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, 1999

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)


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

               Registrant's telephone number including area code:
                                 (812) 273-4949

           Securities Registered Pursuant to Section 12(b) of the Act:
                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:
                         Common Stock, without par value

                                (Title of Class)

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 X  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. N/A

The aggregate market value of the issuer's voting stock held by  non-affiliates,
as of March 17, 2000 was $8,600,671.86.

The  number of shares of the  Registrant's  Common  Stock,  without  par  value,
outstanding as of March 17, 2000, was 921,972 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to  Shareholders  for the year ended  December 31,
1999, are  incorporated  into Part II.  Portions of the Proxy  Statement for the
2000 Annual Meeting of Shareholders are incorporated in Part I and Part III.

                            Exhibit Index on Page E-1

                               Page 1 of 31 Pages

<PAGE>

                              RIVER VALLEY BANCORP

                                    Form 10-K

                                      INDEX

                                                                            Page

Forward Looking Statement..................................................... 3

PART I

     Item 1.   Business....................................................... 3
     Item 2.   Properties.....................................................26
     Item 3.   Legal Proceedings..............................................27
     Item 4.   Submission of Matters to a Vote of Security Holders............27
     Item 4.5. Executive Officers of the Registrant...........................27

PART II

     Item 5.   Market for Registrant's Common Equity and Related
                   Stockholder Matters........................................28

     Item 6.   Selected Consolidated Financial Data...........................28
     Item 7.   Management's Discussion and Analysis of Financial
                   Condition and Results of Operations........................28
     Item 7A.  Quantitative and Qualitative Analysis of Financial Condition
                   and Results of Operation...................................28
     Item 8.   Financial Statements and Supplementary Data....................28
     Item 9.   Changes in and Disagreements with Accountants on
                   Accounting and Financial Disclosure........................28

PART III

     Item 10.  Directors and Executive Officers of Registrant.................29
     Item 11.  Executive Compensation.........................................29
     Item 12.  Security Ownership of Certain Beneficial
                   Owners and Management......................................29
     Item 13.  Certain Relationships and Related Transactions.................29

PART IV

     Item 14.  Exhibits, Financial Statement Schedules,
                   and Reports on Form 8-K....................................29

SIGNATURES         ...........................................................30


<PAGE>

                            FORWARD LOOKING STATEMENT

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

Item 1.    Business

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").

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

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

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

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

         The Bank  historically has  concentrated its lending  activities on the
origination  of  loans  secured  by  first  mortgage  liens  for  the  purchase,
construction,  or refinancing of one- to four- family residential real property.
One- to four-family residential mortgage loans continue to be the major focus of
the Bank's loan origination  activities,  representing 58.6% of the Bank's total
loan  portfolio at December 31, 1999. The Bank had not identified any loans held
for sale at December 31, 1999. The Bank also offers multi-family mortgage loans,
non-residential real estate loans, land loans,  construction loans,  nonmortgage
commercial  loans and consumer  loans.  Its  principal  market area is Jefferson
County, Indiana and adjoining counties.

         Loan Portfolio  Data. The following table sets forth the composition of
the Bank's loan  portfolio,  including  loans held for sale,  as of December 31,
1999,  1998  and  1997  by loan  type as of the  dates  indicated,  including  a
reconciliation  of gross loans receivable  after  consideration of the allowance
for loan losses, deferred loan origination costs and loans in process.
<TABLE>
<CAPTION>

                                                                         At December 31,
                                                --------------------------------------------------------------
                                                       1999                  1998                  1997
                                                ------------------     -----------------     -----------------
                                                           Percent               Percent               Percent
                                                Amount    of Total     Amount   of Total     Amount   of Total
                                                ------    --------     ------   --------     ------   --------
<S>                                             <C>          <C>      <C>         <C>        <C>        <C>
TYPE OF LOAN                                                         (Dollars in thousands)
Residential real estate:
   One-to four-family.....................      $69,588      58.6%    $65,907     57.4%      $72,072    63.7%
   Multi-family...........................        2,918       2.5       1,775      1.6         2,781     2.5
   Construction...........................        4,163       3.5       8,126      7.1         3,652     3.2
Nonresidential real estate................       12,758      10.7       7,604      6.6         8,379     7.4
Land loans................................       10,079       8.5       6,300      5.5         6,324     5.6
Consumer loans:
   Automobile loans.......................        6,922       5.8       6,828      5.9         8,028     7.1
   Loans secured by deposits..............          548        .5         723       .6         1,041      .9
   Home improvement loans.................           34       ---         ---      ---           205      .2
   Other..................................        2,040       1.7       5,089      4.4         5,707     5.1
Commercial loans..........................        9,780       8.2      12,461     10.9         4,871     4.3
                                               --------     ----     --------     ----      --------    ----
Gross loans receivable....................      118,830     100.0     114,813    100.0       113,060   100.0

Add/(Deduct):
   Deferred loan origination costs........          245        .2         200       .2           202      .2
   Undisbursed portions
     of loans in process..................       (2,422)    (2.0)      (1,151)    (1.0)          (99)    (.1)
   Allowance for loan losses..............       (1,522)    (1.3)      (1,477)    (1.3)       (1,276)   (1.1)
                                               --------     ----     --------     ----      --------    ----
Net loans receivable......................     $115,131     96.9%    $112,385     97.9%     $111,887    99.0%
                                               ========     ====     ========     ====      ========    ====
</TABLE>

         The  following  table sets forth  certain  information  at December 31,
1999, regarding the dollar amount of loans maturing in the Bank's loan portfolio
based on the contractual terms to maturity. Demand loans, loans having no stated
schedule of repayments and no stated maturity and overdrafts are reported as due
in one year or less.  This  schedule  does not  reflect  the effects of possible
prepayments  or  enforcement  of   due-on-sale   clauses.   Management   expects
prepayments will cause actual maturities to be shorter.
<TABLE>
<CAPTION>

                                        Balance                    Due During Years Ended December 31,
                                    Outstanding at                                      2003       2005      2010       2015
                                     December 31,                                        to         to        to         and
                                         1999            2000       2001       2002     2004       2009      2014     following
                                    -------------      ------     ------     -------   -------    ------    -------   ---------
                                                                                (In thousands)
<S>                                     <C>            <C>        <C>        <C>       <C>        <C>       <C>        <C>
Residential real estate loans:
   One-to four-family.................  $69,588        $1,084     $  225     $  617    $1,387     $7,781    $20,992    $37,502
   Multi-family.......................    2,918           ---        ---        ---       157         76        502      2,183
   Construction.......................    4,163         4,050        ---        ---       ---         94         19        ---
Nonresidential
   Real estate loans..................   12,758         1,133        433         87       404      2,987      2,982      4,732
Land loans   .........................   10,079         3,037        592        515       583        802      1,185      3,365
Consumer loans:
   Loans secured by deposits..........      548           245         15         43       147         43         55        ---
   Other loans........................    8,996         1,040      1,463      1,435     2,730      1,117         89      1,122
Commercial loans......................    9,780         5,467        665        471     1,959        662        318        238
                                       --------       -------     ------     ------    ------    -------    -------    -------
     Total............................ $118,830       $16,056     $3,393     $3,168    $7,367    $13,562    $26,142    $49,142
                                       ========       =======     ======     ======    ======    =======    =======    =======
</TABLE>


<PAGE>

         The  following  table sets forth,  as of December 31, 1999,  the dollar
amount of all loans due  after  one year  that  have  fixed  interest  rates and
floating or adjustable interest rates.

                                             Due After December 31, 2000
                                     -----------------------------------------
                                     Fixed Rates     Variable Rates      Total
                                     -----------     --------------      -----
                                                     (In thousands)

Residential real estate loans:
   One-to four-family..............     $14,871          $53,633        $68,504
   Multi-family....................         151            2,767          2,918
   Construction....................         ---              113            113
Non-residential
   Real estate loans...............         636           10,989         11,625
Land loans   ......................       1,309            5,733          7,042
Consumer loans:
   Loans secured by deposits.......         276               27            303
   Other loans.....................       6,323            1,633          7,956
Commercial loans...................       1,916            2,397          4,313
                                        -------          -------       --------
     Total.........................     $25,482          $77,292       $102,774
                                        =======          =======       ========

         Residential  Loans.  Residential  loans  consist  primarily  of one- to
four-family loans. Approximately $69.6 million, or 58.6% of the Bank's portfolio
of loans,  at December 31, 1999,  consisted of one- to  four-family  residential
loans, of which approximately 78.3% had adjustable rates.

         The  Bank  currently   offers   adjustable-rate   one-  to  four-family
residential mortgage loans ("ARMs") which adjust annually and are indexed to the
one-year  U.S.  Treasury  securities  yields  adjusted  to a constant  maturity,
although until late 1995, the Bank's ARMs were indexed to the 11th District Cost
of Funds.  Some of the Bank's  residential  ARMs are originated at a discount or
"teaser"  rate  which is  generally  150 to 175 basis  points  below the  "fully
indexed"  rate.  These ARMs then adjust  annually to maintain a margin above the
applicable  index,  subject to maximum rate  adjustments  discussed  below.  The
Bank's ARMs have a current  margin  above such index of 2.5% for  owner-occupied
properties and 3.0% for non-owner-occupied  properties. A substantial portion of
the ARMs in the Bank's  portfolio  at December 31, 1999 provide for maximum rate
adjustments  per year and over the life of the loan of 1% and 4%,  respectively,
although the Bank also  originates  residential  ARMs which  provide for maximum
rate  adjustments  per  year  and  over  the  life of the  loan of 1.5%  and 6%,
respectively. The Bank's ARMs generally provide for interest rate minimums of 1%
below the origination rate. The Bank's  residential ARMs are amortized for terms
up to 30 years.

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

         The Bank currently  offers  fixed-rate one- to four-family  residential
mortgage  loans which  provide for the payment of principal  and  interest  over
periods of 10 to 30 years.  Prior to the Merger,  the Bank  retained  all of its
fixed-rate  residential  mortgage  loans in its  portfolio;  however,  after the
effective  date of the  Merger,  the  Bank  began  underwriting  its  fixed-rate
residential  mortgage loans for potential sale to the Federal Home Loan Mortgage
Corporation (the "FHLMC") on a  servicing-retained  basis. At December 31, 1999,
approximately 21.7% of the Bank's one- to four-family residential mortgage loans
had fixed rates.

         Before the Merger,  Citizens  offered  fixed-rate  one- to  four-family
residential mortgage loans in accordance with the guidelines  established by the
FHLMC to facilitate the sale of such loans to the FHLMC in the secondary market.
These loans  amortized on a monthly  basis with  principal and interest due each
month and were written with terms of 15, 20 and 30 years.  Citizens retained the
servicing on all loans sold to the FHLMC.  At December  31,  1999,  the Bank had
approximately $40.2 million of fixed-rate  residential mortgage loans which were
sold to the FHLMC and for which the Bank provides servicing.

         The Bank generally  does not originate one- to four-family  residential
mortgage loans if the ratio of the loan amount to the lesser of the current cost
or appraised value of the property (i.e. the "Loan-to-Value  Ratio") exceeds 95%
and generally  does not originate one- to  four-family  residential  ARMs if the
Loan-to-Value  Ratio exceeds 80%. The Bank generally  requires  private mortgage
insurance  on all  conventional  one- to  four-family  residential  real  estate
mortgage  loans  with  Loan-to-Value  Ratios in excess of 80%.  The cost of such
insurance  is  factored  into the 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 Bank originates include "due-on-sale"  clauses, which give the Bank the
right to declare a loan  immediately  due and payable in the event  that,  among
other  things,  the borrower  sells or otherwise  disposes of the real  property
subject  to the  mortgage  and the loan is not  repaid.  However,  the Bank does
permit  assumptions  of existing  residential  mortgage  loans on a case-by-case
basis.

         At December  31,  1999,  the Bank had  outstanding  approximately  $3.2
million  of  home  equity   loans,   with  unused  lines  of  credit   totalling
approximately $2.7 million. No home equity loans were included in non-performing
assets on that date. The Bank's home equity lines of credit are  adjustable-rate
lines of  credit  tied to the  prime  rate and are  amortized  based on a 10- to
20-year maturity.  The Bank generally allows a maximum 90%  Loan-to-Value  Ratio
for its home  equity  loans  (taking  into  account any other  mortgages  on the
property).  Payments  on such home equity  loans  equal 1.5% of the  outstanding
principal balance per month.

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

         The  Bank  also  offers  standard  second  mortgage  loans,  which  are
adjustable-rate  loans tied to the U.S. Treasury securities yields adjusted to a
constant  maturity  with a current  margin above such index of 3.0%.  The Bank's
second mortgage loans have maximum rate  adjustments per year and over the terms
of the loans equal to 1.0% and 4.0%,  respectively.  The Bank's second  mortgage
loans have terms of 10 to 30 years.

         At December 31, 1999,  one- to four-family  residential  mortgage loans
amounting  to  $726,000,  or .61% of total  loans,  were  included in the Bank's
non-performing assets.

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

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

         At December 31, 1999,  $4.2  million,  or 3.5% of the Bank's total loan
portfolio,  consisted of construction  loans. The largest  construction  loan at
December 31, 1999,  totalled  $300,000.  No construction  loans were included in
non-performing assets on that date.

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

         Nonresidential  Real Estate Loans. At December 31, 1999, $12.8 million,
or 10.7% of the Bank's portfolio, consisted of nonresidential real estate loans.
Nonresidential  real estate loans are  primarily  secured by real estate such as
churches,   farms   and  small   business   properties.   The  Bank   originates
nonresidential  real estate loans as one-year  adjustable-rate  loans indexed to
the one-year U.S. Treasury  securities  yields adjusted to a constant  maturity,
written for maximum terms of 30 years. The Bank's adjustable-rate nonresidential
real estate  loans have  maximum  adjustments  per year and over the life of the
loan of 1% and 4%,  respectively,  and  interest  rate  minimums of 1% below the
origination  rate. The Bank generally  requires a  Loan-to-Value  Ratio of up to
80%, depending on the nature of the real estate collateral.

         The  Bank  underwrites  its  nonresidential  real  estate  loans  on  a
case-by-case  basis  and,  in  addition  to its  normal  underwriting  criteria,
evaluates  the  borrower's  ability to service  the debt from the net  operating
income of the property. The Bank's largest nonresidential real estate loan as of
December 31, 1999 was $1.6 million and was secured by three commercial buildings
in (or close in proximity to) Madison,  Indiana.  No nonresidential  real estate
loans were included in non-performing assets at December 31, 1999.

         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, 1999,  approximately $2.9 million,
or 2.5% of the Bank's total loan portfolio,  consisted of mortgage loans secured
by multi-family  dwellings (those consisting of more than four units).  The Bank
writes  multi-family loans on terms and conditions similar to its nonresidential
real estate loans. The largest  multi-family  loan in the Bank's portfolio as of
December  31,  1999 was $1.5  million  and was  secured  by a 46 unit  apartment
complex  in  Hanover,   Indiana.   No   multi-family   loans  were  included  in
non-performing assets on that date.

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

         Land Loans. At December 31, 1999,  approximately $10.1 million, or 8.5%
of the Bank's  total loan  portfolio,  consisted  of mortgage  loans  secured by
undeveloped  real estate.  The Bank's land loans are generally  written on terms
and  conditions  similar to its  nonresidential  real estate loans.  Some of the
Bank's land loans are land  development  loans;  i.e., the proceeds of the loans
are used for  improvements  to the real estate  such as streets  and sewers.  At
December 31, 1999, the Bank's largest land loan totalled $600,000.

         Land  loans  totalling  $36,000,  or  .03%  of the  Bank's  total  loan
portfolio,  were included in non-performing assets as of December 31, 1999. Such
loans are more risky than  conventional  loans since land development  borrowers
who are over budget may divert the loan funds to cover cost-overruns rather than
direct  them toward the  purpose  for which such loans were made.  In  addition,
those loans are more difficult to monitor than  conventional  mortgage loans. As
such,  a  defaulting  borrower  could cause the Bank to take title to  partially
improved land that is unmarketable without further capital investment.

         Commercial  Loans. At December 31, 1999,  $9.8 million,  or 8.2% of the
Bank's total loan  portfolio,  consisted of nonmortgage  commercial  loans.  The
Bank's commercial loans are written on either a fixed-rate or an adjustable-rate
basis  with  terms  that vary  depending  on the type of  security,  if any.  At
December  31,  1999,  approximately  93.6% of the Bank's  commercial  loans were
secured by  collateral,  such as  equipment,  inventory  and  crops.  The Bank's
adjustable-rate  commercial  loans are generally  indexed to the prime rate with
varying margins and terms depending on the type of collateral securing the loans
and the credit  quality of the  borrowers.  At December  31,  1999,  the largest
commercial  loan  was  $1.2  million.  As of the  same  date,  commercial  loans
totalling $23,000 were included in non-performing assets.

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

         Consumer Loans. The Bank's consumer loans, consisting primarily of auto
loans, home improvement  loans,  unsecured  installment  loans, loans secured by
deposits and mobile home loans aggregated approximately $9.5 million at December
31, 1999,  or 8.0% of the Bank's  total loan  portfolio.  The Bank  consistently
originates  consumer  loans to meet the needs of its  customers and to assist in
meeting its asset/liability  management goals. All of the Bank's consumer loans,
except loans secured by deposits, are fixed-rate loans with terms that vary from
six months (for unsecured  installment loans) to 60 months (for home improvement
loans and loans secured by new automobiles).  At December 31, 1999, 88.8% of the
Bank's consumer loans were secured by collateral.

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

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

         Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly  depreciable  assets,  such as  automobiles.  Further,  any  repossessed
collateral for a defaulted  consumer loan may not provide an adequate  source of
repayment  of  the  outstanding  loan  balance.   In  addition,   consumer  loan
collections depend upon the borrower's continuing financial stability,  and thus
are more likely to be affected by adverse personal  circumstances.  Furthermore,
the  application  of various  federal and state laws,  including  bankruptcy and
insolvency  laws, may limit the amount which can be recovered on such loans.  At
December  31,  1999,  consumer  loans  amounting  to $72,000  were  included  in
non-performing assets.

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

         The Bank began underwriting  fixed-rate  residential mortgage loans for
potential  sale to the FHLMC on a  servicing-retained  basis  after the  Merger.
Prior to the Merger,  Citizens also  originated  loans for sale to the FHLMC and
retained servicing rights for a fee of one-fourth of 1% of the principal balance
of all loans serviced.  Loans  originated for sale to the FHLMC in the secondary
market are originated in accordance with the guidelines established by the FHLMC
and are sold promptly after they are  originated.  The Bank receives a servicing
fee of  one-fourth  of 1% of the  principal  balance of all loans  serviced.  At
December 31, 1999, the Bank serviced $40.2 million in loans sold to the FHLMC.

         The  Bank  confines  its  loan  origination   activities  primarily  to
Jefferson County and surrounding  counties.  At December 31, 1999, the Bank held
loans totalling approximately $7.1 million that were secured by property located
outside of Indiana.  The Bank's loan  originations  are generated from referrals
from  existing  customers,  real estate  brokers and  newspaper  and  periodical
advertising.  Loan applications are taken at any of the Bank's five full-service
offices.

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

         Under the Bank's lending  policy,  a loan officer may approve  mortgage
loans up to $75,000,  a Senior Loan  Officer  may approve  mortgage  loans up to
$150,000 and the President may approve mortgage loans up to $220,000.  All other
mortgage  loans must be approved by at least four members of the Bank's Board of
Directors.  The lending  policy  further  provides that loans secured by readily
marketable  collateral,  such as stock, bonds and certificates of deposit may be
approved by a Loan Officer for up to $75,000, by a Senior Loan Officer for up to
$150,000 and by the President up to $300,000.  Loans  secured by other  non-real
estate  collateral  may be  approved by a Loan  Officer for up to $25,000,  by a
Senior Loan Officer up to $75,000 and by the President up to $150,000.  Finally,
the  lending  policy  provides  that  unsecured  loans may be approved by a Loan
Officer or senior loan officer up to $10,000 or by the  President up to $25,000.
All other unsecured loans or loans secured by non-real estate collateral must be
approved by at least four members of the Bank's Board of Directors.

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

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

         The Bank  occasionally  purchases  participations  in commercial loans,
nonresidential   real  estate  and  multi-family   loans  from  other  financial
institutions.  At  December  31,  1999,  the  Bank  held in its  loan  portfolio
participations in these types of loans aggregating approximately $25,000 that it
had purchased, all of which were serviced by others. The Bank generally does not
sell participations in any loans that it originates.

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

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                  -------------------------------------
                                                   1999           1998           1997
                                                   ----           ----           ----
                                                             (In thousands)

Loans Originated:
<S>                                               <C>            <C>            <C>
     Residential real estate loans (1)..........  $28,816        $37,537        $28,123
     Multi-family loans.........................    2,092            326            ---
     Construction loans.........................    4,838          5,108          5,740
     Non-residential real estate loans..........    3,995            447          3,516
     Land loans.................................    4,554          2,909          3,473
     Consumer loans.............................    5,945          6,423          8,276
     Commercial loans...........................    6,625         16,771          4,489
                                                  -------        -------       --------
         Total loans originated.................   56,865         69,521         53,617
Reductions:
     Sales......................................   14,253         17,025          6,930
     Principal loan repayments..................   39,640         51,624         43,220
     Transfers from loans to real estate owned..      ---            ---             81
                                                  -------        -------       --------
         Total reductions.......................   53,893         68,649         50,231
     Decrease in other items (2)................     (226)          (374)          (377)
                                                  -------        -------       --------
     Net increase ..............................  $ 2,746        $   498       $  3,009
                                                  =======        =======       ========
----------
</TABLE>
(1)  Includes loans originated for sale in the secondary market.
(2)  Other items consist of amortization of deferred loan origination costs, the
     provision  for  losses  on loans  and a charge  to the  allowance  for loan
     losses.

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

Non-Performing and Problem Assets

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

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

         Non-performing  Assets.  At December  31,  1999,  $857,000,  or .62% of
consolidated total assets, were  non-performing  loans compared to $1.9 million,
or 1.5% of  consolidated  total  assets,  at December 31, 1998.  At December 31,
1999,  residential  loans and consumer loans accounted for $726,000 and $72,000,
respectively,  of  non-performing  assets.  The Bank had no REO at December  31,
1999.

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

<TABLE>
<CAPTION>
                                                                    At December 31,
                                                       1999              1998             1997
                                                       ---------------------------------------
                                                                (Dollars in thousands)

Non-performing assets:
<S>                                                     <C>             <C>            <C>
   Non-performing loans.........................        $857            $1,947         $   718
   Troubled debt restructurings ................         835               937             411
                                                      ------            ------          ------
     Total non-performing loans and troubled
       debt restructurings......................       1,692             2,884           1,129
   Foreclosed real estate.......................         ---                82              82
                                                      ------            ------          ------
     Total non-performing assets................      $1,692            $2,966          $1,211
                                                      ======            ======          ======
Total non-performing loans and troubled debt
   restructurings to total loans................        1.42%             2.51%           1.00%
                                                      ======            ======          ======
Total non-performing assets to total assets.....        1.22%             2.14%            .88%
                                                      ======            ======          ======
</TABLE>

         At December 31, 1999, the Bank held loans delinquent from 30 to 89 days
totalling  $334,000.  Other  than in  connection  with  these  loans  and  other
delinquent  loans  disclosed in this  section,  management  was not aware of any
other borrowers who were experiencing financial difficulties. In addition, there
were no other assets that would need to be disclosed as non-performing assets.

     Delinquent  Loans.  The following  table sets forth certain  information at
December  31,  1999,  1998 and 1997,  relating  to  delinquencies  in the Bank's
portfolio.  Delinquent  loans  that are 90 days or more past due are  considered
non-performing assets.

<TABLE>
<CAPTION>
                              At December 31, 1999                At December 31, 1998                At December 31, 1997
                     ------------------------------------- ------------------------------------ ------------------------------------
                          30-89 Days      90 Days or More      30-89 Days      90 Days or More     30-89 Days      90 Days or More
                     ------------------  ----------------- ------------------ ----------------- -----------------  -----------------
                              Principal          Principal          Principal         Principal          Principal         Principal
                      Number   Balance    Number  Balance   Number   Balance  Number   Balance   Number   Balance   Number  Balance
                     of Loans  of Loans  of Loans of Loans of Loans of Loans of Loans of Loans  of Loans of Loans  of Loans of Loans
                     -------- ---------  -------- -------- -------- -------- -------- --------- -------- --------- -------- --------
                                                                  (Dollars in thousands)
<S>                       <C>    <C>        <C>    <C>         <C>  <C>          <C>    <C>        <C>    <C>        <C>    <C>
Residential real
   estate loans......     5      $186       15     $726        69   $2,194       26     $931       16     $673       12     $431
Multi-family loans...   ---       ---      ---      ---       ---      ---      ---      ---      ---      ---      ---      ---
Construction loans...   ---       ---      ---      ---       ---      ---        1       23      ---      ---      ---      ---
Land loans...........   ---       ---        1       36         1       11        3      203      ---      ---        2      107
Non-residential
   real estate loans.   ---       ---      ---      ---       ---      ---        4      325      ---      ---      ---      ---
Consumer loans.......    32       133       13       72        86      560       56      465       24      160       22      152
Commercial loans.....     2        15        2       23        10      477      ---      ---        2      113        1       28
                         --      ----       --     ----       ---   ------       --   ------       --     ----       --     ----
   Total.............    39      $334       31     $857       166   $3,242       90   $1,947       42     $946       37     $718
                         ==      ====       ==     ====       ===   ======       ==   ======       ==     ====       ==     ====
Delinquent loans to
   total loans.......                              1.00%                               4.52%                                1.47%
                                                   ====                                ====                                 ====
</TABLE>

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

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

         At December 31, 1999,  the  aggregate  amount of the Bank's  classified
assets and general and specific loss allowances were as follows:

                                                  At December 31, 1999
                                                  --------------------
                                                     (In thousands)

   Substandard assets.................................    $1,912
   Doubtful assets....................................       ---
   Loss assets........................................       113
                                                          ------
       Total classified assets........................    $2,025
                                                          ======

   General loss allowances............................    $1,409
   Specific loss allowances...........................       113
                                                          ------
       Total allowances...............................    $1,522
                                                          ======

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

Allowance for Loan Losses

         The allowance  for loan losses is maintained  through the provision for
loan losses,  which is charged to  earnings.  The  provision  for loan losses is
determined in  conjunction  with  management's  review and evaluation of current
economic conditions (including those of the Bank's lending area), changes in the
character and size of the loan portfolio,  loan delinquencies (current status as
well as past and  anticipated  trends) and adequacy of collateral  securing loan
delinquencies,  historical  and estimated net  charge-offs  and other  pertinent
information  derived  from a  review  of the  loan  portfolio.  In  management's
opinion,  the Bank's  allowance  for loan losses is adequate to absorb  probable
losses from loans at December 31, 1999. However,  there can be no assurance that
regulators,  when  reviewing the Bank's loan  portfolio in the future,  will not
require  increases in its allowances for loan losses or that changes in economic
conditions will not adversely affect the Bank's loan portfolio.

      Summary of Loan Loss  Experience.  The following table analyzes changes in
the allowance during the five years ended December 31, 1999.
<TABLE>
<CAPTION>


                                                                            Year Ended December 31,
                                                           ----------------------------------------------------------
                                                            1999        1998        1997          1996           1995
                                                           ------      ------      ------        ------          ----
                                                                             (Dollars in thousands)
<S>                                                        <C>         <C>         <C>          <C>              <C>
Balance at beginning of period...................          $1,477      $1,276      $1,190       $   407          $252
Charge-offs:
     Single-family residential...................             (17)        ---         ---           ---           ---
     Consumer....................................             (86)       (140)       (254)           (3)          ---
     Commercial..................................             (20)        (83)        (15)          ---           ---
                                                           ------      ------      ------        ------          ----
       Total charge-offs.........................            (123)       (223)       (269)           (3)          ---
Recoveries.......................................              28         149          51           ---             5
                                                           ------      ------      ------        ------          ----
   Net (charge-offs) recoveries..................             (95)        (74)       (218)           (3)            5
Provision for losses on loans....................             140         275         304            22           150
Increase due to Acquisition......................             ---         ---         ---           764           ---
                                                           ------      ------      ------        ------          ----
   Balance at end of period......................          $1,522      $1,477      $1,276        $1,190          $407
                                                           ======      ======      ======        ======          ====
Allowance for loan losses as a percent of
   total loans outstanding before net items......            1.28%       1.29%       1.13%         1.07%         0.70%
                                                           ======      ======      ======        ======          ====
Ratio of net (charge-offs) recoveries to average
   loans outstanding before net items............           (0.08)%     (0.06)%     (0.20)%       (0.01)%        0.01%
                                                           ======      ======      ======        ======          ====
</TABLE>

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

<TABLE>
<CAPTION>
                                                                      At December 31,
                                         -------------------------------------------------------------------------
                                                 1999                      1998                      1997
                                         ---------------------      --------------------      --------------------
                                                       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............    $    4       64.6%        $   11       66.1%         $   11        69.4%
   Nonresidential real estate.........       ---       19.2            ---       12.1             ---        13.0
   Consumer loans.....................       109        8.0            111       10.9              12        13.3
   Commercial loans...................       ---        8.2            ---       10.9             ---         4.3
   Unallocated........................     1,409        ---          1,355        ---           1,253         ---
                                          ------      -----         ------      -----          ------       -----
     Total............................    $1,522      100.0%        $1,477      100.0%         $1,276       100.0%
                                          ======      =====         ======      =====          ======       =====
</TABLE>


Investments and Mortgage-Backed Securities

         Investments.   The  Bank's  investment   portfolio   consists  of  U.S.
government and agency obligations,  commercial paper, corporate bonds, municipal
securities  and Federal  Home Loan Bank  ("FHLB")  stock.  At December 31, 1999,
approximately $6.2 million,  or 4.5%, of the consolidated total assets consisted
of such investments.

         The following  table sets forth the amortized cost and the market value
of the Bank's investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                                       At December 31,
                                        -------------------------------------------------------------------------
                                                  1999                      1998                     1997
                                        ---------------------      --------------------      --------------------
                                        Amortized      Market      Amortized     Market      Amortized     Market
                                          Cost          Value        Cost         Value        Cost         Value
                                        ---------      ------      ---------     ------      ---------     ------
                                                                          (In thousands)
Held to Maturity:
   U.S. Government and
<S>                                        <C>            <C>         <C>            <C>       <C>          <C>
     agency obligations...............     $1,000         $995        $1,000         $980      $3,500       $3,444
Available for Sale:
   U.S. Government and
     agency obligations...............        ---          ---           ---          ---         498          494
   Commercial paper...................      2,972        2,957           ---          ---         ---          ---
   Corporate bonds....................      1,000        1,000           ---          ---         ---          ---
   Muncipal securities................        276          273           276          283         276          278
FHLB stock............................        943          943           943          943         943          943
                                           ------       ------        ------       ------      ------       ------
   Total available for sale...........      5,191        5,173         1,219        1,226       1,717        1,715
                                           ------       ------        ------       ------      ------       ------
     Total investments................     $6,191       $6,168        $2,219       $2,206      $5,217       $5,159
                                           ======       ======        ======       ======      ======       ======
</TABLE>

     The  following  table  sets  forth  the  amount  of  investment  securities
(excluding FHLB stock) which mature during each of the periods indicated and the
weighted average yields for each range of maturities at December 31, 1999.
<TABLE>
<CAPTION>
                                                                        Amount at December 31, 1999 which matures in
                                                 -----------------------------------------------------------------------------------
                                                      One Year             One Year              Five Years             After
                                                       or Less           to Five Years          to Ten Years           Ten Years
                                                 -------------------   ------------------    ------------------   ------------------
                                                 Amortized   Average   Amortized  Average    Amortized  Average   Amortized  Average
                                                   Cost       Yield      Cost      Yield       Cost      Yield      Cost      Yield
                                                 ---------   -------   ---------  -------    ---------  -------   ---------  -------
                                                                             (Dollars in thousands)

<S>                                              <C>         <C>      <C>                     <C>                  <C>
U.S. Government and agency obligations.......... $1,000      5.03%    $   ---       ---%      $   ---     ---%     $   ---     ---%
Commercial paper................................  2,972      6.01         ---       ---           ---     ---          ---     ---
Corporate bonds.................................  1,000      6.05         ---       ---           ---     ---          ---     ---
Municipal securities............................    ---       ---         276      4.63           ---     ---          ---     ---
</TABLE>

         Mortgage-Backed   Securities.   The  Bank   maintains  a  portfolio  of
mortgage-backed   pass-through  securities  in  the  form  of  FHLMC,  FNMA  and
Government National Mortgage  Association ("GNMA")  participation  certificates.
Mortgage-backed  pass-through securities generally entitle the Bank to receive a
portion of the cash flows from an  identified  pool of  mortgages  and gives the
Bank an interest in that pool of mortgages.  FHLMC, FNMA and GNMA securities are
each guaranteed by its respective agencies as to principal and interest.  Except
for a $15,000 investment in interest-only certificates, the Bank does not invest
in any derivative products.

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

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

         At December  31,  1999,  the Bank had $4.2  million of  mortgage-backed
securities  outstanding,  $2.1  million  of  which  were  classified  as held to
maturity, and $2.1 million of which were classified as available for sale. These
mortgage-backed securities may be used as collateral for borrowings and, through
repayments, as a source of liquidity.

         The following  table sets forth the amortized  cost and market value of
the Bank's mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
                                                                  At December 31,
                                   --------------------------------------------------------------------------
                                             1999                      1998                      1997
                                   ---------------------      --------------------       --------------------
                                   Amortized      Market      Amortized     Market       Amortized     Market
                                     Cost          Value        Cost         Value         Cost         Value
                                   ---------      ------      ---------     ------       ---------     ------
                                                                     (In thousands)
<S>                                   <C>          <C>           <C>          <C>          <C>          <C>
Held to Maturity:
   Mortgage-backed
     securities..................     $2,138       $2,147        $3,190       $3,220       $5,374       $5,432
Available for Sale:
   Government
     agency securities...........      1,511        1,466         2,196        2,177        3,023        2,992
   Collateralized mortgage
     obligations.................        627          605           627          619          627          612
                                      ------       ------        ------       ------       ------       ------
       Total mortgage-backed
         securities..............     $4,276       $4,218        $6,013       $6,016       $9,024       $9,036
                                      ======       ======        ======       ======       ======       ======
</TABLE>
<PAGE>

     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, 1999.

<TABLE>
<CAPTION>
                                                                      Amount at December 31, 1999 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)
<S>                                                   <C>           <C>           <C>              <C>      <C>             <C>
Mortgage-backed securities
   held to maturity.............................      $857          4.93%         $   3            7.57%    $1,278          6.29%
Mortgage-backed securities
   available for sale...........................         8          7.09            235            6.54      1,895          6.25
                                                      ----                         ----                     ------
     Total......................................      $865                         $238                     $3,173
                                                      ====                         ====                     ======
</TABLE>

         The   following   table   sets   forth  the   changes   in  the  Bank's
mortgage-backed securities portfolio for the years ended December 31, 1999, 1998
and 1997.

                                                   Year Ended December 31,
                                              --------------------------------
                                               1999          1998       1997
                                              ------        ------     ------
                                                       (In thousands)
Beginning balance...........................  $5,986        $8,978     $12,846
Purchases...................................     ---           ---       1,350
Sales  .....................................     ---           ---      (2,150)
Repayments..................................  (1,709)       (2,970)     (3,072)
Premium and discount
   amortization, net........................     (30)          (40)         (1)
Unrealized gains (losses) on securities
   available for sale.......................     (38)           18           5
                                              ------        ------      ------
Ending balance..............................  $4,209        $5,986      $8,978
                                              ======        ======      ======

Sources of Funds

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

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

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

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

      An analysis of the Bank's deposit  accounts by type,  maturity and rate at
December 31, 1999, is as follows:
<TABLE>
<CAPTION>

                                              Minimum        Balance at                          Weighted
                                              Opening       December 31,          % of            Average
Type of Account                               Balance           1999            Deposits           Rate
---------------                            -----------      ------------        --------         --------
                                                                 (Dollars in thousands)
<S>                                        <C>               <C>                   <C>
Withdrawable:
   Non-interest bearing accounts.........  $    100          $    7,903            6.9%              ---%
   Savings accounts......................        50              26,640           23.3              3.52
   MMDA..................................       100               6,886            6.0              4.10
   NOW accounts..........................       100              14,329           12.6              2.62
                                                               --------          -----              ----
     Total withdrawable..................                        55,758           48.8              2.86

Certificates (original terms):
   I.R.A.................................       250               6,891            6.0              4.67
   3 months..............................     2,500                 329             .3              4.31
   6 months..............................     2,500               6,940            6.1              4.55
   9 months..............................     2,500               1,025             .9              4.62
   12 months.............................       500              13,880           12.1              4.85
   15 months.............................       500               6,595            5.8              4.63
   18 months.............................       500                 820             .7              5.65
   24 months.............................       500                 339             .3              4.87
   30 months ............................       500               4,720            4.1              5.29
   36 months.............................       500                 517             .5              5.19
   48 months.............................       500                 489             .4              5.37
   60 months.............................       500               2,063            1.8              5.89
Jumbo certificates.......................   100,000              13,885           12.2              5.07
                                                               --------          -----              ----
   Total certificates....................                        58,493           51.2              4.90
                                                               --------          -----              ----
Total deposits...........................                      $114,251          100.0%             3.91%
                                                               ========          =====              ====
</TABLE>


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

                                      At December 31,
                        -------------------------------------------
                          1999             1998              1997
                        -------          -------            -------
                                      (In thousands)

3.01 to 5.00%.....      $36,591          $23,200            $13,016
5.01 to 6.00%.....       14,250           31,364             36,010
6.01 to 7.00%.....        7,445           11,229             12,312
7.01 to 8.00%.....          207              214              2,896
8.01 to 9.00%.....          ---              ---                  1
                        -------          -------            -------
   Total..........      $58,493          $66,007            $64,235
                        =======          =======            =======

     The following table  represents,  by various interest rate categories,  the
amounts of time  deposits  maturing  during  each of the three  years  following
December  31,  1999.  Matured  certificates,  which have not been  renewed as of
December 31, 1999, have been allocated based upon certain rollover assumptions.

                                       Amounts at December 31, 1999
                              ------------------------------------------------
                              One Year        Two       Three     Greater Than
                               or Less       Years      Years      Three Years
                              --------      ------    --------    ------------
                                              (In thousands)

3.01 to 5.00%............      $31,822      $3,168    $    378       $1,223
5.01 to 6.00%............        9,676       1,933       2,123          518
6.01 to 7.00%............        4,265       2,196         974           10
7.01 to 8.00%............          150          10          23           24
8.01 to 9.00%............          ---         ---         ---          ---
                               -------      ------      ------       ------
   Total.................      $45,913      $7,307      $3,498       $1,775
                               =======      ======      ======       ======

     The  following  table  indicates  the amount of the Bank's  jumbo and other
certificates  of deposit of $100,000 or more by time remaining until maturity as
of December 31, 1999.

                                                           At December 31, 1999
                                                           --------------------
    Maturity Period                                          (In thousands)
    Three months or less.................................     $   8,582
    Greater than three months through six months.........         1,687
    Greater than six months through twelve months........         2,001
    Over twelve months...................................         1,614
                                                                -------
         Total...........................................       $13,884
                                                                =======

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

<TABLE>
<CAPTION>
                                           Balance                Increase    Balance                Increase    Balance
                                             at                  (Decrease)     at                  (Decrease)     at
                                        December 31,     % of       from   December 31,     % of       from   December 31,   % of
                                            1999       Deposits     1998       1998       Deposits     1997       1997     Deposits
                                          --------      -----     -------   --------       -----      ------   --------      -----
                                                                       (Dollars in thousands)
<S>                                       <C>             <C>     <C>         <C>            <C>      <C>     <C>              <C>
Withdrawable:
   Non-interest bearing accounts......    $  7,903        6.9%    $  (462)    $8,365         7.0%     $2,737  $   5,628        4.9%
   Savings accounts...................      26,640       23.3       4,262     22,378        19.0         967     21,411       18.7
   MMDA...............................       6,886        6.0         (98)     6,984         5.9      (1,273)     8,257        7.2
   NOW accounts.......................      14,329       12.6         (88)    14,417        12.2      (1,007)    15,424       13.4
                                          --------      -----     -------   --------       -----      ------   --------      -----
     Total withdrawable...............      55,758       48.8       3,614     52,144        44.1       1,424     50,720       44.2
Certificates (original terms):
   I.R.A..............................       6,891        6.0        (359)     7,250         6.1        (497)     7,747        6.7
   3 months...........................         329         .3          66        263          .2        (115)       378         .3
   6 months...........................       6,940        6.1        (298)     7,238         6.1       2,549      4,689        4.1
   9 months...........................       1,025         .9      (2,027)     3,052         2.6       1,920      1,132        1.0
   12 months..........................      13,880       12.1       7,298      6,582         5.6      (2,219)     8,801        7.7
   15 months..........................       6,595        5.8     (12,179)    18,774        15.9       2,072     16,702       14.5
   18 months..........................         820         .7        (222)     1,042          .9        (483)     1,525        1.3
   24 months..........................         339         .3        (115)       454          .4        (164)       618         .5
   30 months .........................       4,720        4.1       2,172      2,548         2.2      (2,387)     4,935        4.3
   36 months..........................         517         .5         (85)       602          .5      (2,234)     2,836        2.5
   48 months..........................         489         .4        (136)       625          .5        (133)       758         .7
   60 months..........................       2,063        1.8        (172)     2,235         1.9        (667)     2,902        2.5
   96 months..........................         ---         ---       (219)       219          .2           1        218         .2
Jumbo certificates....................      13,885       12.2      (1,238)    15,123        12.8       4,129     10,994        9.5
                                          --------      -----     -------   --------       -----      ------   --------      -----
   Total certificates.................      58,493       51.2      (7,514)    66,007        55.9       1,772     64,235       55.8
                                          --------      -----     -------   --------       -----      ------   --------      -----
Total deposits........................    $114,251      100.0%    $(3,900)  $118,151       100.0%     $3,196   $114,955      100.0%
                                          ========      =====     =======   ========       =====      ======   ========      =====
</TABLE>


         Borrowings.  The Bank focuses on generating high quality loans and then
seeks the best source of funding from deposits,  investments,  or borrowings. At
December 31, 1999, the Bank had $500,000 in other borrowed money consisting of a
variable-rate  one-year line of credit advance. The Bank does not anticipate any
difficulty in obtaining  advances  appropriate to meet its  requirements  in the
future.

         The following table presents certain information relating to the Bank's
borrowings at or for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
                                                             At or for the Year
                                                             Ended December 31,
                                                -------------------------------------------
                                                1999                1998               1997
                                                ----                ----               ----
                                                           (Dollars in thousands)
<S>                                             <C>                <C>                <C>
FHLB Advances and Other Borrowed Money:
   Outstanding at end of period..............   $6,500             $   270            $2,000
   Average balance outstanding for period....    2,228               2,549             2,244
   Maximum amount outstanding at any
     month-end during the period.............    6,500               5,000             5,000
   Weighted average interest rate
     during the period.......................     6.43%               6.28%             6.02%
   Weighted average interest rate
     at end of period........................     6.07%               6.63%             6.12%
</TABLE>

Service Corporation Subsidiaries

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

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

         The historic  consolidated  statements  of earnings of the Bank and its
subsidiaries  included  elsewhere herein include the operations of First Service
and McCauley for the periods  prior to the Holding  Company's  divestment of its
ownership of McCauley.  All  intercompany  balances and  transactions  have been
eliminated in the consolidation.

Employees

         As of December  31, 1999,  the Bank  employed 54 persons on a full-time
basis  and  five  persons  on a  part-time  basis.  None  of  the  employees  is
represented by a collective bargaining group.  Management considers its employee
relations to be good.

                                   COMPETITION

         The  Bank  originates  most of its  loans  to and  accepts  most of its
deposits from  residents of Jefferson  County,  Indiana.  The Bank is subject to
competition from various  financial  institutions,  including state and national
banks,  state and  federal  savings  associations,  credit  unions  and  certain
nonbanking  consumer  lenders that provide similar  services in Jefferson County
and which have  significantly  larger resources  available to them than does the
Bank. In total, there are 10 financial institutions located in Jefferson County,
Indiana, including the Bank. The Bank also competes with money market funds with
respect  to  deposit  accounts  and with  insurance  companies  with  respect to
individual retirement accounts.

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

                                   REGULATION

General

         As a federally chartered, SAIF-insured savings association, the Bank is
subject to extensive  regulation by the OTS and the FDIC. For example,  the Bank
must obtain OTS  approval  before it may engage in certain  activities  and must
file reports with the OTS regarding its activities and financial condition.  The
OTS periodically  examines the Bank's books and records and, in conjunction with
the FDIC in certain  situations,  has examination and enforcement  powers.  This
supervision  and  regulation  are  intended  primarily  for  the  protection  of
depositors and the federal deposit  insurance funds. A savings  association must
pay a semi-annual  assessment to the OTS based upon a marginal  assessment  rate
that decreases as the asset size of the savings association increases, and which
includes a fixed-cost  component  that is assessed on all savings  associations.
The  assessment  rate that  applies to a savings  association  depends  upon the
institution's size,  condition and the complexity of its operations.  The Bank's
semi-annual assessment is approximately $19,000.

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

Savings and Loan Holding Company Regulation

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

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

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

         Notwithstanding  the above rules as to permissible  business activities
of unitary  savings  and loan  holding  companies,  if the  savings  association
subsidiary of such a holding  company fails to meet the Qualified  Thrift Lender
("QTL")  test,  then such unitary  holding  company would be deemed to be a bank
holding company subject to all of the provisions of the Bank Holding Company Act
of 1956 and other  statutes  applicable to bank holding  companies,  to the same
extent as if the Holding Company were a bank holding company and the Bank were a
bank.  See  "-Qualified  Thrift  Lender." At December 31, 1999, the Bank's asset
composition  was in excess of that  required  to qualify as a  Qualified  Thrift
Lender.

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

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

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

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

Federal Home Loan Bank System

         The  Bank is a  member  of the  FHLB of  Indianapolis,  which is one of
twelve  regional  FHLBs.  Each FHLB serves as a reserve or central  bank for its
members  within its assigned  region.  The FHLB is funded  primarily  from funds
deposited  by  savings  associations  and  proceeds  derived  from  the  sale of
consolidated  obligations  of the FHLB system.  It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board of
Directors of the FHLB.  All FHLB  advances  must be fully  secured by sufficient
collateral  as  determined  by the  FHLB.  The  Federal  Housing  Finance  Board
("FHFB"), an independent agency, controls the FHLB System, including the FHLB of
Indianapolis.

         Prior to the  enactment of the GLB Act, a federal  savings  association
was required to become a member of the FHLB for the district in which the thrift
is  located.  The GLB Act  abolished  this  requirement,  effective  six  months
following the enactment of the statute.  At that time,  membership with the FHLB
will  become  voluntary.  Any  savings  association  that  chooses to become (or
remain) a member of the FHLB following the  expiration of this six-month  period
will have to qualify for membership under the criteria that existed prior to the
enactment of the GLB Act. The Bank  currently  intends to remain a member of the
FHLB of Indianapolis.

         As a member of the FHLB,  the Bank is required to purchase and maintain
stock  in the  FHLB of  Indianapolis  in an  amount  equal to at least 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts, or similar
obligations  at the  beginning of each year.  At December  31, 1999,  the Bank's
investment in stock of the FHLB of Indianapolis  was $943,000.  The FHLB imposes
various  limitations on advances such as limiting the amount of certain types of
real  estate-related  collateral to 30% of a member's capital and limiting total
advances to a member.  Interest  rates charged for advances vary  depending upon
maturity,  the cost of funds to the FHLB of Indianapolis  and the purpose of the
borrowing.

         The FHLBs are required to provide funds for the  resolution of troubled
savings  associations  and to contribute to affordable  housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low-and moderate-income housing projects. These contributions have adversely
affected  the level of FHLB  dividends  paid and could  continue to do so in the
future. For the fiscal year ended December 31, 1999,  dividends paid by the FHLB
of Indianapolis to the Bank totaled approximately $75,000, for an annual rate of
8.0%.

Insurance of Deposits

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

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

         In 1996,  legislation was enacted that included  provisions designed to
recapitalize the SAIF and eliminate the significant  premium  disparity  between
the BIF and the SAIF. Under the new law, the Bank was charged a one-time special
assessment equal to $.657 per $100 in assessable deposits at March 31, 1995. The
Bank recognized this one-time  assessment as a non-recurring  operating  expense
during  the  three-month  period  ending  September  30,  1996,  and  paid  this
assessment  during  the  fourth  quarter  of  1996.  The  assessment  was  fully
deductible for both federal and state income tax purposes.  Beginning January 1,
1997,  the Bank's  annual  deposit  insurance  premium was reduced  from .23% to
 .0644% of total assessable deposits. BIF institutions pay lower assessments than
comparable SAIF  institutions  because BIF institutions pay only 20% of the rate
paid by SAIF  institutions on their deposits with respect to obligations  issued
by the  federally-chartered  corporation which provided some of the financing to
resolve  the  thrift  crisis  in the  1980's  ("FICO").  Although  Congress  has
considered merging the SAIF and the BIF, until then,  savings  associations with
SAIF  deposits  may not transfer  deposits  into the BIF system  without  paying
various exit and  entrance  fees,  and SAIF  institutions  will  continue to pay
higher FICO assessments.  Such exit and entrance fees need not be paid if a SAIF
institution  converts to a bank  charter or merges  with a bank,  as long as the
resulting bank continues to pay  applicable  insurance  assessments to the SAIF,
and as long as certain other conditions are met.

Savings Association Regulatory Capital

         Currently,  savings  associations are subject to three separate minimum
capital-to-assets  requirements:  (i) a leverage limit,  (ii) a tangible capital
requirement,  and (iii) a risk-based  capital  requirement.  The leverage  limit
requires that savings  associations  maintain  "core  capital" of at least 3% of
total assets. Core capital is generally defined as common  shareholders'  equity
(including  retained  earnings),  noncumulative  perpetual  preferred  stock and
related surplus,  certain minority equity interests in subsidiaries,  qualifying
supervisory  goodwill,  purchased mortgage servicing rights and purchased credit
card relationships  (subject to certain limits) less nonqualifying  intangibles.
The OTS recently  amended this requirement to require a core capital level of 3%
of total  adjusted  assets for  savings  associations  that  receive the highest
supervisory  rating for safety and soundness,  and no less than 4% for all other
savings  associations.  This amendment became effective April 1, 1999. Under the
tangible  capital  requirement,  a savings  association  must maintain  tangible
capital  (core capital less all  intangible  assets  except  purchased  mortgage
servicing  rights which may be included after making the above-noted  adjustment
in an amount up to 100% of tangible  capital) of at least 1.5% of total  assets.
Under the risk-based capital  requirements,  a minimum amount of capital must be
maintained by a savings  association  to account for the relative risks inherent
in the type and amount of assets held by the savings association. The risk-based
capital requirement  requires a savings association to maintain capital (defined
generally for these purposes as core capital plus general  valuation  allowances
and  permanent  or maturing  capital  instruments  such as  preferred  stock and
subordinated  debt  less  assets  required  to be  deducted)  equal  to  8.0% of
risk-weighted  assets.  Assets are  ranked as to risk in one of four  categories
(0-100%).  A credit  risk-free  asset,  such as  cash,  requires  no  risk-based
capital,  while an asset with a significant  credit risk,  such as a non-accrual
loan,  requires a risk  factor of 100%.  Moreover,  a savings  association  must
deduct from capital, for purposes of meeting the core capital,  tangible capital
and risk-based  capital  requirements,  its entire  investment in and loans to a
subsidiary engaged in activities not permissible for a national bank (other than
exclusively   agency   activities   for  its   customers  or  mortgage   banking
subsidiaries). At December 31, 1999, the Bank was in compliance with all capital
requirements imposed by law.

         The OTS has  promulgated  a rule which sets forth the  methodology  for
calculating an interest rate risk  component to be used by savings  associations
in calculating  regulatory  capital.  The OTS has delayed the  implementation of
this rule,  however.  The rule requires savings  associations with either "above
normal" interest rate risk (institutions whose portfolio equity would decline in
value by more than 2% of assets in the event of a  hypothetical  200-basis-point
move in interest  rates) to maintain  additional  capital for interest rate risk
under  the  risk-based  capital  framework.  If the OTS were to  implement  this
regulation,  the Bank would be exempt  from its  provisions  because it has less
than $300 million in assets and its  risk-based  capital  ratio exceeds 12%. The
Bank  nevertheless  measures its interest rate risk in  conformity  with the OTS
regulation  and, as of September 30, 1999 would not have been required to deduct
any amounts from its total capital available to calculate its risk-based capital
requirement.

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

Prompt Corrective Regulatory Action

         The  Federal  Deposit  Insurance  Corporation  Improvement  Act of 1991
("FedICIA")   requires,   among  other  things,  that  federal  bank  regulatory
authorities take "prompt corrective action" with respect to institutions that do
not meet minimum capital requirements.  For these purposes,  FedICIA establishes
five capital tiers: well capitalized, adequately capitalized,  undercapitalized,
significantly undercapitalized and critically undercapitalized.  At December 31,
1999,  the Bank was  categorized as "well  capitalized,"  meaning that its total
risk-based  capital  ratio  exceeded  10%, its Tier I risk-based  capital  ratio
exceeded  6%,  its  leverage  ratio  exceeded  5%,  and it was not  subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.

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

Dividend Limitations

         The OTS recently adopted a regulation,  which became effective on April
1,  1999,  that  revised  the  current   restrictions  that  apply  to  "capital
distributions" by savings associations. The amended regulation defines a capital
distribution  as  a  distribution  of  cash  or  other  property  to  a  savings
association's  owners,  made on  account  of their  ownership.  This  definition
includes a savings association's  payment of cash dividends to shareholders,  or
any payment by a savings association to repurchase, redeem, retire, or otherwise
acquire  any of its  shares  or debt  instruments  that  are  included  in total
capital,  and any extension of credit to finance an  affiliate's  acquisition of
those shares or interests.  The amended  regulation  does not apply to dividends
consisting  only of a savings  association's  shares or rights to purchase  such
shares.

         The amended  regulation  exempts certain savings  associations from the
requirement  under  the  prior  version  of  the  regulation  that  all  savings
associations  file either a notice or an application  with the OTS before making
any  capital  distribution.  As  revised,  the  regulation  requires  a  savings
association  to  file  an  application  for  approval  of  a  proposed   capital
distribution  with the OTS if the  association  is not  eligible  for  expedited
treatment under OTS's  application  processing rules, or the total amount of all
capital  distributions,  including the proposed  capital  distribution,  for the
applicable   calendar   year  would  exceed  an  amount  equal  to  the  savings
association's  net income for that year to date plus the  savings  association's
retained  net  income for the  preceding  two years  (the  "retained  net income
standard").  A savings association must also file an application for approval of
a proposed capital  distribution if,  following the proposed  distribution,  the
association  would not be at least adequately  capitalized  under the OTS prompt
corrective action regulations,  or if the proposed  distribution would violate a
prohibition  contained  in any  applicable  statute,  regulation,  or  agreement
between the association and the OTS or the FDIC.

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

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

Limitations on Rates Paid for Deposits

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

Liquidity

         Federal law  requires  that  savings  associations  maintain an average
daily balance of liquid assets in a minimum amount not less than 4% or more than
10% of their  withdrawable  accounts 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. The OTS recently
amended its regulation that implements this statutory  liquidity  requirement to
reduce the amount of liquid  assets a savings  association  must hold from 5% of
net  withdrawable  accounts  and  short-term  borrowings  to 4%.  The  OTS  also
eliminated the requirement that savings associations  maintain short-term liquid
assets  constituting  at  least  1%  of  their  average  daily  balance  of  net
withdrawable deposit accounts and current borrowings.  The revised OTS rule also
permits  savings   associations  to  calculate  compliance  with  the  liquidity
requirement  based upon their average daily balance of liquid assets during each
quarter rather than during each month, as was required under the prior rule. The
OTS may impose  monetary  penalties  on savings  associations  that fail to meet
these  liquidity  requirements.  As of December  31,  1999,  the Bank had liquid
assets of $8.1 million, and a regulatory liquidity ratio of 28.2%.

Safety and Soundness Standards

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

Real Estate Lending Standards

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

Loans to One Borrower

         Under OTS regulations, the Bank may not make a loan or extend credit to
a single or  related  group of  borrowers  in  excess  of 15% of its  unimpaired
capital and  surplus.  Additional  amounts may be lent,  not in excess of 10% of
unimpaired capital and surplus,  if such loans or extensions of credit are fully
secured by readily  marketable  collateral,  including  certain  debt and equity
securities but not including real estate.  In some cases, a savings  association
may lend up to 30 percent of unimpaired  capital and surplus to one borrower for
purposes  of  developing  domestic  residential   housing,   provided  that  the
association meets its regulatory capital requirements and the OTS authorizes the
association to use this expanded  lending  authority.  At December 31, 1999, the
Bank did not have any loans or extensions of credit to a single or related group
of borrowers in excess of its lending  limits.  Management does not believe that
the  loans-to-one-borrower  limits will have a significant  impact on the Bank's
business operations or earnings.

Qualified Thrift Lender

         Savings associations must meet a QTL test that requires the association
to  maintain an  appropriate  level of  qualified  thrift  investments  ("QTIs")
(primarily  residential  mortgages and related  investments,  including  certain
mortgage-related  securities)  and  otherwise  to qualify as a QTL. The required
percentage  of QTIs is 65% of  portfolio  assets  (defined  as all assets  minus
intangible  assets,  property used by the association in conducting its business
and liquid assets equal to 10% of total assets). Certain assets are subject to a
percentage  limitation  of  20%  of  portfolio  assets.  In  addition,   savings
associations may include shares of stock of the FHLBs,  FNMA, and FHLMC as QTIs.
Compliance  with the QTL test is  determined  on a monthly  basis in nine out of
every twelve months.  As of December 31, 1999,  the Bank was in compliance  with
its QTL requirement,  with approximately 85% of its portfolio assets invested in
QTIs.

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

Acquisitions or Dispositions and Branching

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

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

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

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

Transactions with Affiliates

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

Federal Securities Law

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

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

Community Reinvestment Act Matters

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

                                    TAXATION

Federal Taxation

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

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

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

         The Holding  Company and the Bank do not anticipate  electing to file a
consolidated federal income tax return for 1999.  Accordingly,  the Bank will be
taxed separately on its earnings.

         The Holding Company is taxed as an ordinary corporation.

State Taxation

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

Item 2.   Properties.

         The following table provides  certain  information  with respect to the
Bank's offices as of December 31, 1999.

                                                 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:
   233 E. Main Street..............  1952             $233             9,110

   Drive-Through Branch:
   401 E. Main Street..............  1984               48               375

   Hilltop Locations:
   303 Clifty Drive................  1973              525             3,250
   430 Clifty Drive................  1983              605             6,084

   Wal-mart Banking Center
   567 Ivy Tech Drive..............  1995                5               517

Locations in Hanover, Indiana
   10 Medical Plaza Drive..........  1995              175               656

         The following table provides  certain  information with respect to real
estate owned by the Bank as of December 31, 1999. These properties were acquired
by the Bank for future expansion of its banking operations.

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

                             227 E. Main Street
                             Madison, Indiana 47250

         The Bank owns computer and data processing  equipment which is used for
transaction processing, loan origination,  and accounting. The net book value of
electronic  data  processing  equipment  owned  by the  Bank  was  approximately
$236,000 at December 31, 1999.

         The Bank operates six automated teller machines  ("ATMs"),  one at each
office location and one at Hanover  College.  The Bank's ATMs participate in the
MAC(R) and MagicLine(R) networks.

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

Item 3.  Legal Proceedings.

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

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

         No matter was submitted to a vote of the Holding Company's shareholders
during the quarter ended December 31, 1999.

Item 4.5.  Executive Officers of the Registrant.

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

                        Position with the             Position with
Name                    Holding Company               the Bank
--------------------------------------------------------------------------------
Matthew P. Forrester    President and Chief           President and Chief
                        Executive Officer             Executive Officer
Lonnie D. Collins       Secretary                     Secretary
Larry C. Fouse          Vice President of Finance     Vice President of Finance

         Matthew  P.  Forrester  (age 43) has  served  as the  Bank and  Holding
Company President and Chief Executive Officer since October, 1999. Prior to that
Mr. Forrester  served as the Chief Financial  Officer for Home Loan Bank in Fort
Wayne,  Indiana and Senior Vice President and Treasurer for its holding company,
Home Bancorp.  Prior to joining Home Loan Bank Mr. Forrester was an examiner for
the Indiana Department of Financial Institutions.

         Lonnie D.  Collins  (age 51) has served as  Secretary of the Bank since
September, 1994, and as Secretary of the Holding Company since 1996. Mr. Collins
has also practiced law since October,  1975 and has served as the Bank's outside
counsel since 1980.

         Larry C. Fouse (age 54) has served as the Holding Company's  Controller
since  1997.  From 1993 to 1997,  he served as the Chief  Financial  Officer and
Controller  of  Citizens,  and  from  1989 to 1993,  served  as  Citizens'  Vice
President and Operations Officer.

                                     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's  shares  began to trade on  December  20,  1996.  The high and low bid
prices for the 1999 fiscal year were $15.75 and $11.50, 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  directly depends upon the ability of the Bank to pay dividends
to the Holding Company 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 the Bank (as  calculated for federal income
tax  purposes),  will be taxable as ordinary  income to the Holding  Company and
will not be deductible by the Bank.  Because the Holding Company and the Bank 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 the
Bank's  accumulated bad debt reserves,  which could result in increased  federal
income tax liability for the Bank.  Moreover,  the Bank may not pay dividends to
the Holding  Company if such  dividends  would result in the  impairment  of the
liquidation account established in connection with the Conversion.

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

         The Holding  Company paid dividends to its  shareholders in 1999 in the
amount of $.265 per outstanding share of common stock.

Item 6.       Selected Consolidated Financial Data.

         The  information  required by this item is incorporated by reference to
the material under the heading "Selected Consolidated Financial Data" on pages 4
and 5 of the Holding Company's 1999 Shareholder  Annual Report (the "Shareholder
Annual Report").

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

         The  information  required by this item is incorporated by reference to
pages 6 through 18 of the Shareholder Annual Report.

Item 7A.  Quantitative  and  Qualitative  Analysis of  Financial  Condition  and
          Results of Operation.

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

Item 8.           Financial Statements and Supplementary Data.

         The  Holding  Company's  Consolidated  Financial  Statements  and Notes
thereto  contained on pages 19 through 50 in the  Shareholder  Annual Report are
incorporated herein by reference.

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  required by this item with  respect to  directors  is
incorporated  by  reference  to  pages 2  through  4 and  page 9 of the  Holding
Company's  Proxy Statement for its Annual  Shareholder  Meeting to be held April
19, 2000 (the "2000 Proxy Statement").  Information  concerning the Registrant's
executive officers is included in Item 4.5 in Part I of this report.

Item 11.      Executive Compensation.

         The  information  required  by this  item  with  respect  to  executive
compensation is incorporated by reference to pages 5 through 8 of the 2000 Proxy
Statement.

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

         The  information  required by this item is incorporated by reference to
pages 2 through 3 of the 2000 Proxy Statement.

Item 13. Certain Relationships and Related Transactions.

         The  information  required by this item is incorporated by reference to
pages 8 and 9 of the 2000 Proxy Statement.

                                     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:

                                                                   Annual Report
         Financial Statements                                         Page No.

         Independent Auditor's Report.....................................19

         Consolidated Statements of Financial Condition
         at December 31, 1999, and 1998...................................20

         Consolidated Statements of Earnings for the
         Years Ended December 31, 1999, 1998, and 1997....................22

         Consolidated Statements of Comprehensive Income for the Year
         Ended December 31, 1999, 1998, 1997..............................23

         Consolidated Statements of Shareholders'
         Equity for the Years Ended December 31,
         1999, 1998, and 1997.............................................24

         Consolidated Statements of Cash Flows for the Years
         Ended December 31, 1999, 1998, and 1997..........................25

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

(b)      Reports on Form 8-K.

         The  Holding  Company  filed no reports on Form 8-K during the  quarter
         ended December 31, 1999.

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

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

<PAGE>

                                   SIGNATURES

         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 23, 2000                        By: /s/ Matthew P. Forrester
                                             -----------------------------------
                                             Matthew P. Forrester, 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 23rd day of March, 2000.

     Signatures                           Title                       Date
     ----------                       --------------             --------------
(1)  Principal Executive Officer:


     /s/ Matthew P. Forrester                                 )
     ---------------------------                              )
     Matthew P. Forrester             President and           )
                                      Chief Executive Officer )
                                                              )
                                                              )
(2)  Principal Financial and                                  )
     Accounting Officer:                                      )
                                                              )
                                                              )
     /s/ Larry C. Fouse               Treasurer               )
     ---------------------------                              )
     Larry C. Fouse                                           )
                                                              )
                                                              )  March 23, 2000
                                                              )
(3)  The Board of Directors:                                  )
                                                              )
                                                              )
     /s/ Robert W. Anger              Director                )
     ---------------------------                              )
     Robert W. Anger                                          )
                                                              )
                                                              )
     /s/ Jonnie L. Davis              Director                )
     ---------------------------                              )
     Jonnie L. Davis                                          )
                                                              )
                                                              )
     /s/ Matthew P. Forrester         Director                )
     ---------------------------                              )
     Matthew P. Forrester                                     )
                                                              )
                                                              )
<PAGE>

                                                              )
     /s/ Michael J. Hensley           Director                )
     ---------------------------                              )
     Michael J. Hensley                                       )
                                                              )
                                                              )
     /s/ Earl W. Johann               Director                )  March 23, 2000
     ---------------------------                              )
     Earl W. Johann                                           )
                                                              )
                                                              )
     /s/ Fred W. Koehler              Director                )
     ---------------------------                              )
     Fred W. Koehler                                          )
                                                              )
<PAGE>


                                  EXHIBIT INDEX

Exhibit No.                 Description                                   Page

        2        Agreement and Plan of  Reorganization is incorporated by
                 reference to Exhibit 2 to the Registrant's Form 10-K for
                 the fiscal year ending December 31, 1997.

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

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

        10(1)    Employment Agreement between River Valley Financial Bank
                 and Matthew P.  Forrester  is included as Exhibit  10(5)
                 hereto

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

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

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

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

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

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

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

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

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

        (11)     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

        (12)     Special  Termination   Agreement  between  River  Valley
                 Financial  Bank, as successor to Citizens  National Bank
                 of Madison and Robyne Hart

        13       Shareholder Annual Report

        21       Subsidiaries of the Registrant

        27(1)    Financial Data Schedule (Filed Electronically)