -
    Forfeited                                             -                -             12,499          14.81
                                                   ---------           ------         ---------          -----

    Outstanding at end of year                       103,959           $14.81           105,149         $14.81
                                                     =======            =====           =======          =====

    Options exercisable at year-end                   19,834                                 -
                                                    ========                          ========
    Weighted-average fair value of
      options granted during the year                    N/A                              $4.85

</TABLE>

<PAGE>
                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE L - STOCK OPTION PLAN (continued)

    The following  information  applies to options  outstanding  at December 31,
    1998:

    Number outstanding                                            103,959
    Range of exercise prices                             $14.78 - $17.875
    Weighted-average exercise price                                $14.81
    Weighted-average remaining contractual life                 8.5 years


NOTE M - CONDENSED FINANCIAL STATEMENTS OF RIVER VALLEY BANCORP

    The  following  condensed  financial   statements  summarize  the  financial
    position  of River  Valley  Bancorp at December  31, 1998 and 1997,  and the
    results of its  operations and its cash flows for the periods ended December
    31, 1998, 1997 and 1996.

                              River Valley Bancorp
                        STATEMENTS OF FINANCIAL CONDITION
                                  December 31,
                                 (In thousands)
<TABLE>
<CAPTION>


     ASSETS                                                      1998         1997

<S>                                                          <C>          <C>
Cash and interest-earning deposits                           $    198     $    374
Investment in River Valley Financial Bank                      18,788       17,744
Prepaid expenses and other assets                                  84           65
                                                             --------     --------

     Total assets                                            $ 19,070     $ 18,183
                                                             ========     ========

     LIABILITIES AND SHAREHOLDERS' EQUITY

Other borrowed money                                         $    270     $     --
Other liabilities                                                 187          194
                                                             --------     --------

     Total liabilities                                            457          194

Shareholders' equity
  Preferred stock                                                  --           --
  Common stock                                                     --           --
  Additional paid in capital                                   11,036       11,229
  Retained earnings                                             8,789        7,797
  Shares acquired by stock benefit plans                       (1,199)      (1,005)
  Unrealized losses on securities designated as available
    for sale, net of related tax effects                          (13)         (32)
                                                             --------     --------
         Total shareholders' equity                            18,613       17,989
                                                             --------     --------

         Total liabilities and shareholders' equity          $ 19,070     $ 18,183
                                                             ========     ========
</TABLE>


<PAGE>
                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE M - CONDENSED FINANCIAL STATEMENTS OF RIVER VALLEY BANCORP (continued)

                              River Valley Bancorp
                             STATEMENTS OF EARNINGS
                           Periods ended December 31,
                                 (In thousands)

                                               1998      1997      1996
Revenue
  Interest income                            $   71    $   81    $   --
  Equity in earnings of subsidiaries          1,274     1,390         2
                                             ------    ------    ------
                                              1,345     1,471         2

General, administrative and other expense       105       243        --
                                             ------    ------    ------

     Earnings before income tax credits       1,240     1,228         2

Income tax credits                               13        82        --
                                             ------    ------    ------

     NET EARNINGS                            $1,253    $1,310    $    2
                                             ======    ======    ======


                              River Valley Bancorp
                            STATEMENTS OF CASH FLOWS
                           Periods ended December 31,
                                 (In thousands)
<TABLE>
<CAPTION>


                                                                1998         1997         1996
<S>                                                         <C>          <C>          <C>
Cash flows from operating activities:
  Net earnings for the year                                 $  1,253     $  1,310     $      2
  Undistributed net earnings of subsidiary                    (1,274)      (1,390)          (2)
  Amortization expense of stock benefit plans                    114          128           --
  Increase (decrease) in cash due to changes in:
    Prepaid expenses and other assets                            (19)         (65)          --
    Other liabilities                                             (7)        (109)          94
                                                            --------     --------     --------
     Net cash provided by (used in) operating activities          67         (126)          94

Cash flows from financing activities:
  Purchase of shares                                            (270)          --           --
  Stock options exercised                                         18           --           --
  Proceeds from other borrowed money                             270           --           --
  Proceeds from issuance of common stock                          --           --       11,173
  Acquisition of stock by stock benefit plans                     --           --         (952)
  Acquisition of Citizens National Bank                           --           --       (4,588)
  Purchase of shares in River Valley Financial                    --           --       (5,072)
  Dividends paid on common stock                                (261)        (155)          --
                                                            --------     --------     --------
     Net cash provided by (used in) financing activities        (243)        (155)         561
                                                            --------     --------     --------

Net increase (decrease) in cash and cash equivalents            (176)        (281)         655

Cash and cash equivalents at beginning of year                   374          655           --
                                                            --------     --------     --------

Cash and cash equivalents at end of year                    $    198     $    374     $    655
                                                            ========     ========     ========

</TABLE>

<PAGE>

                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE N - REGULATORY CAPITAL

    The Bank is subject to minimum regulatory  capital standards  promulgated by
    the  Office of Thrift  Supervision  (the  "OTS").  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 Bank's  financial  statements.  Under
    capital  adequacy  guidelines  and  the  regulatory   framework  for  prompt
    corrective  action,   financial  institutions  must  meet  specific  capital
    guidelines that involve quantitative  measures of assets,  liabilities,  and
    certain  off-balance-sheet  items as calculated under regulatory  accounting
    practices. The Bank's capital amounts and classification are also subject to
    qualitative  judgments by the regulators about components,  risk weightings,
    and other factors. The OTS's minimum capital standards generally require the
    maintenance  of regulatory  capital  sufficient to meet each of three tests,
    hereinafter described as the tangible capital requirement,  the core capital
    requirement and the risk-based  capital  requirement.  The tangible  capital
    requirement  provides for minimum tangible capital (defined as shareholders'
    equity less all  intangible  assets) equal to 1.5% of adjusted total assets.
    The core capital  requirement  provides  for minimum core capital  (tangible
    capital  plus certain  forms of  supervisory  goodwill and other  qualifying
    intangible  assets) equal to 3.0% of adjusted total assets. An OTS proposal,
    if adopted in present form, would increase the core capital requirement to a
    range of 4.0% - 5.0% of adjusted total assets for  substantially all savings
    associations. Management anticipates no material change to the Bank's excess
    regulatory  capital  position  as a result  of this  proposed  change in the
    regulatory capital requirement. The risk-based capital requirement currently
    provides for the  maintenance  of core capital plus general loss  allowances
    equal to 8.0% of risk-weighted  assets. In computing  risk-weighted  assets,
    the Bank  multiplies  the value of each asset on its  statement of financial
    condition  by a defined  risk-weighting  factor,  e.g.,  one-to-four  family
    residential loans carry a risk-weighted factor of 50%.

    At December  31, 1998 and 1997,  management  believes  that the Bank met all
capital adequacy requirements to which it was subject.

<TABLE>
<CAPTION>
    1998:                                                                                        To be "well-
                                                                                              capitalized" under
                                                                     For capital               prompt corrective
                                             Actual                adequacy purposes          action provisions
                                         Amount    Ratio           Amount    Ratio             Amount     Ratio
                                                                  (Dollars in thousands)

<S>                                     <C>        <C>             <C>         <C>             <C>           <C>
    Tangible capital                    $18,729    13.5%          *$2,079     *1.5%           *$6,931      * 5.0%

    Core capital                        $18,729    13.5%          *$4,159     *3.0%           *$8,318      * 6.0%

    Risk-based capital                  $20,084    20.6%          *$7,793     *8.0%           *$9,741      *10.0%
</TABLE>
* = Greater than or equal to



<PAGE>




                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE N - REGULATORY CAPITAL (continued)


<TABLE>
<CAPTION>
    1997:                                                                                        To be "well-
                                                                                              capitalized" under
                                                                     For capital               prompt corrective
                                             Actual                adequacy purposes          action provisions
                                         Amount    Ratio           Amount    Ratio             Amount     Ratio
                                                                  (Dollars in thousands)

<S>                                     <C>        <C>             <C>         <C>             <C>            <C>
    Tangible capital                    $17,566    12.9%          *$2,047     *1.5%           *$6,824      *  5.0%

    Core capital                        $17,566    12.9%          *$4,095     *3.0%           *$8,189      *  6.0%

    Risk-based capital                  $18,703    20.8%          *$6,944     *8.0%           *$8,680      * 10.0%
</TABLE>
* = Greater than or equal to

    At  December  31,  1998,  the  Bank  met  all  regulatory  requirements  for
    classification as a  "well-capitalized"  institution.  A  "well-capitalized"
    institution must have risk-based capital of 10.0%, and core capital of 5.0%.
    The Bank's capital exceeded the minimum required amounts for  classification
    as a  "well-capitalized"  institution  by $10.3  million and $10.4  million,
    respectively.

    Regulations  of the OTS impose  limitations  on the payment of dividends and
    other  capital  distributions  by  savings  associations.  The OTS  recently
    amended  its  capital  distribution  regulation  in a final rule which takes
    effect on April 1, 1999.  Because the Bank is a subsidiary  of a savings and
    loan holding  company,  it is required to file a notice with the OTS 30 days
    before making any capital  distributions to the Holding Company. It may also
    have to file an application for approval of a proposed capital  distribution
    with the OTS if the  association  is not  eligible for  expedited  treatment
    under the OTS's  application  processing  rules,  or the total amount of all
    capital distributions,  including the proposed capital distribution, for the
    applicable  calendar  year  would  exceed  an  amount  equal to the  savings
    association's   net  income   for  that  year  to  date  plus  the   savings
    association's  retained net income for the  preceding  two years.  A savings
    association must also file an application for approval of a proposed capital
    distribution if, following the proposed distribution,  the association would
    not be at least  adequately  capitalized  under  the OTS  prompt  corrective
    action  regulations,  or  if  the  proposed  distribution  would  violate  a
    prohibition  contained in any applicable statute,  regulation,  or agreement
    between the OTS or the FDIC.


NOTE O - LEGISLATIVE MATTERS

    The  deposit  accounts  of the Bank and of other  savings  associations  are
    insured by the FDIC through the Savings Association Insurance Fund ("SAIF").
    The  reserves of the SAIF were below the level  required  by law,  because a
    significant  portion of the assessments  paid into the fund were used to pay
    the cost of prior thrift failures.  The deposit accounts of commercial banks
    are insured by the FDIC through the Bank Insurance  Fund ("BIF"),  except to
    the extent such banks have acquired SAIF  deposits.  The reserves of the BIF
    met the level  required  by law in May 1995.  As a result of the  respective
    reserve levels of the funds,  deposit insurance  assessments paid by healthy
    savings  associations  exceeded  those paid by healthy  commercial  banks by
    approximately $.19 per $100 in deposits in 1995. In 1996, no BIF assessments
    were required for healthy commercial banks except for a $2,000 minimum fee.



<PAGE>




                              River Valley Bancorp


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE O - LEGISLATIVE MATTERS (continued)

    In 1996, Congress enacted legislation to recapitalize the SAIF that provided
    for a special  assessment  totaling  $.657 per $100 of SAIF deposits held at
    March 31, 1995, in order to increase SAIF reserves to the level  required by
    law. The Bank had $76.6 million in deposits at March 31, 1995,  resulting in
    an assessment of  approximately  $503,000,  or $289,000 after tax, which was
    charged to operations in 1996.

    The 1996 law also  provided  for the merger of the SAIF and the BIF by 1999,
    but not until such time as bank and thrift  charters are combined.  Although
    Congress has not enacted  legislation  to combine bank and thrift  charters,
    any such  legislation in the future could require the Bank to become a state
    or national  commercial  bank and become  subject to regulation by an agency
    other than the OTS. In that event, the Bank's  investment  authority and the
    ability  of the  Corporation  to engage  in  diversified  activities  may be
    limited or prohibited,  and the  profitability  of the Corporation  could be
    adversely   affected.    Under   separate   legislation   related   to   the
    recapitalization  plan,  the Bank is required to recapture as taxable income
    approximately  $600,000  of its  bad  debt  reserve,  which  represents  the
    post-1987  additions  to the  reserve,  and will be  unable to  utilize  the
    percentage of earnings method to compute the reserve in the future. The Bank
    has provided  deferred taxes for this amount and will amortize the recapture
    of the bad debt reserve over six years commencing in 1998.


NOTE P - CONVERSION TO STOCK FORM AND BUSINESS COMBINATION

    On March 5, 1996,  the Bank's Board of Directors  adopted an overall plan of
    conversion and reorganization (the "Plan") whereby the Bank would convert to
    the stock  form of  ownership,  through  the  issuance  of all of the Bank's
    outstanding  stock to a newly formed holding company,  River Valley Bancorp.
    Pursuant  to the Plan,  the Bank  offered  for sale up to  1,190,250  common
    shares to its  depositors  and members of the  community.  The  offering was
    completed  in December  1996,  resulting  in net  capital  proceeds of $10.2
    million.

    At the date of the conversion, the Bank established a liquidation account in
    an amount equal to retained earnings reflected in the statement of financial
    condition used in the conversion offering circular.  The liquidation account
    will be maintained for the benefit of eligible  deposit  account holders who
    maintained deposit accounts in the Bank after conversion.

    In the  event of a  complete  liquidation  (and  only in such  event),  each
    eligible  deposit  account  holder will be entitled to receive a liquidation
    distribution from the liquidation  account in the amount of the then current
    adjusted   balance  of  deposit   accounts  held,   before  any  liquidation
    distribution  may be made with respect to the common shares.  Except for the
    repurchase  of stock and payment of dividends by the Bank,  the existence of
    the liquidation  account will not restrict the use or further application of
    such retained earnings.

    The Bank may not declare or pay a cash dividend on, or repurchase any of its
    common  shares if the effect  thereof  would cause the Bank's  shareholders'
    equity to be reduced  below either the amount  required for the  liquidation
    account or the regulatory capital requirements for insured institutions.



<PAGE>


                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1998, 1997 and 1996


NOTE P - CONVERSION TO STOCK FORM AND BUSINESS COMBINATION (continued)

    In 1995, the Bank had entered into a purchase  agreement  (the  "Agreement")
    with the majority  shareholder of Citizens.  The Agreement,  as subsequently
    amended,  stated that the Corporation would purchase  approximately  120,000
    shares,  representing 95.6% of Citizen's outstanding common stock, for total
    cash  consideration  of  approximately  $3.0 million.  The  acquisition  was
    consummated  in 1996,  and was  accounted  for using the purchase  method of
    accounting.

    Presented below is a pro-forma condensed  consolidated statement of earnings
    which has been prepared as if the acquisition had been consummated as of the
    beginning of the year ended December 31, 1996.

                                                               (In thousands)
                                                                 (Unaudited)

    Total interest income                                            $10,211
    Total interest expense                                             5,640
         Net interest income                                           4,571

    Provision for losses on loans                                        252
    Other income                                                       1,164
    General, administrative and other expense                          5,049
                                                                     -------

         Earnings before income taxes                                    434

    Federal income taxes                                                 150

         Net earnings                                              $     284
                                                                    ========

    The Bank owns 100% of the outstanding  capital stock of First Service which,
    until the Banks conversion,  owned 100% of the outstanding  capital stock of
    McCauley Insurance Agency ("McCauley").

    As mandated by the regulatory authorities during the approval process of the
    Plan,  First  Service had to divest its  interest in  McCauley.  The sale of
    McCauley  was  consummated  in 1996,  resulting  in a gain on sale  totaling
    $141,000.



<PAGE>




                                      NOTES





<PAGE>




                      GENERAL INFORMATION FOR SHAREHOLDERS



Transfer Agent and Registrar:             Shareholder and General Inquiries:

Corporate Trust Services                  River Valley Bancorp
Fifth Third Center                        Attn:  James E. Fritz
38 Fountain Square Plaza                  303 Clifty Drive, P.O. Box 1590
Cincinnati, Ohio  45263                   Madison, Indiana  47250
Tel: (513)579-5417  Fax: (513)744-6785    Tel: (812)273-4949  Fax: (812)273-4944


Corporate Counsel:                        Special Counsel:

Lonnie D. Collins, Attorney               Barnes & Thornburg
426 E. Main Street                        11 S. Meridian Street
Madison, Indiana  47250                   Indianapolis, Indiana  46204
Tel: (812)265-3616  Fax: (812)273-3143    Tel: (317)236-1313  Fax: (317)231-7433


Annual and Other Reports:

Additional  copies of this Annual Report to Shareholders  and copies of the most
recent Form 10-K may be obtained without charge by contacting the Corporation.


Offices of River Valley Financial Bank:

Hilltop:          303 Clifty Drive
                  430 Clifty Drive
Downtown:         233 East Main Street
Drive thru:       401 East Main Street
Wal-Mart:         567 Ivy Tech Drive
Hanover:          10 Medical Plaza


Annual Meeting:

The Annual Meeting of Shareholders of River Valley Bancorp will be held on April
21, 1999, at 3:00 PM, at 430 Clifty Drive, Madison, IN 47250.



<PAGE>






                               BOARD OF DIRECTORS



<PAGE>




Fred W. Koehler
Chairman

Cecil L. Dorten
Vice Chairman

Earl W. Johann
Director

Michael J. Hensley
Director

Jonnie L. Davis
Director

James E. Fritz
Director & President

Robert W. Anger
Director


********************

Lonnie D. Collins
Secretary


<PAGE>








                EXECUTIVE OFFICERS OF RIVER VALLEY FINANCIAL BANK




James E. Fritz
Director & President

Robert D. Hoban
Executive Vice President -
Business Development &
Marketing

Mark A. Goley
Vice President - Senior Loan Officer

Robyne J. Hart
Vice President - Operations Officer

Larry C. Fouse
Controller



<PAGE>








                     OFFICERS OF RIVER VALLEY FINANCIAL BANK




Angela D. Adams
Branch Manager

James B. Allen
Branch Manager

Kenneth L. Cull
Loan Officer

Theresa A. Dryden
Loan Officer


Barbara J. Eades
Customer Service Manager

V. Kay Kimmel
Loan Officer

Deanna J. Liter
Data Processing Officer

Linda L. Ralston
Customer Service Manager


Robert J. Schoenstein Jr.
Loan Officer

Loy M. Skirvin
Human Resources Manager

Rhonda E. Wingham
Customer Service Manager



<PAGE>








                             ADVISORY BOARD MEMBERS




Burton P. Chambers
Advisory Director

Van E. Shelton
Advisory Director

Ralph E. Storm
Advisory Director