FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark One)
[X]  Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 For the fiscal year ended December 31, 2001

or

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

For the transition period from _____________ to _______________

Commission File Number       000-21765

                              RIVER VALLEY BANCORP


             (Exact name of registrant as specified in its charter)



              INDIANA                                      35-1984567
  (State or other Jurisdiction                  (I.R.S. Employer Identification
of Incorporation or Organization)                           Number)


                                430 Clifty Drive
                                  P.O. box 1590
                           Madison, Indiana 47250-0590
               (Address of Principal Executive Offices) (Zip Code)


               Registrant's telephone number including area code:

                                 (812) 273-4949


           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None


           Securities Registered Pursuant to Section 12(g) of the Act:

                         Common Stock, without par value
                                (Title of Class)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such requirements for the past 90 days. YES [ X ] NO [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

The issuer had  $15,006,000  in revenues for the fiscal year ended  December 31,
2001.

As of February 19, 2002, there were issued and outstanding 809,951 shares of the
issuer's  Common Stock.  The aggregate  market value of the voting stock held by
non-affiliates of the issuer, computed by reference to the last known sale price
of such stock as of March 21, 2002, was $14,993,797.


                       DOCUMENTS INCORPORATED BY REFERENCE


Portions of the Annual Report to  Shareholders  for the year ended  December 31,
2001 are incorporated into Part II. Portions of the Proxy Statement for the 2002
Annual Meeting of Shareholders are incorporated in Part I and Part III.

                            Exhibit Index on Page E-1
                               Page 1 of 37 pages
<PAGE>

                              RIVER VALLEY BANCORP

                                   Form 10-KSB

                                      INDEX


                                                                            Page
                                                                            ----
FORWARD LOOKING STATEMENT  ................................................    3

PART I
   Item 1.    Description of Business......................................    3
   Item 2.    Description of Properties....................................   30
   Item 3.    Legal Proceedings............................................   31
   Item 4.    Submission of Matters to a Vote of Security Holders..........   31
   Item 4.5.  Executive Officers of the Registrant.........................   31

PART II
   Item 5.    Market for Common Equity and Related Stockholder Matters.....   32
   Item 5.5.  Selected Consolidated Financial Data.........................   33
   Item 6.    Management's Discussion and Analysis or Plan of Operation....   33
   Item 6A.   Quantitative and Qualitative Disclosures About Market Risk...   33
   Item 7.    Financial Statements.........................................   33
   Item 8.    Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure...................................   34

PART III
   Item 9.    Directors, Executive Officers, Promoters and Control Persons;
                Compliance with Section 16(a) of the Exchange Act..........   34
   Item 10.   Executive Compensation.......................................   34
   Item 11.   Security Ownership of Certain Beneficial Owners and
                Management.................................................   34
   Item 12.   Certain Relationships and Related Transactions...............   34

PART IV
   Item 13.   Exhibits and Reports on Form 8-K.............................   35


SIGNATURES.................................................................   36
<PAGE>

                            FORWARD LOOKING STATEMENT


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

Item 1.    Description of Business.

General

     River Valley Bancorp,  an Indiana  corporation  (the "Holding  Company" and
together with the "Bank", the "Company"), was organized in May 1996. On December
20, 1996, it acquired the common stock of Madison First Federal Savings and Loan
Association  ("First  Federal")  upon the  conversion  of First  Federal  from a
federal mutual savings and loan  association to a federal stock savings and loan
association  (the  "Conversion"),  and acquired  120,434 shares of common stock,
$8.00 par value per share (the "Citizens Shares"),  of Citizens National Bank of
Madison ("Citizens"), constituting 95.6% of the issued and outstanding shares of
Citizens' common stock (the "Acquisition").

     On November  22,  1997,  Citizens  merged with and into First  Federal (the
"Merger") pursuant to an Agreement and Plan of Reorganization entered into among
the Holding  Company,  First Federal and Citizens dated  September 26, 1997 (the
"Agreement").  Pursuant to the  Agreement,  each  outstanding  share of Citizens
common stock held by  shareholders  other than the Holding Company was converted
into the right to receive $30 cash,  payable by the Holding Company,  and shares
of Citizens  held by the Holding  Company and its  subsidiaries  were  canceled.
Also,  pursuant to the Agreement,  First Federal  changed its corporate title to
River Valley  Financial  Bank (the "Bank").  Following the effective time of the
Merger,  the Holding Company  remained as the sole  shareholder of the Bank, and
Citizens'  status as a  national  banking  association  terminated.  For ease of
reference, First Federal will be referred to as the "Bank" hereinafter both with
respect to historical  information  concerning  events and results of operations
prior to the Merger and with respect to information relating to events occurring
after the Merger.

     The  Conversion  of the Bank was  accounted  for in a manner  similar  to a
pooling of  interests,  and the  Acquisition  of Citizens was accounted for as a
purchase  transaction.  Under  purchase  accounting,  the  acquired  assets  and
liabilities  of Citizens  were  recorded at fair value as of December  20, 1996.
Because the assets and liabilities of the Bank were recorded at fair value as of
the date of the  Acquisition,  the  financial  data prior to  December  20, 1996
provided  herein  does  not  include  information  derived  from  the  financial
statements of Citizens.  Rather,  such financial data provided  herein  includes
only  information  derived from the financial  statements of the Bank.  From and
after  December 20,  1996,  the  operating  results of Citizens and the Bank are
consolidated with those of the Holding Company.  The Merger was accounted for in
a manner similar to a pooling of interests.

     The  Bank  was  organized  as  a  federally   chartered  savings  and  loan
association in 1875. The Bank is the oldest  independent  financial  institution
headquartered in Jefferson County, Indiana. Citizens was organized as a national
bank  in  1981  and,  until  the  Merger,   conducted  its  business  from  four
full-service  offices, all located in Jefferson County,  Indiana.  Following the
Merger,  these  offices  became  branch  offices  of  the  Bank.  Prior  to  the
Conversion,  the Bank conducted its business from three full-service offices and
one stand-alone drive-through branch, all located in Jefferson County, Indiana.

     As a result of the  Acquisition,  the  Holding  Company  became  subject to
regulation  as a bank  holding  company by the Board of Governors of the Federal
Reserve System (the "FRB").  As a condition to the Holding Company obtaining the
requisite  approval  from  the FRB  for the  Acquisition,  the  Holding  Company
committed to cause the Bank to (i) enter into a definitive agreement to sell the
Bank's Hanover, Indiana branch prior to consummation of the Acquisition and (ii)
complete  the  sale of the  Hanover,  Indiana  branch,  including  the  physical
facilities  and  deposits  originated  at  that  branch,   within  180  days  of
consummation  of the  Acquisition.  On  February  28,  1997,  the Bank  sold its
Hanover,  Indiana branch to People's Trust Company based in Brookville,  Indiana
("People's Trust"), pursuant to that commitment.  Deposits totaling $6.8 million
were  assumed by  People's  Trust,  and the Bank  recorded  an after tax gain of
$125,000  on the  transaction.  As a  result  of the  Merger  and the  resulting
termination of Citizens' status as a national banking  association,  the Holding
Company is no longer subject to regulation by the FRB as a bank holding  company
and is instead  regulated by the Office of Thrift  Supervision  (the "OTS") as a
savings and loan holding company.

     The Bank  historically  has  concentrated  its  lending  activities  on the
origination  of  loans  secured  by  first  mortgage  liens  for  the  purchase,
construction,  or refinancing of one- to four- family residential real property.
One- to four-family residential mortgage loans continue to be the major focus of
the Bank's loan origination  activities,  representing 45.1% of the Bank's total
loan  portfolio at December 31, 2001.  The Bank had not  identified any loans as
held for sale at December 31, 2001. The Bank also offers  multi-family  mortgage
loans,  non-residential  real  estate  loans,  land loans,  construction  loans,
nonmortgage  commercial  loans and consumer loans.  Its principal market area is
Jefferson County, Indiana and adjoining counties.

     Loan Portfolio  Data. The following table sets forth the composition of the
Bank's loan  portfolio,  including loans held for sale, as of December 31, 2001,
2000 and 1999 by loan type as of the dates indicated, including a reconciliation
of gross loans receivable after  consideration of the allowance for loan losses,
deferred loan origination costs and loans in process.
<TABLE>
<CAPTION>
                                                                 At December 31,
                                            -----------------------------------------------------------
                                                 2001                 2000                 1999
                                            -----------------  -------------------    -----------------
                                                     Percent                Percent                Percent
                                            Amount   of Total    Amount     of Total    Amount     of Total
                                            ------   --------    ------     --------    ------     --------
TYPE OF LOAN                                                 (Dollars in thousands)
<S>                                         <C>        <C>      <C>           <C>      <C>          <C>
Residential real estate:
  One-to four-family......................  $73,431    45.1%    $  77,304     52.0%    $  69,588    58.6%
  Multi-family............................    3,932     2.4         3,319      2.2         2,918     2.5
  Construction............................    6,874     4.2         6,827      4.6         4,163     3.5
Nonresidential real estate................   36,898    22.7        25,944     17.4        12,758    10.7
Land loans................................    4,994     3.1         4,269      2.9        10,079     8.5
Consumer loans:
  Automobile loans........................   12,320     7.6        11,118      7.5         6,922     5.8
  Loans secured by deposits...............      537      .3           574       .4           548      .5
  Home improvement loans..................       --      --             6       --            34      --
  Other...................................    4,549     2.8         2,988      2.0         2,040     1.7
Commercial loans..........................   19,216    11.8        16,361     11.0         9,780     8.2
                                           --------    ----      --------     ----      --------    ----
Gross loans receivable....................  162,751   100.0       148,710    100.0       118,830   100.0

Add/(Deduct):
  Deferred loan origination costs.........      356      .2           324       .2           245      .2
  Undisbursed portions of loans in
    process...............................   (3,163)   (2.0)       (6,362)    (4.3)       (2,422)   (2.0)
  Allowance for loan losses...............   (1,972)   (1.3)       (1,702)    (1.1)       (1,522)   (1.3)
                                           --------    ----      --------     ----      --------    ----
Net loans receivable...................... $157,972    96.9%     $140,970     94.8%     $115,131    96.9%
                                           ========    ====      ========     ====      ========    ====
</TABLE>


<PAGE>

     The  following  table sets forth certain  information  at December 31, 2001
regarding the dollar amount of loans maturing in the Bank's loan portfolio based
on the  contractual  terms to  maturity.  Demand  loans,  loans having no stated
schedule of repayments and no stated maturity and overdrafts are reported as due
in one year or less.  This  schedule  does not  reflect  the effects of possible
prepayments  or  enforcement  of   due-on-sale   clauses.   Management   expects
prepayments will cause actual maturities to be shorter.

<TABLE>
<CAPTION>
                                                              Due During Years Ended December 31,
                                                ------------------------------------------------------------------------
                                   Balance
                                Outstanding at                                   2005       2007       2012      2017
                                December 31,                                      to         to         to        and
                                    2001          2002      2003      2004       2006       2011       2016    following
                                --------------  --------   -------   -------   --------   --------   --------  ---------
                                                                  (In thousands)
<S>                               <C>           <C>        <C>       <C>       <C>        <C>        <C>        <C>
Residential real estate loans:
  One-to four-family............  $ 73,431      $ 1,054    $  252    $  347    $ 1,364    $ 6,571    $14,703    $49,140
  Multi-family..................     3,932           --         3        --         16        480        883      2,550
  Construction..................     6,874        6,874        --        --         --         --         --         --
Nonresidential
  Real estate loans.............    36,898        4,906        17        99        554      2,186      7,033     22,103
Land loans......................     4,994        2,476       276        28         47        432        560      1,175
Consumer loans:
  Loans secured by deposits.....       537          298        11        98         98         24         --          8
  Other loans...................    16,869        1,078     1,349     2,974      9,396      1,568        504         --
Commercial loans................    19,216        9,443     1,042       495      2,380      1,478      2,070      2,308
                                  --------      -------    ------    ------    -------    -------    -------    -------
   Total........................  $162,751      $26,129    $2,950    $4,041    $13,855    $12,739    $25,753    $77,284
                                  ========      =======    ======    ======    =======    =======    =======    =======
</TABLE>

     The following  table sets forth, as of December 31, 2001, the dollar amount
of all loans due after one year that have fixed  interest  rates and floating or
adjustable interest rates.

                                          Due After December 31, 2002
                                   ---------------------------------------------
                                   Fixed Rates     Variable Rates       Total
                                   -----------     --------------     ---------
                                                   (In thousands)
Residential real estate loans:
  One-to four-family ............   $ 14,446          $ 57,931         $ 72,377
  Multi-family ..................        846             3,086            3,932
  Construction ..................         --                --               --
Non-residential real estate loans      5,092            26,900           31,992
Land loans ......................        816             1,702            2,518
Consumer loans:
  Loans secured by deposits .....        239                --              239
  Other loans ...................     15,628               163           15,791
Commercial loans ................      5,386             4,387            9,773
                                    --------          --------         --------
    Total .......................   $ 42,453          $ 94,169         $136,622
                                    ========          ========         ========

     Residential   Loans.   Residential  loans  consist  primarily  of  one-  to
four-family loans. Approximately $73.4 million, or 45.1% of the Bank's portfolio
of loans,  at December 31, 2001,  consisted of one- to  four-family  residential
loans, of which approximately 80.0% had adjustable rates.

     The Bank currently offers  adjustable rate one- to four-family  residential
mortgage loans  ("ARMs")  which adjust  annually and are indexed to the one-year
U.S. Treasury securities yields adjusted to a constant maturity,  although until
late 1995, the Bank's ARMs were indexed to the 11th District Cost of Funds. Some
of the Bank's  residential  ARMs are  originated  at a discount or "teaser" rate
which is generally 150 to 175 basis points below the "fully indexed" rate. These
ARMs then  adjust  annually  to maintain a margin  above the  applicable  index,
subject to maximum  rate  adjustments  discussed  below.  The Bank's ARMs have a
current margin above such index of 2.5% for  owner-occupied  properties and 3.0%
for  non-owner-occupied  properties.  A  substantial  portion of the ARMs in the
Bank's  portfolio at December 31, 2001 provide for maximum rate  adjustments per
year and over the life of the loan of 1% and 4%, respectively, although the Bank
also originates  residential ARMs which provide for maximum rate adjustments per
year and over the life of the loan of 1.5% and 6%, respectively. The Bank's ARMs
generally  provide for interest rate minimums of 1% below the origination  rate.
The Bank's residential ARMs are amortized for terms up to 30 years.

     Adjustable rate loans decrease the risk associated with changes in interest
rates but involve other risks,  primarily  because as interest  rates rise,  the
payments by the borrowers  may rise to the extent  permitted by the terms of the
loan, thereby increasing the potential for default.  Also, adjustable rate loans
have features which restrict changes in interest rates on a short-term basis and
over the life of the loan. At the same time,  the market value of the underlying
property may be adversely affected by higher interest rates.

     The Bank  currently  offers  fixed  rate  one- to  four-family  residential
mortgage  loans which  provide for the payment of principal  and  interest  over
periods of 10 to 30 years.  Prior to the Merger,  the Bank  retained  all of its
fixed rate  residential  mortgage  loans in its  portfolio;  however,  after the
effective  date of the  Merger,  the Bank  began  underwriting  its  fixed  rate
residential  mortgage loans for potential sale to the Federal Home Loan Mortgage
Corporation (the "FHLMC") on a  servicing-retained  basis. At December 31, 2001,
approximately 20.0% of the Bank's one- to four-family residential mortgage loans
had fixed rates.

     Before  the  Merger,  Citizens  offered  fixed  rate  one-  to  four-family
residential mortgage loans in accordance with the guidelines  established by the
FHLMC to facilitate the sale of such loans to the FHLMC in the secondary market.
These loans  amortized on a monthly  basis with  principal and interest due each
month and were written with terms of 15, 20 and 30 years.  Citizens retained the
servicing on all loans sold to the FHLMC.  At December  31,  2001,  the Bank had
approximately $56.1 million of fixed rate residential  mortgage loans which were
sold to the FHLMC and for which the Bank provides servicing.

     The Bank  generally  does not  originate  one- to  four-family  residential
mortgage loans if the ratio of the loan amount to the lesser of the current cost
or appraised value of the property (the  "Loan-to-Value  Ratio") exceeds 95% and
generally  does  not  originate  one-  to  four-family  residential  ARMs if the
Loan-to-Value  Ratio exceeds 80%. The Bank generally  requires  private mortgage
insurance  on all  conventional  one- to  four-family  residential  real  estate
mortgage  loans  with  Loan-to-Value  Ratios in excess of 80%.  The cost of such
insurance is factored into the annual percentage yield on such loans, and is not
automatically  eliminated when the principal balance is reduced over the term of
the loan.

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

     At December 31, 2001, the Bank had outstanding  approximately  $4.8 million
of home equity loans,  with unused lines of credit totaling  approximately  $4.6
million.  No home equity loans were  included in  non-performing  assets on that
date. The Bank's home equity lines of credit are adjustable rate lines of credit
tied to the prime rate and are amortized based on a 10- to 20-year maturity. The
Bank  generally  allows a maximum  90%  Loan-to-Value  Ratio for its home equity
loans  (taking into account any other  mortgages on the  property).  Payments on
such home  equity  loans  equal 1.5% of the  outstanding  principal  balance per
month.

     The Bank also offers indemnification  mortgage loans ("ID Mortgage Loans"),
which are typically  written as fixed rate second mortgage loans.  The Bank's ID
Mortgage  Loans are written for terms of five years and  generally  have maximum
Loan-to-Value Ratios of 80%.

     The Bank also offers standard  second mortgage loans,  which are adjustable
rate loans tied to the U.S.  Treasury  securities  yields adjusted to a constant
maturity  with a current  margin  above  such  index of 3%.  The  Bank's  second
mortgage loans have maximum rate  adjustments per year and over the terms of the
loans equal to 1% and 4%,  respectively.  The Bank's second  mortgage loans have
terms of 10 to 30 years.

     At December 31, 2001, $37,000 of one- to four-family  residential  mortgage
loan,  or 0.02% of total  loans,  were  included  in the  Bank's  non-performing
assets.

     Construction  Loans.  The Bank offers  construction  loans with  respect to
residential and nonresidential real estate and, in certain cases, to builders or
developers constructing such properties on a speculative basis (i.e., before the
builder/developer obtains a commitment from a buyer).

     Generally, construction loans are written as 12-month fixed rate loans with
interest  calculated  on the amount  disbursed  under the loan and  payable on a
semi-annual or monthly basis. The Bank generally  requires an 80%  Loan-to-Value
Ratio  for  its  construction  loans,  although  the  Bank  may  permit  an  85%
Loan-to-Value  Ratio for one- to  four-family  residential  construction  loans.
Inspections  are generally made prior to any  disbursement  under a construction
loan, and the Bank does not charge commitment fees for its construction loans.

     At  December  31,  2001,  $6.9  million,  or 4.2% of the Bank's  total loan
portfolio,  consisted of construction  loans. The largest  construction  loan at
December 31, 2001  totaled  $720,000.  No  construction  loans were  included in
non-performing assets on that date.

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

     Nonresidential  Real Estate Loans. At December 31, 2001, $36.9 million,  or
22.7% of the Bank's portfolio,  consisted of  nonresidential  real estate loans.
Nonresidential  real estate loans are  primarily  secured by real estate such as
churches,   farms   and  small   business   properties.   The  Bank   originates
nonresidential  real estate loans as one-year  adjustable  rate loans indexed to
the one-year U.S. Treasury  securities  yields adjusted to a constant  maturity,
written for maximum terms of 30 years. The Bank's adjustable rate nonresidential
real estate  loans have  maximum  adjustments  per year and over the life of the
loan of 1% and 4%,  respectively,  and  interest  rate  minimums of 1% below the
origination  rate. The Bank generally  requires a  Loan-to-Value  Ratio of up to
80%, depending on the nature of the real estate collateral.

     The Bank underwrites its nonresidential real estate loans on a case-by-case
basis and,  in  addition  to its normal  underwriting  criteria,  evaluates  the
borrower's  ability to  service  the debt from the net  operating  income of the
property.  The Bank's largest nonresidential real estate loan as of December 31,
2001 was $2.8 million and was secured by three commercial buildings in (or close
in proximity to) Madison,  Indiana.  Nonresidential  real estate loans  totaling
$164,000 were included in non-performing assets at December 31, 2001.

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

     Multi-family  Loans. At December 31, 2001,  approximately $3.9 million,  or
2.4% of the Bank's total loan portfolio,  consisted of mortgage loans secured by
multi-family  dwellings  (those  consisting  of more than four units).  The Bank
writes  multi-family loans on terms and conditions similar to its nonresidential
real estate loans. The largest  multi-family  loan in the Bank's portfolio as of
December  31,  2001 was $1.5  million  and was  secured  by a 46-unit  apartment
complex  in  Hanover,   Indiana.   No   multi-family   loans  were  included  in
non-performing assets on that date.

     Multi-family  loans,  like  nonresidential  real  estate  loans,  involve a
greater risk than  residential  loans.  See  "Nonresidential  Real Estate Loans"
above. Also, the loan-to-one  borrower  limitations  restrict the ability of the
Bank to make loans to developers of apartment  complexes and other  multi-family
units.

     Land Loans. At December 31, 2001,  approximately  $5.0 million,  or 3.1% of
the  Bank's  total  loan  portfolio,  consisted  of  mortgage  loans  secured by
undeveloped  real estate.  The Bank's land loans are generally  written on terms
and  conditions  similar to its  nonresidential  real estate loans.  Some of the
Bank's land loans are land  development  loans;  i.e., the proceeds of the loans
are used for  improvements  to the real estate  such as streets  and sewers.  At
December 31, 2001, the Bank's largest land loan totaled $980,000.

     Land loans totaling  $18,000,  or 0.01% of the Bank's total loan portfolio,
were included in  non-performing  assets as of December 31, 2001. Such loans are
more risky than conventional loans since land development borrowers who are over
budget may divert the loan funds to cover cost-overruns  rather than direct them
toward the purpose for which such loans were made. In addition,  those loans are
more  difficult  to  monitor  than  conventional  mortgage  loans.  As  such,  a
defaulting  borrower  could cause the Bank to take title to  partially  improved
land that is unmarketable without further capital investment.

     Commercial  Loans.  At December 31, 2001,  $19.2  million,  or 11.8% of the
Bank's total loan  portfolio,  consisted of nonmortgage  commercial  loans.  The
Bank's commercial loans are written on either a fixed rate or an adjustable rate
basis  with  terms  that vary  depending  on the type of  security,  if any.  At
December  31,  2001,  approximately  16.9% of the Bank's  commercial  loans were
secured by  collateral,  such as  equipment,  inventory  and  crops.  The Bank's
adjustable  rate commercial  loans are generally  indexed to the prime rate with
varying margins and terms depending on the type of collateral securing the loans
and the credit  quality of the  borrowers.  At December  31,  2001,  the largest
commercial loan was $1.1 million. As of the same date, commercial loans totaling
$346,000 were included in non-performing assets.

     Commercial  loans  tend to bear  somewhat  greater  risk  than  residential
mortgage loans,  depending on the ability of the underlying  enterprise to repay
the loan. Further,  they are frequently larger in amount than the Bank's average
residential mortgage loans.

     Consumer Loans.  The Bank's consumer  loans,  consisting  primarily of auto
loans, home improvement  loans,  unsecured  installment  loans, loans secured by
deposits  and  mobile  home  loans  aggregated  approximately  $17.4  million at
December  31,  2001,  or 10.7% of the  Bank's  total  loan  portfolio.  The Bank
consistently originates consumer loans to meet the needs of its customers and to
assist in  meeting  its  asset/liability  management  goals.  All of the  Bank's
consumer  loans,  except loans  secured by  deposits,  are fixed rate loans with
terms that vary from six months (for unsecured  installment  loans) to 60 months
(for home improvement loans and loans secured by new  automobiles).  At December
31, 2001, 89.0% of the Bank's consumer loans were secured by collateral.

     The Bank's  loans  secured by deposits are made in amounts up to 90% of the
current account balance and accrue at a rate of 2% over the underlying  passbook
or certificate of deposit rate.

     The Bank offers both direct and indirect automobile loans. Under the Bank's
indirect  automobile  program,  participating  automobile  dealers  receive loan
applications from prospective purchasers of automobiles at the point of sale and
deliver them to the Bank for  processing.  The dealer  receives a portion of the
interest payable on approved loans.

     Consumer loans may entail  greater risk than  residential  mortgage  loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly  depreciable  assets,  such as  automobiles.  Further,  any  repossessed
collateral for a defaulted  consumer loan may not provide an adequate  source of
repayment  of  the  outstanding  loan  balance.   In  addition,   consumer  loan
collections depend upon the borrower's continuing financial stability,  and thus
are more likely to be affected by adverse personal  circumstances.  Furthermore,
the  application  of various  federal and state laws,  including  bankruptcy and
insolvency  laws, may limit the amount which can be recovered on such loans.  At
December  31,  2001,  consumer  loans  amounting  to $164,000  were  included in
non-performing assets.

     Origination,  Purchase  and  Sale  of  Loans.  The  Bank  historically  has
originated  its ARMs pursuant to its own  underwriting  standards  which did not
conform with the  standard  criteria of the FHLMC or Federal  National  Mortgage
Association  ("FNMA").  The Bank's ARMs varied from  secondary  market  criteria
because,  among other things,  the Bank did not require current property surveys
in most  cases and did not permit the  conversion  of those  loans to fixed rate
loans in the first  three  years of its term.  If the Bank  desired  to sell its
non-conforming ARMs, it may experience  difficulty in selling such loans quickly
in the secondary market.

     The Bank began  underwriting  fixed  rate  residential  mortgage  loans for
potential  sale to the FHLMC on a  servicing-retained  basis  after the  Merger.
Prior to the Merger,  Citizens also  originated  loans for sale to the FHLMC and
retained servicing rights for a fee of one-fourth of 1% of the principal balance
of all loans serviced.  Loans  originated for sale to the FHLMC in the secondary
market are originated in accordance with the guidelines established by the FHLMC
and are sold promptly after they are  originated.  The Bank receives a servicing
fee of  one-fourth  of 1% of the  principal  balance of all loans  serviced.  At
December 31, 2001, the Bank serviced $56.1 million in loans sold to the FHLMC.

     The Bank confines its loan  origination  activities  primarily to Jefferson
County and  surrounding  counties.  At December  31,  2001,  the Bank held loans
totaling  approximately  $16.0  million  that were  secured by property  located
outside of Indiana.  The Bank's loan  originations  are generated from referrals
from  existing  customers,  real estate  brokers and  newspaper  and  periodical
advertising.  Loan applications are taken at any of the Bank's four full-service
offices.

     The Bank's loan approval  processes  are intended to assess the  borrower's
ability to repay the loan,  the  viability  of the loan and the  adequacy of the
value of the  property  that will  secure  the loan.  To assess  the  borrower's
ability to repay,  the Bank  evaluates  the  employment  and credit  history and
information  on  the  historical  and  projected  income  and  expenses  of  its
borrowers.

     Under the Bank's lending policy,  a loan officer may approve mortgage loans
up to $75,000,  a Senior Loan Officer may approve  mortgage loans up to $150,000
and the President may approve mortgage loans up to $240,000.  All other mortgage
loans  must be  approved  by at  least  four  members  of the  Bank's  Board  of
Directors.  The lending  policy  further  provides that loans secured by readily
marketable  collateral,  such as stock, bonds and certificates of deposit may be
approved by a Loan Officer for up to $75,000, by a Senior Loan Officer for up to
$150,000 and by the President up to $300,000.  Loans  secured by other  non-real
estate  collateral  may be  approved by a Loan  Officer for up to $25,000,  by a
Senior Loan Officer up to $75,000 and by the President up to $150,000.  Finally,
the  lending  policy  provides  that  unsecured  loans may be approved by a Loan
Officer or Senior Loan Officer up to $10,000 or by the  President up to $25,000.
All other unsecured loans or loans secured by non-real estate collateral must be
approved by at least four members of the Bank's Board of Directors.

     The Bank generally  requires  appraisals on all real property  securing its
loans and requires an attorney's  opinion or title insurance and a valid lien on
the mortgaged real estate.  Appraisals for all real property  securing  mortgage
loans are performed by independent  appraisers who are state-licensed.  The Bank
requires fire and extended  coverage  insurance in amounts at least equal to the
principal  amount of the loan and also requires  flood  insurance to protect the
property  securing the loan if the  property is in a flood plain.  The Bank also
generally requires private mortgage insurance for all residential mortgage loans
with Loan-to-Value  Ratios of greater than 80%. The Bank does not require escrow
accounts for insurance premiums or taxes.

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

     The  Bank  occasionally  purchases   participations  in  commercial  loans,
nonresidential   real  estate  and  multi-family   loans  from  other  financial
institutions.  At  December  31,  2001,  the  Bank  held in its  loan  portfolio
participations in these types of loans aggregating  approximately  $151,000 that
it had purchased,  all of which were serviced by others. The Bank generally does
not sell participations in any loans that it originates.

     The following table shows loan  origination and repayment  activity for the
Bank during the periods indicated:

                                                Year Ended December 31,
                                            -------------------------------
                                              2001       2000       1999
                                            -------------------------------
                                                    (In thousands)
Loans Originated:
   Residential real estate loans(1) .....   $ 76,409   $ 24,630   $ 28,816
   Multi-family loans ...................        730        133      2,092
   Construction loans ...................     12,638     13,120      4,838
   Non-residential real estate loans ....     21,486     17,308      3,995
   Land loans ...........................      2,363      2,499      4,554
   Consumer and other loans .............     14,610     12,708      5,945
   Commercial loans .....................     19,626     14,768      6,625
      Total loans originated ............    147,862     85,166     56,865
Reductions:
   Sales ................................     45,790      2,614     14,253
   Principal loan repayments and other(2)     85,070     56,713     39,866
      Total reductions ..................    130,860     59,327     54,119
   Net increase .........................   $ 17,002   $ 25,839   $  2,746
                                            ========   ========   ========
-------------------------------
(1)  Includes loans originated for sale in the secondary market.
(2)  Other items consist of amortization of deferred loan origination costs, the
     provision  for losses on loans and net  charges to the  allowance  for loan
     losses.

     Origination and Other Fees. The Bank realizes income from loan  origination
fees, loan servicing fees,  late charges,  checking  account service charges and
fees for other  miscellaneous  services.  Late charges are generally assessed if
payment is not received  within a specified  number of days after it is due. The
grace period depends on the individual loan documents.

Non-Performing and Problem Assets

     Mortgage  loans are reviewed by the Bank on a regular  basis and are placed
on a non-accrual  status when management  determines that the  collectibility of
the interest is less than  probable or  collection of any amount of principal is
in doubt. Generally, when loans are placed on non-accrual status, unpaid accrued
interest is written off,  and further  income is  recognized  only to the extent
received.  The Bank  delivers  delinquency  notices with respect to all mortgage
loans  contractually  past due 5 to 10 days.  When loans are 30 days in default,
personal contact is made with the borrower to establish an acceptable  repayment
schedule.  Management is authorized to commence foreclosure  proceedings for any
loan upon making a determination that it is prudent to do so.

     Commercial and consumer  loans are treated  similarly.  Interest  income on
consumer, commercial and other nonmortgage loans is accrued over the term of the
loan except when serious  doubt exists as to the  collectibility  of a loan,  in
which case accrual of interest is discontinued  and the loan is written-off,  or
written down to the fair value of the  collateral  securing the loan.  It is the
Bank's  policy  to  recognize  losses  on  these  loans  as soon as they  become
apparent.

     Non-performing  Assets.  At  December  31,  2001,  $690,000,  or  0.36%  of
consolidated total assets,  were non-performing  loans compared to $621,000,  or
0.38% of consolidated total assets, at December 31, 2000. The Bank had no REO at
December 31, 2001.

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

                                                    At December 31,
                                               ----------------------------
                                                 2001     2000      1999
                                               -------- --------- ---------
                                                      (In thousands)
Non-performing assets:
  Non-performing loans .....................   $  690    $  621    $  857
  Troubled debt restructurings .............    1,486     1,314       835
                                               ------    ------    ------
    Total non-performing loans and troubled
      debt restructurings ..................    2,176     1,935     1,692
  Foreclosed real estate ...................       --        --        --
                                               ------    ------    ------
    Total non-performing assets ............   $2,176    $1,935    $1,692
                                               ======    ======    ======
Total non-performing loans and troubled debt
  restructurings to total loans ............     1.34%     1.30%     1.42%
                                                 ====      ====      ====
Total non-performing assets to total assets.     1.14%     1.19%     1.22%
                                                 ====      ====      ====

     At December 31,  2001,  the Bank held loans  delinquent  from 30 to 89 days
totaling  $847,000.  Other  than  in  connection  with  these  loans  and  other
delinquent  loans  disclosed in this  section,  management  was not aware of any
other borrowers who were experiencing financial difficulties. In addition, there
were no other assets that would need to be disclosed as non-performing assets.


<PAGE>

     Delinquent  Loans.  The following  table sets forth certain  information at
December  31,  2001,  2000 and 1999  relating  to  delinquencies  in the  Bank's
portfolio.  Delinquent  loans  that are 90 days or more past due are  considered
non-performing assets.
<TABLE>
<CAPTION>
                            At December 31, 2001                At December 31, 2000                At December 31, 1999
                    ------------------------------------ ----------------------------------- -----------------------------------
                        30-89 Days      90 Days or More     30-89 Days      90 Days or More     30-89 Days      90 Days or More
                    ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
                             Principal         Principal         Principal         Principal         Principal         Principal
                     Number  Balance   Number  Balance   Number  Balance   Number  Balance   Number  Balance   Number  Balance
                    of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
                    -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
                                                               (Dollars in thousands)
Residential real
<S>                      <C>   <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>     <C>      <C>      <C>
  estate loans .....     5     $110      1       $ 37      4       $ 98      2       $171      5       $186     15       $726
Multi-family loans..    --       --     --         --     --         --     --         --     --         --     --         --
Construction loans..    --       --     --         --     --         --      1        115     --         --     --         --
Land loans .........     1       52      1         18     --         --      1        214     --         --      1         36
Non-residential
  real estate loans.    --       --      1        164     --         --     --         --     --         --     --         --
Consumer loans .....    44      333     19        125     17         82     13         72     32        133     13         72
Commercial loans ...     8      352     15        346      4         60      2         49      2         15      2         23
                        --     ----     --       ----     --       ----     --       ----     --       ----     --       ----
  Total ............    58     $847     37       $690     25       $240     19       $621     39       $334     31       $857
                        ==     ====     ==       ====     ==       ====     ==       ====     ==       ====     ==       ====
Delinquent loans to
  total loans.......                            0.94%                               0.58%                               1.00%
                                                ====                                ====                                ====
</TABLE>

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

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

     At December 31, 2001, the aggregate amount of the Bank's  classified assets
and general and specific loss allowances were as follows:

                                                 At December 31, 2001
                                                 --------------------
                                                    (In thousands)
Substandard assets ................................       $1,078
Doubtful assets ...................................          297
Loss assets .......................................            0
                                                          ------
         Total classified assets ..................       $1,375
                                                          ======
General loss allowances ...........................        1,765
Specific loss allowances ..........................          207
                                                          ------
         Total allowances .........................       $1,972
                                                          ======


     The Bank  regularly  reviews its loan  portfolio to  determine  whether any
loans require classification in accordance with applicable regulations.  Not all
of the Bank's classified assets constitute non-performing assets.

Allowance for Loan Losses

     The allowance for loan losses is maintained  through the provision for loan
losses,  which  is  charged  to  earnings.  The  provision  for loan  losses  is
determined in  conjunction  with  management's  review and evaluation of current
economic conditions (including those of the Bank's lending area), changes in the
character and size of the loan portfolio,  loan delinquencies (current status as
well as past and  anticipated  trends) and adequacy of collateral  securing loan
delinquencies,  historical  and estimated net  charge-offs  and other  pertinent
information  derived  from a  review  of the  loan  portfolio.  In  management's
opinion,  the Bank's  allowance  for loan losses is adequate to absorb  probable
losses from loans at December 31, 2001. However,  there can be no assurance that
regulators,  when  reviewing the Bank's loan  portfolio in the future,  will not
require  increases in its allowances for loan losses or that changes in economic
conditions will not adversely affect the Bank's loan portfolio.


<PAGE>

     Summary of Loan Loss  Experience.  The following table analyzes  changes in
the allowance during the five years ended December 31, 2001.
<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                      -------------------------------------------------------
                                                       2001        2000         1999        1998        1997
                                                      ------      ------       ------      ------      ------
                                                                         (Dollars in thousands)
<S>                                                   <C>         <C>          <C>         <C>         <C>
Balance at beginning of period..................      $1,702      $1,522       $1,477      $1,276      $1,190
Charge-offs:
  Single-family residential.....................         (31)         (4)         (17)         --          --
  Consumer......................................        (107)        (71)         (86)       (140)       (254)
  Commercial....................................         (73)         (9)         (20)        (83)        (15)
                                                      ------      ------       ------      ------      ------
    Total charge-offs...........................        (211)        (84)        (123)       (223)       (269)
Recoveries......................................          31          37           28         149          51
                                                      ------      ------       ------      ------      ------
  Net charge-offs...............................        (180)        (47)         (95)        (74)       (218)
Provision for losses on loans...................         450         227          140         275         304
Increase due to Acquisition.....................          --          --           --          --          --
                                                      ------      ------       ------      ------      ------
  Balance at end of period......................      $1,972      $1,702       $1,522      $1,477      $1,276
                                                      ======      ======       ======      ======      ======
Allowance for loan losses as a percent of
  total loans outstanding before net items......       1.21%       1.15%        1.28%       1.29%       1.13%
                                                       ====        ====         ====        ====        ====
Ratio of net charge-offs to average loans
  outstanding before net items..................       0.12%       0.03%        0.08%       0.06%       0.20%
                                                       ====        ====         ====        ====        ====
</TABLE>

     Allocation of Allowance for Loan Losses.  The following  table  presents an
analysis of the allocation of the Bank's  allowance for loan losses at the dates
indicated.
<TABLE>
<CAPTION>
                                                    At December 31,
                               ------------------------------------------------------------
                                     2001                 2000                 1999
                               ------------------  --------------------  ------------------
                                         Percent              Percent              Percent
                                         of loans             of loans             of loans
                                         in each              in each              in each
                                         category             category             category
                                         to total             to total             to total
                               Amount     loans     Amount     loans     Amount     loans
                               ------    --------   ------    --------   ------    --------
                                                   (Dollars in thousands)
<S>                            <C>         <C>      <C>         <C>      <C>         <C>
Balance at end of
period applicable to:
Residential real estate ....   $  610      51.7%    $  346      58.8%    $    4      64.6%
Nonresidential real estate..      156      25.8         --      20.3         --      19.2
Consumer loans .............      626      10.7        403       9.9        109       8.0
Commercial loans ...........      365      11.8        106      11.0         --       8.2
Unallocated ................      215      --          847        --      1,409        --
                               ------     -----     ------     -----     ------     -----
  Total ....................   $1,972     100.0%    $1,702     100.0%    $1,522     100.0%
                               ======     =====     ======     =====     ======     =====

</TABLE>

Investments and Mortgage-Backed Securities

     Investments.  The Bank's investment  portfolio  (excluding  mortgage-backed
securities) consists of U.S. government and agency obligations, corporate bonds,
municipal  securities and Federal Home Loan Bank ("FHLB") stock. At December 31,
2001, the  investments  in the portfolio had a carrying  value of  approximately
$18.1 million, or 9.4%, of the consolidated total assets.


<PAGE>
     The following  table sets forth the amortized  cost and the market value of
the Bank's investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                    At December 31,
                               ---------------------------------------------------------
                                      2001                2000                1999
                               -----------------   ------------------  -----------------
                               Amortized  Market   Amortized   Market  Amortized  Market
                                 Cost     Value      Cost      Value     Cost     Value
                               ---------  ------   ---------   ------  ---------  ------
                                                       (In thousands)
<S>                            <C>       <C>       <C>       <C>       <C>       <C>
Held to Maturity:
  U.S. Government and agency
    obligations ............   $    --   $    --   $    --   $    --   $ 1,000   $   995
Available for Sale:
  U.S. Government and agency
    obligations ............    14,756    14,835     4,921     4,989        --        --
  Commercial paper .........        --        --        --        --     2,972     2,957
  Corporate bonds ..........     1,645     1,640        --        --     1,000     1,000
  Municipal securities .....       335       347       336       340       276       273
                               -------   -------   -------   -------   -------   -------
  Total available for sale .    16,736    16,822     5,257     5,329     4,248     4,230
FHLB stock .................     1,250     1,250       943       943       943       943
                               -------   -------   -------   -------   -------   -------
   Total investments .......   $17,986   $18,072   $ 6,200   $ 6,272   $ 6,191   $ 6,168
                               =======   =======   =======   =======   =======   =======
</TABLE>

     The  following  table  sets  forth  the  amount  of  investment  securities
(excluding FHLB stock) which mature during each of the periods indicated and the
weighted average yields for each range of maturities at December 31, 2001.
<TABLE>
<CAPTION>
                                                      Amount at December 31, 2001 which matures in
                                      ---------------------------------------------------------------------------
                                            One Year          One Year            Five to             After
                                            or Less         to Five Years        Ten Years          Ten Years
                                      -----------------  ------------------  ------------------ -----------------
                                      Amortized Average  Amortized Average   Amortized Average  Amortized Average
                                         Cost    Yield      Cost    Yield       Cost    Yield      Cost    Yield
                                      --------- -------  --------- -------   --------- -------  --------- -------
                                                                  (Dollars in thousands)
<S>                                       <C>     <C>     <C>       <C>         <C>       <C>      <C>       <C>
U.S. Government and agency
   obligations......................      $--     --%     $14,756   4.39%       $--       --%      $--       --%
Municipal Securities................       --     --          275   6.65         60     8.27        --       --
Corporate Bonds.....................       --     --        1,645   5.72         --       --        --       --
</TABLE>

     Mortgage-Backed   Securities.   The   Bank   maintains   a   portfolio   of
mortgage-backed   pass-through  securities  in  the  form  of  FHLMC,  FNMA  and
Government National Mortgage  Association ("GNMA")  participation  certificates.
Mortgage-backed  pass-through securities generally entitle the Bank to receive a
portion of the cash flows from an  identified  pool of  mortgages  and gives the
Bank an interest in that pool of mortgages.  FHLMC, FNMA and GNMA securities are
each guaranteed by its respective agencies as to principal and interest.  Except
for an $8,000 investment in interest-only certificates, the Bank does not invest
in any derivative products.

     Although  mortgage-backed  securities  generally yield less than individual
loans   originated  by  the  Bank,  they  present  less  credit  risk.   Because
mortgage-backed  securities have a lower yield relative to current market rates,
retention  of such  investments  could  adversely  affect the  Bank's  earnings,
particularly  in  a  rising  interest  rate  environment.   The  mortgage-backed
securities  portfolio  is  generally  considered  to have very low  credit  risk
because they are guaranteed as to principal repayment by the issuing agency.

     In  addition,  the  Bank  has  purchased  adjustable  rate  mortgage-backed
securities  as part of its effort to reduce its interest  rate risk. In a period
of declining  interest  rates,  the Bank is subject to  prepayment  risk on such
adjustable rate mortgage-backed  securities.  The Bank attempts to mitigate this
prepayment  risk by  purchasing  mortgage-backed  securities  at or near par. If
interest  rates rise in general,  the  interest  rates on the loans  backing the
mortgage-backed securities will also adjust upward, subject to the interest rate
caps in the underlying  mortgage  loans.  However,  the Bank is still subject to
interest rate risk on such  securities if interest  rates rise faster than 1% to
2% maximum annual interest rate adjustments on the underlying loans.
<PAGE>

     At  December  31,  2001,  the Bank had  mortgage-backed  securities  with a
carrying  value of  approximately  $838,000  all of  which  were  classified  as
available for sale. These  mortgage-backed  securities may be used as collateral
for borrowings and, through repayments, as a source of liquidity.

     The following  table sets forth the amortized  cost and market value of the
Bank's mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
                                                              At December 31,
                                        -------------------------------------------------------
                                                2001               2000              1999
                                        ------------------  ----------------- -----------------
                                        Amortized   Market  Amortized  Market Amortized  Market
                                           Cost     Value     Cost     Value    Cost     Value
                                        ---------   ------  ---------  ------ ---------  ------
                                                              (In thousands)
<S>                                       <C>      <C>      <C>      <C>      <C>      <C>
Held to Maturity:
  Mortgage-backed securities ..........   $   --   $   --   $   --   $   --   $2,138   $2,147
Available for Sale:
  Government agency securities ........      204      207    1,314    1,289    1,511    1,466
  Collateralized mortgage obligations..      634      624      627      629      627      605
                                          ------   ------   ------   ------   ------   ------
    Total mortgage-backed securities...   $  838   $  831   $1,941   $1,918   $4,276   $4,218
                                          ======   ======   ======   ======   ======   ======
</TABLE>

     The  following  table sets forth the amount of  mortgage-backed  securities
which  mature  during each of the periods  indicated  and the  weighted  average
yields for each range of maturities at December 31, 2001.
<TABLE>
<CAPTION>
                                                           Amount at December 31, 2001 which matures in
                                                 ----------------------------------------------------------------
                                                       One Year              One Year                 After
                                                       or Less             to Five Years           Five Years
                                                 -----------------     ------------------    --------------------
                                                 Amortized  Average     Amortized  Average    Amortized   Average
                                                    Cost     Yield        Cost      Yield        Cost      Yield
                                                 ---------  -------     ---------  -------    ---------   -------
                                                                      (Dollars in thousands)
<S>                                                 <C>        <C>         <C>      <C>          <C>       <C>
Mortgage-backed securities available
   for sale..................................       $ --       --%         $212     5.97%        $626      4.69%
</TABLE>

     The  following  table sets forth the changes in the Bank's  mortgage-backed
securities portfolio for the years ended December 31, 2001, 2000 and 1999.
<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                   -----------------------------------------
                                                                    2001             2000              1999
                                                                   ------           ------            ------
                                                                                (In thousands)
<S>                                                                <C>              <C>               <C>
Beginning balance...............................................   $1,918           $4,209            $5,986
Purchases.......................................................       --            1,000                --
Sales proceeds..................................................     (874)          (1,006)               --
Repayments......................................................     (207)          (2,297)           (1,709)
Losses on sales.................................................      (16)             (12)               --
Premium and discount amortization, net..........................       (6)             (20)              (30)
Unrealized gains (losses) on securities available for sale......       16               44               (38)
                                                                  -------           ------            ------
Ending balance..................................................  $   831           $1,918            $4,209
                                                                  =======           ======            ======
</TABLE>


Sources of Funds

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

     Deposits. Deposits are attracted, principally from within Jefferson County,
through the offering of a broad selection of deposit instruments including fixed
rate  certificates  of  deposit,  NOW,  MMDAs  and other  transaction  accounts,
individual retirement accounts and savings accounts.  The Bank does not actively
solicit or advertise for deposits outside of Jefferson County. Substantially all
of the Bank's  depositors  are residents of that county.  Deposit  account terms
vary, with the principal  differences  being the minimum balance  required,  the
amount of time the funds remain on deposit and the interest  rate. The Bank does
not pay a fee for any deposits it receives.

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

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

     An analysis of the Bank's  deposit  accounts by type,  maturity and rate at
December 31, 2001 is as follows:
<TABLE>
<CAPTION>
                                    Minimum    Balance at           Weighted
                                    Opening   December 31,   % of    Average
Type of Account                     Balance      2001      Deposits   Rate
---------------                     -------   ------------ -------- --------
                                               (Dollars in thousands)

<S>                                <C>        <C>            <C>     <C>
Withdrawable:
   Non-interest bearing accounts   $    100   $ 11,406       7.9%      --%
   Savings accounts ............         50     20,089      13.8     2.00
   MMDA ........................        100     13,424       9.2     2.64
   NOW accounts ................        100     17,491      12.0     1.39
                                              --------     -----     ----
     Total withdrawable ........                62,410      42.9     1.60

Certificates (original terms):
   I.R.A .......................        250      5,945       4.1     4.40
   3 months ....................      2,500         64      --       2.43
   6 months ....................      2,500      2,859       2.0     3.44
   9 months ....................      2,500        870       6       4.43
   12 months ...................        500     17,182      11.8     4.42
   15 months ...................        500      8,950       6.1     4.71
   18 months ...................        500      3,134       2.2     5.39
   24 months ...................        500      8,929       6.1     5.56
   30 months ...................        500      1,689       1.2     4.48
   36 months ...................        500      1,276        .9     5.04
   48 months ...................        500        563        .4     5.07
   60 months ...................        500      1,357        .9     5.56
Jumbo certificates .............    100,000     30,343      20.8     4.17
                                              --------     -----     ----
     Total certificates ........                83,161      57.1     4.72
                                              --------     -----     ----
Total deposits .................              $145,571     100.0%    3.27%
                                              ========     =====     ====
</TABLE>


<PAGE>

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

                                   At December 31,
                          --------------------------------
                            2001         2000       1999
                          -------      --------   --------
                                    (In thousands)
2.01 to 3.00%.............$10,647      $    --    $    --
3.01 to 5.00%............. 43,307       26,782     36,591
5.01 to 6.00%............. 11,417        5,997     14,250
6.01 to 7.00%............. 15,972       42,370      7,445
7.01 to 8.00%.............  1,818        2,309        207
                          -------      -------    -------
  Total...................$83,161      $77,458    $58,493
                          =======      =======    =======

     The following table  represents,  by various interest rate categories,  the
amounts of time  deposits  maturing  during  each of the three  years  following
December  31,  2001.  Matured  certificates,  which have not been  renewed as of
December 31, 2001, have been allocated based upon certain rollover assumptions.

                                    Amounts at December 31, 2001
                      --------------------------------------------------------
                      One Year         Two            Three       Greater Than
                      or Less         Years           Years       Three Years
                      --------       -------        --------      ------------
                                         (In thousands)
2.01 to 3.00%...      $ 8,750        $ 1,430        $    --        $   467
3.01 to 5.00%...       34,191          5,573          3,203            340
5.01 to 6.00%...        6,452          2,483          1,030          1,452
6.01 to 7.00%...       13,692          2,256             11             13
7.01 to 8.00%...        1,479            239             --            100
                      -------        -------        -------        -------
  Total.........      $64,564        $11,981        $ 4,244        $ 2,372
                      =======        =======        =======        =======

     The  following  table  indicates  the amount of the Bank's  jumbo and other
certificates  of deposit of $100,000 or more by time remaining until maturity as
of December 31, 2001.

                                                      At December 31, 2001
                                                      --------------------
Maturity Period                                          (In thousands)
  Three months or less.............................          $19,037
  Greater than three months through six months.....            4,367
  Greater than six months through twelve months....            4,180
  Over twelve months...............................            2,759
                                                             -------
     Total.........................................          $30,343
                                                             =======
     The following table sets forth the dollar amount of savings deposits in the
various types of deposits  offered by the Bank at the dates  indicated,  and the
amount of  increase or  decrease  in such  deposits as compared to the  previous
period.
<PAGE>
<TABLE>
<CAPTION>
                                 Balance              Increase    Balance              Increase   Balance
                                    at               (Decrease)      at               (Decrease)     at
                                December 31,   % of     from     December 31,   % of     from    December 31,   % of
                                    2001     Deposits   2000         2000     Deposits   1999       1999      Deposits
                                ------------  ------- --------   ------------ -------- --------  ------------ --------
                                                                 (Dollars in thousands)
<S>                              <C>            <C>  <C>         <C>            <C>  <C>         <C>            <C>
Withdrawable:
   Non-interest bearing
     accounts ................   $ 11,406       7.9% $  2,236    $  9,170       7.0% $  1,267    $  7,903       6.9%
   Savings accounts ..........     20,089      13.8    (1,119)     21,208      16.3    (5,432)     26,640      23.3
   MMDA ......................     13,424       9.2     6,114       7,310       5.6       424       6,886       6.0
   NOW accounts ..............     17,491      12.0     2,412      15,079      11.6       750      14,329      12.6
                                 --------     -----  --------    --------     -----  --------    --------     -----
     Total withdrawable ......     62,410      42.9     9,643      52,767      40.5    (2,991)     55,758      48.8
Certificates (original terms):
   I.R.A .....................      5,945       4.1      (551)      6,496       5.0      (395)      6,891       6.0
   3 months ..................         64        --        22          42        --      (287)        329        .3
   6 months ..................      2,859       2.0       338       2,521       1.9    (4,419)      6,940       6.1
   9 months ..................        870       6      (6,006)      6,876       5.3     5,851       1,025        .9
   12 months .................     17,182      11.8       610      16,572      12.7     2,692      13,880      12.1
   15 months .................      8,950       6.1     5,158       3,792       2.9    (2,803)      6,595       5.8
   18 months .................      3,134       2.2    (2,730)      5,864       4.5     5,044         820        .7
   24 months .................      8,929       6.1     4,913       4,016       3.1     3,677         339        .3
   30 months .................      1,689       1.2       (90)      1,779       1.4    (2,941)      4,720       4.1
   36 months .................      1,276        .9       935         341        .3      (176)        517        .5
   48 months .................        563        .4       195         368        .3      (121)        489        .4
   60 months .................      1,357        .9       274       1,083        .8      (980)      2,063       1.8
Jumbo certificates ...........     30,343      20.8     2,635      27,708      21.3    13,823      13,885      12.2
                                 --------     -----  --------    --------     -----  --------    --------     -----
   Total certificates ........     83,161      57.1     5,703      77,458      59.5    18,965      58,493      51.2
                                 --------     -----  --------    --------     -----  --------    --------     -----
Total deposits ...............   $145,571     100.0% $ 15,346    $130,225     100.0% $ 15,974    $114,251     100.0%
                                 ========     =====  ========    ========     =====  ========    ========     =====
</TABLE>

     Borrowings.  The Bank focuses on  generating  high  quality  loans and then
seeks the best source of funding from deposits,  investments,  or borrowings. At
December 31, 2001,  the Bank had $25.0  million in FHLB advances and the Holding
Company had $1.5 million in other borrowed money  consisting of a  variable-rate
one-year line of credit advance.  The Bank does not anticipate any difficulty in
obtaining advances appropriate to meet its requirements in the future.

     The following table presents  certain  information  relating to the Holding
Company's and the Bank's borrowings at or for the years ended December 31, 2001,
2000 and 1999.
<TABLE>
<CAPTION>
                                                                 At or for the Year
                                                                 Ended December 31,
                                                           -----------------------------
                                                            2001        2000       1999
                                                          -------     --------   -------
                                                                   (In thousands)
<S>                                                        <C>         <C>        <C>
FHLB Advances and Other Borrowed Money:
   Outstanding at end of period.......................     $26,500     $13,450    $6,500
   Average balance outstanding for period.............      17,385       8,813     2,228
   Maximum amount outstanding at any
     month-end during the period......................      26,500      13,450     6,500
   Weighted average interest rate during the period...        5.50%       5.67%     6.42%
   Weighted average interest rate at end of period....        4.53%       6.42%     6.07%

</TABLE>

Service Corporation Subsidiaries

     Prior to the  Acquisition and  Conversion,  the Bank had two  subsidiaries:
Madison  First Service  Corporation  ("First  Service")  and McCauley  Insurance
Agency, Inc. ("McCauley").  First Service was incorporated under the laws of the
State of Indiana on July 3, 1973 and owned all of the outstanding  capital stock
of McCauley. First Service had no other operations. McCauley was organized under
the laws of the State of Indiana under the name Builders Insurance Agency,  Inc.
on August 2, 1957 and  changed its name to McCauley  Insurance  Agency,  Inc. on
August 29, 1957. McCauley engaged in the sale of general fire and accident, car,
home and life insurance to the general public.  During the period ended December
31, 1996, McCauley received approximately $200,000 in commissions.

     Upon  consummation  of the  Acquisition,  the Bank  became  a bank  holding
company,  subject to the Bank  Holding  Company  Act of 1956,  as  amended  (the
"BHCA").  At that time, the insurance  operations of McCauley were not permitted
under the BHCA,  and the Bank was required to divest its  ownership of McCauley.
On December 17, 1996,  the Bank sold McCauley to the Madison  Insurance  Agency,
Inc. for a gain of $141,000.  The Bank  continues  to hold First  Service  which
currently  holds  land but does not  otherwise  engage in  significant  business
activities.


Employees

     As of December 31, 2001, the Bank employed 59 persons on a full-time  basis
and six persons on a part-time basis.  None of the employees is represented by a
collective  bargaining group.  Management considers its employee relations to be
good.


                                   COMPETITION


     The Bank  originates  most of its loans to and accepts most of its deposits
from residents of Jefferson County,  Indiana. The Bank is subject to competition
from various financial  institutions,  including state and national banks, state
and federal savings associations,  credit unions and certain nonbanking consumer
lenders  that  provide  similar  services  in  Jefferson  County  and which have
significantly  larger resources  available to them than does the Bank. In total,
there are 11  financial  institutions  located  in  Jefferson  County,  Indiana,
including the Bank.  The Bank also competes with money market funds with respect
to deposit  accounts and with  insurance  companies  with respect to  individual
retirement accounts.

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


                                   REGULATION


General

     As a federally chartered,  SAIF-insured  savings  association,  the Bank is
subject to extensive  regulation by the OTS and the FDIC. For example,  the Bank
must obtain OTS  approval  before it may engage in certain  activities  and must
file reports with the OTS regarding its activities and financial condition.  The
OTS periodically  examines the Bank's books and records and, in conjunction with
the FDIC in certain  situations,  has examination and enforcement  powers.  This
supervision  and  regulation  are  intended  primarily  for  the  protection  of
depositors and the federal deposit  insurance funds. A savings  association must
pay a semi-annual  assessment to the OTS based upon a marginal  assessment  rate
that decreases as the asset size of the savings association increases, and which
includes a fixed-cost  component  that is assessed on all savings  associations.
The  assessment  rate that  applies to a savings  association  depends  upon the
institution's size,  condition and the complexity of its operations.  The Bank's
semi-annual assessment is approximately $39,000.

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

Savings and Loan Holding Company Regulation

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

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

     The  Holding  Company  currently  operates  as a unitary  savings  and loan
holding company.  Prior to the enactment of the Gramm-Leach-Bliley Act (the "GLB
Act") on  November  12,  1999,  there were no  restrictions  on the  permissible
business  activities of a unitary savings and loan holding company.  The GLB Act
included a provision  that  prohibits  any new unitary  savings and loan holding
company,  defined as a company that  acquires a thrift  after May 4, 1999,  from
engaging in commercial  activities.  This  provision also includes a grandfather
clause,  however,  that  permits a company  that was a savings and loan  holding
company as of May 4, 1999,  or had an  application  to become a savings and loan
holding company on file with the OTS as of that date, to acquire and continue to
control a thrift and to continue to engage in commercial activities. Because the
Holding Company qualifies under this grandfather provision,  the GLB Act did not
affect  the  Holding  Company's  authority  to  engage in  diversified  business
activities.

     Notwithstanding  the above rules as to permissible  business  activities of
unitary  savings  and  loan  holding  companies,   if  the  savings  association
subsidiary of such a holding  company fails to meet the Qualified  Thrift Lender
("QTL")  test,  then such unitary  holding  company would be deemed to be a bank
holding company subject to all of the provisions of the Bank Holding Company Act
of 1956 and other  statutes  applicable to bank holding  companies,  to the same
extent as if the Holding Company were a bank holding company and the Bank were a
bank.  See  "-Qualified  Thrift  Lender." At December 31, 2001, the Bank's asset
composition  was in excess of that  required  to qualify as a  Qualified  Thrift
Lender.

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

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

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

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

Federal Home Loan Bank System

     The Bank is a member of the FHLB  system,  which  consists  of 12  regional
banks.  The Federal  Housing  Finance Board  ("FHFB"),  an  independent  agency,
controls the FHLB System  including  the FHLB of  Indianapolis.  The FHLB System
provides a central credit facility primarily for member financial  institutions.
At December 31, 2001, the Bank's investment in stock of the FHLB of Indianapolis
was $1.3  million.  For the fiscal year ended  December  31,  2001,  the FHLB of
Indianapolis paid approximately  $78,000 in dividends to the Bank, for an annual
rate of 7.39%.

     All 12 FHLB's are required to provide funds to establish affordable housing
programs through direct loans or interest subsidies on advances to members to be
used for  lending at  subsidized  interest  rates for  low-and  moderate-income,
owner-occupied  housing projects,  affordable rental housing,  and certain other
community  projects.  These contributions and obligations could adversely affect
the value of FHLB stock in the future.  A  reduction  in the value of such stock
may result in a corresponding reduction in the Bank's capital.

     The FHLB of Indianapolis serves as a reserve or central bank for its member
institutions.  It is funded  primarily  from  proceeds  derived from the sale of
consolidated  obligations  of the FHLB System.  It makes  advances to members in
accordance with policies and procedures established by the FHLB and the Board of
Directors of the FHLB of Indianapolis.


     All FHLB  advances  must be  fully  secured  by  sufficient  collateral  as
determined by the FHLB.  Eligible  collateral  includes first mortgage loans not
more  than  90 days  delinquent  or  securities  evidencing  interests  therein,
securities (including mortgage-backed  securities) issued, insured or guaranteed
by the federal government or any agency thereof, cash or FHLB deposits,  certain
small business and  agricultural  loans of smaller  institutions and real estate
with readily  ascertainable  value in which a perfected security interest may be
obtained.  Other forms of collateral may be accepted as additional  security or,
under  certain  circumstances,  to renew  outstanding  advances.  All  long-term
advances are required to provide funds for  residential  home  financing and the
FHLB has  established  standards of community  service that members must meet to
maintain access to long-term advances.

     Interest rates charged for advances vary depending upon maturity,  the cost
of funds to the FHLB of Indianapolis and the purpose of the borrowing.

Insurance of Deposits

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

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

     In 1996,  legislation  was enacted  that  included  provisions  designed to
recapitalize the SAIF and eliminate the significant  premium  disparity  between
the BIF and the SAIF. Under the new law, the Bank was charged a one-time special
assessment equal to $.657 per $100 in assessable deposits at March 31, 1995, and
beginning  January 1, 1997,  the Bank's  annual  deposit  insurance  premium was
reduced  from .23% to .0644% of total  assessable  deposits.  In addition to the
assessment for deposit  insurance,  savings  institutions are required to pay on
bonds issued in the late 1980s by the Financing Corporation ("FICO"), which is a
federally-chartered  corporation  that  was  organized  to  provide  some of the
financing to resolve the thrift crisis in the 1980s.  During 1998, FICO payments
for SAIF members  approximated  6.10 basis  points,  while BIF members paid 1.22
basis points.  By law,  payments on FICO  obligations  have been shared  equally
between BIF members  and SAIF  members  since  January 1, 2000.  Legislation  is
pending before  Congress that would increase the deposit  insurance  assessments
paid by all financial institutions, including the Bank.

     Although Congress has considered  merging the SAIF and the BIF, until then,
savings  associations  with SAIF deposits may not transfer deposits into the BIF
system without  paying  various exit and entrance  fees.  Such exit and entrance
fees need not be paid if a SAIF institution converts to a bank charter or merges
with a bank, as long as the resulting bank continues to pay applicable insurance
assessments to the SAIF, and as long as certain other conditions are met.

Savings Association Regulatory Capital

     Currently,  savings  associations  are  subject to three  separate  minimum
capital-to-assets  requirements:  (i) a leverage limit,  (ii) a tangible capital
requirement,  and (iii) a risk-based  capital  requirement.  The leverage  limit
requires that savings  associations  maintain  "core  capital" of at least 3% of
total assets. Core capital is generally defined as common  shareholders'  equity
(including  retained  earnings),  noncumulative  perpetual  preferred  stock and
related surplus,  certain minority equity interests in subsidiaries,  qualifying
supervisory  goodwill,  purchased mortgage servicing rights and purchased credit
card relationships  (subject to certain limits) less nonqualifying  intangibles.
The OTS requires a core capital level of 3% of total adjusted assets for savings
associations  that  receive  the  highest  supervisory  rating  for  safety  and
soundness,  and no less than 4% for all other  savings  associations.  Under the
tangible  capital  requirement,  a savings  association  must maintain  tangible
capital  (core capital less all  intangible  assets  except  purchased  mortgage
servicing  rights which may be included after making the above-noted  adjustment
in an amount up to 100% of tangible  capital) of at least 1.5% of total  assets.
Under the risk-based capital  requirements,  a minimum amount of capital must be
maintained by a savings  association  to account for the relative risks inherent
in the type and amount of assets held by the savings association. The risk-based
capital requirement  requires a savings association to maintain capital (defined
generally for these purposes as core capital plus general  valuation  allowances
and  permanent  or maturing  capital  instruments  such as  preferred  stock and
subordinated  debt  less  assets  required  to be  deducted)  equal  to  8.0% of
risk-weighted  assets.  Assets are  ranked as to risk in one of four  categories
(0-100%).  A credit  risk-free  asset,  such as  cash,  requires  no  risk-based
capital,  while an asset with a significant  credit risk,  such as a non-accrual
loan,  requires a risk  factor of 100%.  Moreover,  a savings  association  must
deduct from capital, for purposes of meeting the core capital,  tangible capital
and risk-based  capital  requirements,  its entire  investment in and loans to a
subsidiary engaged in activities not permissible for a national bank (other than
exclusively   agency   activities   for  its   customers  or  mortgage   banking
subsidiaries). At December 31, 2001, the Bank was in compliance with all capital
requirements imposed by law.

     The OTS has  promulgated  a rule  which  sets  forth  the  methodology  for
calculating an interest rate risk  component to be used by savings  associations
in calculating  regulatory  capital.  The OTS has delayed the  implementation of
this rule,  however.  The rule requires savings  associations with either "above
normal" interest rate risk (institutions whose portfolio equity would decline in
value by more than 2% of assets in the event of a  hypothetical  200-basis-point
move in interest  rates) to maintain  additional  capital for interest rate risk
under  the  risk-based  capital  framework.  If the OTS were to  implement  this
regulation,  the Bank would be exempt  from its  provisions  because it has less
than $300 million in assets and its  risk-based  capital  ratio exceeds 12%. The
Bank  nevertheless  measures its interest rate risk in  conformity  with the OTS
regulation and, as of December 31, 2001,  would not have been required to deduct
any amounts from its total capital available to calculate its risk-based capital
requirement.  The OTS recently  proposed an amendment to its interest  rate risk
rule that would delete the requirement  that a savings  association  with excess
exposure to interest rate risk make a capital deduction.

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

Prompt Corrective Regulatory Action

     The  Federal  Deposit  Insurance   Corporation   Improvement  Act  of  1991
("FedICIA")   requires,   among  other  things,  that  federal  bank  regulatory
authorities take "prompt corrective action" with respect to institutions that do
not meet minimum capital requirements.  For these purposes,  FedICIA establishes
five capital tiers: well capitalized, adequately capitalized,  undercapitalized,
significantly undercapitalized and critically undercapitalized.  At December 31,
2000,  the Bank was  categorized as "well  capitalized,"  meaning that its total
risk-based  capital  ratio  exceeded  10%, its Tier I risk-based  capital  ratio
exceeded  6%,  its  leverage  ratio  exceeded  5%,  and it was not  subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.

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

Dividend Limitations

     The OTS also  restricts the amount of "capital  distributions"  that may be
made by savings associations. The regulation defines a capital distribution as a
distribution of cash or other property to a savings  association's  owners, made
on account of their ownership.  This definition includes a savings association's
payment  of  cash  dividends  to  shareholders,  or  any  payment  by a  savings
association  to  repurchase,  redeem,  retire,  or otherwise  acquire any of its
shares or debt instruments that are included in total capital, and any extension
of credit to finance an  affiliate's  acquisition  of those shares or interests.
The amended regulation does not apply to dividends  consisting only of a savings
association's shares or rights to purchase such shares.

     The regulation  exempts certain savings  associations  from filing either a
notice or an  application  with the OTS before making any capital  distribution,
and  requires a savings  association  to file an  application  for approval of a
proposed  capital  distribution  with the OTS if the association is not eligible
for expedited  treatment under 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 (the "retained net
income  standard").  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 association and the OTS or the FDIC.

     The  regulation  requires  a  savings  association  to file a  notice  of a
proposed  capital  distribution  in lieu of an application if the association or
the proposed  capital  distribution do not meet the conditions  described above,
and:  (1) the  savings  association  will not be at least well  capitalized  (as
defined  under the OTS  prompt  corrective  action  regulations)  following  the
capital  distribution;  (2) the capital distribution would reduce the amount of,
or retire any part of the savings  association's  common or preferred  stock, or
retire any part of debt instruments such as notes or debentures  included in the
association's  capital  under the OTS  capital  regulation;  or (3) the  savings
association is a subsidiary of a savings and loan holding  company.  Because the
Bank is a  subsidiary  of a  savings  and  loan  holding  company,  this  latter
provision  requires,  at a minimum,  that the Bank file a notice with the OTS 30
days before making any capital distributions to the Holding Company.

     In addition to these regulatory restrictions, the Bank's Plan of Conversion
imposes  additional  limitations on the amount of capital  distributions  it may
make to the  Holding  Company.  The  Plan of  Conversion  requires  the  Bank to
establish and maintain a liquidation account for the benefit of Eligible Account
Holders and  Supplemental  Eligible  Account Holders and prohibits the Bank from
making capital  distributions  to the Holding  Company if its net worth would be
reduced below the amount required for the liquidation account.

Limitations on Rates Paid for Deposits

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

Liquidity

     The Financial  Regulatory Relief and Economic Efficiency Act of 2000, which
was  signed  into law on  December  27,  2000,  repealed  the  former  statutory
requirement that all savings  associations  maintain an average daily balance of
liquid assets in a minimum  amount of not less than 4% or more than 10% of their
withdrawable  accounts plus  short-term  borrowings.  The OTS adopted an interim
final rule in March 2001 that  implemented this revised  statutory  requirement,
although savings associations remain subject to the OTS regulation that requires
them to maintain sufficient liquidity to ensure their safe and sound operation.

Safety and Soundness Standards

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

Real Estate Lending Standards

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

Loans to One Borrower

     Under OTS  regulations,  the Bank may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired  capital
and surplus.  Additional amounts may be lent, not in excess of 10% of unimpaired
capital and surplus,  if such loans or extensions of credit are fully secured by
readily marketable collateral,  including certain debt and equity securities but
not including real estate.  In some cases, a savings  association may lend up to
30 percent of  unimpaired  capital and surplus to one  borrower  for purposes of
developing domestic residential housing, provided that the association meets its
regulatory  capital  requirements  and the OTS authorizes the association to use
this expanded lending authority. At December 31, 2001, the Bank did not have any
loans or  extensions  of credit to a single or  related  group of  borrowers  in
excess  of  its  lending   limits.   Management   does  not  believe   that  the
loans-to-one-borrower  limits  will  have a  significant  impact  on the  Bank's
business operations or earnings.

Qualified Thrift Lender

     Savings  associations must meet a QTL test that requires the association to
maintain  an  appropriate  level  of  qualified  thrift   investments   ("QTIs")
(primarily  residential  mortgages and related  investments,  including  certain
mortgage-related  securities)  and  otherwise  to qualify as a QTL. The required
percentage  of QTIs is 65% of  portfolio  assets  (defined  as all assets  minus
intangible  assets,  property used by the association in conducting its business
and liquid assets equal to 10% of total assets). Certain assets are subject to a
percentage  limitation  of  20%  of  portfolio  assets.  In  addition,   savings
associations may include shares of stock of the FHLBs,  FNMA, and FHLMC as QTIs.
Compliance  with the QTL test is  determined  on a monthly  basis in nine out of
every twelve months.  As of December 31, 2001,  the Bank was in compliance  with
its QTL requirement,  with approximately  80.3% of its portfolio assets invested
in QTIs.

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

Acquisitions or Dispositions and Branching

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

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

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

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

Transactions with Affiliates

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

Federal Securities Law

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

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

Community Reinvestment Act Matters

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

                                    TAXATION


Federal Taxation

     Historically,  savings associations,  such as the Bank, have been permitted
to compute bad debt deductions  using either the bank  experience  method or the
percentage of taxable income method. However, for years beginning after December
31, 1995,  the Bank can no longer use the percentage of taxable income method of
computing  its  allowable  tax bad debt  deduction  and instead must compute its
allowable  deduction using the experience  method.  As a result of the repeal of
the  percentage of taxable  income  method,  reserves taken after 1987 using the
percentage of taxable income method generally must be included in future taxable
income over a six-year  period,  although a two-year  delay may be permitted for
institutions  meeting a residential mortgage loan origination test. In addition,
the pre-1988 reserve,  for which no deferred taxes have been recorded,  will not
have to be recaptured  into income unless (i) the Bank no longer  qualifies as a
bank under the Code or (ii) excess  dividends or  distributions  are paid out by
the Bank or the Bank redeems its own stock.

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

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

     The Holding  Company and the Bank  elected to file a  consolidated  federal
income  tax  return  for 2001 and  2000.  The Bank was taxed  separately  on its
earnings in years prior to 2000.

     The  Holding  Company has been taxed as an  ordinary  corporation  in years
prior to 2000.

State Taxation

     The Bank and the Holding  Company are subject to Indiana's  Financial  Bank
Tax  ("IFBT"),  which  is  imposed  at a flat  rate of 8.5% on  "adjusted  gross
income."  "Adjusted  gross  income," for  purposes of IFBT,  begins with taxable
income as defined by Section 63 of the Code and, thus,  incorporates federal tax
law to the extent that it affects the  computation  of taxable  income.  Federal
taxable  income  is  then  adjusted  by  several  Indiana  modifications.  Other
applicable  state taxes include  generally  applicable  sales and use taxes plus
real and personal  property taxes.  The Bank's state income tax returns have not
been audited in recent years.

Item 2.   Description of Properties.

     The following table provides certain information with respect to the Bank's
offices as of December 31, 2001.
<TABLE>
<CAPTION>
                                                         Net Book Value
                                                          of Property,
                                           Year            Furniture,         Approximate
                                         Opened or        Fixtures and          Square
Description and Address                  Acquired           Equipment           Footage
-----------------------                  --------           ---------           -------
                                                     (Dollars in thousands)
<S>                                        <C>              <C>                  <C>
Locations in Madison, Indiana:
  Downtown Office:
    233 E. Main Street...............      1952             $   657              9,110
  Drive-Through Branch:
    401 E. Main Street...............      1984                 102                375
  Hilltop Location:
    430 Clifty Drive.................      1983               4,240             32,000
  Wal-mart Banking Center:
    567 Ivy Tech Drive...............      1995                   2                517
Location in Hanover, Indiana:
    10 Medical Plaza Drive...........      1995                 146                656
</TABLE>

     During the fourth  quarter of 2001,  the Bank  completed its renovation and
expansion of its office  located at 430 Clifty Drive.  During that same quarter,
the Bank closed its location at 303 Clifty  Drive.  At December  31,  2001,  the
location  at 303  Clifty  Drive  was  listed  for sale  and had a book  value of
$232,000.

     The  following  table  provides  certain  information  with respect to real
estate owned by the Bank as of December 31, 2001. These properties were acquired
by the Bank for future expansion of its banking operations.

                                     Address
                                     -------
                               225 E. Main Street
                             Madison, Indiana 47250
                               227 E. Main Street
                             Madison, Indiana 47250

     The Bank owns  computer  and data  processing  equipment  which is used for
transaction processing, loan origination,  and accounting. The net book value of
electronic  data  processing  equipment  owned  by the  Bank  was  approximately
$388,000 at December 31, 2001.

     The Bank operates nine  automated  teller  machines  ("ATMs"),  one at each
office  location  (the main office has two),  one at Hanover  College,  one at a
Kroger supermarket, one at a BP gas station, all in Madison, Indiana, and one in
Carrolton, Kentucky. The Bank's ATMs participate in the MAC(R) network.

     Prior to the effective date of the Merger,  the Bank had contracted for the
data  processing  and  reporting  services of BISYS,  Inc.  in  Houston,  Texas.
Following the Merger, the Bank performs these services in-house.

Item 3.  Legal Proceedings.

     Neither  the Holding  Company nor the Bank is a party to any pending  legal
proceedings,  other than routine litigation  incidental to the Holding Company's
or the Bank's business.

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

     No matter was  submitted  to a vote of the Holding  Company's  shareholders
during the quarter ended December 31, 2001.

Item 4.5.  Executive Officers of the Registrant.


     The executive  officers of the Holding  Company are identified  below.  The
executive  officers  of the Bank are elected  annually by the Holding  Company's
Board of Directors.
<TABLE>
<CAPTION>
                                    Position with the                           Position
         Name                       Holding Company                             with the Bank
         -----------------------    --------------------------------------      --------------------------------
         <S>                        <C>                                         <C>
         Matthew P. Forrester       President and Chief                         President and Chief
                                    Executive Officer                           Executive Officer

         Lonnie D. Collins          Secretary                                   Secretary

         Larry C. Fouse             Vice President of Finance                   Vice President of Finance

         Deanna Liter               Vice President of Data Services             Vice President of Data Services

         Barbara Eades              Vice President of Retail Banking            Vice President of Retail Banking

         Loy Skirvin                Vice President of Human                     Vice President of Human
                                    Resources                                   Resources

         Mark A. Goley              Vice President - Lending                    Vice President - Lending

         Anthony D. Brandon         Vice President of Loan                      Vice President of Loan
                                    Administration                              Administration
</TABLE>

     Matthew P.  Forrester  (age 45) has served as the Bank and Holding  Company
President and Chief  Executive  Officer since October 1999.  Prior to that,  Mr.
Forrester  served  as the  Chief  Financial  Officer  for Home Loan Bank in Fort
Wayne,  Indiana and Senior Vice President and Treasurer for its holding company,
Home Bancorp. Prior to joining Home Loan Bank, Mr. Forrester was an examiner for
the Indiana Department of Financial Institutions.

     Lonnie D.  Collins  (age 53) has  served  as  Secretary  of the Bank  since
September  1994 and as Secretary of the Holding  Company since 1996. Mr. Collins
has also  practiced law since October 1975 and has served as the Bank's  outside
counsel since 1980.

     Larry C.  Fouse  (age 56) has served as the  Holding  Company's  Controller
since  1997.  From 1993 to 1997,  he served as the Chief  Financial  Officer and
Controller of Citizens and from 1989 to 1993 served as Citizens'  Vice President
and Operations Officer.

     Deanna Liter (age 38) has served as Vice  President of Data Services  since
1999.  From 1986 to 1997,  she was  manager  of the  Citizens'  Data  Processing
Department.

     Barbara Eades (age 52) has served as Vice President of Retail Banking since
2000.  From 1997 to 1999,  she was Branch  Manager of the downtown  branch.  She
served as Assistant Vice President for Madison First Federal from 1990 to 1996.

     Loy Skirvin (age 53) has served as Vice President of Human  Resources since
1998.  From 1991 to 1997, she was Human  Resources  Manager for a  manufacturing
firm.

     Mark A. Goley (age 46) has served as Vice  President of Loan Services since
1997. From 1989 to 1997, he served as Senior Loan Officer for Citizens.

     Anthony  D.  Brandon  (age  30)  has  served  as  Vice  President  of  Loan
Administration  since September of 2001. Prior to joining the Bank, he served as
President of Republic Bank of Indiana.
<PAGE>

                                     PART II


Item 5.  Market for Common Equity and Related Stockholder Matters.

     The Holding Company's common stock,  without par value ("Common Stock"), is
quoted on the National  Association of Securities  Dealers  Automated  Quotation
System ("NASDAQ"),  Small Cap Market, under the symbol "RIVR." Since the Holding
Company has no independent  operation or other  subsidiaries to generate income,
its ability to  accumulate  earnings  for the payment of cash  dividends  to its
shareholders  directly  depends upon the ability of the Bank to pay dividends to
the Holding Company and upon the earnings on its investment securities.

     Any dividend  distributions by the Bank to the Holding Company in excess of
current or  accumulated  earnings and profits will be treated for federal income
tax purposes as a distribution  from the Bank's  accumulated  bad debt reserves,
which could  result in  increased  federal  income tax  liability  for the Bank.
Moreover,  the  Bank  may not  pay  dividends  to the  Holding  Company  if such
dividends would result in the impairment of the liquidation  account established
in connection with the Conversion.

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

     Other information required by this item is incorporated by reference to the
material under the heading "Market Price of the Corporation's  Common Shares and
Related  Shareholder  Matters"  on pages 2 and 3 of the Holding  Company's  2001
Shareholder Annual Report (the "Shareholder Annual Report").

Item 5.5.   Selected Consolidated Financial Data.

     The  information  required by this item is incorporated by reference to the
material under the heading "Selected Consolidated Financial Data" on pages 4 and
5 of the Shareholder Annual Report.

Item 6.   Management's  Discussion and Analysis or Plan of Operation.

     The information required by this item is incorporated by reference to pages
6 through 19 of the Shareholder Annual Report.

Item 6A.   Quantitative  and  Qualitative  Disclosures About Market Risk.

     The information required by this item is incorporated by reference to pages
13 through 15 of the Shareholder Annual Report.


<PAGE>

Item 7.   Financial Statements.

     The Holding Company's  Consolidated  Financial Statements and Notes thereto
contained  on  pages  20  through  45  in  the  Shareholder  Annual  Report  are
incorporated herein by reference.

               Report of Independent Certified Public Accountants
               --------------------------------------------------

     Board of Directors
     River Valley Bancorp

     We have  audited  the  accompanying  consolidated  statement  of  financial
     condition of River Valley  Bancorp as of December 31, 1999, and the related
     consolidated  statements of earnings,  comprehensive income,  shareholders'
     equity,  and cash flows for the years  ended  December  31,  1999 and 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  auditing  standards  generally
     accepted in the United States of America.  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, 1999, and the consolidated results of its
     operations  and its cash flows for the years  ended  December  31, 1999 and
     1998, in conformity with accounting  principles  generally  accepted in the
     United States of America.

     /s/ Grant Thornton LLP
     Grant Thornton LLP

     Cincinnati, Ohio
     February 16, 2000

Item 8.   Changes  In and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure.

     On May 18, 2000, the Holding  Company  engaged the accounting  firm of BKD,
LLP (formerly Olive LLP) to examine the consolidated financial statements of the
Holding  Company for the fiscal  years ending  December 31, 2000 and 2001.  This
action was taken  following  a  recommendation  of the Holding  Company's  Audit
Committee  to the Board of Directors to take such action and the approval of the
change in auditors by the Board of  Directors.  Grant  Thornton  LLP,  which had
acted as the  independent  public  accountant for the Holding Company since 1996
and audited its consolidated  financial statements for 1999, was notified of the
Holding Company's decision.

     The audit reports  issued by Grant Thornton LLP with respect to the Holding
Company's  consolidated financial statements for 1999 did not contain an adverse
opinion or  disclaimer  of opinion,  and were not  qualified as to  uncertainty,
audit scope or accounting  principles.  During 1999 (and any subsequent  interim
period),  there had been no disagreements  between the Holding Company and Grant
Thornton LLP on any matter of  accounting  principles  or  practices,  financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of Grant Thornton LLP, would have caused it to make
a reference to the subject  matter of the  disagreement  in connection  with its
audit report.  Moreover,  none of the events listed in Item  304(a)(1)(iv)(B) of
Regulation S-B occurred during 1999 or any subsequent interim period.

     Prior to its  engagement,  BKD,  LLP had not been  consulted by the Holding
Company as to the application of accounting  principles to a specific  completed
or contemplated  transaction or the type of audit opinion that might be rendered
on the Holding Company's financial statements.

     Pursuant to Item 304 of Regulation S-B, the Company  provided a copy of its
Current  Report on Form 8-K  announcing  the change in the Company's  Certifying
Accountant, which was filed with the Commission on May 18, 2000, to BKD, LLP for
review.  A letter from Grant  Thornton  LLP  indicating  that it agrees with the
statements  made by the Company  therein is incorporated by reference to Exhibit
16 to the Company's  Current Report on Form 8-K/A,  filed with the Commission on
May 31, 2000.

                                    PART III


Item 9.   Directors,   Executive   Officers,   Promoters  and  Control  Persons;
          Compliance With Section 16(a) of the Exchange Act.

     The  information  required  by this  item  with  respect  to  directors  is
incorporated  by  reference  to pages 2  through  5 and  page 10 of the  Holding
Company's  Proxy Statement for its Annual  Shareholder  Meeting to be held April
17, 2002 (the "2002 Proxy Statement").  Information  concerning the Registrant's
executive officers is included in Item 4.5 in Part I of this report.

Item 10.   Executive Compensation.

     The   information   required  by  this  item  with   respect  to  executive
compensation  is  incorporated  by  reference to pages 5 and 6 of the 2002 Proxy
Statement.

Item 11.   Security Ownership of Certain Beneficial Owners and Management.


     The information required by this item is incorporated by reference to pages
1 and 2 of the 2002 Proxy Statement.

Item 12.   Certain Relationships and Related Transactions.


     The information  required by this item is incorporated by reference to page
8 of the 2002 Proxy Statement.

Item 13.   Exhibits and Reports on Form 8-K.


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

                                                                  Annual Report
          Financial Statements                                       Page No.
          -----------------------------------------------         --------------

          Independent Accountants' Report.............................. 21

          Consolidated  Balance  Sheets at December  31, 2001 and
          2000......................................................... 22

          Consolidated  Statements  of Income for the Years Ended
          December 31, 2001, 2000 and 1999............................. 23

          Consolidated Statements of Comprehensive Income for the
          Years Ended December 31, 2001, 2000 and 1999................. 24

          Consolidated Statements of Stockholders' Equity for the
          Years Ended December 31, 2001, 2000 and 1999................. 25

          Consolidated  Statements  of Cash  Flows  for the Years
          Ended December 31, 2001, 2000 and 1999....................... 26

          Notes to Consolidated Financial Statements................... 27

     (b)  Reports on Form 8-K.

          The  Holding  Company  filed no reports on Form 8-K during the quarter
          ended December 31, 2001.

     (c)  The exhibits filed herewith or  incorporated  by reference  herein are
          set forth on the Exhibit Index on page E-1.

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

<PAGE>

                                   SIGNATURES


     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                        RIVER VALLEY BANCORP



Date:  March 29, 2002                  By: /s/ Matthew P. Forrester
                                           -------------------------------------
                                           Matthew P. Forrester, President and
                                           Chief Executive Officer


     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.


Signatures                              Title                      Date
--------------------------------------  -----------------------    -------------

(1)  Principal Executive Officer:


     /s/ Matthew P. Forrester                                   )
     ---------------------------------  President and           )
     Matthew P. Forrester               Chief Executive Officer )
                                                                )
                                                                )
                                                                )
(2)  Principal Financial and Accounting                         )
     Officer:                                                   )
                                                                )
     /s/ Larry C. Fouse                                         )
     ---------------------------------   Treasurer              )
     Larry C. Fouse                                             )
                                                                )
                                                                ) March 29, 2002
                                                                )
(3)  The Board of Directors:                                    )
                                                                )
     /s/ Robert W. Anger                                        )
     ---------------------------------  Director                )
     Robert W. Anger                                            )
                                                                )
     /s/ Jonnie L. Davis                                        )
     ---------------------------------  Director                )
     Jonnie L. Davis                                            )
                                                                )
     /s/ Matthew P. Forrester                                   )
     ---------------------------------  Director                )
     Matthew P. Forrester                                       )
                                                                )
     /s/ Michael J. Hensley                                     )
     ---------------------------------  Director                )
     Michael J. Hensley                                         )
                                                                )
     /s/ Earl W. Johann                                         ) March 29, 2002
     ---------------------------------  Director                )
     Earl W. Johann                                             )
                                                                )
     /s/ Fred W. Koehler                                        )
     ---------------------------------  Director                )
     Fred W. Koehler                                            )
                                                                )
     /s/ Charles J. McKay                                       )
     ---------------------------------  Director                )
     Charles J. McKay                                           )
                                                                )



<PAGE>

                                  EXHIBIT INDEX



Exhibit No.    Description
-----------    -----------------------------------------------------------------
      3 (1)    Registrant's   Articles  of  Incorporation  are  incorporated  by
               reference to Exhibit 3(1) to the  Registration  Statement on Form
               S-1 (Registration No. 333-05121) (the "Registration Statement")

        (2)    Registrant's   Amended  Code  of  By-Laws  are   incorporated  by
               reference to Exhibit 3(2) to the  Registrant's  Form 10-K for the
               fiscal year ending December 31, 1997

     10 (1)    Employment  Agreement  between  River Valley  Financial  Bank and
               Matthew P.  Forrester  is  incorporated  by  reference to Exhibit
               10(1) of Registrant's Form 10-K for 1999

        (2)    Director Deferred  Compensation  Master Agreement is incorporated
               by reference to Exhibit 10(8) to the Registration Statement

        (3)    Director  Deferred  Compensation  Joinder  Agreement -- Robert W.
               Anger is  incorporated  by  reference  to  Exhibit  10(10) to the
               Registration Statement

        (4)    Director  Deferred  Compensation  Joinder  Agreement  --  Earl W.
               Johann is  incorporated  by  reference  to Exhibit  10(12) to the
               Registration Statement

        (5)    Director Deferred  Compensation Joinder Agreement -- Frederick W.
               Koehler is  incorporated  by reference  to Exhibit  10(13) to the
               Registration Statement

        (6)    Director  Deferred  Compensation  Joinder  Agreement  --  Michael
               Hensley is  incorporated  by reference  to Exhibit  10(15) to the
               Registration Statement

        (7)    Special  Termination  Agreement  between  River Valley  Financial
               Bank,  as successor  to Madison  First  Federal  Savings and Loan
               Association  and Robert W. Anger is  incorporated by reference to
               Exhibit 10(18) to the Registration Statement

        (8)    Special  Termination  Agreement  between  River Valley  Financial
               Bank, as successor to Citizens National Bank of Madison and Larry
               Fouse is  incorporated  by  reference  to  Exhibit  10(20) to the
               Registration Statement

        (9)    Special  Termination  Agreement  between  River Valley  Financial
               Bank, as successor to Citizens  National Bank of Madison and Mark
               Goley is  incorporated  by  reference  to  Exhibit  10(21) to the
               Registration Statement

        (10)   Exempt  Loan and Share  Purchase  Agreement  between  Trust under
               River Valley  Bancorp  Employee  Stock  Ownership  Plan and Trust
               Agreement and River Valley Bancorp is  incorporated  by reference
               to Exhibit 10(22) to the Registration Statement

     13        Shareholder Annual Report

     16        Letter regarding change in certifying  accountant is incorporated
               by reference to Exhibit 16 to the  Registrant's  Form 8-K/A filed
               May 31, 2000

     21        Subsidiaries of the Registrant

     23 (1)    Consent of BKD, LLP

        (2)    Consent of Grant Thornton LLP