FORM 10-K
                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, 1996

                                       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 0-21765

                              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)


            303 Clifty Drive
              P.O. Box 626
            Madison, Indiana                               47250
(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)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days. YES _____ NO ____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not 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-K or any amendment to this
Form 10-K.

The aggregate market value of the issuer's voting stock held by  non-affiliates,
as of March 20, 1997 was $14,540,700.

The  number of shares of the  Registrant's  Common  Stock,  without  par  value,
outstanding as of March 20, 1997, was 1,190,250 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.


                            Exhibit Index on Page ___
                               Page 1 of ___ Pages

<PAGE>


                              RIVER VALLEY BANCORP
                                   Form 10-K
                                     INDEX
                                                                           Page
                                     PART I
     Item 1     Business..................................................
     Item 2.    Properties................................................
     Item 3.    Legal Proceedings.........................................
     Item 4.    Submission of Matters to a Vote of Security Holders.......
     Item 4.5.  Executive Officers of the Registrant......................
PART II
     Item 5.    Market for Registrant's Common Equity and Related
                    Stockholder Matters...................................

     Item 6.    Selected Financial Data...................................
     Item 7.    Management's Discussion and Analysis of Financial
                    Condition and Results of Operations...................
     Item 8.    Financial Statements and Supplementary Data...............
     Item 9.    Changes in and Disagreements with Accountants on
                    Accounting and Financial Disclosure...................

PART III
     Item 10.   Directors and Executive Officers of Registrant............
     Item 11.   Executive Compensation....................................

     Item 12.   Security Ownership of
                    Certain Beneficial Owners and Management..............

     Item 13.   Certain Relationships and Related Transactions............

PART IV

     Item 14.   Exhibits, Financial Statement Schedules,
                    and Reports on Form 8-K...............................

SIGNATURES          ......................................................

Item 1.    Business

<PAGE>
General

         River Valley Bancorp,  an Indiana  corporation (the "Holding 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").  First Federal and Citizens  together are sometimes  hereinafter
referred to as the "Institutions."

         The  Conversion of First Federal was accounted for in a manner  similar
to a pooling of interests.  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 Citizens were recorded at fair value as of
the date of the  Acquisition,  the  financial  data prior to  December  20, 1996
provided herein do 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 First  Federal.  From and
after  December  20,  1996,  the  operating  results of Citizens and Madison are
consolidated with those of the Holding Company.

         First Federal was organized as a federally  chartered  savings and loan
association  in  1875.  First  Federal  is  the  oldest  independent   financial
institution  headquartered in Jefferson County.  Prior to the Conversion,  First
Federal  conducted  its  business  from  three  full-service   offices  and  one
stand-alone drive-through branch, all located in Jefferson County, Indiana. As a
condition to the Holding Company obtaining the requisite approval from the Board
of Govenors of the Federal Reserve System (the "FRB") for the  Acquisition,  the
Holding Company  committed to cause First Federal to (i) enter into a definitive
agreement to sell First Federal'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, First Federal
sold its Hanover,  Indiana branch to People's Trust Company based in Brookville,
Indiana,  pursuant to that  committment.  Deposits  totaling  $6.8  million were
assumed  by  People's  Trust and  First  Federal  recorded  an after tax gain of
$125,000 on the transaction.

         Citizens was  organized as a national bank in 1981.  Citizens  conducts
its business from four  full-service  offices,  all located in Jefferson County,
Indiana.

         The  Institutions   historically   have   concentrated   their  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 Institutions' loan origination activities, representing 65.8%
of the Institutions' total loan portfolio at December 31, 1996. The Institutions
also offer multi-family mortgage loans,  non-residential real estate loans, land
loans,  construction  loans,  nonmortgage  commercial  loans and consumer loans.
Their principal market area is Jefferson County, Indiana.

         Loan Portfolio  Data. The following table sets forth the composition of
the Holding  Company's  loan  portfolio,  including  loans held for sale,  as of
December  31,  1996,  1995,  and 1994 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.

<PAGE>
<TABLE>
<CAPTION>
                                                                                            At December 31,
                                                                   ----------------------------------------------------------------
                                                                            1996                  1995                  1994
                                                                   ---------------------   ------------------    ------------------
                                                                                Percent               Percent               Percent
                                                                     Amount    of Total     Amount   of Total     Amount   of Total
                                                                     ------    --------     ------   --------     ------   --------
TYPE OF LOAN (Dollars in thousands) Residential real estate:
<S>                                                                <C>            <C>      <C>         <C>        <C>        <C>
   One-to four-family.........................................     $  68,493      61.4%    $44,417     74.7%      $46,378    81.5%
   Multi-family...............................................         3,416       3.1       1,613      2.7         1,242     2.2
   Construction...............................................         4,895       4.4       2,489      4.2           748     1.3
Nonresidential real estate....................................        14,280      12.8       6,005     10.1         4,740     8.3
Land loans....................................................           680        .6       1,558      2.6         1,034     1.8
Consumer loans:
   Automobile loans...........................................         5,245       4.7       1,392      2.3         1,022     1.8
   Loans secured by deposits..................................           869        .8         590      1.0           527     0.9
   Home improvement loans.....................................           271        .2         295      0.5           270     0.5
   Other......................................................         6,963       6.2       1,129      1.9           977     1.7
Commercial loans..............................................         6,433       5.8         ---      ---           ---     ---
                                                                    --------      ----     -------     ----       -------    ----
Gross loans receivable........................................       111,545     100.0      59,488    100.0        56,938   100.0

Add/(Deduct):
   Deferred loan orgination costs.............................           226        .2         234      0.4           243     0.4
   Undisbursed portions
     of loans in process......................................       (1,703)      (1.5)     (1,370)    (2.3)         (642)   (1.1)
   Allowance for loan losses..................................       (1,074)      (1.0)       (407)    (0.7)         (252)   (0.4)
                                                                    --------      ----     -------     ----       -------    ----
Net loans receivable..........................................      $108,994      97.7%    $57,945     97.4%      $56,287    98.9%
                                                                    ========      ====     =======     ====       =======    ====
</TABLE>


         The  following  table sets forth  certain  information  at December 31,
1996,  regarding the dollar amount of loans maturing in the  Institutions'  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>
                                        Balance                         Due During Years Ended December 31,
                                    Outstanding at                                           2000       2002      2007       2012
                                     December 31,                                             to         to        to         and
                                         1996                 1997       1998       1999     2001       2006      2011     following
                                                                                    (In thousands)
Residential real estate loans:
<S>                                    <C>               <C>          <C>        <C>       <C>       <C>         <C>        <C>
   One-to four-family................. $ 68,493          $     853    $   292    $   274   $   894   $  9,460    $24,444    $34,276
Multi-family..........................    3,416                ---        ---        ---         9        244        970      2,193
   Construction.......................    4,895              4,038        396        ---       ---        ---        ---        461
Nonresidential
   real estate loans..................   14,280                476         38        168       401      4,000      3,323      5,874
Land loans   .........................      680                  1          5        ---        90         72        512        ---
Consumer loans:
   Loans secured by deposits..........      869                728         44         20         4         73        ---        ---
   Other loans........................   12,479              1,070      1,422      2,735     6,172      1,004         76        ---
Commercial loans......................    6,433              3,203        392        416     1,046        653        521        202
                                       --------            -------     ------     ------    ------    -------    -------    -------
     Total............................ $111,545            $10,369     $2,589     $3,613    $8,616    $15,506    $27,846    $43,006
                                       ========            =======     ======     ======    ======    =======    =======    =======
</TABLE>
<PAGE>


         The  following  table sets forth,  as of December 31, 1996,  the dollar
amount of all loans due  after  one year  that  have  fixed  interest  rates and
floating or adjustable interest rates.

<TABLE>
<CAPTION>
                                                                           Due After December 31, 1997
                                                         Fixed Rates             Variable Rates                  Total
                                                         -----------             --------------                  -----
                                                                                 (In thousands)
Residential real estate loans:
<S>                                                         <C>                      <C>                        <C>
   One-to four-family................................       $14,464                  $53,176                    $67,640
   Multi-family......................................           662                    2,754                      3,416
   Construction......................................           348                      509                        857
Non-residential
   real estate loans.................................                                    817                     12,987
13,804
Land loans   ........................................             5                      674                        679
Consumer loans:
   Loans secured by deposits.........................            95                      141                        236
   Other loans.......................................        11,286                       28                     11,314
Commercial loans.....................................           332                    2,898                      3,230
                                                            -------                  -------                   --------
     Total...........................................       $28,009                  $73,167                   $101,176
                                                            =======                  =======                   ========
</TABLE>


         Residential  Loans.  Residential  loans  consist  primarily  of one- to
four-family  loans.  Approximately  $68.5  million,  or  61.4%  of  the  Holding
Company's  portfolio  of  loans  at  December  31,  1996,  consisted  of one- to
four-family residential loans, of which approximately 71% had adjustable rates.

         The Institutions  currently offer  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 First  Federal's ARMs were indexed to the 11th District
Cost of Funds. First Federal'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.  First
Federal's ARMs have a current margin above such index of 2.5% for owner-occupied
properties and 3.75% for non-owner-occupied  properties.  Citizens' ARMs have an
average margin of 2.5%. A substantial  portion of the ARMs in the  Institutions'
portfolio at December 31, 1996 provide for maximum rate adjustments per year and
over the life of the loan of 1% and 5%,  respectively,  although  First  Federal
recently  began  originating  residential  ARMs which  provide for maximum  rate
adjustments per year and over the life of the loan of 1.5% and 6%, respectively.
Citizens'  ARMs provide for interest rate  minimums of 1% below the  origination
rate.  First Federal's  residential ARMs are amortized for terms up to 30 years,
and Citizens' residential ARMs are amortized for terms up to 20 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.

         First  Federal   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 20 years.  Historically,  First Federal  retained
all of its fixed-rate  residential  mortgage  loans in its  portfolio;  however,
First Federal will begin to originate its fixed-rate  residential mortgage loans
with terms of 15 years and greater for sale to the  Federal  Home Loan  Mortgage
Corporation  (the  "FHLMC")  on a  servicing-retained  basis  during  the second
quarter of 1997.  At December 31,  1996,  approximately  29% of First  Federal's
residential mortgage loans had fixed rates.

         First Federal's  residential  mortgage loans historically have not been
originated on terms and conditions and using documentation that conform with the
standard  underwriting  criteria  required  to sell such loans on the  secondary
market.  However,  First  Federal has been  approved to  originate  and sell its
residential mortgage loans to the FHLMC.

         Citizens  also  currently   offers   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  amortize on a monthly  basis with  principal  and interest due each
month and are written  with terms of 15, 20 and 30 years.  Citizens  retains the
servicing  on all loans sold to the FHLMC.  At December  30,  1996,  the Holding
Company had approximately $26.5 million of fixed-rate residential mortgage loans
which were sold to the FHLMC and for which the Institutions provide servicing.

<PAGE>

         First Federal does not currently originate  residential  mortgage loans
if the ratio of the loan amount to the lesser of the current  cost or  appraised
value of the property (i.e., the  "Loan-to-Value  Ratio") exceeds 95%.  Citizens
generally  does  not  originate  one-to-four-family   residential  ARMs  if  the
loan-to-value  ratio  exceeds 80%.  First  Federal  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 APY 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 Institutions  originates include "due-on-sale"  clauses, which give the
Institutions  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, First
Federal does permit  assumptions  of existing  residential  mortgage  loans on a
case-by-case basis.

         First Federal also offers indemnification  mortgage loans ("ID Mortgage
Loans"),  which are typically written as fixed-rate second mortgage loans. First
Federal's ID Mortgage  Loans are written for terms of 5 years and generally have
maximum Loan-to-Value Ratios of 80%.

         First  Federal  also  offers  standard  second  mortgage  loans.  First
Federal's  second  mortgage  loans are  adjustable-rate  loans  tied to the U.S.
Treasury  securities  yields adjusted to a constant  maturity and have a current
margin  above  such  index of  4.25%.  If  another  institution  holds the first
mortgage,  the initial interest rate on the second mortgage loan is set 50 basis
points  higher.   First  Federal's  second  mortgage  loans  have  maximum  rate
adjustments  per  year and over  the  terms of the  loans  equal to 1.5% and 6%,
respectively.  First  Federal's  second  mortgage  loans  have terms of 10 to 20
years.

         At December 31, 1996,  one- to four-family  residential  mortgage loans
amounting to  $430,000,  or .38% of total  loans,  were  included in the Holding
Company's non-performing assets.

         Construction  Loans. The  Institutions  offer  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  Institutions  generally  require  an  80%
Loan-to-Value Ratio for its construction loans, although Citizens permits an 85%
Loan-to-Value Ratio for its one- to four-family residential  construction loans.
Inspections are made prior to any  disbursement  under a construction  loan, and
the Institutions do not charge commitment fees for their construction loans.

         At December 31, 1996,  $4.9 million,  or 4.4% of the Holding  Company's
total loan portfolio,  consisted of construction loans. The largest construction
loan at  December  31,  1996,  totalled  $217,000.  No  construction  loans were
included in non-performing assets on that date.

         While providing the Institutions  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  Institutions  may have to hire another  contractor  to
complete the project at a higher cost. Also, a project may be completed, but may
not be salable, resulting in the borrower defaulting and the Institutions taking
title to the project.

         Nonresidential  Real Estate Loans. At December 31, 1996, $14.3 million,
or 12.8% of the Institutions'  portfolio consisted of nonresidential real estate
loans. Of this amount,  approximately  $778,000  constituted  participations  in
loans  secured by  nonresidential  real estate which were  purchased  from other
financial  institutions.  Nonresidential real estate loans are primarily secured
by real  estate  such as  churches,  farms and small  business  properties.  The
Institutions  each  originate  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 and are written for maximum  terms of 20 years.
First Federal's  nonresidential  real estate loans generally have a margin above
such index of 4.25%,  and maximum  adjustments per year and over the life of the
loan of 1.5% and 6%, respectively. Citizens' adjustable-rate nonresidential real
estate loans have maximum  adjustments per year and over the life of the loan of
1% and 5%, respectively,  and interest rate minimums of 1% below the origination
rate.  First Federal  generally  requires a  Loan-to-Value  Ratio of 80%,  while
Citizens requires Loan-to-Value Ratios of 65% to 85%, depending on the nature of
the real estate collateral, for nonresidential real estate loans.

         The Institutions underwrite their nonresidential real estate loans on a
case-by-case  basis and,  in  addition to their  normal  underwriting  criteria,
evaluate  the  borrower's  ability  to service  the debt from the net  operating
income of the property. The Holding Company's largest nonresidential real estate
loan as of  December  31,  1996 was  $615,000  and was  secured  by a church  in
Madison,  Indiana.  On the same date, there were no  nonresidential  real estate
loans included in the Holding Company's non-performing assets.

<PAGE>

         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, 1996,  approximately $3.4 million,
or 3.1% of the Holding  Company's  total loan  portfolio,  consisted of mortgage
loans  secured by  multi-family  dwellings  (those  consisting of more than four
units).  The Institutions each write  multi-family loans on terms and conditions
similar to their nonresidential real estate loans. The largest multi-family loan
in the Holding Company's  portfolio as of December 31, 1996 was $897,000 and was
secured by an  apartment  building  in New  Albany,  Indiana.  On the same date,
neither  of  the   Institutions   had  any   multi-family   loans   included  in
non-performing assets.

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

         Land Loans. At December 31, 1996, approximately $680,000, or .6% of the
Holding  Company's total loan portfolio,  consisted of mortgage loans secured by
undeveloped real estate.  The Holding Company's land loans are generally written
on terms and conditions similar to its nonresidential real estate loans. Some of
the Holding Company'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, 1996, the Holding  Company's largest land loan totalled
$285,000.

         While  none  of the  Holding  Company's  land  development  loans  were
included in  non-performing  assets as of December 31, 1996, 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 Holding  Company to take title to partially
improved land that is unmarketable without further capital investment.

         Commercial  Loans. At December 31, 1996,  $6.4 million,  or 5.8% of the
Holding  Company's  total loan  portfolio,  consisted of nonmortgage  commercial
loans.  Citizens'  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, 1996, approximately 95% of the Holding Company's commercial
loans were secured by collateral,  such as equipment,  inventory and crops.  The
Holding Company'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,
1996, the largest commercial loan was $392,000.  As of the same date, commercial
loans totalling $317,000 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  Holding
Company's average residential mortgage loans.

         Consumer Loans. The Institutions' consumer loans,  consisting primarily
of auto loans,  home  improvement  loans,  unsecured  installment  loans,  loans
secured by  deposits,  and  mobile  home loans  aggregated  approximately  $13.4
million at  December  31,  1996,  or 11.9% of the Holding  Company's  total loan
portfolio.  The Holding Company  consistently  originates consumer loans to meet
the  needs  of its  customers  and to  assist  in  meeting  its  asset/liability
management  goals.  All of the Holding  Company'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, 1996,  88% of the Holding
Company's consumer loans were secured by collateral.

         The Holding  Company's loans secured by deposits are made up to 100% of
the  original  account  balance  and accrue at a rate of 2% over the  underlying
passbook or certificate  of deposit rate.  Interest on loans secured by deposits
is paid semi-annually.

         Although  First  Federal  does not  offer  indirect  automobile  loans,
Citizens  offers both direct and  indirect  automobile  loans.  Under  Citizens'
indirect  automobile  program,  participating  automobile  dealers  receive loan
applications from prospective purchasers of automobiles at the point of sale and
deliver them to Citizens for immediate processing. The dealer receives a portion
of the interest payable on approved loans.

<PAGE>
         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 are dependent on 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,  1996,  consumer  loans  amounting to $72,000 were
included in non-performing assets.

         Home  Equity  Loans.  At December  31,  1996,  the Holding  Company had
outstanding  approximately  $1.9 million of home equity loans, with unused lines
of credit totalling  approximately  $248,000. No home equity loans were included
in non-performing assets on that date.

         In May,  1996,  First Federal began  offering a new home equity line of
credit.  This line of credit is written  with a fixed rate of 1% below the prime
rate for the first  year.  Thereafter,  the line is an  adjustable-rate  line of
credit tied to the prime rate with a margin of positive 1%. First Federal's home
equity loans have  interest  rate minimums of 7.5% and interest rate maximums of
18%. First Federal's home equity loans are amortized based on a 20 year maturity
and are  generally not written in principal  amounts of less than $5,000.  First
Federal  generally  allows  a  maximum  Loan-to-Value  Ratio of 80% for its home
equity loans (taking into account any other mortgages on the property).

         First   Federal's   previous   home   equity  line  of  credit  was  an
adjustable-rate line of credit tied to the prime rate with varying margins up to
3%, depending on the amount  committed under the line of credit.  These lines of
credit had interest  rate  minimums of 8.5% and interest  rate  maximums of 18%.
First Federal's previous home equity lines were not written in amounts less than
$5,000.

         Citizens'  home  equity  lines of credit are  adjustable-rate  lines of
credit  tied to the prime rate and are  amortized  based on a 10 year  maturity.
Citizens 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.

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

         First  Federal  recently was approved to begin  originating  fixed-rate
residential mortgage loans for sale to the FHLMC on a servicing-retained  basis.
First Federal will begin this  fixed-rate  program  during the second quarter of
1997.  Loans  originated  for sale to the  FHLMC  in the  secondary  market  are
originated in accordance  with the guidelines  established by the FHLMC and will
be sold  promptly  after  they are  originated.  First  Federal  will  receive a
servicing  fee  of  one-fourth  of 1% of the  principal  balance  of  all  loans
serviced.  Citizens also participates in the secondary market as a seller of its
fixed-rate  residential  mortgage loans to FHLMC.  The loans sold by Citizens to
the  FHLMC  are  designated  for sale  when  originated.  Citizens  retains  the
servicing  rights on the loans it  originates  and sells for a servicing  fee of
one-fourth of 1% of the principal  balance of all loans serviced.  During the 12
months  ended  December  31,  1996,  Citizens  sold $9.3  million in  fixed-rate
residential  mortgage loans to FHLMC.  At December 31, 1996,  Citizens  serviced
$26.5 million in loans sold to FHLMC.

         The Institutions confine their loan origination activities primarily to
Jefferson  County.  At December 31, 1996, the Institutions  held loans totalling
approximately  $4.1  million that were  secured by property  located  outside of
Indiana.  The Institution's  loan originations are generated from referrals from
existing   customers,   real  estate  brokers,   and  newspaper  and  periodical
advertising.  Loan applications are underwritten at any of the Institutions' six
full-service  offices and are processed at the First  Federal's  downtown office
and Citizens' four full-service offices.

         The  Institutions'  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  Institutions  study the employment and credit history and
information  on the  historical  and  projected  income  and  expenses  of their
mortgagors.  First Federal  requires that all mortgage  loans be approved by its
Loan Committee.  Consumer loans up to $15,000 may be approved by a Loan Officer.
Consumer  loans for more than $15,000 must be approved by the  President.  First
Federal  qualifies all residential ARM loan borrowers based upon a fully-indexed
interest rate rather than the initial discounted or teaser rate.

<PAGE>
         Citizens'  lending  policy  provides that mortgage loans up to $100,000
may be approved by  Citizens'  Senior Loan  Officer,  and  mortgage  loans up to
$200,000 may be approved by the President. All other mortgage loans are approved
by at least three  members of Citizens'  Board of  Directors.  Loans  secured by
collateral  other than real estate up to $300,000  may be approved by  Citizens'
President and loans secured by collateral  other than real estate up to $100,000
may be  approved  by the  Senior  Loan  Officer.  All  other  loans  secured  by
collateral  other  than real  estate  are  approved  by the Board of  Directors.
Citizens'  President  and Senior Loan Officer  have  lending  authority of up to
$50,000 and $25,000, respectively, for unsecured loans.

         The  Institutions  generally  require  appraisals  on all real property
securing their loans and require 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 Institutions require fire and extended coverage insurance in
amounts  at least  equal to the  principal  amount of the loan and also  require
flood insurance to protect the property  securing their interest if the property
is in a flood plain.  First Federal also  generally  requires  private  mortgage
insurance  for all  residential  mortgage  loans  with  Loan-to-Value  Ratios of
greater than 80%. The  Institutions do not require escrow accounts for insurance
premiums or taxes.

         The  Institutions'  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 Institutions  occasionally  purchase  participations  in commercial
loans,  nonresidential  real estate and multi-family  loans from other financial
institutions.  At  December  31,  1996,  the  Institutions  held in  their  loan
portfolios   participations   in   nonresidential   real  estate   mortgage  and
multi-family loans aggregating  approximately  $778,000 that they had purchased,
all of which were  serviced by others.  The  Institutions  generally do not sell
participations in any loans that they originate.

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

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                               ---------------------------------------------------
                                                                1996                  1995                  1994
                                                               -------              --------              --------
                                                                                 (In thousands)
Loans Originated:
<S>                                                           <C>                  <C>                    <C>
     Residential real estate loans (1)....................     $12,452              $  8,023               $12,097
     Multi-family loans...................................       1,032                   ---                   758
     Construction loans...................................         782                 3,027                 2,415
     Non-residential real estate loans....................       1,095                 1,805                 1,031
     Land loans...........................................         391                   333                   981
     Consumer loans.......................................       2,896                 2,412                 2,137
     Commercial loans.....................................         ---                   ---                   ---
                                                               -------              --------              --------
         Total originations...............................      18,648                15,600                19,419
Purchases.................................................         ---                   ---                   ---
                                                               -------              --------              --------
         Total loans originated and purchased.............      18,648                15,600                19,419
     Loans Acquired through merger........................      49,620                   ---                   ---
Reductions:
     Sales................................................         ---                   ---                   ---
     Principal loan repayments............................      17,114                13,708                14,973
     Transfers from loans to real estate owned............         ---                   ---                    15
                                                               -------              --------              --------
         Total reductions.................................      17,114                13,708                14,988
     Decrease in other items (2)..........................        (105)                 (234)                 (114)
                                                               -------              --------              --------
     Net increase ........................................     $51,049              $  1,658              $  4,317
                                                               =======              ========              ========
</TABLE>
(1)  Includes loans originated for sale in the secondary market.

(2)  Other items consist of amortization of deferred loan origination  costs and
     the provision for losses on loans.

<PAGE>
         Origination  and Other Fees. The Holding  Company  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  Institutions on a regular basis and
are  placed  on  a  non-accrual  status  when  management  determines  that  the
collectability 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.  First Federal delivers  delinquency  notices with
respect to all mortgage loans  contractually past due 15 days. When loans are 45
days in default, additional delinquency notices are sent and personal contact is
made with the borrowers to establish acceptable repayment schedules.  When loans
are 60 days in default,  contact is again made with the  borrowers  to establish
acceptable  repayment  schedules.  Citizens  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 of both Institutions 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
Institutions'  policy to recognize  losses on these loans as soon as they become
apparent.

         Non-performing  Assets. At December 31, 1996, $819,000,  or .56% of the
Holding Company's total assets, were non-performing assets (non-performing loans
and  non-accruing  loans) compared to $8,000,  or .01%, of First Federal's total
assets at  December  31,  1995.  At December  31,  1996,  residential  loans and
consumer   loans   accounted   for  $430,000  and  $72,000,   respectively,   of
non-performing assets. There were no REO or non-accruing investments at December
31, 1996.

         The table below sets forth the amounts  and  categories  of the Holding
Company'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 Holding  Company  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.

<TABLE>
<CAPTION>
                                                                                 At December 31,
                                                            ---------------------------------------------------------
                                                            1996                      1995                       1994
                                                                             (Dollars in thousands)
<S>                                                          <C>                      <C>                      <C>
Non-performing assets:
   Non-performing loans..............................        $819                       $ 8                      $ 13
   Troubled debt restructurings......................         ---                       ---                       ---
                                                             ----                      ----                      ----
     Total non-performing loans......................         819                         8                        13
   Foreclosed real estate............................         ---                       ---                       ---
                                                             ----                      ----                      ----
     Total non-performing assets.....................        $819                       $ 8                      $ 13
                                                             ====                      ====                      ====
Non-performing loans to total loans..................        0.73%                     0.01%                     0.02%
                                                             ====                      ====                      ====
Non-performing assets to total assets................        0.56%                     0.01%                     0.01%
                                                             ====                      ====                      ====
</TABLE>

         At December 31, 1996, the Holding Company held loans delinquent from 30
to 89 days  totalling  $1.7  million.  The Holding  Company was not aware of any
other loans, the borrowers of which 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, 1996,  1995,  and 1994,  relating to  delinquencies  in the Holding
Company's  portfolio.  Delinquent  loans  that are 90 days or more  past due are
considered non-performing assets.

<TABLE>
<CAPTION>
                                        At December 31, 1996                                    At December 31, 1995
                            -------------------------------------------------     ------------------------------------------------
                                  60-89 Days           90 Days or More                  60-89 Days           90 Days or More
                            --------------------    -------------------------     -----------------------  -----------------------
                                       Principal                   Principal                   Principal                 Principal
                             Number   Balance of      Number       Balance of       Number     Balance of   Number      Balance of
                            of Loans    Loans        of Loans       Loans          of Loans      Loans     of Loans      Loans  of
                            --------    -----        --------       -----          --------      -----     --------      -----  --
                                                                         (Dollars in thousands)
<S>                            <C>       <C>             <C>         <C>                  <C>       <C>         <C>       <C>
Residential real
   estate loans.........       13        $415            9           $430                 5         $102        1         $  1
Multi-family loans......      ---         ---          ---            ---               ---          ---      ---          ---
Construction loans......      ---         ---          ---            ---               ---          ---      ---          ---
Land loans..............      ---         ---          ---            ---               ---          ---      ---          ---
Non-residential
   real estate loans....      ---         ---          ---            ---                 1           23      ---          ---
Consumer loans..........       25         116           18             72                 1            3        4            7
Commercial loans........        8          86            6            317               ---          ---      ---          ---
                              ---        ----          ---           ----               ---         ----      ---         ----
   Total................       46        $617           33           $819                 7         $128        5         $  8
                              ===        ====          ===           ====               ===         ====      ===         ====
Delinquent loans to
   total loans..........                                             1.30%                                                0.23%
                                                                     ====                                                 ====
</TABLE>

                                        At December 31, 1994
                            -------------------------------------------------
                                  60-89 Days           90 Days or More
                            --------------------    -------------------------
                                       Principal                   Principal
                             Number   Balance of      Number       Balance of
                            of Loans    Loans        of Loans       Loans
                            --------    -----        --------      ----------
Residential real
   estate loans.........        1        $  4              2            $13
Multi-family loans......      ---         ---            ---            ---
Construction loans......      ---         ---            ---            ---
Land loans..............      ---         ---            ---            ---
Non-residential
   real estate loans....       --         ---            ---            ---
Consumer loans..........        6          13            ---            ---
Commercial loans........      ---         ---            ---            ---
   Total................        7         $17              2            $13
Delinquent loans to
   total loans..........                                               0.05%


<PAGE>
         Classified  assets.  Federal  regulations and the  Institutions'  Asset
Classification Policies 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 institution 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 Institution's federal regulator which can
order the establishment of additional general or specific loss allowances.

         At December 31, 1996,  the  aggregate  amount of the Holding  Company's
classified  assets,  and of the  Holding  Company's  general and  specific  loss
allowances were as follows:
                                                           At December 31, 1996
                                                              (In thousands)

           Substandard assets..................................   $   846
           Doubtful assets.....................................       ---
           Loss assets.........................................         3
                                                                  -------
               Total classified assets.........................   $   849
                                                                  =======
           General loss allowances.............................    $1,071
           Specific loss allowances............................         3
                                                                  -------
               Total allowances................................    $1,074
                                                                   ======

         The  Institutions  regularly  review their loan portfolios to determine
whether  any  loans  require   classification   in  accordance  with  applicable
regulations.   Not  all  of  the  Institutions'   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 Holding  Company'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 Holding Company's  allowance for loan
losses is adequate to absorb  probable  losses from loans at December  31, 1996.
However,  there can be no assurance that regulators,  when reviewing the Holding
Company'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 Holding Company's loan portfolio.

<PAGE>
      Summary of Loan Loss  Experience.  The following table analyzes changes in
the allowance during the five years ended December 31, 1996.

<TABLE>
<CAPTION>


                                                                            Year Ended December 31,
                                                            1996         1995         1994         1993          1992
                                                                             (Dollars in thousands)
<S>                                                       <C>            <C>         <C>           <C>           <C>
Balance at beginning of period...................         $   407        $252        $227          $262          $227
Charge-offs:
     Single-family residential...................             ---         ---         ---           (75)           (3)
     Consumer....................................              (3)        ---          (4)          (25)          ---
                                                           ------        ----        ----          ----          ----
       Total charge-offs.........................              (3)        ---          (4)         (100)           (3)
Recoveries.......................................             ---           5         ---            10             1
                                                           ------        ----        ----          ----          ----
   Net charge-offs...............................              (3)          5          (4)          (90)           (2)
Provision for losses on loans....................              22         150          29            55            37
Increase due to Acquisition......................             648         ---         ---           ---           ---
                                                           ------        ----        ----          ----          ----
   Balance at end of period......................          $1,074        $407        $252          $227          $262
                                                           ======        ====        ====          ====          ====
Allowance for loan losses as a percent of
   total loans outstanding.......................            0.99%       0.70%       0.45%         0.44%         0.49%
                                                           ======        ====        ====          ====          ====
Ratio of net charge-offs to average
   loans outstanding.............................            0.01%       0.01%       0.01%         0.17%         0.00%
                                                           ======        ====        ====          ====          ====
</TABLE>


      Allocation of Allowance for Loan Losses.  The following  table presents an
analysis of the allocation of the Holding  Company's  allowance for loans losses
at the dates indicated.

<TABLE>
<CAPTION>
                                                                          At December 31,
                                        -----------------------------------------------------------------------------------
                                                 1996                          1995                           1994
                                        -----------------------       ----------------------          ---------------------
                                                       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............   $   414       68.9%              $157       81.6%                $152       85.0%
   Nonresidential real estate.........       264       13.4                100       12.7                  ---        10.1
   Consumer loans.....................       132       11.9                 50        5.7                   50         4.9
   Commercial loans...................       200        5.8                ---        ---                  ---         ---
   Unallocated........................        64        ---                100        ---                   50         ---
                                          ------      -----               ----      -----                 ----       -----
     Total............................    $1,074      100.0%              $407      100.0%                $252       100.0%
                                          ======      =====               ====      =====                 ====       =====
</TABLE>


Investments and Mortgage-Backed Securities

         Investments.  The Holding Company's  investment  portfolio  consists of
U.S. government and agency obligations,  municipal securities,  asset management
funds,  FHLB stock and FRB stock.  At December  31,  1996,  approximately  $10.0
million,  or 6.9%,  of the Holding  Company's  total  assets  consisted  of such
investments.

<PAGE>
         The following  table sets forth the amortized cost and the market value
of the Holding Company's investment portfolio at the dates indicated.

<TABLE>
<CAPTION>

                                                                           At December 31,
                                        ----------------------------------------------------------------------------------
                                                  1996                          1995                          1994
                                        ---------------------         ----------------------          --------------------
                                        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...............     $5,500       $5,434          $  8,000     $  7,930          $13,996      $13,120
Available for Sale:
   U.S. Government and
     agency obligations...............      2,997        2,980             5,000        5,018              ---          ---
   Asset management funds.............        ---          ---               ---          ---              101          101
   Muncipal securities................        474          468               ---          ---              ---          ---
FHLB stock............................        943          943               610          610              610          610
FRB stock.............................         80           80               ---          ---              ---          ---
                                           ------       ------           -------      -------          -------      -------
   Total available for sale...........      4,494        4,471             5,610        5,628              711          711
                                           ------       ------           -------      -------          -------      -------
     Total investments................     $9,994       $9,905           $13,610      $13,558          $14,707      $13,831
                                           ======       ======           =======      =======          =======      =======
</TABLE>


     The  following  table  sets  forth  the  amount  of  investment  securities
(excluding FHLB and FRB stock) which mature during each of the periods indicated
and the weighted  average  yields for each range of  maturities  at December 31,
1996.

<TABLE>
<CAPTION>

                                                                        Amount at December 31, 1996 which matures in
                                                 -----------------------------------------------------------------------------------
                                                      One Year             One Year              Five Years             After
                                                       or Less           to Five Years          to Ten Years           Ten Years
                                                 -------------------   ------------------    ------------------   ------------------
                                                 Amortized   Average   Amoritzed  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.......... $2,000      4.53%     $6,497      5.56%         $---        ---%     $---     ---%
Municipal securities............................    ---       ---         ---       ---           474       4.77       ---     ---
</TABLE>

         Mortgage-Backed  Securities.  The Holding Company 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 Holding Company to
receive a portion of the cash flows from an  identified  pool of  mortgages  and
gives the Holding Company an interest in that pool of mortgages. FHLMC, FNMA and
GNMA securities are each guaranteed by their respective agencies as to principal
and interest. Except for a $32,000 investment in FHLMC interest-only strips, the
Holding Company does not invest in any derivative products.

         Although   mortgage-backed   securities   generally   yield  less  than
individual  loans  originated by the Holding  Company,  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 Holding
Company'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  Holding  Company  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 Holding Company is subject to
prepayment risk on such adjustable rate mortgage-backed  securities. The Holding
Company 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
Holding  Company 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.

         At  December  31,  1996,  the  Holding  Company  had $12.8  million  of
mortgage-backed securities outstanding, $7.8 million of which were classified as
held to maturity,  and $5.0 million of which were  classified  as available  for
<PAGE>
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 carrying  value and market value of
the Holding Company's mortgage-backed securities at the dates indicated.

<TABLE>
<CAPTION>

                                                                           At December 31,
                                        ----------------------------------------------------------------------------------
                                                  1996                          1995                          1994
                                        ---------------------         ----------------------          --------------------
                                        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.......................   $  7,805     $  7,794            $9,917       $9,941          $11,328      $10,715
Available for Sale:
   Government
     agency securities................      4,466        4,439               ---          ---              ---          ---
   Collateralized mortgage
     obligations......................        628          602               ---          ---              ---          ---
                                          -------      -------            ------       ------          -------      -------
       Total mortgage-backed
         securities...................    $12,899      $12,835            $9,917       $9,941          $11,328      $10,715
                                          =======      =======            ======       ======          =======      =======
</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, 1996.

<TABLE>
<CAPTION>
                                                                      Amount at December 31, 1996 which matures in
                                                  -------------------------------------------------------------------------------
                                                          One Year                    One Year to                 After
                                                           or Less                     Five Years               Five Years
                                                  ------------------------      -----------------------     ---------------------
                                                                  Weighted                     Weighted                  Weighted
                                                   Amortized       Average      Amortized       Average     Amortized     Average
                                                     Cost           Yield         Cost           Yield        Cost         Yield
                                                     ----           -----         ----           -----        ----         -----
                                                                             (Dollars in thousands)
Mortgage-backed securities
<S>                                                 <C>             <C>          <C>              <C>       <C>             <C>
   held to maturity.............................    $1,518          6.06%        $3,774           5.78%     $2,513          7.22%
Mortgage-backed securities
   available for sale...........................       ---           ---            335           8.26%      4,759          7.55
                                                    ------                       ------                     ------
     Total......................................    $1,518                       $4,109                     $7,272
                                                    ======                       ======                     ======
</TABLE>

         The  following  table sets forth the changes in the  Holding  Company's
mortgage-backed securities portfolio for the years ended December 31, 1996, 1995
and 1994.

<TABLE>
<CAPTION>

                                                                             Year Ended December 31,
                                                          ------------------------------------------------------------
                                                            1996                      1995                       1994
                                                           -------                  --------                   -------
                                                                                 (In thousands)
<S>                                                       <C>                        <C>                       <C>
Beginning balance....................................     $  9,917                   $11,328                   $13,925
Purchases............................................          729                       ---                       ---
Sales  ..............................................          ---                       ---                       ---
Repayments...........................................       (2,110)                   (1,417)                   (2,576)
Premium and discount
   amortization, net.................................            2                         6                        (1)
Mortgage-backed securities
   received in Acquisition...........................        4,312                       ---                       ---
Unrealized losses on securities
   available for sale................................           (4)                      ---                       ---
Provision for other than temporary
   decline...........................................          ---                       ---                       (20)
                                                           -------                  --------                   -------
Ending balance.......................................      $12,846                  $  9,917                   $11,328
                                                           =======                  ========                   =======
</TABLE>

Sources of Funds

     General.  Deposits have  traditionally  been the Holding  Company's primary
source of funds for use in lending  and  investment  activities.  In addition to
deposits,  the Holding  Company  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.

<PAGE>
     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 Holding Company does
not actively  solicit or advertise  for  deposits  outside of Jefferson  County.
Substantially  all of the Holding  Company'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  Holding  Company  does not pay a fee for any  deposits  it
receives.

     Interest rates paid, maturity terms,  service fees and withdrawal penalties
are established by the Institutions 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 Holding
Company 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 Holding Company has
allowed it to be competitive in obtaining funds and to respond with  flexibility
to changes in consumer  demand.  The Holding Company has become more susceptible
to  short-term  fluctuations  in deposit  flows as  customers  have  become more
interest rate conscious. The Holding Company manages the pricing of its deposits
in keeping with its  asset/liability  management and  profitability  objectives.
Based on its experience, the Holding Company believes that its NOW and MMDAs are
relatively  stable  sources of  deposits.  However,  the  ability of the Holding
Company 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 deposit accounts by type, maturity, and rate of the Holding
Company at December 31, 1996, is as follows:

<TABLE>
<CAPTION>

                                                                    Minimum        Balance at                          Weighted
                                                                    Opening       December 31,          % of            Average
Type of Account                                                     Balance           1996            Deposits           Rate
---------------                                                     -------           ----            --------           ----
                                                                                       (Dollars in thousands)
<S>                                                                    <C>             <C>              <C>               <C>
Withdrawable:
   Non-interest bearing accounts..............................   $    100          $    5,951            4.7%              ---%
   Passbook accounts..........................................         10              21,718           17.3              3.36
   MMDA......................................................         100               9,623            7.7              2.94
   NOW accounts...............................................        100              16,683           13.3              2.54
   Super NOW accounts.........................................      1,000               4,406            3.5              2.62
                                                                                     --------          -----
     Total withdrawable.......................................                         58,381           46.5              2.66

Certificates (original terms):
   I.R.A......................................................        100               8,083            6.4
   3 months...................................................      2,500                 207             .2
   6 months...................................................        500               6,288            5.0
   9 months...................................................        500               1,168             .9
   12 months..................................................        500              18,003           14.4
   15 months..................................................        500               6,247            5.0
   18 months..................................................        500               3,212            2.6
   24 months..................................................        500                 805             .6
   30 months .................................................        500               6,935            5.5
   36 months..................................................        500               2,774            2.2
   48 months..................................................        500                 811             .6
   60 months..................................................        500               3,398            2.7
   72 months .................................................        500                  10            ---
   96 months..................................................        500                 155             .1
   120 months.................................................        500                   4            ---
Jumbo certificates............................................     99,000               9,175            7.3
                                                                                     --------          -----
   Total certificates.........................................                         67,275           53.5              5.54
                                                                                     --------          -----
Total deposits................................................                       $125,656          100.0%             4.30%
                                                                                     ========          =====              ====
</TABLE>
<PAGE>

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

                                           At December 31,
                                1996            1995            1994
                              -------         -------          -------
                                            (In thousands)
3.00 to 3.99%.........    $       ---     $       ---       $      443
4.00 to 4.99%.........         11,647              98           30,882
5.00 to 5.99%.........         41,560          30,116            5,276
6.00 to 6.99%.........         11,144          10,731            3,365
7.00 to 7.99%.........          2,923             232              267
8.00 to 8.99%.........              1             ---              ---
                              -------         -------          -------
   Total..............        $67,275         $41,177          $40,233
                              =======         =======          =======


     The following table  represents,  by various interest rate categories,  the
amounts of time  deposits  maturing  during  each of the three  years  following
December  31,  1996.  Matured  certificates,  which have not been  renewed as of
December 31, 1996, have been allocated based upon certain rollover assumptions.

<TABLE>
<CAPTION>

                                                                         Amounts at December 31, 1996
                                              --------------------------------------------------------------------------------
                                                 One Year                 Two                  Three             Greater Than
                                                  or Less                Years                 Years              Three Years
                                                  -------                -----                 -----              -----------
                                                                                (In thousands)
<S>                                               <C>                  <C>                    <C>                   <C>
3.00 to 3.99%...............................  $       ---            $     ---             $     ---             $     ---
4.00 to 4.99%...............................       10,972                    1                     2                     1
5.00 to 5.99%...............................       32,152                7,297                 2,685                 1,266
6.00 to 6.99%...............................        4,737                4,626                   260                 1,326
7.00 to 7.99%...............................           86                1,672                    20                   171
8.00 to 8.99%...............................            1                  ---                   ---                   ---
                                                  -------              -------                ------                ------
   Total....................................      $47,948              $13,596                $2,967                $2,764
                                                  =======              =======                ======                ======
</TABLE>


     The following table indicates the amount of the Holding Company's jumbo and
other  certificates  of  deposit of  $100,000  or more by time  remaining  until
maturity as of December 31, 1996.

                                                          At December 31, 1996
       Maturity Period                                       (In thousands)
       Three months or less.............................          $4,515
       Greater than three months through six months.....           1,100
       Greater than six months through twelve months....           2,363
       Over twelve months...............................           1,710
                                                                  ------
            Total.......................................          $9,688
                                                                  ======

<PAGE>
      The following  table sets forth the dollar  amount of savings  deposits in
the  various  types of  deposits  offered  by the  Holding  Company at the dates
indicated,  and the amount of increase or decrease in such  deposits as compared
to the previous period.

<TABLE>
<CAPTION>

                                                                                    DEPOSIT ACTIVITY
                                                    Balance                     Increase        Balance                   Increase
                                                      at                       (Decrease)         at                     (Decrease)
                                                 December 31,        % of         from       December 31,      % of         from
                                                     1996          Deposits       1995           1995        Deposits       1994
                                                    --------        -----       -------         -------      -----       ----------
                                                                                (Dollars in thousands)
<S>                                                 <C>             <C>         <C>             <C>          <C>         <C>
Withdrawable:
   Non-interest bearing accounts.................$     5,951          4.7%       $5,951     $       ---        ---%   $       ---
   Passbook accounts.............................     21,718         17.3         3,807          17,911       23.8         (1,518)
   MMDA  ........................................      9,623          7.7         2,482           7,141        9.5           (511)
   NOW accounts..................................     16,683         13.3         8,742           7,941       10.6            529
   Super NOW accounts............................      4,406          3.5         3,343           1,063        1.4            332
                                                    --------        -----       -------         -------      -----       --------
     Total withdrawable..........................     58,381         46.5        24,325          34,056       45.3         (1,168)
Certificates (original terms):
   I.R.A.........................................      8,083          6.4         2,300           5,783        7.7           (293)
   3 months......................................        207           .2           112              95        0.1           (348)
   6 months......................................      6,288          5.0           900           5,388        7.1         (2,086)
   9 months......................................      1,168           .9         1,168             ---        ---            ---
   12 months.....................................     18,003         14.4        10,657           7,346        9.8         (1,473)
   15 months.....................................      6,247          5.0           277           5,970        7.9          5,970
   18 months.....................................      3,212          2.6           (73)          3,285        4.4            840
   24 months.....................................        805           .6           805             ---        ---            ---
   30 months ....................................      6,935          5.5         1,669           5,266        7.0           (802)
   36 months.....................................      2,774          2.2         2,774             ---        ---            ---
   48 months.....................................        811           .6           755              56        0.1            ---
   60 months.....................................      3,398          2.7           349           3,049        4.1           (305)
   72 months ....................................         10         ---            ---              10        ---            ---
   96 months.....................................        155           .1           (10)            165        0.2            (35)
   120 months....................................          4         ---            ---               4        ---             (7)
Jumbo certificates...............................      9,175          7.3         4,415           4,760        6.3           (517)
                                                    --------        -----       -------         -------      -----       --------
   Total certificates............................     67,275         53.5        26,098          41,177       54.7            944
                                                    --------        -----       -------         -------      -----       --------
Total deposits...................................   $125,656        100.0%      $50,423         $75,233      100.0%      $   (224)
                                                    ========        =====       =======         =======      =====       ========
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                            DEPOSIT ACTIVITY
                                                    Balance                     Increase        Balance
                                                      at                       (Decrease)         at
                                                 December 31,        % of         from       December 31,      % of
                                                     1994          Deposits       1993           1993        Deposits
                                                     -------        -----       -------         -------      -----
                                                                                (Dollars in thousands)
Withdrawable:
<S>                                                  <C>             <C>        <C>             <C>           <C>
   Passbook accounts.............................    $19,429         25.8%      $(3,714)        $23,143       29.6%
   MMDA  ........................................      7,652         10.1          (635)          8,287       10.6
   NOW accounts..................................      7,412          9.8           821           6,591        8.5
   Super NOW accounts............................        731          1.0          (128)            859        1.1
                                                     -------        -----       -------         -------      -----
     Total withdrawable..........................     35,225         46.7        (3,656)         38,880       49.8
Certificates (original terms):
   I.R.A.........................................      6,076          8.1          (207)          6,283        8.0
   3 months......................................        443          0.6           (25)            468        0.6
   6 months......................................      7,474          9.9          (828)          8,302       10.6
   9 months......................................        ---         ---            ---             ---        ---
   12 months.....................................      8,819         11.7         2,288           6,531        8.4
   15 months.....................................        ---         ---            ---             ---        ---
   18 months.....................................      2,445          3.2          (707)          3,152        4.0
   24 months.....................................        ---         ---            ---             ---        ---
   30 months ....................................      6,068          8.0          (662)          6,730        8.6
   48 months.....................................         56          0.1           ---              56        0.1
   36 months.....................................        ---         ---            ---             ---        ---
   60 months.....................................      3,354          4.4          (196)          3,550        4.6
   72 months ....................................         10         ---            ---              10        ---
   96 months.....................................        200          0.3           (36)            236        0.3
   120 months....................................         11         ---             (4)             15         --
Jumbo certificates...............................      5,277          7.0         1,409           3,868        5.0
                                                     -------        -----       -------         -------      -----
   Total certificates............................     40,233         53.3         1,032          39,201       50.2
                                                     -------        -----       -------         -------      -----
Total deposits...................................    $75,458        100.0%      $(2,624)        $78,081      100.0%
                                                     =======        =====       =======         =======      =====
</TABLE>


         Borrowings.  The Holding  Company  focuses on  generating  high quality
loans and then seeks the best source of funding from  deposits,  investments  or
borrowings.  At  December  31,  1996,  the  Institutions  had  $1.1  million  in
borrowings  from  the  FHLB  of  Indianapolis.  The  Holding  Company  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  borrowings at or for the years ended December 31, 1996, 1995
and 1994.

<TABLE>
<CAPTION>

                                                                                    At or for the Year
                                                                                    Ended December 31,
                                                                      ---------------------------------------------
                                                                       1996                1995               1994
                                                                       ----                ----               ----
                                                                             (Dollars in thousands)
FHLB Advances:
<S>                                                                    <C>                 <C>               <C>
   Outstanding at end of period...............................         $1,100              $4,471            $4,986
   Average balance outstanding for period.....................          1,221               2,967               228
   Maximum amount outstanding at any
     month-end during the period..............................          2,000               4,471             4,986
   Weighted average interest rate
     during the period........................................           5.16%               5.90%             5.26%
   Weighted average interest rate
     at end of period.........................................           7.35%               5.76%             6.26%
</TABLE>

<PAGE>

Service Corporation Subsidiaries

         Prior  to  the  Acquisition  and  Conversion,  First  Federal  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 Holding Company 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 First Federal was required to divest its ownership
of McCauley.  On December 17, 1996,  First  Federal sold McCauley to the Madison
Insurance  Agency,  Inc.  for a gain of  $141,000.  It  continues  to hold First
Service as a shell corporation which is not currently conducting any business.

         The historic consolidated statements of income of First Federal and its
subsidiaries  included  elsewhere herein include the operations of First Service
and  McCauley,   prior  to  McCauley's  sale.  All  intercompany   balances  and
transactions have been eliminated in the consolidation.

Employees

         As of December 31, 1996, the Holding  Company  employed 58 persons on a
full-time  basis and 8 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  Institutions  originate  most of their loans to and accept most of
their deposits from residents of Jefferson County, Indiana. The Institutions are
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 with  significantly  larger  resources than the  Institutions.  In total,
there are 11  financial  institutions  located  in  Jefferson  County,  Indiana,
including  the  Institutions.  The  Institutions  also compete with money market
funds with respect to deposit accounts and with insurance companies with respect
to individual retirement accounts.

         Under  current  law,  bank  holding   companies  may  acquire   savings
associations.  Savings associations may also acquire banks under federal law. To
date,  several bank holding  company  acquisitions of savings  associations  and
savings  association  acquisitions  of banks in  Indiana  have  been  completed.
Affiliations  between banks and savings  associations  based in Indiana may also
increase the competition faced by the Holding Company and the Institutions.

         In  addition,   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  recently passed a law  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 authorizes Indiana banks to branch interstate by merger or
de novo expansion and authorizes out-of-state banks meeting certain requirements
to branch into Indiana by merger or de novo expansion. The Indiana Branching Law
became  effective March 15, 1996,  provided that interstate  mergers and de novo
branches are not permitted to  out-of-state  banks unless the laws of their home
states  permit  Indiana  banks to  merge  or  establish  de novo  branches  on a
reciprocal basis. This new legislation may also result in increased  competition
for the Holding Company and the Institutions.

         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

<PAGE>

Holding  Companies  may acquire  savings  associations  with their home  offices
located outside of Indiana and savings associations holding companies with their
principal place of business  located outside of Indiana upon receipt of approval
by the Indiana Department of Financial Institutions.

         Because of recent changes in federal law,  interstate  acquisitions  of
banks are less  restricted  than they were  under  prior law.  Savings  and loan
associations have certain powers to acquire savings  associations based in other
states,  and Indiana law expressly  permits  reciprocal  acquisitions of Indiana
savings assocations in the Region. In addition, federal savings associations are
permitted to branch on an interstate  basis.  See  "Regulation--Acquisitions  or
Dispositions and Branching."

         The primary factors  influencing  competition for deposits are interest
rates, service and convenience of office locations. The Institutions compete 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

         First Federal,  as a federally  chartered savings and loan association,
is a member of the Federal Home Loan Bank System ("FHLB  System"),  its deposits
are insured by the Federal Deposit  Insurance  Corporation  (the "FDIC") through
the Savings Association Insurance Fund (the "SAIF"). First Federal is subject to
extensive  regulation  by the  Office of  Thrift  Supervision  ("OTS").  Federal
associations may not enter into certain  transactions  unless certain regulatory
tests are met or they obtain prior governmental  approval, and must file reports
with the OTS about their  activities  and their  financial  condition.  Periodic
examinations of First Federal are conducted by the OTS which has, in conjunction
with the FDIC in certain  situations,  examination and enforcement  powers. This
supervision  and  regulation  are  intended  primarily  for  the  protection  of
depositors and federal deposit insurance funds. First Federal is also subject to
certain reserve requirements under regulations of the FRB.

         An OTS  regulation  establishes  a schedule for the  assessment of fees
upon all savings  associations to fund the operations of the OTS. The regulation
also  establishes  a  schedule  establishing  fees  for  the  various  types  of
applications and filings made by savings  associations with the OTS. The general
assessment,  to be paid  on a  semiannual  basis,  is  based  upon  the  savings
association's total assets, including consolidated subsidiaries,  as reported in
a recent  quarterly  thrift financial  report.  Currently,  the assessment rates
range from  .0172761% of assets for  associations  with assets of $67 million or
less to .0045864% for associations  with assets in excess of $35 billion.  First
Federal's  semiannual  assessment  under this method of  assessment,  based upon
assets at December 31, 1996, is approximately $14,000.

         Citizens,  as a  national  bank,  is  regulated  by the  Office  of the
Comptroller  of the  Curency  ("OCC") and its  deposits  are insured by the FDIC
through the Bank Insurance Fund ("BIF").  Periodic  examinations of Citizens are
conducted  by the OCC  which  has,  in  conjunction  with  the  FDIC in  certain
situations, examination and enforcement powers with respect to Citizens.

         Each of First Federal and Citizens 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,
issuance or  retirements of their own  securities,  and  limitations  upon other
aspects of banking  operations.  In addition,  the  activities and operations of
First  Federal  and  Citizens  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.

         The  United  States  Congress  is  considering  legislation  that would
require all  federal  savings  associations,  such as First  Federal,  to either
convert to a  national  bank or a  state-chartered  financial  institution  by a
specified  date to be  determined.  The OTS  would  also  be  abolished  and its
functions  transferred  among  the other  federal  banking  regulators.  Certain
aspects of the legislation  remain to be resolved and therefore no assurance can
be given as to  whether or in what form the  legislation  will be enacted or its
effect on the Holding Company and First Federal.

Bank Holding Company Regulation

         As the holding company for Citizens,  the Holding Company is registered
as a bank holding  company,  and is subject to the  regulations of the FRB under
the BHCA. Bank holding companies are required to file periodic reports with, and
are subject to periodic  examination by, the FRB. The FRB has issued regulations
under  the BHCA  requiring  a bank  holding  company  to  serve  as a source  of
financial and managerial  strength to its subsidiary  banks. It is the policy of
the FRB that, pursuant to this requirement,  a bank holding company should stand

<PAGE>

ready to use its resources to provide  adequate  capital funds to its subsidiary
banks during periods of financial stress or adversity.  Additionally,  under the
Federal Deposit Insurance  Corporation  Improvement Act of 1991  ("FedICIA"),  a
bank holding  company is required to  guarantee  the  compliance  of any insured
depository institution subsidiary that may become "undercapitalized" (as defined
in the  statute)  with the terms of any capital  restoration  plan filed by such
subsidiary with its  appropriate  federal banking agency up to the lesser of (i)
an  amount  equal  to 5% of the  institution's  total  assets  at the  time  the
institution  became  undercapitalized,  or (ii) the amount that is necessary (or
would have been  necessary) to bring the  institution  into  compliance with all
applicable capital standards as of the time the institution fails to comply with
such capital  restoration  plan.  Under the BHCA,  the FRB has the  authority to
require a bank holding  company to terminate any activity or relinquish  control
of a nonbank  subsidiary  (other than a nonbank  subsidiary  of a bank) upon the
FRB's  determination that such activity or control constitutes a serious risk to
the financial soundness and stability of any bank subsidiary of the bank holding
company.

         Under the BHCA, a bank holding company must obtain FRB approval before:
(i) acquiring, directly or indirectly, ownership or control of any voting shares
of another bank or bank holding company if, after such acquisition, it would own
or control  more than 5% of such shares  (unless it already owns or controls the
majority of such shares);  (ii) acquiring all or substantially all of the assets
of another bank or bank holding company;  or (iii) merging or consolidating with
another bank holding company.

         Prior to September 29, 1995, the BHCA prohibited the FRB from approving
any direct or indirect  acquisition by a bank holding company of more than 5% of
the voting  shares,  or of all or  substantially  all of the  assets,  of a bank
located  outside  of the  state  in which  the  operations  of the bank  holding
company's  banking  subsidiaries are principally  located unless the laws of the
state in which the bank to be acquired is located specifically authorize such an
acquisition.  Pursuant to amendments to the BHCA which took effect September 29,
1995,  the FRB may now allow a bank holding  company to acquire banks located in
any state of the United  States  without  regard to  geographic  restriction  or
reciprocity   requirements   imposed  by  state  law,  but  subject  to  certain
conditions,  including  limitations on the aggregate amount of deposits that may
be held by the  acquiring  holding  company  and all of its  insured  depository
institution  affiliates  and state law  provisions  requiring the target bank to
have  existed for some period of time (not  exceeding  five years)  prior to the
date of acquisition.

         The BHCA also prohibits the Holding  Company,  with certain  exceptions
noted below, from acquiring direct of indirect ownership or control of more than
5% of the voting  shares of any company which is not a bank and from engaging in
any  business  other than that of banking,  managing  and  controlling  banks or
furnishing  services to banks and their  subsidiaries,  except that bank holding
companies  may engage in, and may own shares of  companies  engaged in,  certain
businesses  found by the FRB to be "so closely related to banking . . . as to be
a proper incident  thereto."  Under current  regulations of the FRB, the Holding
Company and any non-bank subsidiaries it may control are permitted to engage in,
among other activities,  such  banking-related  businesses as the operation of a
thrift, the operation of a trust company, sales, and consumer finance, equipment
leasing,  the  operation  of  a  computer  service  bureau,  including  software
development,  and  mortgage  banking  and  brokerage.  The BHCA  does not  place
territorial  restrictions  on the  activities of non-bank  subsidiaries  of bank
holding companies.

Capital Adequacy Guidelines for Bank Holding Companies

         The FRB is the federal  regulatory  and  examining  authority  for bank
holding  companies.  The FRB has adopted  capital  adequacy  guidelines for bank
holding companies.

         Bank holding companies are required to comply with the FRB's risk-based
capital   guidelines   which  require  a  minimum  ratio  of  total  capital  to
risk-weighted  assets  (including  certain  off-balance sheet activities such as
standby  letters of credit) of 8%. At least half of the total  required  capital
must be "Tier I capital," consisting principally of common stockholders' equity,
noncumulative   perpetual  preferred  stock,  a  limited  amount  of  cumulative
perpetual  preferred  stock and  minority  interests  in the equity  accounts of
consolidated subsidiaries,  less certain goodwill items. The remainder ("Tier II
capital")   may  consist  of  a  limited   amount  of   subordinated   debt  and
intermediate-term  preferred stock, certain hybrid capital instruments and other
debt securities,  cumulative  perpetual preferred stock, and a limited amount of
the  general  loan  loss  allowance.  In  addition  to  the  risk-based  capital
guidelines,  the FRB has adopted a Tier I (leverage)  capital  ratio under which
the bank  holding  company  must  maintain a minimum  level of Tier I capital to
average total  consolidated  assets of 3% in the case of bank holding  companies
which have the highest regulatory  examination ratings and are not contemplating
significant  growth or expansion.  All other bank holding companies are expected
to maintain a ratio of at least 1% to 2% above the stated minimum.

         The Holding  Company has  satisfied  these  requirements  following the
Conversion and the Acquisition.

<PAGE>
Federal Home Loan Bank System

         First  Federal  and  Citizens  are  members 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 savings
and loan associations and savings banks and other member financial institutions.
Each of First  Federal and Citizens are required to hold shares of capital stock
in the FHLB of  Indianapolis in an amount at least equal to the greater of 1% of
the aggregate  principal amount of its unpaid  residential  mortgage loans, home
purchase  contracts and similar  obligations  at the end of each calendar  year,
0.3% of its assets or 1/20 (or such greater fraction established by the FHLB) of
outstanding FHLB advances,  commitments,  lines of credit and letters of credit.
First Federal and Citizens are currently in compliance with this requirement. At
December  31,  1996,  the  Institutions'  investment  in  stock  of the  FHLB of
Indianapolis was $943,000.

         In past years,  First Federal and Citizens  have received  dividends on
their FHLB  stock.  All 12 FHLBs are  required  by law to provide  funds for the
resolution of troubled savings  associations and 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 FHLBs'  ability to pay  dividends and the value of FHLB stock in the future.
For the year ended  December  31,  1996,  dividends  paid to First  Federal  and
Citizens by the FHLB of Indianapolis totaled $49,000 for an annual rate of 7.9%.

         The FHLB of Indianapolis serves as a reserve or central bank for member
institutions  within its assigned  region.  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 FHFB 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 less
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,  FHLB  deposits  and,  to a limited
extent,  real  estate  with  readily  ascertainable  value in which a  perfected
security interest may be obtained.  Other forms of collateral may be accepted as
over  collateralization  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
such as Citizens and state savings  banks and the SAIF for savings  associations
such as First  Federal  and  banks  that have  acquired  deposits  from  savings
associations.  The FDIC is required to maintain designated levels of reserves in
each fund.  As of September  30,  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  have been used to pay the cost of prior  thrift
failures,  while the  reserves of the BIF met the level  required by law in May,
1995.  However,  on September 30, 1996,  provisions designed to recapitalize the
SAIF and  eliminate the premium  disparity  between the BIF and SAIF were signed
into law. 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  such rates if such 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. Such risk level is determined
based on the  institution's  capital  level and the FDIC's level of  supervisory
concern about the institution.

         On September 30, 1996,  President  Clinton signed into law  legislation
which included  provisions  designed to recapitalize  the SAIF and eliminate the
significant  premium  disparity between the BIF and the SAIF. Under the new law,

<PAGE>
First Federal was charged a one-time special  assessment equal to $.657 per $100
in  assessable  deposits  at  March  31,  1995.  This  one-time  assessment  was
recognized as a non-recurring  operating  expense during the three-month  period
ending  September 30, 1996, was paid November 27, 1996 and was fully  deductible
for both federal and state income tax purposes.  For the impact on First Federal
of this assessment,  see "Recent  Developments."  Beginning January 1, 1997, the
annual  deposit  insurance  premium for First  Federal was reduced  from .23% to
 .0644% of total assessable  deposits.  Citizens pays $2,000 of deposit insurance
premiums  on an  annual  basis.  BIF  institutions  pay lower  assessments  than
comparable SAIF  institutions  because BIF institutions pay only 20% of the rate
being paid by SAIF  institutions  on their  deposits with respect to obligations
issued  by the  federally-chartered  corporation  which  provided  financing  to
resolve the thrift crisis in the 1980's ("FICO"). The new 1996 law also provides
for the merger of the SAIF and the BIF by 1999,  but not until such time as bank
and thrift  charters are  combined.  Until the charters  are  combined,  savings
associations  with SAIF  deposits may not transfer  deposits into the BIF system
without  paying  various  exit and entrance  fees,  and SAIF  institutions  will
continue to pay higher FICO assessments.

Bank Regulatory Capital

         The OCC has  adopted  risk-based  capital  ratio  guidelines  to  which
Citizens generally is subject. The guidelines establish a systematic  analytical
framework  that  makes  regulatory   capital   requirements  more  sensitive  to
differences in risk profiles  among banking  organizations.  Risk-based  capital
ratios are  determined by  allocating  assets and  specified  off-balance  sheet
commitments  to four risk  weighted  categories,  with higher  levels of capital
being required for the categories perceived as representing greater risk.

         Like the  capital  guidelines  established  by the FRB for the  Holding
Company, these guidelines divide a bank's capital into two tiers. The first tier
("Tier  I")  includes  common  shareholders'  equity,   certain   non-cumulative
perpetual preferred stock (excluding auction rate issues) and minority interests
in equity accounts of consolidated subsidiaries, less goodwill and certain other
intangible  assets (except  mortgage  servicing rights and purchased credit card
relationships,  subject  to  certain  limitations).  Supplementary  ("Tier  II")
capital  includes,   among  other  items,  cumulative  perpetual  and  long-term
limited-life preferred stock, mandatory convertible  securities,  certain hybrid
capital instruments, term subordinated debt and the allowance for loan and lease
losses,  subject to certain  limitations,  less required  deductions.  Banks are
required to maintain a total risk-based capital ratio of 8%, of which 4% must be
Tier I capital.  The OCC may,  however,  set higher capital  requirements when a
bank's  particular  circumstances  warrant.  Banks  experiencing or anticipating
significant  growth are expected to maintain capital ratios,  including tangible
capital positions, well above the minimum levels.

         In addition,  the OCC established guidelines prescribing a minimum Tier
I leverage  ratio (Tier I capital to adjusted  total  assets as specified in the
guidelines).  These guidelines provide for a minimum Tier I leverage ratio of 3%
for banks that meet certain  specified  criteria,  including  that they have the
highest  regulatory rating and are not experiencing or anticipating  significant
growth.  All other banks are required to maintain a Tier I leverage  ratio of 3%
plus an additional cushion of at least 100 to 200 basis points.

         Citizens currently exceeds the regulatory capital  requirements imposed
by the OCC regulatory capital scheme.

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  stockholders'  equity
(including retained income), noncumulative perpetual preferred stock and related
surplus,   certain  minority  equity   interests  in  subsidiaries,   qualifying
supervisory goodwill, purchased mortgage servicing rights (which may be included
in an amount up to 50% of core  capital,  but  which  are to be  reported  on an
association's balance sheet at the lesser of 90% of their fair market value, 90%
of their original purchase price, or 100% of their unamortized book value),  and
purchased  credit card  relationships  (which may be included in an amount up to
25% of core capital) less nonqualifying intangibles.  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
<PAGE>
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%) with a credit risk-free
asset  such  as  cash  requiring  no  risk-based  capital  and an  asset  with a
significant  credit risk such as a non-accrual  loan being  assigned a factor of
100%. At December 31, 1996,  First  Federal 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  incorporated  into the OTS
regulatory  capital  rule,  although it has delayed the  implementation  of this
rule. Under the new rule, only savings associations with "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) will be required to maintain  additional  capital for  interest
rate risk under the risk-based capital framework. In addition, most institutions
with less than $300 million in assets and a risk-based  capital  ratio in excess
of 12%,  such  as  First  Federal,  are  subject  to  less  stringent  reporting
requirements  and are exempt from the interest  rate  component of the new rule.
Although the OTS has delayed  implementation of this rule, it has stated that it
will closely monitor the level of interest rate risk at savings institutions and
it has retained the  authority on a  case-by-case  basis,  to impose  additional
capital requirements for individual  institutions with significant interest rate
risk.

         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,  which actions may include  restrictions on operations and banking
activities,  the  imposition of a capital  directive,  a cease and desist order,
civil money penalties or harsher  measures such as the appointment of a receiver
or conservator or a forced merger into another institution.

Prompt Corrective Regulatory Action

         FedICIA   requires,   among  other  things,   federal  bank  regulatory
authorities to 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,  1996,  First  Federal  and  Citizens  were
categorized as "well capitalized."

         An  institution  is deemed to be "well  capitalized"  if it has a total
risk-based capital ratio of 10% or greater, a Tier I risk-based capital ratio of
6% or greater,  and a leverage  ratio of 5% or greater,  and is not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any  capital  measure.  An  institution  is  deemed to be  "adequately
capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier
I risk-based  capital ratio of 4% or greater,  and generally a leverage ratio 4%
or greater. An institution is deemed to be  "undercapitalized" if it has a total
risk-based  capital ratio of less than 8%, a Tier I risk-based  capital ratio of
less  than  4%,  or  generally  a  leverage  ratio  of  less  than  4%;  and (d)
"significantly  undercapitalized"  if it has a total risk-based capital ratio of
less than 6%, a Tier I risk-based  capital  ratio of less than 3%, or a leverage
ratio  of  less  than  3%.   An   institution   is  deemed  to  be   "critically
undercapitalized"  if it has a ratio  of  tangible  equity  (as  defined  in the
regulations) to total assets that is equal to or less than 2%.

         "Undercapitalized"  institutions are subject to growth  limitations and
are required to submit a capital restoration plan. A bank's compliance with such
plan  is  required  to  be   guaranteed   by  any  company  that   controls  the
undercapitalized  institution as described  above.  See "-- Bank Holding Company
Regulation." If an  "undercapitalized"  institution fails to submit, or fails to
implement in a material  respect,  an acceptable plan, it is treated as if it is
"significantly  undercapitalized." "Significantly undercapitalized" institutions
are  subject  to one or more  of a  number  of  requirements  and  restrictions,
including  an order  by the  FDIC to sell  sufficient  voting  stock  to  become
adequately capitalized, requirements to reduce total assets and cease receipt of
deposits from correspondent banks, and restrictions on compensation of executive
officers.  "Critically undercapitalized" institutions may not, beginning 60 days
after becoming "critically  undercapitalized,"  make any payment of principal or
interest on certain  subordinated  debt or extend credit for a highly  leveraged
transaction  or enter  into any  transaction  outside  the  ordinary  course  of
business. In addition, "critically undercapitalized" institutions are subject to
appointment of a receiver or conservator.

Dividend Limitations

         Under FRB supervisory  policy, a bank holding company  generally should
not maintain its existing rate of cash dividends on common shares unless (i) the
organization's  net income available to common  shareholders  over the past year
has been sufficient to fully fund the dividends and (ii) the prospective rate of
earnings  retention appears  consistent with the  organization's  capital needs,
asset  quality,  and overall  financial  condition.  The FDIC also has authority
under the Financial Institutions  Supervisory Act to prohibit a bank from paying

<PAGE>
dividends  if, in its opinion,  the payment of  dividends  would  constitute  an
unsafe or unsound  practice  in light of the  financial  condition  of the bank.
Under Indiana law, the Holding  Company is precluded  from paying cash dividends
if, after giving effect to such  dividends,  the Holding Company would be unable
to pay its debts as they become due or the Holding  Company's total assets would
be less than its liabilities and obligations to preferential shareholders.

         An OTS regulation imposes limitations upon all "capital  distributions"
by savings associations, including cash dividends, payments by an institution to
repurchase or otherwise acquire its shares,  payments to shareholders of another
institution  in a  cash-out  merger  and  other  distributions  charged  against
capital.  The regulation  establishes a three-tiered system of regulation,  with
the greatest  flexibility  being afforded to  well-capitalized  institutions.  A
savings  association  which has total  capital  (immediately  prior to and after
giving effect to the capital  distribution)  that is at least equal to its fully
phased-in  capital   requirements  would  be  a  Tier  1  institution  ("Tier  1
Institution").  An  institution  that has total  capital  at least  equal to its
minimum capital requirements, but less than its capital requirements, would be a
Tier 2 institution  ("Tier 2 Institution").  An institution having total capital
that is less than its minimum capital requirements would be a Tier 3 institution
("Tier 3 Institution").  However,  an institution which otherwise qualifies as a
Tier  1  Institution  may be  designated  by  the  OTS  as a  Tier  2 or  Tier 3
Institution if the OTS determines  that the institution is "in need of more than
normal supervision." First Federal is currently a Tier 1 Institution.

         A Tier 1 Institution could, after prior notice but without the approval
of the OTS, make capital  distributions during a calendar year up to the greater
of 100% of its net income to date during the calendar year,  plus an amount that
would reduce by one-half its "surplus  capital ratio" (the smallest  excess over
its capital  requirements)  at the  beginning of the calendar year or 75% of its
net income over the most recent  four-quarter  period.  Any additional amount of
capital distributions would require prior regulatory approval.  Accordingly,  at
December 31, 1996,  First Federal had available  approximately  $4.3 million for
distribution.

         The OTS has proposed  revisions to these regulations which would permit
savings  associations  to declare  dividends in amounts  which would assure that
they remain adequately  capitalized following the dividend declaration.  Savings
associations  in a holding company system which are rated Camel 1 or 2 and which
are not in  troubled  condition  would need to file a prior  notice with the OTS
concerning such dividend declaration.

         Pursuant to the Plan of  Conversion,  First  Federal has  established a
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. First Federal is not permitted to pay dividends to the
Holding  Company if its net worth would be reduced below the amount required for
the liquidation  account.  First Federal must file a notice with the OTS 30 days
before any declaration by it of a dividend to the Holding Company.

         Citizens is subject to OCC limits on its dividends. The approval of the
OCC is  required  for  any  dividend  by a  national  bank if the  total  of all
dividends,  including any proposed dividend declared by the national bank in any
calendar year,  exceeds the total of its net profits (as defined by the OCC) for
that year  combined  with its retained net profits for the  preceding two years,
less any required transfers to surplus.  Moreover, a national bank may not pay a
dividend on its common stock if the dividend would exceed net undivided  profits
then on  hand.  In  certain  cases,  even if  prior  approval  of the OCC is not
required,  the OCC may find a  dividend  payment  to be an  unsafe  and  unsound
practice.

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 such
depository   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.  First  Federal and  Citizens do not believe  that these
regulations will have a materially  adverse effect on their current  operations.

Federal Reserve System

         FRB  regulations  require  member  institutions  to  maintain  reserves
against  their  transaction   accounts  (primarily  NOW  accounts)  and  certain
nonpersonal time deposits. The reserve requirements are subject to adjustment by
the FRB. As of December 31, 1996,  First Federal and Citizens were in compliance
with the applicable reserve requirements of the FRB.

<PAGE>
Liquidity

         For each  calendar  month,  First  Federal is  required  to maintain an
average daily balance of liquid assets (cash,  certain time  deposits,  bankers'
acceptances,  specified  United  States  Government,  state  or  federal  agency
obligations,   shares  of  certain  mutual  funds  and  certain  corporate  debt
securities  and  commercial  paper) equal to an amount not less than a specified
percentage of its net withdrawable  deposit accounts plus short-term  borrowings
during the preceding  calendar month. This liquidity  requirement may be changed
from  time to  time  by the OTS to any  amount  within  the  range  of 4% to 10%
depending upon economic conditions and the savings flows of member institutions,
and  is  currently  5%.  OTS  regulations   also  require  each  member  savings
institution to maintain an average daily balance of short-term  liquid assets at
a  specified  percentage  (currently  1%) of the  total of its net  withdrawable
deposit accounts and short-term  borrowings during the preceding calendar month.
Monetary   penalties  may  be  imposed  for  failure  to  meet  these  liquidity
requirements.  The monthly average liquidity of First Federal for December, 1996
was 28% which exceeded the then applicable 5% liquidity requirement. Its average
short-term  liquidity for December,  1996 was 14%.  First Federal has never been
subject to monetary penalties for failure to meet its liquidity requirements.

Safety and Soundness Standards

         On February 2, 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.  The  federal  banking  agencies  have also  published  for comment
proposed asset quality and earning  standards which, if adopted,  would be added
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
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.  Similar  standards
apply to national banks under OCC regulations.

Loans to One Borrower

         Under regulations, a federally-chartered savings association, including
First Federal, may not make a loan or extend credit to a single or related group
of  borrowers  in  excess of 15% of the  association's  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.  Similar  loans-to-one  borrower  limits  apply to
national  banks,  including  Citizens.  At  December  31,  1996,  neither of the
Institutions  had loans or  extensions of credit to a single or related group of
borrowers in excess of its lending limits.

Qualified Thrift Lender

         Under  current OTS  regulations,  the QTL test  requires that a savings
association  have at least 65% of its  portfolio  assets  invested in "qualified
thrift  investments"  on a monthly  average  basis in 9 out of every 12  months.
Qualified  thrift  investments  under the QTL test consist  primarily of housing
related loans and investments.

         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 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  not be  eligible  for any new FHLB
advances; and (iv) it shall be bound by regulations applicable to national banks

<PAGE>
respecting  payment of  dividends.  Three years  after  failing the QTL test the
association must (i) dispose of any investment or activity not permissible for a
national  bank and a savings  association  and (ii) repay all  outstanding  FHLB
advances.  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).

         A savings  association  failing to meet the QTL test may requalify as a
QTL if it thereafter meets the QTL test. In the event of such requalification it
shall not be subject to the penalties  described  above.  A savings  association
which  subsequently  again  fails to  qualify  under the QTL test  shall  become
subject to all of the described  penalties  without  application  of any waiting
period.

         At December 31, 1996,  approximately 89.9% of First Federal's portfolio
assets (as defined on that date) were invested in qualified  thrift  investments
(as defined on that date),  and First  Federal met this  standard in each of the
prior twelve months.  Therefore First Federal's asset  composition was in excess
of the amount required to qualify First Federal as a QTL. First Federal does not
expect to significantly change its lending or investment  activities in the near
future,  and therefore  expects to continue to qualify as a QTL,  although there
can be no such assurance.

Acquisitions or Dispositions and Branching

         The BHCA specifically  authorizes a bank holding company,  upon receipt
of  appropriate  approvals  from the FRB and the Director of the OTS, to acquire
control of any savings  association or holding company thereof wherever located.
Similarly, a savings and loan holding company may now acquire control of a bank.
Moreover, subject to the moratorium provisions concerning conversions of SAIF to
BIF members  and vice  versa,  federal  savings  associations  may acquire or be
acquired by any insured depository institution. Pursuant to rules promulgated by
the FRB, a savings  association  acquired by a bank holding  company (i) may, so
long as the  savings  association  continues  to meet the QTL test,  continue to
branch  to  the  same  extent  as  permitted  to  other  non-affiliated  savings
associations  similarly  chartered  in the state,  and (ii) cannot  continue any
non-banking  activities  not  authorized  for  bank  holding  companies.  Saving
associations acquired by a bank holding company may, if located in a state where
the bank holding  company is legally  authorized to acquire a bank, be converted
to the status of a bank but deposit insurance  assessments and payments continue
to be paid by the association to the SAIF. A savings association so converted to
a bank becomes subject to the branching  restrictions  applicable to banks. Also
any insured  depository  institution  may merge with,  acquire the assets of, or
assume the  liabilities  of any other insured  depository  institution  with the
appropriate  regularity approvals if (i) continued payments of deposit insurance
are made on the acquired depository institution's deposits (including an assumed
rate of growth in such deposits) to SAIF (if the acquired institution was a SAIF
member) or to BIF (if the acquired  institution was a BIF member),  and (ii) the
acquiring  institution  and any  holding  company  in control  thereof  meet all
applicable capital requirements at the time of the transaction.

         A bank or savings  association  may sell branches and transfer  deposit
liabilities  to a savings  association  or bank that is a member of an insurance
fund  which  differs  from  the fund of the  transferor  without  violating  the
moratorium on switching  insurance funds that is described above in "--Insurance
of Deposits." To be permitted, the transfer must be approved by the FDIC and the
amount  for  deposits  transferred  must not exceed 35% of the lesser of (a) the
transferor's deposits as of May 1, 1989 (plus net interest on those accounts) or
(b) the transferor's  total deposits on the date of transfer.  Exit and entrance
fees are payable in connection  with such  dispositions.  There are also special
entrance  and  exit  fees for  insured  deposits  transfers  in  failed  savings
association  resolutions.  The resulting or acquiring  institution is liable for
the fees.

         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.

<PAGE>
         Moreover,  Indiana  banks and savings  associations  are  permitted  to
acquire other Indiana banks and savings  associations and to establish  branches
throughout Indiana.

         In  addition,   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  recently passed a law  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 authorizes Indiana banks to branch interstate by merger or
de novo expansion.  The Indiana  Branching Law became  effective March 15, 1996,
provided that prior to June 1, 1997 interstate  mergers and de novo branches are
not permitted to out-of-state  banks unless the laws of their home states permit
Indiana banks to merge or establish de novo branches on a reciprocal basis.

Transactions with Affiliates

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

Federal Securities Law

         The shares of Common Stock of the Holding  Company are 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 First
Federal'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  Securities Act of 1933, as
amended  (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  conditions  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.

Limitations on Repurchase of Common Stock of Holding Company

         OTS  regulations   currently   provide  that  the  Holding  Company  is
prohibited  from  repurchasing  any  of  its  shares  within  one  year  of  the
Conversion,  which  occurred on December 20, 1996. So long as the Bank continues
to meet certain capitalization requirements,  the Holding Company may repurchase
shares in an  open-market  repurchase  program  (which  cannot  exceed 5% of its
outstanding  shares in a twelve-month  period) during the second and third years
following its Conversion by giving  appropriate prior notice to the OTS. The OTS
has the  authority  to waive these  restrictions  under  certain  circumstances.
Unless  repurchases are permitted under the foregoing  regulations,  the Holding
Company may not,  for a period of three  years from the date of the  Conversion,
repurchase  any of its capital stock from any person,  except in the event of an
offer to  purchase  by the  Holding  Company on a pro rata basis from all of its
shareholders  which is approved  in advance by the OTS or except in  exceptional
circumstances established to the satisfaction of the OTS.

         Regulations  promulgated by the FRB provide that a bank holding company
must file  written  notice  with the FRB prior to any  repurchase  of its equity
securities if the gross consideration for the purchase, when aggregated with the
net  consideration  paid by the bank holding company for all repurchases  during
the preceding 12 months,  is equal to 10% or more of the bank holding  company's
consolidated net worth. This notice requirement is not applicable, however, to a
bank  holding  company  that  exceeds  the  thresholds  established  for a  well
capitalized  state  member  bank and that  satisfies  certain  other  regulatory
requirements.

         Under  Indiana  law,  the  Holding   Company  will  be  precluded  from
repurchasing  its equity  securities if, after giving effect to such repurchase,
the Holding  Company  would be unable to pay its debts as they become due or the
Holding  Company's  assets would be less than its liabilities and obligations to
preferential shareholders. Community Reinvestment Act Matters

<PAGE>
         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 each
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 examiners  have  determined  that First Federal and Citizens have a
satisfactory record of meeting community credit needs.

                                    TAXATION

Federal Taxation

         Historically,  savings  associations,  such as First Federal, 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, First Federal will no longer be able to use the percentage of
taxable income method of computing its allowable tax bad debt  deduction.  First
Federal will be required to 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) First  Federal no longer  qualifies  as a bank under the
Code, or (ii) excess dividends or distributions are paid out by First Federal.

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

         Citizens,  as a national banking association,  is ineligible to use the
percentage of taxable income method of accounting for its bad debts, and instead
must use the bank experience  method described above. The bank experience method
is not available to "large" banks,  as defined by the Code.  Large banks are not
permitted  to deduct a reserve for bad debts,  and instead must use the specific
charge-off method.  Citizens does not expect to be classified as a large bank in
the  foreseeable  future.  Citizens  could also be subject to the AMTI described
above.

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

         The  Holding  Company,  First  Federal and  Citizens do not  anticipate
electing  to file a  consolidated  federal  income  tax return for 1996 or 1997.
Accordingly, the Holding Company will be taxed separtely on its earnings.

         The Holding Company is taxed as an ordinary corporation.

State Taxation

         First  Federal,  Citizens  and  the  Holding  Company  are  subject  to
Indiana's Financial Institutions Tax ("FIT"), which is imposed at a flat rate of
8.5% on "adjusted  gross income."  "Adjusted gross income," for purposes of FIT,
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.

<PAGE>
     Neither First  Federal's  nor Citizens'  state income tax returns have been
audited  in  recent  years.  For  further   information   relating  to  the  tax
consequences  of the  Conversion,  see "The  Conversion -- Principal  Effects of
Conversion -- Tax Effects."

Current Accounting Issues

         In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment  of a  Loan."  In  October  1994,  the  FASB  issued  SFAS  No.  118,
"Accounting  by Creditors  for  Impairment  of a Loan - Income  Recognition  and
Disclosure,"  which  amends  SFAS No.  114 to allow a creditor  to use  existing
methods for  recognizing  interest  income on impaired  loans.  SFAS No.114,  as
amended  by  SFAS  No.  118 as to  certain  income  recognition  provisions  and
financial statement disclosure requirements,  is applicable to all creditors and
to all loans that are individually  and  specifically  evaluated for impairment,
uncollateralized  as  well  as  collateralized,  except  those  loans  that  are
accounted  for at fair  value  or at the  lower  of cost  or  fair  value.  This
Statement  requires that the expected loss of interest  income on  nonperforming
loans be taken  into  account  when  calculating  loan  loss  reserves  and that
specified  impaired  loans be measured  based upon the present value of expected
future cash flows  discounted  at the loan's  effective  interest rate or, as an
alternative,  at the  loan's  observable  market  price  or  fair  value  of the
collateral  if the loan is collateral  dependent.  The Holding  Company's  loans
which may be  affected  are  collateral  dependent,  and the  Holding  Company's
current  procedures for evaluating  impaired loans result in carrying such loans
at the lower of cost or fair value.  Management  adopted SFAS No. 114 on January
1, 1995,  without a  significant  detrimental  effect on the  Holding  Company's
overall consolidated financial position or results of operations.

         In May,  1995,  the FASB issued SFAS No. 122  "Accounting  for Mortgage
Servicing  Rights," which requires that the  Institutions  recognize as separate
assets,  rights to service  mortgage  loans for others,  regardless of how those
servicing rights are acquired.  An institution that acquires mortgage  servicing
rights  through  either the purchase or  origination of mortgage loans and sells
those loans with  servicing  rights  retained would allocate some of the cost of
the loans to the mortgage servicing rights.

         SFAS  No.  122  requires  that  securitizations  of  mortgage  loans be
accounted for as sales of mortgage  loans and  acquisitions  of  mortgage-backed
securities.  Additionally,  SFAS No.  122  requires  that  capitalized  mortgage
servicing  rights  and  capitalized  excess  servicing  rights be  assessed  for
impairment. Impairment is measured based on value.

         SFAS No. 122 was effective for years  beginning after December 15, 1995
(January  1, 1996,  as to the Holding  Company),  for  transactions  in which an
entity acquires mortgage  servicing rights and to impairment  evaluations of all
capitalized   mortgage   servicing  rights  and  capitalized   excess  servicing
receivables  whenever  acquired.  Retroactive  application  is  prohibited,  and
earlier adoption is encouraged. The provisions of SFAS No.
122 were adopted without material effect.

         In October, 1995, the FASB issued SFAS No. 123 entitled "Accounting for
Stock-Based  Compensation,"  establishing  financial  accounting  and  reporting
standards for stock-based  employee  compensation plans. SFAS No. 123 encourages
all entities to adopt a new method of accounting to measure compensation cost of
all employee stock  compensation  plans based on the estimated fair value of the
award at the date it is granted.  Companies are, however, allowed to continue to
measure  compensation cost of those plans using the intrinsic value based method
of  accounting,   which  generally  does  not  result  in  compensation  expense
recognition  for most plans.  Companies  that elect to remain with the  existing
accounting are required to disclose in a footnote to the financial statement pro
forma net earnings and, if presented, earnings per share, as if SFAS No. 123 had
been  adopted.  The  accounting  requirements  of SFAS No. 123 are effective for
transactions entered into during fiscal years beginning after December 15, 1995;
however,  companies are required to disclose  information  for awards granted in
their first  fiscal year  beginning  after  December 15,  1994.  Management  has
determined   that  the  Company  will   continue  to  account  for   stock-based
compensation  pursuant  to  Accounting  Principles  Board  Opinion  No.  25, and
therefore the  disclosure  provisions of SFAS No. 123 will have no effect on its
consolidation financial condition or results of operations.

         In June 1996, the FASB issued SFAS No. 125,  "Accounting  for Transfers
of Financial Assets,  Servicing Rights and  Extinguishment of Liabilities," that
provides  accounting  guidance on transfers of  financial  assets,  servicing of
financial assets, and extinguishment of liabilities.  SFAS No. 125 introduces an
approach to accounting  for transfers of financial  assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial  interest in the assets,  retains  rights or  obligations,  makes use of
special  purpose  entities  in the  transaction,  or  otherwise  has  continuing
involvement  with  the  transferred  assets.  The  new  accounting  method,  the
financial  components  approach,  provides  that  the  carrying  amount  of  the
<PAGE>
financial assets transferred be allocated to components of the transaction based
on their relative fair values.  SFAS No. 125 provides  criteria for  determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer  does not qualify as a sale,  it is  accounted  for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements,  securitizations of financial
assets,  loan   participations,   factoring   arrangements,   and  transfers  of
receivables  with recourse.  An entity that  undertakes an obligation to service
financial  assets  recognizes  either a  servicing  asset or  liability  for the
servicing  contract (unless related to a securitization  of assets,  and all the
securitized assets are retained and classified as held-to-maturity). A servicing
asset or liability  that is purchased or assumed is initially  recognized at its
fair value.  Servicing assets and liabilities are amortized in proportion to and
over the period of estimated net servicing  income or net servicing loss and are
subject to subsequent  assessments for impairment based on fair value.  SFAS No.
125  provides  that a liability  is removed  from the balance  sheet only if the
debtor  either  pays the  creditor  and is relieved  of its  obligation  for the
liability or is legally released from being the primary obligor. SFAS No. 125 is
effective for transfers and servicing of financial assets and  extinguishment of
liabilities   occurring   after   December  31,  1997,  and  is  to  be  applied
prospectively.  Earlier or retroactive application is not permitted.  Management
does not  believe  that  adoption  of SFAS No. 125 will have a material  adverse
effect on the Holding  Company's  financial  position or results of  operations.
Item 2. Properties.

         The following table provides  certain  information  with respect to the
Institutions' offices as of December 31, 1996.

<TABLE>
<CAPTION>
                                                                                        Net Book Value
                                                                                          of Property
                                                                     Year                 Furniture,              Approximate
                                                                   Opened or             Fixtures and               Square
Description and Address                                            Acquired                Equipment                Footage
                                                                                    (Dollars in thousands)
Locations in Madison, Indiana
   Downtown Offices:
<S>                                                                  <C>                     <C>                     <C>
   233 E. Main Street............................                    1952                    $290                    9,110
   307 W. Main Street............................                    1986                      13                    1,500
   Drive-Through Branch:
   401 E. Main Street............................                    1984                      61                      375
   Hilltop Locations:
   303 Clifty Drive..............................                    1973                     200                    3,250
   430 Clifty Drive..............................                    1983                     171                    6,084
   Wal-mart Banking Center
   567 Ivy Tech Drive............................                    1995                     127                      517
Locations in Hanover, Indiana
   10 Medical Plaza Drive........................                    1995                     481                      656
   136 Thornton Road (1).........................                    1980                     276                    2,584
</TABLE>


(1)  As a condition to obtaining regulatory aproval for the Acquisition from the
     FRB,  the  Holding  Company  commited  itself to divest  its  branch at 136
     Thornton Road in Hanover. Pursuant to this commitment,  the Holding Company
     sold this branch to Peoples's Trust Company based in Brookville, Indiana on
     February 28, 1997.
<PAGE>

         The following table provides  certain  information with respect to real
estate  owned by First  Federal and rented to other  entities as of December 31,
1996.  Except as otherwise  provided below,  all real estate listed in the table
below is rented on a month-to-month basis, and none of the parcels is subject to
any written  lease  agreement.  This  property was acquired by First Federal for
future expansion of its banking operations.

         Address                           Tenant
         223 E. Main Street
         Madison, Indiana 47250            Vicarious of Madison
                                           (became tenant in July, 1996 and
                                           subject to a  two-year lease)
         225 E. Main Street
         Madison, Indiana 47250            Madison Gallery of Fine Art
         227 E. Main Street
         Madison, Indiana 47250            Heitz Photo
         407 E. Jefferson
         Madison, Indiana 47250            MIDCOR, Community Foundation

         The  Institutions  own 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 Holding Company was
approximately $148,000 at December 31, 1996.

         The Institutions operate six automated teller machines ("ATMs"), one at
each office  location  other than its locations at 233 E. Main Street and 307 W.
Main Street.  First Federal's ATMs  participate in the PLUS(R) and  MagicLine(R)
networks. Citizens' ATMs participate in the PLUS(R) and MAC(R) networks.

         First Federal has also contracted for the data processing and reporting
services of BISYS,  Inc. in Houston,  Texas.  The cost of these data  processing
services is approximately $13,000 per month.

         Citizens has entered into an agreement with Jack Henry and  Associates,
Inc.  of Monett,  Missouri  for the annual  maintenance  of its data  processing
software at a cost to Citizens of $13,000 per year.

Item 3.  Legal Proceedings.

         Neither the Holding  Company,  First Federal nor Citizens is a party to
any pending legal proceedings,  other than routine litigation  incidental to the
Holding Company's or the Institutions' 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, 1996.

Item 4.5.  Executive Officers of the Registrant.

         The executive officers of the Holding Company are identified below. The
executive  officers of the Holding  Company are elected  annually by the Holding
Company's Board of Directors.

                      Position with        Position with
     Name             Holding Company      First Federal          Position
                                                                  with Citizens
James E. Fritz       President and Chief   President and Chief    Director
                     Executive Officer     Executive Officer
Lonnie D. Collins    Secretary             Secretary
John Wayne Deveary   Treasurer             Vice President and
                                           Treasurer

         James E.  Fritz (age 34) has served as First  Federal's  President  and
Chief Executive Officer since August,  1995, as the Holding Company's  President
and Chief  Executive  Officer  since 1996,  and as a director of Citizens  since
1997.  Prior to that Mr.  Fritz served as the Chief  Financial  Officer of First
Federal  Savings  Bank of Kokomo until  January,  1995,  and as a consultant  to
National City Corporation from January, 1995 to August, 1995.

<PAGE>
         Lonnie D. Collins  (age 48) has served as  Secretary  of First  Federal
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 First
Federal's outside counsel since 1980.

         John Wayne  Deveary  (age 42) has served as a Vice  President  of First
Federal since  January,  1996 and as Treasurer  since  January,  1978. He became
Treasurer of the Holding  Company in 1996.  Mr.  Deveary has been  employed with
First Federal since 1976.
                                                      PART II

Item 5.  Market for Registrant's Common Equity and Related Shareholder 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."  The  Holding
Company  shares began to trade on December 20, 1996. The high and low bid prices
for the period  December 20, 1996 to December 31, 1996,  were $14.25 and $12.25,
respectively.  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  is directly  dependent upon the
ability of the  Institutions  to pay dividends to the Holding Company from First
Federal and upon the earnings on its investment securities.

         Under current  federal income tax law,  dividend  distributions  to the
Holding Company,  to the extent that such dividends paid are from the current or
accumulated  earnings and profits of First  Federal (as  calculated  for federal
income tax purposes),  will be taxable as ordinary income to the Holding Company
and will not be deductible  by First  Federal.  Because the Holding  Company and
First Federal do not file a consolidated  federal income tax return however, the
dividends  will  be  eligible  for a 100%  dividends-received  deduction  by the
Holding Company. Any dividend  distributions in excess of current or accumulated
earnings  and  profits  will be treated  for  federal  income tax  purposes as a
distribution  from First Federal's  accumulated  bad debt reserves,  which could
result in increased  federal income tax liability for First  Federal.  Moreover,
First  Federal 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.

         Citizens is subject to OCC limits on its dividends. The approval of the
OCC is required for any dividend by a national  bank  subsidiary if the total of
all  dividends,  including  any proposed  dividends by the national  bank in any
calendar year,  exceeds the total of its net profits (as defined by the OCC) for
that year  combined  with its retained net profits for the  preceding two years,
less any required transfers to surplus.  Moreover, a national bank may not pay a
dividend on its common stock if the dividend would exceed net undivided  profits
then on  hand.  In  certain  cases,  even if  prior  approval  of the OCC is not
required,  the OCC may find a  dividend  payment  to be an  unsafe  and  unsound
practice.  Citizens may decide not to pay dividends to the Holding Company until
the  Holding  Company  acquires  the shares  held by its  minority  shareholders
through a transaction in which holders of those shareholders receive fair value,
most likely in the form of cash, Common Stock or a combination  thereof.  In the
event  Citizens  paid a dividend on its shares of common stock before such time,
its  minority  holders  would  receive the same per share  amount as the Holding
Company.  Citizens does not anticipate  paying  dividends on its common stock in
the foreseeable future.

         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 First Federal. Under FRB supervisory policy, a bank holding company
generally  should not  maintain its  existing  rate of cash  dividends on common
shares unless (i) the organization's net income available to common shareholders
over the past year has been  sufficient to fully fund the dividends and (ii) the
prospective   rate  of   earnings   retention   appears   consistent   with  the
organization's  capital needs, asset quality,  and overall financial  condition.
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  financial  condition  of  the
Institutions.  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.

         The Holding Company paid no dividends to its shareholders in 1996.

<PAGE>
Item 6.  Selected Financial Data.

         The  following  selected  financial  data  of the  Holding  Company  is
qualified  in its  entirety,  and  should  be  read  in  conjunction  with,  the
consolidated financial statements,  including notes thereto,  included elsewhere
in this Form 10-K.

<TABLE>
<CAPTION>
                                                                                 AT DECEMBER 31,
                                               -------------------------------------------------------------------------------
                                                   1996              1995             1994             1993             1992
                                                --------           -------          -------          -------           -------
                                                                                 (In thousands)
Summary of Financial Condition Data:
<S>                                             <C>                <C>              <C>              <C>               <C>
Total assets................................... $145,541           $86,604          $87,072          $84,086           $82,157
Loans receivable, net..........................  108,994            57,945           56,287           51,970            53,685
Mortgage-backed and related securities.........   12,846             9,917           11,328           13,925            13,548
Cash and cash equivalents (1)..................    8,785             2,689            2,416            5,803             7,070
Investment securities (2)......................    8,948            13,018           14,097            9,491             5,485
FHLB advances..................................    1,100             4,471            4,986              ---               ---
Deposits.......................................  125,656            75,233           75,458           78,081            76,688
Shareholders' equity, net......................   16,805             6,574            6,304            5,668             4,950
</TABLE>

<TABLE>
<CAPTION>


                                                                             YEAR ENDED DECEMBER 31,
                                               -------------------------------------------------------------------------------
                                                  1996              1995             1994              1993             1992
                                                --------           -------          -------          -------           -------
                                                                                 (In thousands)
Summary of Operating Data:
<S>                                               <C>               <C>              <C>              <C>               <C>
Total interest income..........................   $5,875            $5,794           $5,419           $5,684            $6,174
Total interest expense.........................    3,412             3,594            2,854            3,042             3,645
                                               ---------           -------          -------          -------           -------
   Net interest income.........................    2,463             2,200            2,565            2,642             2,529
Provision for losses on loans..................       22               150               29               55                37
                                               ---------           -------          -------          -------           -------
   Net interest income after provision
     for losses on loans.......................    2,441             2,050            2,536            2,587             2,492
Other income:
   Insurance commissions.......................      200               175              181              182               180
   Service fees, charges, and
     other operating income....................      246               187              189              182               129
   Gain on sale of subsidiary..................      141               ---              ---              ---               ---
   Loss on sale of investments.................       (9)              ---              ---              ---               ---
                                               ---------           -------          -------          -------           -------
     Total other income........................      578               362              370              364               309
General, admisistrative and other expense:
   Employee compensation and benefits..........    1,203               998              888              869               811
   Data processing.............................      282               237              243              234               157
   Federal deposit insurance premiums..........      684               177              178              117               149
   Occupancy and equipment.....................      284               212              193              212               373
   Other.......................................      417               342              356              370               375
                                               ---------           -------          -------          -------           -------
     Total  general, admisistrative and
          other expenses.......................    2,870             1,966            1,858            1,802             1,865
                                               ---------           -------          -------          -------           -------
Earnings before income tax expense  and cumulative
   effect of change in accounting method.......      149               446            1,048            1,149               936
Income taxes...................................       76               188              412              456               305
Cumulative effect of change in accounting
   for income tax expense......................      ---               ---              ---               25               ---
                                               ---------           -------          -------          -------           -------
   Net earnings................................$      73           $   258          $   636          $   718           $   631
                                               =========           =======          =======          =======           =======
Earnings per share.............................      N/A              N/A              N/A               N/A               N/A
Supplemental Data:
Interest rate spread during period.............     2.79%             2.36%            3.00%            3.24%             3.23%
Net yield on interest-earning assets (3).......     2.98              2.61             3.15             3.32              3.35
Return on assets (4)...........................      .08              0.30             0.74             0.86              0.80
Return on equity (5)...........................     1.05              4.01            10.62            13.52             13.84
Equity to assets (6)...........................    11.55              7.59             7.24             6.74              6.03
Average interest-earning assets to average
   interest-bearing liabilities................   104.64            105.62           104.43           101.96            102.39
Non-performing assets to total assets (6)......      .56              0.01             0.01             0.01              0.18
Allowance for loan losses to total loans
   outstanding (6).............................      .96              0.70             0.45             0.44              0.49
Allowance for loan losses to
   non-performing loans (6)....................   131.14          5,087.50         1,938.46         3,242.86            166.88
Net charge-offs to average
   total loans outstanding ....................      .01              0.01             0.01             0.17               ---
Other expenses to
   average assets (7)..........................     3.33              2.26             2.20             2.15              2.36
Number of full service offices (6).............        6                 3                3                3                 3
</TABLE>
---------------
(1)  Includes certificates of deposit in other financial institutions.
(2)  Includes investment securities designated as available for sale.
(3)  Net interest income divided by average interest-earning assets.
(4)  Net income divided by average total assets.
(5)  Net income divided by average total equity.
(6)  At end of period.
(7)  Other expenses divided by average total assets.

<PAGE>
Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operation.

General

         The Holding Company was  incorporated  for the purpose of owning all of
the outstanding  shares of First Federal and 95.6% of the outstanding  shares of
Citizens.  As a result, the discussion that follows focuses on the Institutions'
financial  condition and results of operations  prior to December 20, 1996,  the
date of the Acquisition and Conversion. The following discussion and analysis of
the financial  condition as of December 31, 1996 and First Federal's  results of
operations for periods prior to that date should be read in conjunction with and
with reference to the  consolidated  financial  statements and the notes thereto
included in the Annual Report.

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

         1.       Management's   determination   of  the  amount  of  loan  loss
                  allowance;
         2.       The effect of changes in interest rates;
         3.       Changes in deposit insurance premiums; and
         4.       Proposed  legislation  that would eliminate the federal thrift
                  charter and the separate federal regulation of thrifts.

Asset/ Liability Management

         The  Institutions  are subject to interest rate risk to the degree that
their   interest-bearing   liabilities,   primarily  deposits  with  short-  and
medium-term  maturities,  mature  or  reprice  at  different  rates  than  their
interest-earning  assets.  As part of its effort to monitor and manage  interest
rate risk, the Holding Company uses the net portfolio value ("NPV")  methodology
recently  proposed by the OTS as part of the OTS' proposed capital  regulations.
Although this  methodology has not been implemented by the OTS , the application
of the NPV  methodology  assists the Holding  Company in monitoring its interest
rate risk.

         Generally,  NPV is  the  discounted  present  value  of the  difference
between  incoming  cash flows on  interest-earning  assets and other  assets and
outgoing cash flows on  interest-bearing  liabilities.  The  application  of the
methodology  attempts  to quantify  interest  rate risk as the change in the NPV
which would  result  from a  theoretical  200 basis point (1 basis point  equals
 .01%) change in market interest rates. Both a 200 basis point increase in market
interest  rates and a 200 basis  point  decrease  in market  interest  rates are
considered.  If,  under the OTS'  proposed  NPV  methodology,  an  increase or a
decrease in market  rates would  result in a decrease of more than 2% in the NPV
as a  percentage  of the  present  value  of an  institution's  assets  and such
institution is required to comply with the NPV regulation, the institution would
be required to deduct 50% of the amount of the  decrease in excess of such 2% in
the calculation of the institution's risk based capital.

         Presented  below,  as of December 31, 1996, is an analysis  prepared by
Baxter Capital Management of the Institutions' interest rate risk as measured by
changes in NPV for  instantaneous  and  sustained  parallel  shifts of 200 basis
point increments in market interest rates.

<TABLE>
<CAPTION>
      Change                     Net Portfolio Value                                            NPV as % of PV of Assets
     In Rates              $ Amount              $ Change              % Change              NPV Ratio              Change
     --------              --------              --------              --------              ---------              ------
                                          (Dollars in thousands)
<S>                          <C>                  <C>                   <C>                      <C>                  <C>
       + 200 bp*              19,138               (708)                 (3.57)%                  13.26%               (19) bp*
           0 bp*              19,846                ---                    --- %                  13.45%               ---  bp
       - 200 bp*              19,561               (285)                 (1.44)%                  13.07%               (39) bp
</TABLE>
---------
*  Basis points.

<PAGE>
         As  with  any  method  of  measuring   interest   rate  risk,   certain
shortcomings  are  inherent  in the  methods of analysis  presented  above.  For
example,  although certain assets and liabilities may have similar maturities or
periods to repricing,  they may react in different  degrees to changes in market
interest  rates.  Also,  the  interest  rates on  certain  types of  assets  and
liabilities may fluctuate in advance of changes in market interest rates,  while
interest  rates  on  other  types  may  lag  behind  changes  in  market  rates.
Additionally, certain assets, such as adjustable-rate loans, have features which
restrict  changes in interest  rates on a short-term  basis and over the life of
the asset.  Further, in the event of a change in interest rates,  expected rates
of prepayments on loans and early  withdrawals  from  certificates  could likely
deviate  significantly  from those  assumed in  calculating  the table.

Average Balances and Interest Rates and Yields

         The following  tables  present at December 31, 1996 the balance of each
category of the Holding Company's  interest-earning  assets and interest-bearing
liabilities  and their  yield/cost at the date, and for the years ended December
31, 1996,  1995 and 1994,  the average daily  balances,  of each category of the
Holding Company's interest-earning assets and interest-bearing  liabilities, and
the interest earned or paid on such amounts.

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                       At December 31,     ----------------------------------------------------------------------
                                            1996                          1996                                 1995
                                    ---------------------  -----------------------------------   --------------------------------
                                                           Average                   Average     Average                Average
                                      Balance  Yield/Cost  Balance      Interest    Yield/Cost   Balance    Interest   Yield/Cost
                                                                            (Dollars in thousands)
<S>                                    <C>       <C>        <C>          <C>           <C>       <C>        <C>           <C>
Interest-earning assets:
   Interest-earning
     deposits and other............    $5,599    5.13%      $ 3,291      $   188       5.71%     $ 2,610    $   107       4.10%
   Investment securities (1).......     8,948    5.29        10,295         562        5.46       13,925        777       5.58
   Mortgage-backed and
     related securities............    12,846    6.81         9,176         574        6.26       10,989        670       6.10
   Loans receivable, net (2).......   108,994    7.73        59,828       4,551        7.61       56,916      4,240       7.45
                                      -------                ------       -----                   ------      -----
     Total interest-
     earning assets................   136,387    7.38        82,590       5,875        7.11       84,440      5,794       6.86
Interest-bearing liabilities:
   Deposits........................   125,656    4.20        77,710       3,349        4.31       76,983      3,419       4.44
   FHLB advances...................     1,100    7.35         1,221          63        5.16        2,967        175       5.90
                                      -------                ------       -----                   ------      -----
     Total interest-bearing
          liabilities..............   126,756    4.23        78,931       3,412        4.32       79,950      3,594       4.50
                                      -------                ------       -----                   ------      -----
Net interest-earning assets........   $ 9,631                $3,659                               $4,490
                                      =======                ======                               ======
Net interest income................                                      $2,463                              $2,200
                                                                         ======                              ======
Interest rate spread (3)...........              3.15%                                 2.79%                              2.36%
                                               ======                                ======                             ======
Net yield on weighted average
   interest-earning assets (4).....               ---                                  2.98%                              2.61%
                                               ======                                ======                             ======
Average interest-earning assets
   to average interest-bearing
     liabilities...................            107.60%                               104.64%                            105.62%
                                               ======                                ======                             ======
</TABLE>
                                                   1994
                                      -------------------------------
                                        Average              Average
                                       Balance   Interest  Yield/Cost
                                       -------   --------  ----------
Interest-earning assets:
   Interest-earning
     deposits and other............    $ 2,288  $   112     4.90%
   Investment securities (1).......     13,685      713     5.21
   Mortgage-backed and
     related securities............     12,702      743     5.85
   Loans receivable, net (2).......     52,708    3,851     7.31
                                      --------    -----
     Total interest-
     earning assets................     81,383    5,419     6.66
Interest-bearing liabilities:
   Deposits........................     77,703    2,842     3.66
   FHLB advances...................        228       12     5.26
                                      --------    -----
     Total interest-bearing
          liabilities..............     77,931    2,854     3.66
                                      --------    -----
Net interest-earning assets........   $  3,452
                                      ========
Net interest income................              $2,565
                                                 ======
Interest rate spread (3)...........                         3.00%
                                                          ======
Net yield on weighted average
   interest-earning assets (4).....                         3.15%
                                                          ======
Average interest-earning assets
   to average interest-bearing
     liabilities...................                       104.43%
                                                          ======
---------------
(1)      Includes securities  available for sale at amortized cost prior to SFAS
         No. 115 adjustments.

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

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

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


<PAGE>

Interest Rate Spread

         The  Holding  Company's  results  of  operations  have been  determined
primarily  by  net  interest  income  and,  to  a  lesser  extent,  fee  income,
miscellaneous  income and  general and  administrative  expenses.  Net  interest
income is determined  by the interest  rate spread  between the yields earned on
interest-earning  assets and the rates paid on interest-bearing  liabilities and
by  the  relative  amounts  of  interest-earning   assets  and  interest-bearing
liabilities.

         The following table sets forth the weighted average effective  interest
rate earned by the Holding  Company on its loan and investment  portfolios,  the
weighted average effective cost of the Holding Company's  deposits and advances,
the interest rate spread of the Holding  Company,  and the net yield on weighted
average  interest-earning  assets  for the  periods  and as of the dates  shown.
Average balances are based on average daily balances.

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                            ------------------------------------------------------------
                                                             1996                      1995                       1994
                                                             ----                      ----                       ----
Weighted average interest rate earned on:
<S>                                                          <C>                        <C>                       <C>
   Interest-earning deposits and other...............        5.71%                      4.10%                     4.90%
   Investment securities.............................        5.46                       5.58                      5.21
   Mortgage-backed and related securities............        6.26                       6.10                      5.85
   Loans receivable, net.............................        7.61                       7.45                      7.31
     Total interest-earning assets...................        7.11                       6.86                      6.66
Weighted average interest rate cost of:
   Deposits..........................................        4.31                       4.44                      3.66
   FHLB advances.....................................        5.16                       5.90                      5.26
     Total interest-bearing liabilities..............        4.32                       4.50                      3.66
Interest rate spread (1).............................        2.79%                      2.36%                     3.00%
Net yield on weighted average
   interest-earning assets (2).......................        2.98%                      2.61%                     3.15%
</TABLE>

(1)      Interest  rate spread is calculated by  subtracting  combined  weighted
         average interest rate cost from combined weighted average interest rate
         earned for the period  indicated.  Interest rate spread figures must be
         considered  in  light  of  the  relationship  between  the  amounts  of
         interest-earning assets and interest-bearing liabilities.

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

<PAGE>
         The following  table  describes the extent to which changes in interest
rates and  changes in volume of  interest-related  assets and  liabilities  have
affected the Holding  Company's  interest  income and expense during the periods
indicated.  For each  category of  interest-earning  asset and  interest-bearing
liability,  information  is provided on changes  attributable  to (1) changes in
rate  (changes  in rate  multiplied  by old  volume)  and (2)  changes in volume
(changes in volume  multiplied by old rate).  Changes  attributable to both rate
and volume which cannot be segregated have been allocated  proportionally to the
change due to volume and the change due to rate.

<TABLE>
<CAPTION>
                                                                        Increase (Decrease) in Net Interest Income
                                                                   ----------------------------------------------------
                                                                                                                 Total
                                                                    Due to                Due to                  Net
                                                                     Rate                 Volume                Change
                                                                     ----                 ------                ------
                                                                                      (In thousands)
Year ended December 31, 1996 compared
to year ended December 31, 1995
   Interest-earning assets:
<S>                                                                <C>                    <C>                   <C>
     Interest-earning deposits and other........................   $    51                $    30               $    81
     Investment securities......................................       (17)                  (198)                 (215)
     Mortgage-backed and related securities.....................       (13)                   (83)                  (96)
     Loans receivable, net......................................       105                    206                   311
                                                                      ----                -------                 -----
       Total....................................................       126                    (45)                   81
   Interest-bearing liabilities:
     Deposits...................................................      (100)                    30                   (70)
     FHLB advances..............................................       (20)                   (92)                 (112)
                                                                      ----                -------                 -----
       Total....................................................      (120)                   (62)                 (182)
                                                                      ----                -------                 -----
   Net change in net interest income............................      $246                $    17                 $ 263
                                                                      ====                =======                 =====
Year ended December 31, 1995 compared
to year ended December 31, 1994
   Interest-earning assets:
     Interest-earning deposits and other........................    $  (16)                $   11               $    (5)
     Investment securities......................................        52                     12                    64
     Mortgage-backed and related securities.....................        32                   (105)                  (73)
     Loans receivable, net......................................        77                    312                   389
                                                                      ----                -------                 -----
       Total....................................................       145                    230                   375
   Interest-bearing liabilities:
     Deposits...................................................       614                    (37)                  577
     FHLB advances..............................................        16                    147                   163
                                                                      ----                -------                 -----
       Total....................................................       630                    110                   740
                                                                      ----                -------                 -----
   Net change in net interest income............................     $(485)                 $ 120                 $(365)
                                                                      ====                =======                 =====
Year ended December 31, 1994 compared
to year ended December 31, 1993
   Interest-earning assets:
     Interest-earning deposits and other........................  $      1                 $  (64)               $  (63)
     Investment securities......................................       (20)                   239                   219
     Mortgage-backed and related securities.....................        (7)                  (116)                 (123)
     Loans receivable, net......................................      (297)                    (1)                 (298)
                                                                      ----                -------                 -----
       Total....................................................      (323)                    58                  (265)
   Interest-bearing liabilities:
     Deposits...................................................      (186)                   (13)                 (199)
     FHLB advances..............................................         0                     11                    11
                                                                      ----                -------                 -----
       Total....................................................      (186)                    (2)                 (188)
                                                                      ----                -------                 -----
   Net change in net interest income............................     $(137)                $   60                $  (77)
                                                                      ====                =======                 =====
</TABLE>
<PAGE>

Financial  Condition  at December 31, 1996  Compared to  Financial  Condition at
December 31, 1995.

Changes in Financial Condition

         The Holding  Company's  total assets  amounted to $145.5  million as of
December  31,  1996,  an increase  of $58.9  million,  or 68.1%,  over the $86.6
million total as of December 31, 1995. The increase in 1996 was due primarily to
the Acquisition of Citizens, which resulted in net asset growth of approximately
$63.8  million,  coupled  with  proceeds  from the  Corporation's  common  stock
offering totaling $11.2 million.  These increases in total assets were partially
offset by a decrease, net of the Acquisition, in deposits of $6.2 million, and a
decline in advances from the Federal Home Loan Bank of $3.4 million.

         Cash,  interest-bearing  deposits and  certificates of deposit in other
financial institutions totaled $8.8 million at December 31, 1996, an increase of
$6.1 million over the 1995 total.  Investment securities totaled $8.9 million at
December 31, 1996, a decrease of $4.1 million,  or 31.3%, from 1995 levels.  The
decrease resulted  primarily from maturities  totaling $3.5 million and sales of
$2.2  million,  which were  partially  offset by securities  resulting  from the
Acquisition totaling $1.6 million.  Mortgage-backed securities increased by $2.9
million,  or 29.5%, to a total of $12.8 million at December 31, 1996,  primarily
as a result of securities  received in the Acquisition of $4.3 million,  coupled
with purchases of $729,000,  which were partially offset by principal repayments
during the year totaling $2.1 million.

         Loans  receivable  totaled  $109.0  million at December  31,  1996,  an
increase of $51.0  million,  or 88.1%,  over the $57.9 million total at December
31, 1995. The increase resulted primarily from loans received in the Acquisition
totaling  $49.6  million,  coupled with loan  originations  during 1996 of $18.7
million,  which were partially offset by principal  repayments of $17.1 million.
Loan  origination  volume  increased  during 1996 by $3.0 million,  or 19.6%, as
compared to 1995.

         The Holding  Company's  consolidated  allowance for loan losses totaled
$1.1  million and $407,000 at December  31, 1996 and 1995,  respectively,  which
represented  .96% and .70% of total loans at those dates. The allowance for loan
losses was increased  during 1996 by $648,000,  which  represented the allowance
maintained by Citizens. Nonperforming loans (defined as loans delinquent greater
than ninety days and loans on nonaccrual  status) totaled $819,000 and $8,000 at
December 31, 1996 and 1995,  respectively.  The increase in nonperforming  loans
year  to  year  was  primarily  due  to  Citizens'   loans  resulting  from  the
Acquisition.  The provision for loan losses for the year ended December 31, 1996
was primarily  attributable  to the increase in  nonperforming  loans during the
year.  Although  management  believes  that its  allowance  for loan  losses  at
December  31,  1996,   was  adequate   based  upon  the   available   facts  and
circumstances,  there can be no assurance  that additions to such allowance will
not be necessary in future  periods,  which could  adversely  affect the Holding
Company's results of operations.

         Deposits increased by $50.4 million,  or 67.0%, during 1996, to a total
of $125.7 million, compared to the $75.2 million total at December 31, 1995. The
increase  resulted  primarily from deposits assumed in the Acquisition  totaling
$56.6 million,  which was partially offset by net withdrawals of deposits during
the year of $6.2 million. The decline in total deposits, before consideration of
the effects of the Acquisition, can be attributable to customers' use of deposit
funds to purchase stock in the Holding Company's common stock offering which was
completed in December 1996 and a decrease in public funds on deposit.

         Advances  from the  Federal  Home Loan Bank  totaled  $1.1  million  at
December 31, 1996, a decrease of $3.4 million,  or 75.4%,  from the $4.5 million
total at December 31, 1995. The decrease was due primarily to net current period
repayments  totaling $6.4  million,  which were  partially  offset by borrowings
assumed in the Acquisition totaling $3.0 million.

         Stockholders'  equity  totaled  $16.8  million at December 31, 1996, an
increase of $10.2  million,  or 155.6%,  over the $6.6 million total at December
31, 1995.  The increase  resulted  primarily from the Holding  Company's  common
stock  offering  which was completed in December 1996 and which  resulted in net
capital  proceeds  totaling $10.2 million.

Financial  Condition  at December 31, 1995  Compared to  Financial  Condition at
December 31, 1994

         First  Federal's total assets amounted to $86.6 million at December 31,
1995, a decrease of $468,000,  or 0.5%,  from December 31, 1994.  The decline in
assets  resulted  primarily  from a reduction  in deposits  of  $225,000,  and a
decline  in  advances  from the FHLB of  Indianapolis  of  $515,000,  which were
partially offset by an increase in retained earnings of $270,000.

         Liquid  assets  (cash and due from banks,  certificates  of deposit and
investment  securities)  totaled  $15.7  million at  December  31,  1995,  which
represented  a reduction of $806,000,  or 4.9%,  from 1994 levels.  During 1995,

<PAGE>
management  elected to fund net deposit outflows and repayments of advances from
the FHLB of  Indianapolis  with  excess  liquidity.  Mortgage-backed  securities
declined by $1.4  million,  or 12.5%,  to a total of $9.9 million in 1995,  as a
result of principal repayments during the year.

         Loans  receivable  totaled  $57.9  million at  December  31,  1995,  an
increase of $1.7 million,  or 2.9%, over the 1994 total.  The increase  resulted
primarily  from loan  disbursements  of $15.6  million  in  excess of  principal
repayments  of $13.7  million.  First  Federal's  allowance  for losses on loans
amounted to $407,000 at December  31, 1995,  an increase of $155,000,  or 61.5%,
over the  $252,000  total  maintained  as of December 31,  1994.  The  allowance
represented  0.7% and 0.45% of total  loans as of  December  31,  1995 and 1994,
respectively.  The 1995  provision  was heavily  influenced  by $1.6  million of
growth in  nonresidential  and  multi-family  loans during the period.  Although
management  intends to place more emphasis on nonresidental  real estate lending
following the Conversion,  it does not anticipate further significant  increases
in the nonresidential  loan portfolio that would necessitate  material additions
to the allowance. Non-performing loans totaled $8,000 and $13,000 as of December
31, 1995 and 1994, respectively.

         Deposits  totaled  $75.2  million at December  31,  1995, a decrease of
$225,000, or 0.3%, from the total in 1994.  Certificates of deposit increased by
$944,000  during  1995,  while  transaction  and  demand  accounts  declined  by
approximately  $1.2  million.  The decline in passbook  deposits  resulted  from
increased  competition from financial  institutions and other entities  offering
investments  with more attractive rates as customers became more rate conscious.
Certificates of deposits  increased because of more competitive rates offered by
First Federal.

         Advances from the FHLB of Indianapolis  declined by $515,000, or 10.3%,
during 1995 to a total of $4.5  million.  Management  elected to utilize  excess
liquidity to repay such advances in 1995.

Comparison of Operating Results For Years Ended December 31, 1996 and 1995

         The Holding Company's net earnings for 1996 totaled $73,000, a decrease
of $185,000,  or 71.7%,  from the $258,000 in net earnings recorded for the year
ended  December  31,  1995.  The  decrease  resulted  primarily  from a $904,000
increase in  general,  administrative  and other  expense,  which was  partially
offset by a $263,000 increase in net interest income, a $128,000 decrease in the
provision  for  losses on loans,  a  $216,000  increase  in other  income  and a
$112,000 decrease in the provision for federal income taxes.

Net Interest Income

         Total interest income for 1996,  amounted to $5.9 million,  an increase
of $81,000,  or 1.4%, over the $5.8 million recorded in 1995. Interest income on
loans and mortgage-backed and related securities increased by $215,000, or 4.4%.
The increase  resulted  primarily  from a $1.1  million  increase in the average
portfolio  outstanding,  coupled  with a 20 basis point  increase in the average
yield,  from  7.23%  in 1995 to 7.43% in 1996.  Interest  income  on  investment
securities and interest-bearing  deposits decreased by $134,000,  or 15.2%, to a
total of $750,000 in 1996.  The  decrease  was due  primarily  to a $2.9 million
decrease  in the  average  portfolio  balance  outstanding.  The  decline in the
average  portfolio  balance  during the year reflects  management's  decision to
redeploy excess liquidity to partially fund loan originations, thereby obtaining
a more favorable yield.

         Interest expense decreased during 1996 by $182,000, or 5.1%, to a total
of $3.4 million,  compared to the $3.6 million total recorded in 1995.  Interest
expense on deposits decreased by $70,000, or 2.0%, to a total of $3.3 million in
1996. The decrease  resulted  primarily from a decrease in the average rate paid
on deposits of 13 basis points,  from 4.44% in 1995 to 4.31% in 1996,  which was
partially  offset  by a  $727,000,  or  .9%,  increase  in the  average  balance
outstanding.  Interest expense on borrowings decreased by $112,000, or 64.0%, to
a total of $63,000 in 1996.  The  decrease  was due  primarily to a $1.7 million
decrease in the average  balance of  borrowings  outstanding,  coupled with a 74
basis point  decline in the average  rate paid on such  advances,  from 5.90% in
1995 to 5.16% in 1996.

         As a result of the  foregoing  changes in interest  income and interest
expense, net interest income increased by approximately $263,000, or 12.0%, to a
total of $2.5  million for 1996.  The net interest  rate spread  increased by 43
basis points during the year, from 2.36% in 1995 to 2.79% in 1996, while the net
interest  margin  increased by 37 basis  points,  from 2.61% in 1995 to 2.98% in
1996.

Provision for Losses on Loans

         A  provision  for losses on loans is charged to  earnings  to bring the
total allowance for loan losses to a level considered  appropriate by management
based on historical experience,  the volume and type of lending conducted by the

<PAGE>
Institutions,  the status of past due principal and interest  payments,  general
economic conditions, particularly as such conditions relate to the Institutions'
market areas and other factors related to the collectibility of the Institutions
loan portfolio.  As a result of such analysis,  management  recorded a provision
for losses on loans totaling $22,000 for 1996, a decrease of $128,000, or 85.3%,
from the $150,000 total recorded in 1995. As stated previously, the current year
provision was primarily  attributable to an increase in  nonperforming  loans at
December  31,1996.  There can be no assurance that the allowance for loan losses
of the Institutions will be adequate to cover losses on nonperforming  assets in
the future.

Other Income

         Other income  totaled  $578,000 for 1996,  an increase of $216,000,  or
59.7%, over the $362,000 total for 1995. The increase resulted  primarily from a
$141,000  gain on the sale of a  subsidiary,  a $25,000  increase  in  insurance
commissions and a $59,000,  or 31.6% increase in service fees, charges and other
operating  income.  The gain on the sale of a  subsidiary  resulted  from  First
Federal's sale of its insurance agency  subsidiary,  McCauley  Insurance Agency.
The sale of McCauley was required by the FRB in connection with the Acquisition.
The increase in other  operating  income was due primarily to increased  service
fees and charges on deposit accounts. General, Administrative and Other Expense

         General,  administrative  and other  expense  totaled  $2.9 million for
1996, an increase of $904,000, or 46.0%, over the $2.0 million total recorded in
1995. The increase resulted  primarily from a $507,000,  or 286.4%,  increase in
federal deposit insurance premiums,  which resulted from the legislation enacted
to  recapitalize  the SAIF,  coupled  with a  $205,000,  or 20.5%,  increase  in
employee  compensation and benefits, a $72,000, or 34.0%,  increase in occupancy
and equipment,  a $45,000, or 19.0%,  increase in data processing and a $75,000,
or 22.4%, increase in other operating expense.

         During  1996  legislation  was enacted to  recapitalize  the SAIF which
mandated payment of a special one-time assessment for all savings  associations,
including the First  Federal.  The  assessment was computed based upon the First
Federal's  deposits as of March 31, 1995. The  assessment  rate was finalized at
$.657  per  $100  of  deposits,  which  resulted  in a  pre-tax  charge  to 1996
consolidated  operations of  approximately  $503,000.  The  legislation  reduces
federal deposit  insurance  premiums from $.23 per $100 in deposits to $.065 per
$100 in deposits, effective January 1, 1997.

         The increase in employee  compensation and benefits resulted  primarily
from normal merit increases and increased costs associated with employee benefit
plans. The increase in data processing  resulted  primarily from increased costs
associated with automated teller machine transaction processing. The increase in
other  operating  expense was  primarily  attributable  to an increase in office
supplies as a result of the  formation of the Holding  Company and  nonrecurring
consulting fees which were partially offset by a reduction in advertising  costs
year to year. Income Taxes

         The  provision  for federal  income taxes  totaled  $76,000 for 1996, a
decrease of $112,000,  or 59.6%,  from the $188,000  total recorded in 1995. The
decrease  resulted  primarily from the decrease in net earnings  before taxes of
$297,000,  or 66.6%.  The Holding  Company's  effective tax rates were 51.0% and
42.2% for the years ended December 31, 1996 and 1995,  respectively.  Comparison
of Operating Results For Fiscal Years Ended December 31, 1995 and 1994

         Net income for the year ended December 31, 1995,  amounted to $258,000,
a decrease of $378,000,  or 59.4%,  from the $636,000 in net income  recorded in
1994. The decline in net income  resulted  primarily from a $365,000  decline in
net interest income,  a $121,000  increase in the provision for losses on loans,
an $8,000  decline in other  income and a $108,000  increase in other  expenses,
which were  partially  offset by a decrease  of $224,000  in the  provision  for
income taxes.  The reduction in 1995  earnings is generally  reflective  of, and
attributable  to, the rise in the general level of interest rates in the economy
over the year, as well as additional  provisions  for loan losses  brought on by
increased nonresidential lending. Management does not anticipate either trend to
have a  continuing  material  adverse  impact  on  operations  due  to  (i)  the
beneficial effects of favorable rate adjustments in the adjustable-rate  segment
of First Federal's  portfolio and (ii) management's  belief that any decision to
increase the size of the  nonresidential  portfolio  will not result in material
increases in the provision for loan losses.

         Total  interest  income  amounted  to $5.8  million  for the year ended
December 31, 1995, an increase of $375,000,  or 6.9%, over 1994. Interest income
on loans totaled $4.2 million, an increase of $389,000 over the 1994 total. This
increase resulted  primarily from growth of $4.2 million in the weighted average

<PAGE>
balance  outstanding,  coupled with an increase in the weighted average yield of
14 basis points to 7.45% in 1995. Interest income on mortgage-backed  securities
declined  by  $73,000,  or 9.8%,  from the 1994  amount,  due to a $1.7  million
decline in the weighted average balance outstanding,  which was partially offset
by a 25 basis  point  increase  in yield to 6.10% in 1995.  Interest  income  on
investment  securities and  interest-bearing  deposits increased by $59,000,  or
7.2%,  over 1994 due to an increase  in yield and an  increase  in the  weighted
average balance outstanding.

         Interest expense on deposits  increased for the year ended December 31,
1995,  by  $577,000,  or 20.3%,  to a total of $3.4  million,  compared  to $2.8
million in 1994. The increase resulted  primarily from a 78 basis point increase
in the weighted  average  cost of deposits  from 3.66% in 1994 to 4.44% in 1995.
The increase in cost of deposits was partially  offset by a $720,000  decline in
the weighted  average  balance  outstanding  year-to-year.  Interest  expense on
borrowings  increased  by  $163,000  during  1995 to a total of  $175,000.  This
increase  was due  primarily to a $2.7  million  increase in average  borrowings
outstanding  during 1995, coupled with a 64 basis point increase in the weighted
average  cost of  borrowings  to 5.90% in 1995.  The  increases in rates paid on
First Federal's deposit and borrowing  portfolios generally reflect the increase
in interest rates in the overall economy during 1995.

         As a result of the  foregoing  changes in interest  income and interest
expense,  net interest income  declined during 1995 by $365,000,  or 14.2%, to a
total of $2.2  million.  The  interest  rate spread  declined by 64 basis points
during 1995 from 3.00% in 1994 to 2.36% in 1995,  while the net interest  margin
declined by 54 basis points, from 3.15% in 1994 to 2.61% in 1995.

         Other income  amounted to $362,000  during the year ended  December 31,
1995,  a decrease of $8,000,  or 2.2%,  from 1994 due  primarily to a decline in
insurance commissions year-to-year.

         Other  expense  totaled  approximately  $2.0 million for the year ended
December 31, 1995, an increase of $108,000,  or 5.8%,  over the amount  recorded
for 1994. The increase resulted primarily from a $110,000, or 12.4%, increase in
employee  compensation and benefits,  a $19,000,  or 9.8%, increase in occupancy
and equipment and a $6,000, or 1.8%, increase in other operating expense,  which
were  partially  offset by a $20,000  decrease in the  provision  for  valuation
decline in mortgage-related  securities.  The increase in employee  compensation
and benefits  resulted  primarily from an increase in staffing levels and normal
merit salary  increases,  coupled with a reduction in deferred loan  origination
costs, as loan  origination  volume declined by $3.8 million  year-to-year.  The
increase in occupancy and equipment expense resulted generally from increases in
the  cost of  equipment  maintenance  contracts,  while  the  increase  in other
operating  expense  was due to pro-rata  increases  in various  operating  costs
year-to-year.

         The  provision  for income  taxes  totaled  $188,000 for the year ended
December 31, 1995, a decline of $224,000,  or 54.4%,  from the 1994 amount.  The
decline  resulted  primarily  from a  $602,000,  or 57.4%,  decrease in earnings
before taxes.  First Federal's  effective tax rates were 42.2% and 39.3% for the
years ended  December  31, 1995 and 1994,  respectively.  Liquidity  and Capital
Resources

         The  Holding   Company's   primary   sources  of  funds  are  deposits,
borrowings,  proceeds from principal and interest payments on loans and proceeds
from maturing securities.  While maturities and scheduled  amortization of loans
are a predictable  source of funds,  deposit flows and mortgage  prepayments are
greatly  influenced  by  general  interest  rates,   economic  conditions,   and
competition.

         The  primary   investing   activity  of  the  Holding  Company  is  the
origination of loans.  During the years ended December 31, 1996,  1995 and 1994,
the Holding  Company  originated  total  loans in the amounts of $18.6  million,
$15.6 million and $19.4 million, respectively. Loan principal repayments totaled
$17.1 million, $13.7 million, and $15.0 million during the respective periods.

         During the year ended December 31, 1996, the Holding Company  purchased
$729,000 in  mortgage-backed  securities and in the year ended December 31, 1994
purchased $4.6 million in investment securities.

         The Holding  Company had outstanding  loan  commitments of $1.3 million
and unused lines of credit of $5.3  million at December  31,  1996.  The Holding
Company  anticipates  that it will have sufficient funds from loan repayments to
meet its current  commitments without having to borrow additional funds from the
FHLB of Indianapolis. Certificates of deposit scheduled to mature in one year or
less at December 31, 1996 totaled  $47.9  million.  Management  believes  that a
significant  portion of such deposits will remain with the Holding Company based
upon historical deposit flow data and the Holding Company's  competitive pricing
in its market area.

         Liquidity  management  is both a daily and  long-term  function  of the
Holding  Company's  management  strategy.  In the event that the Holding Company
should require funds beyond its ability to generate them internally,  additional
funds are  available  through  the use of FHLB  advances  and  through  sales of
securities. The Holding Company had no outstanding FHLB advances at December 31,
1996.

<PAGE>
         The following is a summary of cash flows for the Holding Company, which
are of three major types. Cash flows from operating activities consist primarily
of net  income  generated  by cash.  Investing  activities  generate  cash flows
through the origination  and principal  collection on loans as well as purchases
and sales of securities.  Investing activities will generally result in negative
cash flows when the Holding Company is experiencing loan growth. Cash flows from
financing  activities  include savings deposits,  withdrawals and maturities and
changes in borrowings. The following table summarizes cash flows for each of the
three years ended December 31, 1996, 1995 and 1994.

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                           ------------------------------------------------------------
                                                             1996                      1995                       1994
                                                            ------                   --------                   -------
                                                                                  (In thousands)
<S>                                                         <C>                         <C>                       <C>
Operating activities.............................           $ (194)                     $ 459                     $ 774
Investing activities:                                                                                               774
   Investment purchases..........................              ---                        ---                    (4,592)
   Investment maturities/sales...................            5,653                      1,101                       ---
   Mortgage-backed
     securities purchases........................             (729)                       ---                       ---
   Mortgage-backed
     securities repayments.......................            2,110                      1,417                     2,576
   Changes in loans..............................             (458)                    (1,892)                   (4,446)
   Other.........................................            2,279                        (22)                     (108)
Financing activities:
   Deposit increase/(decrease)...................           (6,222)                      (224)                   (2,624)
   Borrowings increase/(decrease)................           (6,371)                      (515)                    4,986
   Net proceeds from issuance
     of common stock.............................           10,221                        ---                       ---
   Other.........................................                7                         (1)                       (3)
                                                            ------                   --------                   -------
Net increase/(decrease) in cash
   and cash equivalents..........................           $6,296                   $    323                   $(3,437)
                                                            ======                   ========                   =======
</TABLE>


         Federal  regulations   require  FHLB-member  savings   associations  to
maintain an average daily balance of liquid assets equal to a monthly average of
not less than a specified  percentage of its net  withdrawable  savings deposits
plus short-term  borrowings.  Liquid assets include cash, certain time deposits,
certain bankers' acceptances, specified U.S. government, state or federal agency
obligations, certain corporate debt securities, commercial paper, certain mutual
funds, certain mortgage-related  securities,  and certain first lien residential
mortgage loans.  This liquidity  requirement may be changed from time-to-time by
the OTS to any amount  within the range of 4% to 10%, and is currently 5%. Also,
a  savings   association   currently  must  maintain  short-term  liquid  assets
constituting  at least  1% of its  average  daily  balance  of net  withdrawable
deposit accounts and current  borrowings.  Monetary penalties may be imposed for
failure to meet these  liquidity  requirements.  As of December 31, 1996,  First
Federal had liquid assets of $19 million,  and a regulatory  liquidity  ratio of
28%, of which 14% constituted short-term investments.

         Pursuant  to  OTS  capital   regulations,   savings  associations  must
currently meet a 1.5% tangible capital requirement, a 3% leverage ratio (or core
capital)  requirement,  and a total risk-based  capital to risk-weighted  assets
ratio of 8%. At December 31, 1996,  First Federal's  tangible  capital ratio was
14.0%,  its  core  capital  ratio  was  14.0%,  and its  risk-based  capital  to
risk-weighted  assets ratio was 27.6%.  Therefore,  at December 31, 1996,  First
Federal's capital exceeded all of its capital requirements  currently in effect.
The following table provides the minimum  regulatory  capital  requirements  and
First Federal's capital ratios as of December 31, 1996:
<PAGE>

<TABLE>
<CAPTION>


                                                                         At December 31, 1996
                                                       OTS Requirement                      First Federal's Capital Level
                                                   % of                               % of                              Amount
Capital Standard                                  Assets            Amount          Assets(1)          Amount          of Excess
                                                                             (Dollars in thousands)
<S>                                                 <C>              <C>             <C>               <C>               <C>
Tangible capital............................        1.5%             $1,252          14.0%             $11,713           $10,461
Core capital (2)............................        3.0               2,503          14.0               11,713             9,210
Risk-based capital..........................        8.0               3,515          27.6               12,136             8,621
</TABLE>


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

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

(3)      First  Federal's   risk-based  capital  includes  $423,000  of  general
         valuation allowances.

<TABLE>
<CAPTION>
                                                     At December 31, 1996
                                                      FDIC Requirement                         Citizens Capital Level
                                                   % of                               % of                              Amount
Capital Standard                                  Assets            Amount          Assets(1)          Amount          of Excess
                                                                             (Dollars in thousands)
<S>                                               <C>              <C>              <C>               <C>               <C>
Tier 1 leverage.............................        4.0%             $3,122           7.2%              $4,512            $1,390
Tier 1 capital to risk-based................        4.0               1,818           9.9                4,512             2,694
Risk-based capital..........................        8.0               3,635          11.4                5,160             1,525
</TABLE>
--------------
(1)  Tier I leverage  capital is shown as a percentage of total  assets.  Tier I
     capital  to risk  based  and  total  capital  to risk  based are shown as a
     percentage of risk-weighted assets.

Impact of Inflation

         The  consolidated  financial  statements  presented  herein  have  been
prepared in accordance  with generally  accepted  accounting  principles.  These
principles  require the measurement of financial  position and operating results
in terms of  historical  dollars,  without  considering  changes in the relative
purchasing power of money over time due to inflation.

         The primary assets and  liabilities of the Holding Company are monetary
in nature.  As a result,  interest rates have a more  significant  impact on the
Holding  Company's  performance than the effects of general levels of inflation.
Interest rates,  however,  do not necessarily move in the same direction or with
the same  magnitude  as the price of goods and  services,  since such prices are
affected  by  inflation.  In a period of  rapidly  rising  interest  rates,  the
liquidity  and  maturities  structures  of  the  Holding  Company's  assets  and
liabilities are critical to the maintenance of acceptable performance levels.

         The principal effect of inflation,  as distinct from levels of interest
rates, on earnings is in the area of noninterest expense.  Such expense items as
employee  compensation,  employee benefits and occupancy and equipment costs may
be  subject to  increases  as a result of  inflation.  An  additional  effect of
inflation  is the  possible  increase  in the  dollar  value  of the  collateral
securing  loans made by the Holding  Company.  The Holding  Company is unable to
determine the extent, if any, to which properties securing the Holding Company's
loans have appreciated in dollar value due to inflation.

<PAGE>
Item 8.  Financial Statements and Supplementary Data.

                                                     [GRANT THORNTON LETTERHEAD]

               Report of Independent Certified Public Accountants

Board of Directors
River Valley Bancorp

We have audited the accompanying  consolidated statements of financial condition
of River  Valley  Bancorp  (formerly  Madison  First  Federal  Savings  and Loan
Association)  as of  December  31, 1996 and 1995,  and the related  consolidated
statements  of earnings,  stockholders'  equity,  and cash flows for each of the
three years in the period ended December 31, 1996. 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 based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial 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, 1996 and 1995,  and the  consolidated  results of its
operations  and its cash  flows for each of the three  years in he period  ended
December 31, 1996, in conformity with generally accepted accounting principles.


/s/ Grant Thornton LLP
Cincinnati, Ohio
February 27, 1997 (except for Note O, as to which the date is February 28, 1997)


                                       42
<PAGE>



                              River Valley Bancorp

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                  December 31,
                        (In thousands, except share data)


<TABLE>
<CAPTION>
                                      ASSETS                                               1996              1995
                                                                                         --------           -------
<S>                                                                                    <C>                 <C>
Cash and due from banks                                                                $    4,209          $  2,389
Interest bearing deposits in other financial institutions                                   4,476                -
                                                                                         --------           -------
   Cash and cash equivalents                                                                8,685             2,389

Certificates of deposit in other financial institutions                                       100               300
Investment securities designated as available for sale - at market                          3,448             5,018
Investment securities - at amortized cost, approximate market value of
  $5,434 and $7,930 as of December 31, 1996 and 1995                                        5,500             8,000
Mortgage-backed securities designated as available
  for sale - at market                                                                      5,041                -
Mortgage-backed and related securities - at cost, approximate market
  value of $7,794 and $9,941 as of December 31, 1996 and 1995                               7,805             9,917
Loans receivable - net                                                                    107,918            57,945
Loans held for sale - at lower of cost or market                                            1,076                -
Office premises and equipment - at depreciated cost                                         2,057               966
Federal Home Loan Bank stock - at cost                                                        943               610
Federal Reserve Bank stock - at cost                                                           80                -
Accrued interest receivable on loans                                                          819               313
Accrued interest receivable on mortgage-backed securities                                      78                51
Accrued interest receivable on investments and interest-bearing deposits                      171               241
Goodwill, net of accumulated amortization                                                     272               148
Cash surrender value of life insurance                                                        747               535
Prepaid expenses and other assets                                                             169               124
Prepaid federal income taxes                                                                    4                26
Deferred tax asset                                                                            628                21
                                                                                         --------           -------
   Total assets                                                                          $145,541           $86,604
                                                                                         ========           =======
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

     LIABILITIES AND STOCKHOLDERS' EQUITY                                                  1996              1995
                                                                                         --------           -------
<S>                                                                                      <C>                <C>
Deposits                                                                                 $125,656           $75,233
Advances from the Federal Home Loan Bank                                                    1,100             4,471
Advances by borrowers for taxes and insurance                                                  70                63
Accrued interest payable                                                                      279                68
Other liabilities                                                                           1,422               195
Minority interest in consolidated subsidiary                                                  209                -
   Total liabilities                                                                      128,736            80,030

Commitments                                                                                    -                 -


Stockholders' equity
  Preferred stock - 2,000,000 shares without par value
    authorized; no shares issued                                                               -                 -
  Common stock - 5,000,000 shares without par value authorized;
    1,190,250 shares issued and outstanding in 1996                                            -                 -
  Additional paid in capital                                                               11,173                -
  Retained earnings - substantially restricted                                              6,635             6,562
  Shares acquired by Employee Stock Ownership Plan (ESOP)                                    (952)               -
  Unrealized gains (losses) on securities designated as available for sale,
    net of related tax effects                                                                (51)               12
                                                                                         --------           -------
   Total stockholders' equity                                                              16,805             6,574
                                                                                         --------           -------
   Total liabilities and stockholders' equity                                            $145,541           $86,604
                                                                                         ========           =======


</TABLE>



 The accompanying notes are an integral part of these statements.

<PAGE>


                              River Valley Bancorp

                       CONSOLIDATED STATEMENTS OF EARNINGS

                             Year ended December 31,
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                    1996            1995              1994
                                                                                --------           -------          -------
<S>                                                                               <C>               <C>              <C>
Interest income
  Loans                                                                           $4,551            $4,240           $3,851
  Mortgage-backed and related securities                                             574               670              743
  Investment securities                                                              562               777              713
  Interest-bearing deposits and other                                                188               107              112
                                                                                --------           -------          -------
   Total interest income                                                           5,875             5,794            5,419

Interest expense
  Deposits                                                                         3,349             3,419            2,842
  Borrowings                                                                          63               175               12
                                                                                --------           -------          -------
   Total interest expense                                                          3,412             3,594            2,854
                                                                                --------           -------          -------
   Net interest income                                                             2,463             2,200            2,565

Provision for losses on loans                                                         22               150               29
                                                                                --------           -------          -------
   Net interest income after provision for losses on loans                         2,441             2,050            2,536

Other income
  Insurance commissions                                                              200               175              181
  Loss on sale of investment securities                                               (9)               -                -
  Gain on sale of subsidiary                                                         141                -                -
  Service fees, charges and other operating                                          246               187              189
                                                                                --------           -------          -------
   Total other income                                                                578               362              370

General, administrative and other expense
  Employee compensation and benefits                                               1,203               998              888
  Occupancy and equipment                                                            284               212              193
  Federal deposit insurance premiums                                                 684               177              178
  Amortization of goodwill                                                             7                 7                7
  Data processing                                                                    282               237              243
  Other operating                                                                    410               335              329
  Provision for valuation decline on mortgage-related securities                      -                 -                20
                                                                                --------           -------          -------
   Total general, administrative and other expense                                 2,870             1,966            1,858
                                                                                --------           -------          -------
   Earnings before income taxes                                                      149               446            1,048

Income taxes
  Current                                                                            124               245              411
  Deferred                                                                           (48)              (57)               1
                                                                                --------           -------          -------
   Total income taxes                                                                 76               188              412
                                                                                --------           -------          -------
   NET EARNINGS                                                                 $     73           $   258          $   636
                                                                                ========           =======          =======
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>


                              River Valley Bancorp

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  Years ended December 31, 1996, 1995 and 1994
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                        Unrealized
                                                                                      gains losses on
                                                     Additional         Shares          securities
                                      Common          Paid-in-         acquired        designated as      Retained
                                       Stock           Capital          by ESOP     available for-Sale   earnings            Total
                                       -----           -------          -------     ------------------   --------            -----
<S>                                    <C>            <C>                 <C>             <C>               <C>            <C>
Balance at December 31, 1993            $ -           $     -               $ -              $ -             $5,668         $ 5,668

Net earnings for the year ended
December 31, 1994                         -                 -                 -                -                636             636
                                        ---            -------             -----           ------            ------         -------
Balance at December 31, 1994              -                 -                 -                -              6,304           6,304

Net earnings for the year ended
December 31, 1995                         -                 -                 -                -                258             258

Unrealized gains on securities
designated as available for sale,
net of related tax effects                -                 -                 -                12                -               12
                                        ---            -------             -----           ------            ------         -------
Balance at December 31, 1995              -                 -                 -                12             6,562           6,574

Reorganization to common stock
form and issuance of shares in
connection therewith - net                -             11,173              (952)              -                 -           10,221

Net earnings for the year ended
December 31, 1996                         -                 -                 -                -                 73              73

Unrealized losses on securities
designated as available for sale,
net of related tax effects                -                 -                 -               (63)               -              (63)
                                        ---            -------             -----           ------            ------         -------
Balance at December 31, 1996            $ -            $11,173             $(952)          $  (51)           $6,635         $16,805
                                        ===            =======             =====           ======            ======         =======
</TABLE>



The accompanying notes are an integral part of these statements.

<PAGE>

                              River Valley Bancorp

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                         For the year ended December 31,
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                               1996              1995               1994
                                                                            ----------         ---------          -------
Cash flows from operating activities:
<S>                                                                         <C>                <C>              <C>
  Net earnings for the year                                                 $       73         $     258        $     636
  Adjustments to reconcile net earnings to net cash provided
  by (used in) operating activities:
   Amortization (accretion) of premiums  and discounts on
      investments and mortgage-backed securities - net                               2                (9)             (14)
    Loss on sale of investment securities designated as available for sale           9                -                -
    Provision for valuation decline on mortgage-related securities                  -                 -                20
    Loans originated for sale in the secondary market                           (1,076)               -                -
    Amortization of deferred loan origination costs                                 83                85               86
    Provision for losses on loans                                                   22               150               29
    Depreciation and amortization                                                   91                68               67
    Amortization of goodwill                                                         7                 7                7
    Gain on sale of subsidiary                                                    (141)               -                -
    Increase  (decrease) in cash, net of acquisition of Citizens  National Bank,
      due to changes in:
      Accrued interest receivable on loans                                          29               (67)              (4)
      Accrued interest receivable on mortgage-backed securities                     (1)                7               14
      Accrued interest receivable on investments and interest-bearing deposits     100                (4)             (54)
      Prepaid expenses and other assets                                            262                (6)              19
      Accrued interest payable                                                     (41)                6                1
      Other liabilities                                                            413                26               17
      Income taxes
        Current                                                                     22                (5)             (51)
        Deferred                                                                   (48)              (57)               1
                                                                               -------           -------          -------
   Net cash provided by (used in) operating activities                            (194)              459              774

Cash flows provided by (used in) investing activities:
  Proceeds from maturity of investment securities                                3,500             1,000               -
  Purchase of investment securities                                                 -                 -            (4,592)
  Proceeds from sale of investment securities designated
   as available for sale                                                         2,153               101               -
  Purchase of mortgage-backed securities                                          (729)               -                -
  Principal repayments on mortgage-backed securities                             2,110             1,417            2,576
  Loan principal repayments                                                     17,114            13,708           14,973
  Loan disbursements                                                           (17,572)          (15,600)         (19,419)
  Proceeds from sale of real estate acquired through foreclosure                    -                 -                17
  Purchase of real estate held for investment                                       -                 -               (10)
  Purchase of office equipment                                                      (9)              (46)             (40)
  (Increase) decrease in certificates of deposit in
   other financial institutions - net                                              200                50              (50)
  Purchase of single premium life insurance                                       (188)               -                -
  Increase in cash surrender value of life insurance                               (24)              (26)             (25)
  Proceeds from sale of subsidiary - net                                           282                -                -
  Acquisition of Citizens National Bank common stock - net                       2,018                -                -
                                                                               -------           -------          -------
   Net cash provided by (used in) investing activities                           8,855               604           (6,570)
                                                                               -------           -------          -------
   Net cash provided by (used in) operating and investing
     activities (subtotal carried forward)                                       8,661             1,063           (5,796)
                                                                               =======           =======          =======
</TABLE>

<PAGE>

                              River Valley Bancorp

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                             Year ended December 31,
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                       1996        1995        1994
                                                                     --------    --------    --------
<S>                                                                 <C>         <C>         <C>
   Net cash provided by (used in) operating and investing
     activities (subtotal brought forward)                           $  8,661    $  1,063    $ (5,796)

Cash flows provided by (used in) financing activities:
  Decrease in deposit accounts                                         (6,222)       (224)     (2,624)
  Proceeds from Federal Home Loan Bank advances                            --       2,000       4,986
  Repayment of Federal Home Loan Bank advances                         (6,371)     (2,515)         --
  Advances by borrowers for taxes and insurance                             7          (1)         (3)
  Proceeds from issuance of common stock                               11,173          --          --
  Acquisition of common stock by ESOP                                    (952)         --          --
                                                                     --------    --------    --------
   Net cash provided by (used in) financing activities                 (2,365)       (740)      2,359
                                                                     --------    --------    --------
Net increase (decrease) in cash and cash equivalents                    6,296         323      (3,437)

Cash and cash equivalents at beginning of year                          2,389       2,066       5,503
                                                                     --------    --------    --------
Cash and cash equivalents at end of year                             $  8,685    $  2,389    $  2,066
                                                                     --------    --------    --------

Supplemental disclosure of cash flow information:
Cash paid during the year for:
    Federal income taxes                                             $     84    $    191    $    377
                                                                     --------    --------    --------
    Interest on deposits and borrowings                              $  3,201    $  3,588    $  2,853
                                                                     --------    --------    --------
Supplemental disclosure of noncash investing activities:
  Transfers from loans to real estate acquired through foreclosure   $     --    $     --    $     15
                                                                     --------    --------    --------
  Transfer of investment securities to an available for sale
    classification in accordance with SFAS No. 115                   $     --    $  5,000    $     --
                                                                     --------    --------    --------
  Unrealized gains (losses) on securities designated as available
    for sale, net of related tax effects                             $    (63)   $     12    $     --
                                                                     --------    --------    --------
  Liabilities assumed and cash paid in acquisition of
    Citizens National Bank                                           $ 64,055    $     --    $     --

  Less:  Fair value of assets received                                 63,783          --          --
                                                                     --------    --------    --------
  Amount assigned to goodwill                                        $    272    $     --    $     --
                                                                     ========    ========    ========
</TABLE>




The accompanying notes are an integral part of these statements.
<PAGE>


                              River Valley Bancorp

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1996, 1995 and 1994


         NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

           1.  Principles of Consolidation

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

<PAGE>


                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

           2.  Investment Securities and Mortgage-Backed and Related Securities

           The    Corporation    accounts   for   investment    securities   and
           mortgage-backed  and related  securities in accordance with Statement
           of Financial  Accounting  Standards ("SFAS") No. 115, "Accounting for
           Certain  Investments  in Debt and  Equity  Securities".  SFAS No. 115
           requires  that   investments  be  categorized  as   held-to-maturity,
           trading,   or   available   for  sale.   Securities   classified   as
           held-to-maturity  are carried at cost only if the Corporation has the
           positive  intent and ability to hold these  securities  to  maturity.
           Trading  securities and securities  available for sale are carried at
           market value with resulting  unrealized  gains or losses  recorded to
           operations or stockholders' equity,  respectively.  In November 1995,
           the  Financial  Accounting  Standards  Board  (the  "FASB")  issued a
           "Special  Report  on the  Implementation  of  SFAS  No.  115",  which
           permitted the reclassification of securities between held-to-maturity
           and  available-for-sale  without  calling into question  management's
           prior  intent  with  respect  to  such  securities.  The  Association
           transferred  approximately  $5.0  million  of  investment  securities
           previously  identified as  held-to-maturity  to an available for sale
           classification. At December 31, 1996, the Corporation's stockholders'
           equity  included  unrealized  losses  on  securities   designated  as
           available for sale, net of related tax effects, of $51,000.  Realized
           gains  and  losses  on the  sale of  investment  and  mortgage-backed
           securities are recognized using the specific identification method.

           3.  Loans Receivable

           Loans  held  in  portfolio  are  stated  at  the   principal   amount
           outstanding,  adjusted for deferred  loan  origination  costs and the
           allowance  for loan losses.  Interest is accrued as earned unless the
           collectibility  of the loan is in doubt.  Uncollectible  interest  on
           loans that are contractually past due is charged off, or an allowance
           is  established  based  on  management's  periodic  evaluation.   The
           allowance is established by a charge to interest  income equal to all
           interest  previously accrued,  and income is subsequently  recognized
           only  to the  extent  that  cash  payments  are  received  until,  in
           management's  judgment,  the  borrower's  ability  to  make  periodic
           interest and principal payments has returned to normal, in which case
           the  loan  is   returned   to  accrual   status.   If  the   ultimate
           collectibility  of the loan is in  doubt,  in  whole or in part,  all
           payments received on nonaccrual loans are applied to reduce principal
           until such doubt is eliminated.

           Loans  held for  sale are  carried  at the  lower of cost or  market,
           determined  in  the  aggregate.  In  computing  cost,  deferred  loan
           origination costs are added to the principal  balances of the related
           loans.  At December  31,  1996,  loans held for sale were  carried at
           cost. There were no loans identified as held for sale at December 31,
           1995.

<PAGE>



                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

           3.  Loans Receivable (continued)

           The  Corporation  retains the  servicing  on loans sold and agrees to
           remit to the investor  loan  principal  and  interest at  agreed-upon
           rates. Loans sold and serviced for others totaled approximately $26.5
           million at December 31, 1996. In June 1994,  the FASB issued SFAS No.
           122 "Accounting for Mortgage  Servicing  Rights," which requires that
           the  Corporation  recognize  as  separate  assets,  rights to service
           mortgage loans for others,  regardless of how those servicing  rights
           are acquired.  An institution that acquires mortgage servicing rights
           through  either the  purchase or  origination  of mortgage  loans and
           sells those loans with servicing  rights retained would allocate some
           of the cost of the loans to the mortgage servicing rights.

           SFAS No. 122  requires  that  securitizations  of  mortgage  loans be
           accounted  for  as  sales  of  mortgage  loans  and  acquisitions  of
           mortgage-backed securities.  Additionally, SFAS No. 122 requires that
           capitalized   mortgage   servicing  rights  and  capitalized   excess
           servicing  receivables  be assessed  for  impairment.  Impairment  is
           measured based on fair value.

           SFAS No. 122 was effective for fiscal years  beginning after December
           15, 1995, (January 1, 1996, as to the Corporation) to transactions in
           which an entity acquires mortgage  servicing rights and to impairment
           evaluations  of  all  capitalized   mortgage   servicing  rights  and
           capitalized   excess   servicing   receivables   whenever   acquired.
           Retroactive  application  was  prohibited,  and earlier  adoption was
           encouraged.  Management  adopted  SFAS No. 122 as of January 1, 1996,
           without material effect on the Corporation's  consolidated  financial
           condition or results of operations.

           4.  Loan Origination Fees and Costs

           The  Corporation  accounts  for loan  origination  fees and  costs in
           accordance  with the  provisions  of SFAS  No.  91,  "Accounting  for
           Nonrefundable Fees and Costs Associated with Originating or Acquiring
           Loans and Initial Direct Costs of Leases". Pursuant to the provisions
           of SFAS No. 91,  origination  fees received from loans, net of direct
           origination  costs,  are  deferred and  amortized to interest  income
           using  the   level-yield   method,   giving  effect  to  actual  loan
           prepayments.   Additionally,   SFAS  No.  91  generally   limits  the
           definition of loan origination costs to the direct costs attributable
           to originating a loan, i.e., principally actual personnel costs. Fees
           received  for loan  commitments  that are  expected to be drawn upon,
           based on the Corporation's  experience with similar commitments,  are
           deferred  and  amortized  over the life of the related loan using the
           interest  method.  Fees for other loan  commitments  are deferred and
           amortized over the loan commitment period on a straight-line basis.

<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

           5.  Allowance for Losses on Loans

           It is the Corporation's  policy to provide  valuation  allowances for
           estimated  losses  on loans  based on past loss  experience,  current
           trends in the level of delinquent and specific  problem  loans,  loan
           concentrations to single borrowers, changes in the composition of the
           loan  portfolio,  adverse  situations  that may affect the borrower's
           ability to repay,  the estimated  value of any underlying  collateral
           and  current  and  anticipated  economic  conditions  in its  primary
           lending  areas.  When the collection of a loan becomes  doubtful,  or
           otherwise  troubled,  the  Corporation  records a loan loss provision
           equal  to the  difference  between  the fair  value  of the  property
           securing  the loan and the loan's  carrying  value.  Major  loans and
           major lending areas are reviewed  periodically to determine potential
           problems at an early date. The allowance for loan losses is increased
           by  charges  to  earnings  and  decreased  by  charge-offs   (net  of
           recoveries).

           In May 1993,  the FASB issued SFAS No. 114,  "Accounting by Creditors
           for  Impairment of a Loan".  SFAS No. 114,  which was amended by SFAS
           No. 118 as to certain  income  recognition  and  financial  statement
           disclosure provisions, requires that impaired loans be measured based
           upon the present  value of expected  future cash flows  discounted at
           the loan's  effective  interest  rate or, as an  alternative,  at the
           loans observable  market price or fair value of the collateral if the
           loan is collateral  dependent.  The Association  adopted the SFAS No.
           114  effective   January  1,  1995,   without   material   effect  on
           consolidated financial condition or results of operations.

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

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

           At December  31,  1996 and 1995,  the  Corporation  had no loans that
           would be defined as impaired under SFAS No. 114.

<PAGE>


                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

           6.  Real Estate Acquired through Foreclosure

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

           7.  Office Premises and Equipment

           Office  premises  and  equipment  are  carried  at cost  and  include
           expenditures  which  extend  the  useful  lives of  existing  assets.
           Maintenance, repairs and minor renewals are expensed as incurred. For
           financial  reporting,  depreciation  and amortization are provided on
           the  straight-line  method  over  the  useful  lives  of the  assets,
           estimated to be thirty to forty-five  years for  buildings,  three to
           ten  years  for  furniture  and   equipment,   and  three  years  for
           automobiles.  An  accelerated  depreciation  method  is used  for tax
           reporting purposes.

           8.  Amortization of Goodwill

           Amortization of goodwill arising from the  Corporation's  acquisition
           of the  Bank is  provided  using  the  straight-line  method  over an
           estimated life of ten years.

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

           In March 1995,  the FASB issued  SFAS No.  121,  "Accounting  for the
           Impairment  of  Long-Lived  Assets  and for  Long-Lived  Assets to be
           Disposed Of." SFAS No. 121 provides guidance on when to recognize and
           how to measure  impairment  losses of  long-lived  assets and certain
           identifiable  intangibles  and how to value  long-lived  assets to be
           disposed of. The Corporation  adopted SFAS No. 121 effective  January
           1,  1996,  as  required,  without  material  effect  on  consolidated
           financial condition or results of operations.

           9.  Income Taxes

           The  Corporation  accounts for income taxes pursuant to SFAS No. 109,
           "Accounting  for Income Taxes".  SFAS No. 109  established  financial
           accounting  and  reporting  standards for the effects of income taxes
           that result from the Corporation's  activities within the current and
           previous  years.  In  accordance  with SFAS No.  109, a deferred  tax
           liability  or deferred  tax asset is computed by applying the current
           statutory   tax  rates  to  net  taxable  or   deductible   temporary
           differences  between the tax basis of an asset or  liability  and its
           reported amount in the  consolidated  financial  statements that will
           result in net  taxable  or  deductible  amounts  in  future  periods.
           Deferred tax assets are  recorded  only to the extent that the amount
           of net deductible  temporary  differences or carryforward  attributes
           may be utilized against current

<PAGE>


                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

           9.  Income Taxes (continued)

           period earnings,  carried back against prior years' earnings,  offset
           against taxable temporary differences reversing in future periods, or
           utilized to the extent of  management's  estimate  of future  taxable
           income. A valuation  allowance is provided for deferred tax assets to
           the extent that the value of net deductible temporary differences and
           carryforward  attributes  exceeds  management's  estimates  of  taxes
           payable  on future  taxable  income.  Deferred  tax  liabilities  are
           provided on the total amount of net temporary  differences taxable in
           the future.

           Deferral of income taxes results  primarily from different methods of
           accounting  for deferred loan  origination  costs,  the allowance for
           valuation decline on  mortgage-related  securities,  the general loan
           loss  allowance,  the  percentage of earnings bad debt  deduction and
           certain components of retirement expense.  Additionally,  a temporary
           difference  is  recognized  for  depreciation  utilizing  accelerated
           methods for federal income tax purposes.

           10.  Retirement and Incentive Plans

           Qualified employees of the Association are covered by noncontributory
           retirement plans. There were no unfunded past service  liabilities at
           December 31, 1996 and 1995. First Service has no qualified employees.

           Employees  of the  Association  are  covered by the  Pentegra  Group,
           previously the Financial  Institutions  Retirement Fund (the "Fund"),
           which is a defined  benefit pension plan to which  contributions  are
           made for the benefit of the employees.  Contributions  are determined
           to cover the normal cost of pension  benefits,  the one-year  cost of
           the pre-retirement death and disability benefits and the amortization
           of any unfunded accrued liabilities.

           The Fund had previously advised the Association that the pension plan
           meets the  criteria of a  multi-employer  pension  plan as defined in
           SFAS No. 87, "Employers' Accounting for Pensions". In accordance with
           SFAS  No.  87,  net  pension  cost is  recognized  for  any  required
           contribution  for the  period.  A  liability  is  recognized  for any
           contributions due and unpaid.  During 1993, the Association  acquired
           additional  benefits for all qualified  employees covered by the Fund
           which were paid for by reducing the overfunded amount. Because of the
           overfunded  status,  no  contributions  were made to the pension plan
           during  the  years  ended  December  31,  1996,  1995 and  1994.  The
           provision  for pension  expense was computed by the Fund's  actuaries
           utilizing the  projected  unit credit cost method and assuming a 7.5%
           return on Fund assets.

           In addition to providing  employees with  noncontributory  retirement
           plans,  the Association  undertook a supplemental  retirement plan in
           1993,  which  provides  retirement  benefits  to all  directors.  The
           Association's  obligations  under the plan have been  funded  via the
           purchase of key man life insurance policies, of which the Association
           is the beneficiary.  Costs of the purchase of the single premium life
           insurance   policies   amounted  to  $668,000.   Expense   under  the
           supplemental retirement plan totaled approximately $3,000, $3,000 and
           $2,000  for the  years  ended  December  31,  1996,  1995  and  1994,
           respectively.

<PAGE>




                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

           10.  Retirement and Incentive Plans (continued)

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

           11.  Earnings Per Share

           The  provisions  of  Accounting  Principles  Board  Opinion  No.  15,
           "Earnings Per Share," is not  applicable for the years ended December
           31, 1996, 1995 and 1994, as the Corporation  completed its conversion
           to stock form in December 1996.

           12.  Cash and Cash Equivalents

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

           13.  Reclassifications

           Certain prior year amounts have been  reclassified  to conform to the
           1996 consolidated financial statement presentation.

           14.  Fair Value of Financial Instruments

           SFAS  No.   107,   "Disclosures   About  Fair   Value  of   Financial
           Instruments",  requires  disclosure  of the fair  value of  financial
           instruments, both assets and liabilities whether or not recognized in
           the consolidated  statement of financial  condition,  for which it is
           practicable to estimate that value. For financial  instruments  where
           quoted  market  prices are not  available,  fair  values are based on
           estimates using present value and other valuation methods.

           The  present  value  methods  utilized  are  greatly  affected by the
           assumptions  applied,  including  the discount  rate and estimates of
           future  cash flows.  Therefore,  the fair  values  presented  may not
           represent  amounts  that could be realized in an exchange for certain
           financial instruments.

<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

           14.  Fair Value of Financial Instruments (continued)

           The following methods and assumptions were used by the Corporation in
           estimating its fair value  disclosures  for financial  instruments at
           December 31, 1996 and 1995:

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

                Investment  and  mortgage-backed  and  related  securities:  For
                investment  and  mortgage-backed  and related  securities,  fair
                value is deemed to equal the quoted market price.

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

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

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

                Deposits: The fair value of NOW and super NOW accounts, passbook
                accounts, money market demand accounts and advances by borrowers
                for taxes and  insurance  are deemed to  approximate  the amount
                payable on demand.  Fair values for fixed-rate  certificates  of
                deposit  have  been  estimated  using  a  discounted  cash  flow
                calculation  using the  interest  rates  currently  offered  for
                deposits of similar remaining maturities.

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

<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

           14.  Fair Value of Financial Instruments (continued)

                Commitments to extend credit: For fixed-rate and adjustable-rate
                loan  commitments,   the  fair  value  estimate   considers  the
                difference   between   current  levels  of  interest  rates  and
                committed  rates.  The  difference  between  the fair  value and
                notional amount of outstanding  loan commitments at December 31,
                1996 and 1995, was not material.

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

<TABLE>
<CAPTION>
                                                                                1996                               1995
                                                                      -----------------------             ----------------------
                                                                       Carrying        Fair                Carrying        Fair
                                                                         value         value                 value         value
                                                                        --------     --------               -------      -------
                                                                                             (In thousands)
Financial assets
<S>                                                                   <C>          <C>                     <C>          <C>
  Cash and cash equivalents                                           $    8,685   $    8,685              $  2,389     $  2,389
  Certificates of deposit in other financial institutions                    100          100                   300          300
  Investment securities designated as available for sale                   3,448        3,448                 5,018        5,018
  Investment securities - at cost                                          5,500        5,434                 8,000        7,930
  Mortgage-backed securities designated as available
    for sale                                                               5,041        5,041                    -            -
  Mortgage-backed and related securities - at cost                         7,805        7,794                 9,917        9,941
  Loans receivable - net                                                 108,994      108,775                57,945       58,756
  Federal Home Loan Bank stock                                               943          943                   610          610
  Federal Reserve Bank stock                                                  80           80                    -            -
                                                                        --------     --------               -------      -------
                                                                        $140,596     $140,300               $84,179      $84,944
                                                                        --------     --------               -------      -------
Financial liabilities
  Deposits                                                              $125,656     $123,716               $75,233      $72,375
  Advances from the Federal Home Loan Bank                                 1,100        1,099                 4,471        4,483
  Advances by borrowers for taxes and insurance                               70           70                    63           63
                                                                        --------     --------               -------      -------
                                                                        $126,826     $124,885               $79,767      $76,921
                                                                        ========     ========               =======      =======
</TABLE>



<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES

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

<TABLE>
<CAPTION>

                                                      1996                               1995
                                             ------------------------            ------------------------
                                                            Estimated                           Estimated
                                             Amortized        fair               Amortized        fair
                                               cost           value                cost           value
                                               ----           -----                ----           -----
                                                                    (In thousands)
Held to maturity:
<S>                                              <C>          <C>                 <C>          <C>
  U.S. Government agency obligations             $5,500       $5,434              $  8,000     $  7,930

Available for sale:
  U.S. Government agency obligations              2,997        2,980                 5,000        5,018
  Municipal obligations                             474          468                    -            -
                                                  3,471        3,448                 5,000        5,018
                                                  -----        -----                 -----        -----

     Total investment securities                 $8,971       $8,882               $13,000      $12,948
                                                 ======       ======               =======      =======
</TABLE>


           At  December  31,  1996  and  1995,  the cost  carrying  value of the
           Corporation's  investment  securities held to maturity  exceeded fair
           value by $66,000 and $70,000, respectively, comprised solely of gross
           unrealized losses.

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

<TABLE>
<CAPTION>
                                          1996                               1995
                                                Estimated                           Estimated
                                 Amortized        fair               Amortized        fair
                                   cost           value                cost           value
                                                        (In thousands)
<S>                                  <C>          <C>                  <C>         <C>
Due in one year or less              $2,000       $1,998               $   500     $    497
Due in one to three years             2,500        2,474                 4,500        4,468
Due in three to five years            1,000          962                 3,000        2,965
                                      -----          ---                 -----        -----
                                     $5,500       $5,434                $8,000       $7,930
                                     ======       ======                ======       ======
</TABLE>


<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994

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

           The amortized cost and estimated fair value of U.S. Government agency
           obligations and municipal  bonds  designated as available for sale at
           December 31, 1996, by term to maturity are shown below.

                                                             Estimated
                                   Amortized                   fair
                                     cost                      value
                                            (In  thousands)
Due in one to three years            $2,000                    $1,999
Due in three to five years              997                       981
Due in five to ten years                474                       468
                                     ------                   -------
                                     $3,471                    $3,448
                                     ======                    ======

           The amortized cost, gross unrealized  gains,  gross unrealized losses
           and estimated fair values of mortgage-backed securities designated as
           held to maturity at December 31, 1996 and 1995 are shown below.

<TABLE>
<CAPTION>


                                                                                               1996
                                                                   -------------------------------------------------------------
                                                                                      Gross             Gross          Estimated
                                                                   Amortized       unrealized        unrealized          fair
                                                                     cost             gains            losses            value
                                                                     ------           -----              -----            ------
                                                                                          (In thousands)
<S>                                                                  <C>             <C>                 <C>              <C>
Federal Home Loan Mortgage Corporation
  participation certificates                                         $4,852          $    3              $ (32)           $4,823
Government National Mortgage Association
  participation certificates                                          1,805              24                 (8)            1,821
Federal National Mortgage Association
  participation certificates                                          1,116               2                 -              1,118
  Interest-only certificates                                             32              -                  -                 32
                                                                     ------           -----              -----            ------
                                                                     $7,805           $  29              $ (40)           $7,794
                                                                     ======           =====              =====            ======
</TABLE>

<TABLE>
<CAPTION>

                                                                                               1995
                                                                  --------------------------------------------------------------
                                                                                      Gross             Gross          Estimated
                                                                   Amortized       unrealized        unrealized          fair
                                                                     cost             gains            losses            value
                                                                     ------           -----              -----            ------
                                                                                          (In thousands)
<S>                                                                  <C>              <C>                <C>              <C>
Federal Home Loan Mortgage Corporation
  participation certificates                                         $6,330           $  44              $ (49)           $6,325
Government National Mortgage Association
  participation certificates                                          2,121              43                (10)            2,154
Federal National Mortgage Association
  participation certificates                                          1,426               9                (13)            1,422
  Interest-only certificates                                             40              -                  -                 40
                                                                     ------           -----              -----            ------
                                                                     $9,917           $  96              $ (72)           $9,941
                                                                     ======           =====              =====            ======
</TABLE>

<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994

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

           The amortized cost of mortgage-backed  securities held to maturity at
           December 31, 1996, by contractual  terms to maturity are shown below.
           Expected  maturities will differ from contractual  maturities because
           borrowers  may  generally  prepay   obligations   without  prepayment
           penalties.

                                            Amortized cost
                                           (In  thousands)

Due within one year                              $1,518
Due after one to three years                      2,324
Due after three to five years                     1,450
Due after ten to twenty years                       411
Due after twenty years                            2,102
                                                  -----
                                                 $7,805
                                                 ======

           The amortized cost, gross unrealized  gains,  gross unrealized losses
           and estimated fair values of mortgage-backed securities designated as
           available for sale at December 31, 1996 are shown below.

<TABLE>
<CAPTION>

                                                                    Gross             Gross          Estimated
                                                 Amortized       unrealized        unrealized          fair
                                                   cost             gains            losses            value
                                                                        (In thousands)
Federal Home Loan Mortgage Corporation
<S>                                               <C>               <C>               <C>              <C>
  participation certificates                      $   988           $  11             $   (1)          $   998
Government National Mortgage Association
  participation certificates                        1,368               4                 -              1,372
Federal National Mortgage Association
  participation certificates                        2,110               1                (42)            2,069
Collateralized mortgage obligations                   628              -                 (26)              602
                                                   ------           -----              -----            ------
                                                   $5,094           $  16              $ (69)           $5,041
                                                   ======           =====              =====            ======
</TABLE>


           The  amortized  cost  of  mortgage-backed  securities  designated  as
           available  for sale at December 31,  1996,  by  contractual  terms to
           maturity  are shown  below.  Expected  maturities  will  differ  from
           contractual   maturities   because  borrowers  may  generally  prepay
           obligations without prepayment penalties.
                                                  Amortized cost
                                                 (In  thousands)

Due within one year                                   $    -
Due after one to three years                              174
Due after three to five years                             161
Due after five to ten years                               413
Due after ten to twenty years                           3,169
Due after twenty years                                  1,177
                                                       ------
                                                       $5,094
                                                       ======
<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


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

           The market value of the Corporation's  investment in Federal National
           Mortgage Association interest-only certificates is adversely affected
           by the level of actual prepayments on the loans  collateralizing such
           securities, as well as the market's perception as to the future level
           of such prepayments.  During 1994, these prepayment  factors resulted
           in market  value  declines  which  management  viewed  as other  than
           temporary.  Accordingly,  the Corporation  charged operations in 1994
           for $20,000,  representing  management's estimate as to the amount of
           such declines deemed to be other than temporary.


         NOTE C - LOANS RECEIVABLE

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

                                                   1996              1995
                                                 --------           -------

                                                       (In  thousands)
Residential real estate
  One-to-four family residential                $  67,417           $44,417
  Multi-family residential                          3,416             1,613
  Construction                                      4,895             2,489
Nonresidential real estate and land                14,960             7,563
Consumer and other                                 19,781             3,406
Deferred loan origination costs                       226               234
                                                 --------           -------
                                                  110,695            59,722
Less:
  Undisbursed portion of loans in process           1,703             1,370
  Allowance for loan losses                         1,074               407
                                                 --------           -------
                                                 $107,918           $57,945
                                                 ========           =======

           As  depicted   above,   the   Corporation's   lending   efforts  have
           historically  focused on one-to-four  family  residential real estate
           loans,  multi-family  residential  real estate loans and construction
           real estate loans,  which comprise  approximately  $74.3 million,  or
           69%,  of  the  total  loan   portfolio   at  December  31,  1996  and
           approximately  $47.4 million,  or 82%, of the total loan portfolio at
           December 31, 1995.  Generally,  such loans have been  underwritten on
           the  basis of no more  than an 80%  loan-to-value  ratio,  which  has
           historically   provided  the  Corporation  with  adequate  collateral
           coverage in the event of default.  Nevertheless,  the Corporation, as
           with any lending institution, is subject to the risk that residential
           real estate values could  deteriorate in its primary lending areas of
           southeastern  Indiana and northwestern  Kentucky,  thereby  impairing
           collateral  values.  However,   management  is  of  the  belief  that
           residential real estate values in the  Corporation's  primary lending
           areas are presently stable.

           In the ordinary course of business, the Corporation has granted loans
           to  some  of the  officers,  directors  and  their  related  business
           interests.  Related party loans are made on the same terms, including
           interest rates and  collateral,  as those  prevailing at the time for
           comparable  transactions  with  unrelated  persons and do not involve
           more than the normal risk of  collectibility.  The  aggregate  dollar
           amount of loans  outstanding  to related  parties  was  approximately
           $541,000 and $571,000 at December 31, 1996 and 1995.

<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE D - ALLOWANCE FOR LOAN LOSSES

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

                                            1996           1995       1994
                                                     (In thousands)

Balance at beginning of year              $   407          $252         $227
Provision for losses on loans                  22           150           29
Allowance for loan losses of Citizens
  National Bank                               648            -            -
Charge-offs of loans                           (3)           -            (4)
 Recoveries of loan losses                     -              5           -
                                           ------          ----         ----
Balance at end of year                     $1,074          $407         $252
                                           ======          ====         ====

           As of December 31, 1996, the Corporation's  allowance for loan losses
           was  comprised  of a general  loan loss  allowance  of  approximately
           $1,071,000,   which  is  includible  as  a  component  of  regulatory
           risk-based   capital,   and  a  specific   loan  loss   allowance  of
           approximately $3,000.

           The Corporation had nonperforming loans totaling $819,000, $8,000 and
           $13,000 at December 31, 1996, 1995 and 1994, respectively.

           The  Corporation  had no  loss of  interest  income  related  to such
           nonperforming  loans during the years ended  December 31, 1996,  1995
           and 1994.

         NOTE E - OFFICE PREMISES AND EQUIPMENT

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

                                                 1996                  1995
                                                ------                ------
                                                     (In  thousands)

Land and improvements                          $   718              $    377
Office buildings and improvements                2,107                 1,242
Leasehold improvements                             115                     6
Furniture, fixtures and equipment                1,742                   623
Automobiles                                         16                     4
                                                ------                ------
                                                 4,698                 2,252
Less accumulated depreciation                   (2,641)               (1,286)
                                                ------                ------
                                                $2,057               $   966
                                                ======               =======

<PAGE>


                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE F - DEPOSITS

           Deposits consist of the following major  classifications  at December
           31:

<TABLE>
<CAPTION>
Deposit type and                                                             1996                           1995
weighted-average interest rate                                        Amount         %              Amount          %
                                                                    --------     -----            -------       -----
                                                                        (In thousands)

<S>                                                               <C>              <C>           <C>           <C>
Non-interest bearing accounts                                     $    5,951       4.7           $     -          -
NOW accounts
  1996 - 2.54%                                                        16,683      13.3
  1995 - 2.24%                                                                                      7,941        10.6
Super NOW accounts
  1996 - 2.62%                                                         4,406       3.5
  1995 - 2.65%                                                                                      1,063         1.4
Money market demand accounts
  1996 - 2.94%                                                         9,623       7.7
  1995 - 3.00%                                                                                      7,141         9.5
Passbook accounts
  1996 - 3.36%                                                        21,718      17.3
  1995 - 3.04%                                                                                     17,911        23.8
Total demand, transaction and
  passbook deposits                                                   58,381      46.5             34,056        45.3

Certificates of deposit
  4.00 - 4.99%
    4.80% in 1996                                                     11,647       9.3
    4.21% in 1995                                                                                      98        .1
  5.00 - 5.99%
    5.41% in 1996                                                     41,560      33.1
    5.65% in 1995                                                                                  30,116        40.0
  6.00 - 6.99%
    6.28% in 1996                                                     11,144       8.9
    6.38% in 1995                                                                                  10,731        14.3
  7.00 - 7.99%
    7.49% in 1996                                                      2,923       2.3
    7.86% in 1995                                                                                     232        .3
  8.00 - 8.99%
    8.25% in 1996                                                          1      -                    -         -
                                                                    --------     -----            -------       -----
Total certificates of deposit                                         67,275      53.5             41,177        54.7
                                                                    --------     -----            -------       -----
Total deposit accounts                                              $125,656     100.0            $75,233       100.0
                                                                    ========     =====            =======       =====
</TABLE>


The aggregate  amount of certificates of deposit with a minimum  denomination of
$100,000  totaled  approximately  $9.7  million and $4.8 million at December 31,
1996 and 1995, respectively.

<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994

         NOTE F - DEPOSITS (continued)

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

                                      1996             1995            1994
                                     ------           ------           ------
                                                 (In thousands)

Passbook                            $   539          $   524         $    634
NOW accounts                            206              176              170
Money market deposit accounts           234              243              259
Certificates of deposit               2,370            2,476            1,779
                                     ------           ------           ------
                                     $3,349           $3,419           $2,842
                                     ======           ======           ======

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

                                                  1996             1995
                                                 -------          -------
                                                     (In  thousands)

Less than one year                               $47,948          $29,578
One year to three years                           16,563           10,425
More than three years                              2,764            1,174
                                                 -------          -------
                                                 $67,275          $41,177
                                                 =======          =======


         NOTE G - ADVANCES FROM FEDERAL HOME LOAN BANK

           At December 31, 1996,  Federal Home Loan Bank advances consisted of a
           $1.1 million, 7.35% advance maturing on January 29, 1997. The advance
           was  collateralized  by certain  residential  mortgage loans totaling
           $1.8  million  and the Bank's  investment  in Federal  Home Loan Bank
           stock.

         NOTE H - INCOME TAXES

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

<TABLE>
<CAPTION>

                                                              1996          1995         1994
                                                              ----          ----         ----
                                                                      (In thousands)
<S>                                                           <C>          <C>          <C>
Federal income taxes computed at
  the 34% expected statutory rate                              $51          $152         $356
State taxes, net of federal benefits                             9            39           56
Increase (decrease) in taxes resulting from:
  Amortization of goodwill                                       2             2            2
  Other (primarily related to the acquisition and
    sale of subsidiaries in 1996)                               14            (5)          (2)
Income tax provision per consolidated
  financial statements                                         $76          $188         $412
                                                              ----         ----         ----
Effective tax rate                                            51.0%        42.2%        39.3%
                                                              ====         ====         ====
</TABLE>

<PAGE>


                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE H - INCOME TAXES (continued)

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

<TABLE>
<CAPTION>
           Taxes (payable) refundable on temporary                                 1996                 1995
                                                                                 -------               -------
           differences at statutory rate:                                               (In  thousands)
<S>                                                                               <C>                   <C>
         Deferred tax liabilities:
           Deferred loan origination costs                                        $ (77)                $ (80)
           Difference between book and tax depreciation                             (71)                  (32)
           Percentage of earnings bad debt deduction                               (121)                 (116)
           Unrealized gain on securities designated
              as available for sale                                                 ---                    (6)
                                                                                   ----                 -----
                Total deferred tax liabilities                                     (269)                 (234)

         Deferred tax assets:
           Deferred compensation                                                     42                    28
           Allowance for valuation decline on
              mortgage-related securities                                            90                    90
           General loan loss allowance                                              282                   135
           Unrealized loss on securities designated as
              available for sale                                                     25                    -
           Purchase accounting adjustments related to asset
              valuation adjustments                                                 458                    -
           Other                                                                     -                      2
                                                                                   ----                 -----
                Total deferred tax assets                                           897                   255
                                                                                   ----                 -----
              Net deferred tax asset                                               $628                 $  21
                                                                                   ====                 =====
</TABLE>


         The  Association  was allowed a special bad debt  deduction  based on a
         percentage  of earnings  generally  limited to 8% of otherwise  taxable
         income, or the amount of qualifying and nonqualifying loans outstanding
         and subject to certain limitations based on aggregate loans and savings
         account balances at the end of the year.  Retained earnings at December
         31, 1996 includes  approximately  $2.4 million for which federal income
         taxes have not been provided. If the amounts that qualify as deductions
         for federal  income tax purposes are later used for purposes other than
         for bad debt  losses,  including  distributions  in  liquidation,  such
         distributions  will be  subject  to  federal  income  taxes at the then
         current   corporate   income  tax  rate.  The  approximate   amount  of
         unrecognized deferred tax liability relating to the cumulative bad debt
         deduction was  approximately  $705,000 at December 31, 1996. See Note M
         for additional  information regarding future percentage of earnings bad
         debt deductions.

<PAGE>


                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE I - COMMITMENTS AND CONTINGENCIES

           The   Corporation   is  a  party  to   financial   instruments   with
           off-balance-sheet  risk in the normal  course of business to meet the
           financing  needs of its  customers  including  commitments  to extend
           credit.  Such commitments  involve,  to varying degrees,  elements of
           credit and  interest-rate  risk in excess of the amount recognized in
           the consolidated  statement of financial  condition.  The contract or
           notional  amounts  of  the  commitments  reflect  the  extent  of the
           Corporation's involvement in such financial instruments.

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

           At December 31, 1996, the Corporation had outstanding  commitments of
           approximately  $1.3  million  to  originate  residential  one-to-four
           family real estate loans,  of which  $728,000 were comprised of 7.08%
           to 8.25%  fixed-rate  loans and $526,000  were  comprised of 7.75% to
           9.50% variable rate loans.  Additionally,  the Corporation had unused
           lines of credit under home equity loans of approximately $5.3 million
           at  December  31,  1996.  In the  opinion  of  management,  all  loan
           commitments equaled or exceeded prevalent market interest rates as of
           December 31, 1996, and such commitments have been underwritten on the
           same  basis  as  that  of the  existing  loan  portfolio.  Management
           believes that all loan commitments are able to be funded through cash
           flow from operations and existing excess liquidity.  Fees received in
           connection  with  these  commitments  have  not  been  recognized  in
           earnings.

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


         NOTE J - LEASES

           In  connection  with the  acquisition  of the Bank,  the  Corporation
           assumed  leases of branch banking  facilities and an automobile.  For
           the lease of the banking  facility  in the  Wal-Mart  Supercenter  in
           Madison,  the Corporation is to make annual payments of approximately
           $23,000 in 1997 and 1998,  and  approximately  $17,000  in 1999.  The
           original  lease  expires in  September  1999,  but does  contain  two
           renewable   five  year  options  at  a  maximum   lease   payment  of
           approximately  $29,000 per year.  The Bank also  leases its  downtown
           office with annual  payments of $6,000 for 1997 under a  year-to-year
           lease agreement. Finally, the Bank leases an automobile which expires
           December  31,  1997,  with minimum  lease  payments of  approximately
           $8,300.


<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE K - CONDENSED FINANCIAL STATEMENTS OF RIVER VALLEY BANCORP

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

<PAGE>


                              River Valley Bancorp
                        STATEMENT OF FINANCIAL CONDITION
                                December 31, 1996
                                 (In thousands)

   ASSETS

Cash and interest-bearing deposits                              $      655
Investment in subsidiaries                                          16,453
                                                                    ------

   Total assets                                                    $17,108
                                                                   =======

   LIABILITIES AND STOCKHOLDERS' EQUITY

Other liabilities                                               $       94
Minority interest in consolidated subsidiary                           209
                                                                   -------
                                                                       303
Stockholders' equity
  Preferred stock                                                       -
  Common stock                                                          -
  Additional paid in capital                                        17,806
  Retained earnings                                                      2
  Shares acquired by employee stock ownership plan                    (952)
  Unrealized losses on securities designated as available
    for sale, net of related tax effects                               (51)
   Total stockholders' equity                                       16,805

       Total liabilities and stockholders' equity                  $17,108
                                                                   =======


                              River Valley Bancorp
                              STATEMENT OF EARNINGS
                         Period ended December 31, 1996
                                 (In thousands)

Revenue
  Equity in earnings of subsidiaries                   $2
                                                      ---
   NET EARNINGS                                        $2
                                                      ===

<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE L - REGULATORY CAPITAL REQUIREMENTS

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

           At December 31, 1996,  management believes that the Association meets
           all capital adequacy requirements to which it is subject.

<TABLE>
<CAPTION>
                                                                         Regulatory capital
                                             Tangible                    Core                   Risk-based
                                              capital      Percent      capital      Percent      capital           Percent
                                              -------      -------      -------      -------      -------           -------
                                                                            (In thousands)
<S>                                            <C>            <C>       <C>            <C>           <C>               <C>
     Capital under generally accepted
       accounting principles                  $11,712                  $11,712                      $11,712
     Nonallowable assets:
       Unrealized losses on securities
         designated as available for sale           1                        1                            1
     Additional capital items:
       General valuation allowances                -                        -                           423
                                              -------         ----    --------         ----        --------            ----
     Regulatory capital - computed             11,713         14.0      11,713         14.0          12,136            27.6
     Minimum capital requirement                1,252          1.5       2,503          3.0           3,515             8.0
                                              -------         ----    --------         ----        --------            ----
     Regulatory capital - excess              $10,461         12.5    $  9,210         11.0        $  8,621            19.6
                                              =======         ====    ========         ====        ========            ====
</TABLE>

<PAGE>


                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE L - REGULATORY CAPITAL REQUIREMENTS (continued)

           At December 31, 1996, the Association met all regulatory requirements
           for   classification   as   a   "well-capitalized"   institution.   A
           "well-capitalized" institution must have risk-based capital of 10.0%,
           and core  capital of 5.0%.  The  Association's  capital  exceeded the
           minimum required amounts for  classification as a  "well-capitalized"
           institution by $7.7 million and $7.5 million, respectively.

           The FDIC has adopted risk-based capital ratio guidelines to which the
           Bank is subject.  The  guidelines  establish a systematic  analytical
           framework that makes regulatory  capital  requirements more sensitive
           to  differences   in  risk  profiles  among  banking   organizations.
           Risk-based  capital  ratios are  determined by allocating  assets and
           specified   off-balance  sheet  commitments  to  four  risk-weighting
           categories,   with  higher  levels  of  capital  being  required  for
           categories perceived as representing greater risk.

           These  guidelines  divide the capital into two tiers.  The first tier
           ("Tier 1") includes common equity, certain  non-cumulative  perpetual
           preferred  stock   (excluding   auction  rate  issues)  and  minority
           interests  in equity  accounts  of  consolidated  subsidiaries,  less
           goodwill  and  certain  other  intangible   assets  (except  mortgage
           servicing rights and purchased credit card relationships,  subject to
           certain  limitations).  Supplementary  ("Tier II") capital  includes,
           among other items,  cumulative  perpetual and long-term  limited-life
           preferred stock,  mandatory  convertible  securities,  certain hybrid
           capital  instruments,  term  subordinated  debt and the allowance for
           loan  losses,   subject  to  certain   limitations,   less   required
           deductions. Banks are required to maintain a total risk-based capital
           ratio  of 8%,  of  which 4% must be Tier 1  capital.  The  FDIC  may,
           however,    set   higher   capital   requirements   when   particular
           circumstances warrant. Banks experiencing or anticipating significant
           growth are expected to maintain  capital ratios,  including  tangible
           capital positions, well above the minimum levels.

           In addition,  the FDIC established  guidelines  prescribing a minimum
           Tier 1 leverage  ratio  (Tier 1 capital to adjusted  total  assets as
           specified in the guidelines).  These guidelines provide for a minimum
           Tier 1  leverage  ratio of 3% for banks that meet  certain  specified
           criteria,  including that they have the highest regulatory rating and
           are not experiencing or anticipating  significant  growth.  All other
           banks are required to maintain a Tier 1 leverage  ratio of 3% plus an
           additional cushion of at least 100 to 200 basis points.

<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994

         NOTE L - REGULATORY CAPITAL REQUIREMENTS (continued)

           At December 31,  1996,  management  believes  that the Bank meets all
           capital adequacy requirements to which it is subject.

<TABLE>
<CAPTION>

                                                                              Regulatory capital
                                                                             Tier 1                     Total
                                                  Tier 1                   capital to                capital to
                                                 leverage      Percent     risk-based     Percent    risk-based     Percent
                                                 --------      -------     ----------     -------    ----------     -------
                                                                                    (In thousands)
<S>                                                <C>            <C>       <C>              <C>         <C>             <C>
     Capital under generally accepted
       accounting principles                       $4,741                   $4,741                       $4,741
     Nonallowable assets
       Goodwill                                      (272)                    (272)                        (272)
       Mortgage servicing rights                       (7)                      (7)                          (7)
     Additional capital items
       Unrealized losses on securities
         designated as available for sale              50                       50                           50
       General valuation allowances                    -                        -                           648
     Regulatory capital computed                    4,512         7.2        4,512           9.9          5,160         11.4
                                                   ------         ---       ------           ---         ------          ---
     Maximum range of capital requirement           3,122         4.0        1,818           4.0          3,635          8.0
                                                   ------         ---       ------           ---         ------          ---
     Regulatory capital - excess                   $1,390         3.2       $2,694           5.9         $1,525          3.4
                                                   ======         ===       ======           ===         ======          ===
</TABLE>


           At December 31, 1996,  the Bank met all regulatory  requirements  for
           classification  as  a  "well-capitalized"   institution.  The  Bank's
           capital exceeded the minimum required amounts for classification as a
           "well-capitalized"   institution   by  $616,000  and  $2.2   million,
           respectively.

           The  Association  and the Bank are both subject to limitations on the
           payment of dividends by the banking regulatory authorities.

           Under OTS regulations,  a savings association that, immediately prior
           to,  and on a pro forma  basis  after  giving  effect  to, a proposed
           capital   distribution,   has  total   capital  (as  defined  by  OTS
           regulation)  that is equal to or greater than the amount of its fully
           phased-in  capital  requirement  is generally  permitted  without OTS
           approval  (but  subsequent  to 30 days prior notice to the OTS of the
           planned  dividend)  to make capital  distributions  during a calendar
           year in the  amount  of (i) up to 100%  of its net  earnings  to date
           during  the year plus an amount  equal to  one-half  of the amount by
           which its total capital to assets ratio exceeded its fully  phased-in
           capital to assets  ratio at the  beginning of the year (ii) or 75% of
           its net earnings for the most recent four quarters.  Pursuant to such
           OTS  dividend  regulations,  the  Association  had the ability to pay
           dividends  of  approximately  $4.3  million  to  the  Corporation  at
           December 31, 1996.

           The Corporation  has no intention to seek dividend  payments from the
           Bank in the foreseeable future.

<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


         NOTE M - LEGISLATIVE DEVELOPMENTS

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

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

           A component of the  recapitalization  plan provides for the merger of
           the  SAIF  and  BIF  on   January   1,   1999.   However,   the  SAIF
           recapitalization legislation currently provides for an elimination of
           the thrift charter or of the separate  federal  regulation of thrifts
           prior to the merger of the deposit insurance funds. As a result,  the
           Association  would be  regulated  as a bank under  federal laws which
           would subject it to the more  restrictive  activity limits imposed on
           national   banks.   Under   separate   legislation   related  to  the
           recapitalization  plan,  the  Association is required to recapture as
           taxable income approximately  $360,000 of its bad debt reserve, which
           represents the post-1987 additions to the reserve, and will be unable
           to utilize the  percentage of earnings  method to compute the reserve
           in the future.  The Association has provided  deferred taxes for this
           amount and will be  permitted  to amortize  the  recapture of the bad
           debt reserve over six years.


         NOTE N - CONVERSION TO STOCK FORM AND BUSINESS COMBINATION

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

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

<PAGE>

                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


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

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

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

           In  December  1995,  the  Association  had  entered  into a  purchase
           agreement  (the  "Agreement")  with the majority  shareholder  of the
           Bank.  The  Agreement,  as  subsequently  amended,  stated  that  the
           Corporation would purchase approximately 120,000 shares, representing
           95.6%  of  the  Bank's  outstanding  common  stock,  for  total  cash
           consideration  of  approximately  $3.0 million.  The  acquisition was
           consummated  on December 20, 1996,  and was  accounted  for using the
           purchase method of accounting.

           Presented below are pro-forma  condensed  consolidated  statements of
           earnings  which have been  prepared  as if the  acquisition  had been
           consummated  as of the beginning of each of the years ended  December
           31, 1996 and 1995.

                                                         1996            1995
                                                        ---------       -------
                                                            (In  thousands)
                                                               (Unaudited)

           Total interest income                          $10,211        $9,489
           Total interest expense                           5,640         5,414
                                                        ---------       -------
              Net interest income                           4,571         4,075

           Provision for losses on loans                      252           254
           Other income                                     1,164           925
           General, administrative and other expense        5,049         3,451
                                                        ---------       -------
              Earnings before income taxes                    434         1,295

           Federal income taxes                               150           443
                                                        ---------       -------
              Net earnings                              $     284       $   852
                                                        =========       =======

<PAGE>


                              River Valley Bancorp

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 1996, 1995 and 1994


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

           The Association  owns 100% of the outstanding  capital stock of First
           Service which owned 100% of the outstanding capital stock of McCauley
           Insurance Agency ("McCauley").

           As mandated by the regulatory authorities during the approval process
           of the Plan,  First  Service had to divest its  interest in McCauley.
           The sale of McCauley was consummated on December 17, 1996,  resulting
           in a gain on sale totaling $141,000.


         NOTE O - SUBSEQUENT EVENT

           As a result of the Corporation's  acquisition of the Bank, regulatory
           authorities  required  the  sale of one of the  Association's  retail
           branches. A definitive agreement was reached as of November 14, 1996,
           which provided for the purchaser to acquire the branch facility for a
           price  approximating  book value,  while assuming the branch deposits
           for a premium on core deposits.  The  transaction  was consummated on
           February 28, 1997, and resulted in an after-tax gain of $125,000.



Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.

         There were no such  changes  or  disagreements  during  the  applicable
period.

                                    PART III

Item 10.      Directors and Executive Officers of the Registrant.

     The  information  concerning the Holding  Company's  executive  officers is
included in Item 4.5 in Part I of this report.  Section 16(a) of the  Securities
Exchange Act of 1934 ("1934 Act") requires that the Holding  Company's  officers
and directors and persons who own more than 10% of the Holding  Company's Common
Stock file reports of ownership and changes in ownership with the Securities and
Exchange  Commission  (the  "SEC").  Officers,  directors  and greater  than 10%
shareholders are required by SEC regulations to furnish the Holding Company with
copies of all Section 16(a) forms that they file.

     Based  solely on its  review of the copies of such  forms  received  by it,
and/or written  representations  from certain  reporting persons that no Forms 5
were required for those persons,  the Holding  Company  believes that during the
fiscal year ended December 31, 1996, all filing  requirements  applicable to its
officers,  directors  and greater  than 10%  beneficial  owners with  respect to
Section 16(a) of the 1934 Act were complied with.

<PAGE>
         Presented below is certain information  concerning the directors of the
Holding Company:

<TABLE>
<CAPTION>
                        Director of the     Director of                     Position               Position
                            Holding           Madison                       with the                 with              Position
                            Company            First         Expiration      Holding                Madison              with
Director                     Since             Since           of Term       Company                 First             Citizens
--------                     -----             -----           -------       -------                 -----             --------

<S>                         <C>               <C>              <C>         <C>                 <C>                    <C>
Robert W. Anger              1996              1981             1997      Director               Director and
                                                                                                 Vice President--
                                                                                                 Lending
Jonnie L. Davis              1997              1997             1998      Director
Director
Cecil L. Dorten              1996              1990             1998      Vice Chairman
James E. Fritz               1996              1995             1997      Director, President    Director,
President                  Director
                                                                          and Chief Executive    and Chief
Executive
                                                                          Officer                Officer
Michael J. Hensley           1996              1995             1999      Director
Earl W. Johann               1996              1987             1998      Director
Fred W. Koehler              1996              1988             1999      Chairman
Director
</TABLE>

Presented below is certain  information  concerning the directors of the Holding
Company:

         Robert W. Anger (age 58) has served as First  Federal's  Vice President
--  Lending  since  August,  1995.  Prior to that,  Mr.  Anger  served  as First
Federal's  President  and Chief  Executive  Officer.  Mr. Anger also serves as a
director of First Service.

         Jonnie L. Davis (age 61). From July, 1995 to August 1996, she served as
an administrative  assistant with Fewel, Pettitt and Bender, a surveying firm in
Madison, Indiana. From July 1994 to July 1995, Ms. Davis served as an accounting
clerk for Stockdale Motors,  an automobile  retailer in Madison,  Indiana.  From
April 1984 to December  1994,  Ms. Davis served as a  bookkeeping  clerk for D&B
Enterprises,  a partnership involved in owning and operating apartment complexes
and other nonresidential real estate ventures. From September 1991 to June 1993,
Ms.  Davis  served  as a Vice  President  and  Assistant  to the  President  and
performed  all  accounting  and  financial  functions  for the Gust.  K. Newberg
Company, a general construction contractor in Madison, Indiana.

         Cecil L.  Dorten  (age 52) has served as the  President  of Ohio Valley
Contractors,  Inc., a highway and utility contracting firm, since 1983, and is a
Major  General in the  Indiana  National  Guard.  Mr.  Dorten  also  serves as a
director of First Service.

         James E.  Fritz (age 34) has served as First  Federal's  President  and
Chief Executive  Officer since August,  1995.  Prior to that Mr. Fritz served as
the Chief  Financial  Officer  of First  Federal  Savings  Bank of Kokomo  until
January,  1995, and as a consultant to National City  Corporation  from January,
1995 to August, 1995.

         Michael J.  Hensley (age 41) has  practiced  law since  January,  1989.
Prior to that,  Mr.  Hensley  served as a Compliance  Officer,  Assistant  Trust
Officer and the General Counsel to The Madison Bank & Trust Company from 1980 to
January, 1989. Mr. Hensley also serves as a director of First Service.

         Earl W. Johann (age 64) has served as the President and Chairman of the
Board of Madison  Distributing  Co.  since  1979.  Mr.  Johann  also serves as a
director of First Service.

         Fred W.  Koehler  (age 56) is the former  owner of Koehler  Tire Co., a
tire and  automotive  parts  store in Madison,  Indiana,  and is the Auditor for
Jefferson County. Mr. Koehler also serves as a director of First Service.

Item 11.      Executive Compensation.

         No cash  compensation is paid directly by the Holding Company to any of
its executive officers. Each of such officers is compensated by First Federal or
Citizens, as the case may be.

<PAGE>
         The following tables set forth information as to annual,  long term and
other  compensation  for services in all  capacities  to the President and Chief
Executive Officer of the Holding Company for the two fiscal years ended December
31, 1995 and 1996, and to the President and Chief Executive Officer of Citizens.
There were no  executive  officers of the Holding  Company,  as of December  31,
1996, who earned over $100,000 in salary and bonuses during that fiscal year.

<TABLE>
<CAPTION>
                                                                       Summary Compensation Table
                                                              Annual Compensation
                                                ------------------------------------------------
     Name and Principal          Fiscal                                           Other Annual            All Other
          Position                Year            Salary             Bonus       Compensation(3)        Compensation
          --------                ----            ------             -----       ---------------        ------------

<S>                              <C>             <C>                 <C>             <C>
James E. Fritz, President and    1996(1)         $ 72,200           (2)3)            $3,900                  --
   Chief Executive Officer       1995(1)         $ 28,388             (2)            $2,539                  --

Robert D. Hoban, President and   1996(1)         $100,000            ____              --                $6,000 (4)
   Chief Executive Officer       1995(1)         $100,000            ____              --                $6,000 (4)

</TABLE>
(1)      Mr. Fritz joined First Federal as President and Chief Executive Officer
         in August, 1995.

(2)      Includes directors fees.

(3)      Each of Mr. Fritz and Mr. Hoban received certain  perquisites,  but the
         incremental  cost of  providing  such  perquisites  did not  exceed the
         lesser of $50,000 or 10% of his salary and bonus.

(4)      Constitutes matching contributions made by Citizens to the 401(k) Plan.

Employment Contracts

         Effective  January 1, 1996,  First  Federal  entered into an employment
agreement with James E. Fritz,  First  Federal's  President and Chief  Executive
Officer, and Citizens entered into an employment agreement with Robert D. Hoban,
Citizens'  President  and Chief  Executive  Officer.  The  agreements  are for a
three-year term and extend annually for an additional  one-year term to maintain
their  three-year  term if the  employer's  Board of Directors  determines to so
extend it. Under the agreements,  the employees receive an initial annual salary
equal to their  current  salary  subject to  increases  approved by the Board of
Directors.  The agreements also provide,  among other things, for the employees'
participation  in other  bonus  and  fringe  benefit  plans  available  to other
employees.  The employees may terminate their  employment upon ninety (90) days'
prior  written  notice  to their  employer.  The  employers  may  discharge  the
employees for just cause (as defined in the agreement) at any time or in certain
events  specified by applicable law or regulations.  If the employers  terminate
the  employees'  employment  for other  than  just  cause or the  employees  are
constructively  discharged  and such  termination  does not occur within  twelve
months after a change in control of the  employers or the Holding  Company,  the
agreement  provides for the employees' receipt of a lump-sum or periodic payment
of an amount  equal to the sum of (A) their base  salary  through the end of the
then-current  term,  plus (B) their base salary for an  additional  twelve-month
period,  plus (C) in the  employees'  sole  discretion  and in lieu of continued
participation in their employers'  fringe benefit plans, cash in an amount equal
to the cost of obtaining  all health,  life,  disability  and other  benefits in
which the employees would otherwise be eligible to participate. In the event the
employers  terminate the employees'  employment for other than just cause or the
employee is constructively discharged within twelve months following a change in
control of the employer or the Holding Company,  the agreement  provides for the
employee's  receipt of a lump-sum  payment of an amount equal to the  difference
between (A) the  product of 2.99 times his "base  amount" (as defined in Section
280G(b)(3)  of the  Code) and (B) the sum of any other  parachute  payments,  as
determined  under Section  280G(b)(2) of the Code. If the payments  provided for
under the  agreement,  together with any other payments made to the employees by
the  employer,  are  determined  to be  payments  in  violation  of the  "golden
parachute"  rules of the Code,  such  payments  will be reduced  to the  largest
amount  which  would not cause the  employer  to lose a tax  deduction  for such
payments under those rules. As of the date hereof,  the cash  compensation  that
would be paid to the  employees  under the  agreements if such  agreements  were
terminated  after a change in control of the employers would be $194,000 for Mr.
Fritz and $300,000 for Mr. Hoban.

Special Termination Agreements

         Effective as of the date of the Conversion,  First Federal and Citizens
entered  into  Termination  Agreements  with  certain  of their  employees  (the
"Covered Employees"). The Termination Agreements have terms of one year, subject
to annual extension by the Board of Directors of First Federal or Citizens,  and
provide that upon the  termination  of a Covered  Employee's  employment  by the
employer  for other  than  cause or by the  Covered  Employee  for  constructive
termination, within 18 months after the Conversion or within 12 months following
a "change in control" (as defined in the  Termination  Agreements)  which occurs
during the term of the applicable Termination  Agreement,  such Covered Employee
shall be  entitled  to a lump sum  payment of 100% of his or her base  amount of

<PAGE>
compensation,  as  determined  pursuant to Section  280G(b)(3)  of the Code (the
"Termination  Benefit").  Covered Employees may elect to receive the Termination
Benefit in  semi-monthly  payments over a twelve month period.  The  Termination
Agreements also provide for continued life,  health and disability  coverage for
Covered   Employees  until  the  expiration  of  twelve  months   following  the
termination of employment or until the Covered  Employee  obtains  coverage from
another employer, whichever occurs first. If a Covered Employee obtains coverage
from another employer,  and does not have  substantially  identical life, health
and disability coverage,  First Federal or Citizens shall maintain substantially
identical  coverage  on behalf of the  Covered  Employee  for a period of twelve
months.

Compensation of Directors

         As of  January,  1997,  Directors  of  the  Holding  Company  are  paid
directors' fees of $250 for each meeting attended.

         All directors of First Federal are entitled to receive monthly director
fees in the amount of $600 for their  services.  Jerry Allen also  receives $600
per month as a Director  Emeritus of First Federal.  Outside  directors of First
Federal also receive fees in the amount of $150 for each special  meeting of the
Board.  Total fees paid to directors of First Federal and Mr. Allen for the year
ended December 31, 1995 were approximately $56,000.

         First  Federal's  directors  and directors  emeritus  may,  pursuant to
deferred compensation  agreements,  defer payment of some or all of such monthly
directors' fees or salary for a maximum period of five years.  Upon reaching the
retirement age specified in their respective joinder  agreements,  directors who
participate in the deferred compensation plan receive fixed monthly payments for
a specific  period  ranging  from 60 to 180 months,  depending  on the  specific
director's  election  in his  joinder  agreement,  but may also elect to receive
their benefits in a lump sum in the event of financial hardship.  The agreements
also provide for death and disability benefits.

         First  Federal has  purchased  paid-up  life  insurance on the lives of
directors and directors emeritus participating in the deferred compensation plan
to fund benefits payable thereunder. The insurance is provided by Pacific Mutual
and Transamerica. At December 31, 1996, the cash surrender value of the policies
was carried on the books of First Federal at an amount equal to $747,000.  First
Federal  expensed $10,000 in connection with these agreements for the year ended
December 31, 1996.

         All outside  directors  of  Citizens  are  entitled to receive  monthly
director  fees in the  amount of $125 for  their  services.  Total  fees paid to
directors  of Citizens for the year ended  December 31, 1996 were  approximately
$6,000.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

         The  following  table  sets forth  certain  information  regarding  the
beneficial  ownership of the Common  Stock as of March 20, 1997,  by each person
who is known by the Holding Company to own beneficially 5% or more of the Common
Stock.  Unless otherwise  indicated,  the named beneficial owner has sole voting
and dispositive power with respect to the shares.

          Number of Shares
          Name and Address             of Common Stock               Percent
       of Beneficial Owner(1)        Beneficially Owned             of Class(3)
       ----------------------        ------------------             -----------
Jeffrey L.  Gendell
Tontine Partners, L.P.
31 West 52nd Street, 17th Floor
New York, NY 10017                          118,000(1)(2)             9.9%

First Bankers Trust Company
1201 Broadway
Quincy, IL 62301                             95,220(3)                8.0%

(1)      The  information  in  this  chart  is  based  on  Schedule  13D and 13G
         Report(s) filed by the  above-listed  person(s) with the Securities and
         Exchange  Commission  (the  "SEC")  containing  information  concerning
         shares  held  by  them.  It does  not  reflect  any  changes  in  those
         shareholdings which may have occurred since the date of such filings.

(2)      These shares are held by Tontine  Partners,  L.P.,  a Delaware  limited
         partnership.  Tontine Management, L.L.C. is its general partner and Mr.
         Gendell is the managing  member of the general  partner.  These persons
         share voting and investment power with respect to the shares.

<PAGE>
(3)      These  shares  are held by the  Trustee  of the  River  Valley  Bancorp
         Employee Stock Ownership Plan and Trust. The Employees participating in
         that Plan are  entitled to instruct the Trustee how to vote shares held
         in their accounts under the Plan. Unallocated shares held in a suspense
         account under the Plan are required under the Plan terms to be voted by
         the Trustee in the same proportion as allocated shares are voted.

         The  following  table  sets forth  certain  information  regarding  the
nominees  for the  position of director of the Holding  Company,  including  the
number and percent of shares of Common Stock  beneficially owned by such persons
as of  March  20,  1997.  Unless  otherwise  indicated,  each  nominee  has sole
investment  and/or voting power with respect to the shares shown as beneficially
owned by him. The table also sets forth the number of shares of Holding  Company
Common Stock  beneficially  owned by all directors and executive officers of the
Holding Company as a group.

<TABLE>
<CAPTION>
                                                                                  Common Stock
                              Expiration of        Director of the                Beneficially
                                 Term as               Holding                     Owned as of                Percentage
       Name                     Director            Company Since                March 20, 1997               of Class(1)
       ----                     --------            -------------                --------------               -----------
<S>                               <C>                   <C>                           <C>                      <C>
Robert W.  Anger                  1997                  1996                          2,800  (2)                 .23%
Jonnie L.  Davis                  1998                  1997                            500  (3)                 .04%
Cecil L.  Dorten                  1998                  1996                         20,000  (3)                1.70%
James E.  Fritz                   1997                  1996                          7,800                      .65%
Michael J.  Hensley               1999                  1996                          5,000  (3)                 .42%
Earl W.  Johann                   1998                  1996                          8,828                      .74%
Fred W.  Koehler                  1999                  1996                         20,000                     1.70%
All directors and
executive officers
as a group (17 persons)                                                              96,527                     8.11%
</TABLE>


(1)      Based upon information  furnished by the respective  director nominees.
         Under  applicable  regulations,  shares are  deemed to be  beneficially
         owned by a person if he or she directly or indirectly has or shares the
         power to vote or  dispose  of the  shares,  whether  or not she has any
         economic power with respect to the shares. Includes shares beneficially
         owned by members of the immediate  familites of the directors  residing
         in their homes.

(2)      Of these shares, 1,000 are held jointly by Mr. Anger and his spouse.
(3)      These shares are held jointly by the director and his or her spouse.

Item 13.  Certain Relationships and Related Transactions.

         The Institutions have followed a policy of offering to their directors,
officers,  and employees real estate  mortgage loans secured by their  principal
residence  and  other  loans.  These  loans are made in the  ordinary  course of
business with the same collateral,  interest rates and underwriting  criteria as
those of comparable  transactions prevailing at the time and do not involve more
than the normal risk of collectibility or present other unfavorable features.

         Lonnie D. Collins,  Secretary of the Holding Company and First Federal,
serves as counsel to and  provides  routine  legal  work for First  Federal.  In
connection  with his services in such  capacity,  Mr.  Collins is paid an annual
retainer of $3,000.  Mr.  Collins  received no other fees for his legal work for
First Federal for the year ended  December 31, 1996.  Mr.  Collins also receives
$600  per  month  for his  service  as  Secretary  to First  Federal's  Board of
Directors.  First Federal  intend to continue  using Mr.  Collins'  services for
routine legal work during 1997.

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

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

         Financial Statements

         Consolidated  Statements  of Financial  Condition at December 31, 1996,
         and 1995

         Consolidated  Statements  of Income for the Years  Ended  December  31,
         1996, 1995, and 1994

         Consolidated  Statements  of  Changes in  Stockholders'  Equity for the
         Years Ended December 31, 1996, 1995, and 1994.

         Consolidated  Statements of Cash Flows for the Years Ended December 31,
         1996, 1995, and 1994

         Notes to Consolidated Financial Statements

<PAGE>
(b)      Reports on Form 8-K.

         The  Holding  Company  filed no reports on Form 8-K during the  quarter
         ended December 31, 1996.

(c)      The exhibits filed herewith or incorporated by reference herein are set
         forth on the Exhibit Index on page E-1.  Included in those exhibits are
         executive  compensation  plans and arrangements which are identified as
         Exhibits 10(5) through 10(21).

(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

         Pursuant to the  requirement  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized.

                                                   RIVER VALLEY BANCORP



Date:  March 31, 1997                             By: /s/ James E. Fritz
                                                   James E. Fritz, President and
                                                   Chief Executive Officer


         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 31st day of March, 1997.

     Signatures                          Title                          Date

(1)  Principal Executive Officer:



     /s/ James E. Fritz                                      )
     James E. Fritz                  President and           )
                                     Chief Executive Officer )
                                                             )
                                                             )
(2)  Principal Financial and                                 )
     Accounting Officer:                                     )
                                                             )
                                                             )
     /s/ John Wayne Deveary          Treasurer               )
     John Wayne Deveary                                      )
                                                             )
                                                             )   March 31, 1997
                                                             )
(3)  The Board of Directors:                                 )
                                                             )
                                                             )
     /s/ Robert W. Anger             Director                )
     Robert W. Anger                                         )
                                                             )
                                                             )
     /s/ Jonnie L. Davis             Director                )
     Jonnie L. Davis                                         )
                                                             )
                                                             )
     /s/ Cecil L. Dorten             Director                )
     Cecil L. Dorten                                         )
                                                             )
                                                             )

<PAGE>

     /s/ James E. Fritz                                      )
     James E. Fritz                  Director                )
                                                             )
                                                             )
     /s/ Michael J. Hensley          Director                )
     Michael J. Hensley                                      )
                                                             )
                                                             )
     /s/ Earl W. Johann              Director                )   March 31, 1997
     Earl W. Johann                                          )
                                                             )
                                                             )
     /s/ Fred W. Koehler             Director                )
     Fred W. Koehler                                         )
                                                             )
<PAGE>


                                  EXHIBIT INDEX

Exhibit No.                   Description                                Page

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   Code  of  By-Laws  are   incorporated  by
         reference to Exhibit 3(2) to the Registration Statement.

10(5)    Employment   Agreement  between  Madison  First  Federal
         Savings  and Loan  Association  and  James  E.  Fritz is
         incorporated  by  reference  to  Exhibit  10(5)  to  the
         Registration Statement

(6)      Employment  Agreement  between Citizens National Bank of
         Madison and Robert D. Hoban is incorporated by reference
         to  Exhibit  10(6)  to the  Registration  Statement  (8)
         Director  Deferred   Compensation  Master  Agreement  is
         incorporated  by  reference  to  Exhibit  10(8)  to  the
         Registration Statement

(9)      Director  Deferred  Compensation  Joinder  Agreement  --
         Jerry D. Allen is  incorporated  by reference to Exhibit
         10(9) to the Registration Statement

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

(11)     Director  Deferred  Compensation  Joinder  Agreement  --
         Cecil L. Dorten is  incorporated by reference to Exhibit
         10(11) to the Registration Statement

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

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

(14)     Director  Deferred  Compensation  Joinder  Agreement  --
         James E. Fritz is  incorporated  by reference to Exhibit
         10(14) to the Registration Statement

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

(16)     Special  Termination  Agreement  between  Madison  First
         Federal  Savings  and  Loan  Association  and  Traci  A.
         Bridgford is incorporated by reference to Exhibit 10(16)
         to the Registration Statement

(17)     Special  Termination  Agreement  between  Madison  First
         Federal  Savings  and Loan  Association  and John  Wayne
         Deveary is  incorporated  by reference to Exhibit 10(17)
         to the Registration Statement

(18)     Special  Termination  Agreement  between  Madison  First
         Federal Savings and Loan Association and Robert W. Anger
         is  incorporated  by reference to Exhibit  10(18) to the
         Registration Statement

(19)     Special Termination  Agreement between Citizens National
         Bank of Madison and Carolyn  Flowers is  incorporated by
         reference   to  Exhibit   10(19)  to  the   Registration
         Statement

(20)     Special Termination  Agreement between Citizens National
         Bank of  Madison  and  Larry  Fouse is  incorporated  by
         reference   to  Exhibit   10(20)  to  the   Registration
         Statement

(21)     Special Termination  Agreement between Citizens National
         Bank of  Madison  and  Mark  Goley  is  incorporated  by
         reference   to  Exhibit   10(21)  to  the   Registration
         Statement

(22)     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

21       Subsidiaries of the Registrant

27       Financial Data Schedule