SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     The following information is only a summary and you should read it in
conjunction with our financial statements and notes contained in this Annual
Report.

<TABLE>
<CAPTION>

                                                       At or For the Year Ended December 31,
                                        ---------------------------------------------------------------------

                                               1999         1998          1997         1996          1995
                                        ---------------------------------------------------------------------
                                                                   (In Thousands)
<S>                                        <C>             <C>           <C>          <C>           <C>
Selected Financial Condition Data:
Total assets............................    $  544,523     $469,515      $458,695     $434,389      $402,708
Loans receivable, net...................       442,787      398,146       399,290      378,290       345,738
Investment securities:
  Available-for-sale, at market value...        29,599       14,208        12,370       11,765        12,509
  Held-to-maturity......................        12,449       11,004        10,167        8,997        13,470
Total deposits..........................       364,604      365,999       344,860      330,235       312,218
Total borrowings........................        74,898       52,462        66,255       61,109        50,783
Total stockholders' equity..............        96,712       43,846        39,660       35,479        32,864

Selected Operations Data:
Total interest income...................    $   34,811     $ 34,474      $ 34,085     $ 32,427      $ 29,915
Total interest expense..................        19,242       19,690        19,082       17,851        16,429
                                            ----------     --------      --------     --------      --------

   Net interest income..................        15,569       14,784        15,003       14,576        13,486
Provision for loan losses...............           760        1,265           700          570           650
                                            ----------     --------      --------     --------      --------
Net interest income after provision for
 loan losses............................        14,809       13,519        14,303       14,006        12,836
                                            ----------     --------      --------     --------      --------
Fees and service charges................         1,728        1,544         1,316        1,132           933
Gain (loss) on sales of loans,
 mortgage-backed securities and
 investment securities..................            32          807           188           12            23
Other non-interest income...............         1,091        1,077           579          763           875
                                            ----------     --------      --------     --------      --------
Total non-interest income...............         2,851        3,428         2,083        1,907         1,831
Salaries and benefits...................         7,236        6,115         5,548        5,258         5,238
Charitable contributions................         4,570           97            69           63            52
Other expenses..........................         4,870        4,547         4,474        6,626         4,407
                                            ----------     --------      --------     --------      --------
Total non-interest expense..............        16,676       10,759        10,091       11,947         9,697
                                            ----------     --------      --------     --------      --------
Income before taxes.....................           984        6,188         6,295        3,966         4,970
Income tax provision....................           138        2,049         2,160        1,266         1,545
                                            ----------     --------      --------     --------      --------
Net income..............................    $      846     $  4,139      $  4,135     $  2,700      $  3,425
                                            ==========     ========      ========     ========      ========
</TABLE>


                                                         1

<PAGE>



<TABLE>
<CAPTION>


                                                                  At or For the Year Ended December 31,
                                                    ------------------------------------------------------------
                                                     1999         1998          1997         1996          1995
                                                     ----         ----          ----         ----          ----
<S>                                                <C>          <C>           <C>           <C>          <C>
Selected Financial Ratios and Other
Data:
Performance Ratios:
  Return on average assets (ratio of net
    income to average total assets)(1)..             0.17%        0.89%         0.93%        0.64%         0.87%
  Return on average equity (ratio of
     net income to average equity)(1)....            1.83         9.83         11.36         7.79         10.92
  Interest rate spread (average during
   period)..............................             3.24         3.21          3.34         3.42          3.39
  Net interest margin(2)................             3.41         3.42          3.58         3.66          3.63
  Ratio of operating expense to average
    total assets(1).....................             3.35         2.31          2.28         2.84          2.46
  Ratio of average interest-earning
    assets to average interest-bearing
    liabilities.........................           104.05       104.56        105.18       105.48        105.87
  Efficiency ratio(1)(3)................            90.53        59.08         59.06        72.48         63.31

Asset Quality Ratios:
  Non-performing assets to total assets
   at end of period.....................             0.30         0.29          0.62         0.49          0.59
  Non-performing loans to total
    loans...............................             0.17         0.28          0.19         0.40          0.60
  Allowance for loan losses to non-
   performing loans.....................           467.61       307.36        406.71       193.65        129.60
  Allowance for loan losses to loans
   receivable, net......................             0.82         0.85          0.77         0.78          0.79

Capital Ratios:
  Equity to total assets at end of
    period..............................            17.76         9.34          8.65         8.17          8.16
  Average equity to average assets......             9.29         9.06          8.22         8.24          7.95

Other Data:
  Number of full-service offices........            13           12            12           11            11
---------------------
<FN>

(1)  Excluding the effect of the $4.5 million contribution to the charitable
     foundation, return on average assets would have been .76%, return on
     average equity would have been 8.23%, operating expenses to average assets
     would have been 2.45% and the efficiency ratio would have been 66.23%.
(2)  Net interest income divided by average interest earning assets.
(3)  Total non-interest expense divided by net interest income plus total
     non-interest income.
</FN>

</TABLE>




                                        2

<PAGE>



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

INTRODUCTION

     MFS Financial, Inc., a Maryland corporation, is a savings and loan holding
company which has as its wholly-owned subsidiary Mutual Federal Savings Bank.
MFS Financial was formed in September 1999 to become the holding company of
Mutual Federal in connection with Mutual Federal's conversion from mutual to
stock form of organization on December 29, 1999. The words "we," "our" and "us"
refer to MFS Financial and Mutual Federal on a consolidated basis, except that
references to us prior to December 29, 1999 refer only to Mutual Federal.

     Our principal business consists of attracting retail deposits from the
general public and investing those funds primarily in permanent loans secured by
first mortgages on owner-occupied, one- to four-family residences and in a
variety of consumer loans. We also originate loans secured by commercial and
multi-family real estate, commercial business loans and construction loans
secured primarily by residential real estate. We are headquartered in Muncie,
Indiana and have 13 retail offices primarily serving Delaware, Randolph and
Kosciusko counties in Indiana. We also originate mortgage loans in contiguous
counties and we originate indirect consumer loans throughout Indiana and western
Ohio.

     The following discussion is intended to assist your understanding of our
financial condition and results of operations. The information contained in this
section should be read in conjunction with our consolidated financial statements
and the accompanying notes to our consolidated financial statements.

     Our results of operations depend primarily on our net interest income,
which is the difference between interest income on interest-earning assets,
which principally consist of loans and mortgage-backed and investment
securities, and interest expense on interest-bearing liabilities, which
principally consist of deposits and borrowings. Our results of operations also
are affected by the level of our noninterest income and expenses and income tax
expense.

FORWARD-LOOKING STATEMENTS

     This discussion contains various forward-looking statements which are based
on assumptions and describe our future plans and strategies and our
expectations. These forward-looking statements are generally identified by words
such as "believe," "expect," "intend," "anticipate," "estimate," "project," or
similar words. Our ability to predict results or the actual effect of future
plans or strategies is uncertain. Factors which could cause actual results to
differ materially from those estimated include, but are not limited to, changes
in interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of the
U.S. Treasury and the Federal Reserve Board, the quality and composition of our
loan and investment portfolios, demand for our loan products, deposit flows, our
operating expenses, competition, demand for financial services in our market
areas and accounting principles and

                                        3

<PAGE>



guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and you should not rely too much on these statements.

MANAGEMENT STRATEGY

     Our strategy is to operate as an independent, retail oriented financial
institution dedicated to serving customers in our market areas. Our commitment
is to provide a broad range of products and services to meet the needs of our
customers. As part of this commitment, we are looking to increase our emphasis
on commercial business products and services. We are also in the process of
creating a fully interactive transactional website. In addition, we are
continually looking at cost-effective ways to expand our market area.

     Financial highlights of our strategy include:

     o    CONTINUING AS A DIVERSIFIED LENDER. We have been successful in
          diversifying our loan portfolio to reduce our reliance on any one type
          of loan. Since 1994, approximately 32% of our loan portfolio has
          consisted of consumer, multi-family and commercial real estate and
          commercial business loans.

     o    CONTINUING AS A LEADING ONE- TO FOUR-FAMILY LENDER. We are one of the
          largest originators of one- to four-family residential loans in our
          three county market area. During 1999, we originated $71.3 million of
          one- to four-family residential loans.

     o    CONTINUING OUR STRONG ASSET QUALITY. Since 1994, our ratio of
          non-performing assets to total assets has not exceeded .62% and at
          December 31, 1999 this ratio was .30%.

     o    CONTINUING OUR STRONG CAPITAL POSITION. As a result of our
          conservative risk management and consistent profitability, we have
          historically maintained a strong capital position. At December 31,
          1999, our ratio of stockholders' equity to total assets was 17.8%.

ASSET AND LIABILITY MANAGEMENT AND MARKET RISK

     OUR RISK WHEN INTEREST RATES CHANGE. The rates of interest we earn on
assets and pay on liabilities generally are established contractually for a
period of time. Market interest rates change over time. Accordingly, our results
of operations, like those of other financial institutions, are impacted by
changes in interest rates and the interest rate sensitivity of our assets and
liabilities. The risk associated with changes in interest rates and our ability
to adapt to these changes is known as interest rate risk and is our most
significant market risk.

     HOW WE MEASURE OUR RISK OF INTEREST RATE CHANGES. As part of our attempt to
manage our exposure to changes in interest rates and comply with applicable
regulations, we monitor our interest rate risk. In monitoring interest rate
risk, we continually analyze and manage assets and

                                        4

<PAGE>



liabilities based on their payment streams and interest rates, the timing of
their maturities, and their sensitivity to actual or potential changes in market
interest rates.

     In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on our results of operations, we adopted
asset and liability management policies to better match the maturities and
repricing terms of our interest-earning assets and interest-bearing liabilities.
Mutual Federal's board of directors sets and recommends our asset and liability
policies which are implemented by the asset and liability management committee.
The asset and liability management committee is chaired by the chief financial
officer and is comprised of members of our senior management. The purpose of the
asset and liability management committee is to communicate, coordinate and
control asset/liability management consistent with our business plan and board
approved policies. The asset and liability management committee establishes and
monitors the volume and mix of assets and funding sources taking into account
relative costs and spreads, interest rate sensitivity and liquidity needs. The
objectives are to manage assets and funding sources consistent with liquidity,
capital adequacy, growth, risk and profitability goals. The asset and liability
management committee generally meets monthly to review, among other things,
economic conditions and interest rate outlook, current and projected liquidity
needs and capital position, anticipated changes in the volume and mix of assets
and liabilities and interest rate risk exposure limits versus current
projections pursuant to net present value of portfolio equity analysis and
income simulations. At each meeting, the asset and liability management
committee recommends appropriate strategy changes based on this review. The
chief financial officer or his designee is responsible for reviewing and
reporting on the effects of the policy implementations and strategies to the
board of directors, at least quarterly.

     In order to manage our assets and liabilities and achieve the desired
liquidity, credit quality, interest rate risk, profitability and capital
targets, we have sought to:

     o    originate and purchase adjustable rate mortgage loans and commercial
          business loans,

     o    originate shorter-term consumer loans,

     o    manage our deposits to establish stable deposit relationships,

     o    acquire longer-term borrowings at fixed interest rates, when
          appropriate, to offset the negative impact of longer-term fixed rate
          loans in our loan portfolio, and

     o    limit the percentage of fixed-rate loans in our portfolio.

Depending on the level of general interest rates, the relationship between long-
and short-term interest rates, market conditions and competitive factors, the
asset and liability management committee may increase our interest rate risk
position somewhat in order to maintain our net interest margin. We intend to
increase our emphasis on the origination of relatively short-term and/or
adjustable rate loans. In addition, in an effort to maintain our limit on the
percentage of fixed-rate

                                        5

<PAGE>



loans, in 1998, we sold $35.1 million of fixed-rate, one- to four-family
mortgage loans in the secondary market.

     The asset and liability management committee regularly reviews interest
rate risk by forecasting the impact of alternative interest rate environments on
net interest income and market value of portfolio equity, which is defined as
the net present value of an institution's existing assets, liabilities and
off-balance sheet instruments, and evaluating such impacts against the maximum
potential changes in net interest income and market value of portfolio equity
that are authorized by our board of directors.

     The Office of Thrift Supervision provides Mutual Federal with the
information presented in the following tables. The tables present the change in
our net portfolio value at December 31, 1999 and 1998 that would occur upon an
immediate change in interest rates based on Office of Thrift Supervision
assumptions, but without effect to any steps that management might take to
counteract that change.

<TABLE>
<CAPTION>

                                              December 31, 1999
------------------------------------------------------------------------------------------------------
     Change in
 Interest Rates in                                                              Net Portfolio Value
Basis Points ("bp")                     Net Portfolio Value                    as % of PV of Assets
   (Rate Shock           -------------------------------------------------  --------------------------
   in Rates)(1)             $ Amount         $ Change         % Change      NPV Ratio         Change
-----------------        ---------------  ---------------  ---------------  ---------       ----------
<S>                         <C>             <C>                  <C>           <C>            <C>
      +300 bp                41,797          (29,979)             (42)          8.40           (498)
      +200 bp                52,208          (19,568)             (27)         10.23           (316)
      +100 bp                62,435           (9,341)             (13)         11.92           (147)
         0 bp                71,776              ---              ---          13.39            ---
      -100 bp                79,142            7,366               10          14.48            109
      -200 bp                84,484           12,709               18          15.21            182
      -300 bp                88,638           16,862               23          15.74            236

</TABLE>

<TABLE>
<CAPTION>

                                              December 31, 1998
------------------------------------------------------------------------------------------------------
     Change in
 Interest Rates in                                                              Net Portfolio Value
Basis Points ("bp")                     Net Portfolio Value                    as % of PV of Assets
   (Rate Shock           -------------------------------------------------  --------------------------
   in Rates)(1)             $ Amount         $ Change         % Change      NPV Ratio         Change
-----------------        ---------------  ---------------  ---------------  ---------       ----------
<S>                         <C>             <C>                  <C>           <C>            <C>


      +300 bp                31,509          (15,656)             (33)           7.04         (292)
      +200 bp                37,901           (9,264)             (20)           8.29         (167)
      +100 bp                43,368           (3,797)              (8)           9.30          (66)
        0 bp                 47,165              ---              ---            9.96          ---
      -100 bp                48,863            1,698                4           10.20           24
      -200 bp                49,910            2,745                6           10.31           35
      -300 bp                52,273            5,109               11           10.65           69

-----------
<FN>
(1)  Assumes an instantaneous uniform change in interest rates at all
     maturities.
</FN>

</TABLE>

                                        6

<PAGE>



     The Office of Thrift Supervision uses certain assumptions in assessing the
interest rate risk of savings associations. These assumptions relate to interest
rates, loan prepayment rates, deposit decay rates, and the market values of
certain assets under differing interest rate scenarios, among others.

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

FINANCIAL CONDITION AT DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998

     GENERAL. Our total assets increased by $75 million, or 16%, to $544.5
million at December 31, 1999 from $469.5 million at December 31, 1998. The
increase was mainly due to an increase in net loans of $44.6 million, or 11.2%,
an increase in investment securities of $16.8 million, or 66.8%, and an increase
in cash for Y2K preparation of $7.8 million, or 69%. These increases were funded
primarily by an increase of $22.4 million in borrowed funds and the net proceeds
of $49.9 million from our stock offering as part of the Bank's mutual-to-stock
conversion.

     LOANS. Our net loan portfolio increased from $398.1 million at December 31,
1998 to $442.8 million at December 31, 1999. The increase in the loan portfolio
over this time period was due to continued strong loan demand caused by a
combination of a strong economy and low interest rates. The loan portfolio
increased most in the one- to four-family category, from $264.5 million at
December 31, 1998 to $286.6 million at December 31, 1999 and in the RV/Boat loan
category from $42.7 million at December 31, 1998 to $58.0 million at December
31, 1999.

     SECURITIES. Investment securities amounted to $25.2 million at December 31,
1998 and $42.0 million at December 31, 1999. The increase of $16.8 million, or
66.7%, was primarily due to the investment of a portion of the conversion
proceeds.

     LIABILITIES. Our total liabilities increased $22.1 million, or 5.2%, to
$447.8 million at December 31, 1999 from $425.7 million at December 31, 1998.
This increase was due primarily to an increase in borrowed funds of $22.4
million.

     STOCKHOLDERS' EQUITY. Stockholders' equity increased $52.9 million from
$43.8 million at December 31, 1998 to $96.7 million at December 31, 1999. The
increase was primarily due to net proceeds from our stock offering of $49.9
million, stock contributed to the charitable foundation of $2.2 million and net
income for 1999 of $846,000. These increases were partially offset by a decrease
in the unrealized gains (losses) on securities available for sale of $328,000.


                                        7

<PAGE>



FINANCIAL CONDITION AT DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997

     GENERAL. Our total assets increased by $10.8 million, or 2.4%, to $469.5
million at December 31, 1998 from $458.7 million at December 31, 1997, despite
the sale of $35.1 million of loans during 1998 and the use of a portion of the
proceeds from this sale to pay down Federal Home Loan Bank advances.

     LOANS. Our net loan portfolio decreased from $399.3 million at December 31,
1997 to $398.1 million at December 31, 1998. The decrease in the loan portfolio
over this time period was due to the sale of $35.1 million of one- to
four-family fixed-rate long term loans during the year for asset/liability
management purposes. Loan origination volume for 1998 exceeded volume for 1997
by $47.3 million.

     SECURITIES. Investment securities amounted to $22.5 million at December 31,
1997, and $25.2 million at December 31, 1998. The increase of $2.7 million, or
11.9%, was primarily a result of the reinvestment of some of the proceeds from
the loan sales discussed above.

     LIABILITIES. Our total liabilities increased $6.7 million, or 1.6%, to
$425.7 million at December 31, 1998 from $419.0 million at December 31, 1997.
This increase was due primarily to an increase in deposits of $21.1 million,
partially due to aggressively marketing our money market accounts. In November
1997, we acquired $14.1 million in deposits and an insignificant amount of loans
and other assets as part of an acquisition of a branch facility of another bank
in Albany, Indiana. This increase was partially offset by a $13.8 million
decrease in borrowed funds, which were paid off through the proceeds from the
loan sales.

     EQUITY. Total equity amounted to $43.8 million, or 9.3% of total assets, at
December 31, 1998 and $39.7 million, or 8.7% of total assets, at December 31,
1997. This increase in equity was due to continued profitable operations.

                                        8

<PAGE>

AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID

     The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are daily average balances. Non-accruing loans have been
included in the table as loans carrying a zero yield.

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                      ----------------------------------------------------------------------

                                                                     1999                                1998
                                                      ----------------------------------------------------------------------
                                                         Average    Interest   Average      Average    Interest    Average
                                                       Outstanding   Earned/   Yield/     Outstanding   Earned/    Yield/
                                                         Balance      Paid      Rate        Balance      Paid       Rate
                                                       -----------  --------   -------    -----------   -------    -------
<S>                                                    <C>          <C>        <C>         <C>          <C>         <C>
 Interest-Earning Assets:
  Interest-bearing deposits..........................  $   3,664    $   161     4.39%       $  7,330    $   358     4.88%
  Trading account securities.........................      1,134         67     5.91             337         20     5.93
  Mortgage-backed securities:
     Available-for-sale..............................      5,006        323     6.45           4,575        329     7.19
  Investment securities
     Available-for-sale..............................      8,294        470     5.67           7,001        416     5.94
     Held-to-maturity................................     12,365        733     5.93           9,642        584     6.06
  Loans receivable...................................    422,611     32,739     7.75         399,982     32,488     8.12
  Stock in FHLB of Indianapolis......................      3,926        318     8.10           3,612        279     7.72
                                                       ---------    -------                 --------    -------
  Total interest-earning assets(1)...................    457,000     34,811     7.62         432,479     34,474     7.97
                                                                    -------                             -------
Non-interest earning assets, net of allowance for
 loan losses and unrealized gain/loss................     40,162                              32,362
                                                       ---------                            --------
  Total assets.......................................  $ 497,162                            $464,841
                                                       =========                            ========
Interest-Bearing Liabilities:
 Demand and NOW accounts.............................  $  54,122        553     1.02        $ 49,646        745     1.50
 Savings deposits....................................     42,709        853     2.00          41,332      1,038     2.51
 Money market accounts...............................     29,299      1,056     3.60          16,442        560     3.41
 Certificate accounts................................    252,452     13,392     5.30         250,953     14,100     5.62
                                                       ---------    -------                 --------    -------
 Total deposits......................................    378,582     15,854     4.19         358,373     16,443     4.59
 Borrowings..........................................     60,620      3,388     5.59          55,234      3,247     5.88
                                                       ---------    -------                 --------    -------
  Total interest-bearing liabilities.................    439,202     19,242     4.38         413,607     19,690     4.76
                                                                    -------                             -------
 Other liabilities...................................     11,767                               9,115
                                                       ---------                            --------
  Total liabilities..................................    450,969                             422,722
 Stockholders' equity................................     46,193                              42,119
                                                       ---------                            --------
   Total liabilities and stockholders' equity........  $ 497,162                            $464,841
                                                       =========                            ========

Net earning assets...................................  $  17,798                            $ 18,872
                                                       =========                            ========
Net interest income..................................               $15,569                             $14,784
                                                                    =======                             =======
Net interest rate spread.............................                           3.24%                               3.21%
                                                                               ======                              =====
Net yield on average interest-earning assets.........                           3.41%                               3.42%
                                                                               ======                              =====
Average interest-earning assets to
 average interest-bearing liabilities................    104.05%                             104.56%
                                                        =======                             =======

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                           Year Ended December 31, 1997
                                                         ---------------------------------
                                                           Average    Interest     Average
                                                         Outstanding   Earned/     Yield/
                                                           Balance      Paid        Rate
                                                         -----------  --------     -------
<S>                                                       <C>         <C>           <C>
  Interest-Earning Assets:
  Interest-bearing deposits..........................      $  3,908    $   217      5.55%
  Trading account securities.........................           603         39      6.47
  Mortgage-backed securities:
     Available-for-sale..............................         4,498        334      7.43
  Investment securities
     Available-for-sale..............................         8,164        486      5.95
     Held-to-maturity................................         8,995        478      5.31
  Loans receivable...................................       389,731     32,242      8.27
  Stock in FHLB of Indianapolis......................         3,470        289      8.33
                                                           --------    -------
  Total interest-earning assets(1)...................       419,369     34,085      8.13
                                                                       -------
Non-interest earning assets, net of allowance for
 loan losses and unrealized gain/loss................        23,849
                                                           --------
  Total assets.......................................      $443,218
                                                           ========
Interest-Bearing Liabilities:
 Demand and NOW accounts.............................      $ 44,803        719      1.60
 Savings deposits....................................        40,224      1,114      2.77
 Money market accounts...............................        12,888        391      3.03
 Certificate accounts................................       239,311     13,179      5.51
                                                           --------    -------
 Total deposits......................................       337,226     15,403      4.57
 Borrowings..........................................        61,491      3,679      5.98
                                                           --------    -------
  Total interest-bearing liabilities.................       398,717     19,082      4.79
                                                                       -------
 Other liabilities...................................         8,086
                                                           --------
  Total liabilities..................................       406,803
 Stockholders' equity................................        36,415
                                                           --------
   Total liabilities and stockholders' equity........      $443,218
                                                           ========

Net earning assets...................................      $ 20,652
                                                           ========
Net interest income..................................                  $15,003
                                                                       =======
Net interest rate spread.............................                               3.34%
                                                                                   =====
Net yield on average interest-earning assets.........                               3.58%
                                                                                   =====
Average interest-earning assets to
 average interest-bearing liabilities................       105.18%
                                                           =======

----------------
<FN>
     (1) Calculated net of deferred loan fees, loan discounts,  loans in process
and loss reserves.
</FN>

</TABLE>
                                        9

<PAGE>

RATE/VOLUME ANALYSIS

     The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in volume, which are changes in volume multiplied by the old rate,
and (2) changes in rate, which are changes in rate multiplied by the old volume.
Changes attributable to both rate and volume which cannot be segregated have
been allocated proportionately to the change due to volume and the change due to
rate.

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                              ------------------------------------------------------------------------
                                                         1999 vs. 1998                       1998 vs. 1997
                                              ------------------------------------  ----------------------------------
                                                    Increase                              Increase
                                                   (Decrease)                            (Decrease)
                                                     Due to              Total             Due to            Total
                                              --------------------     Increase     -------------------    Increase
                                               Volume       Rate      (Decrease)    Volume       Rate     (Decrease)
                                              --------     ------     ----------    ------       ----     ----------
<S>                                           <C>         <C>           <C>         <C>        <C>         <C>
Interest-earning assets:
 Interest-bearing deposits..................   $ (164)    $   (33)       $(197)      $ 170       $ (29)     $  141
 Trading accounting securities..............       47         ---           47         (16)         (3)        (19)
 Mortgage-backed securities.................       29         (35)          (6)          6         (11)         (5)
 Investment securities:
   Available-for-sale......................        74         (20)          54         (69)         (1)        (70)
   Held-to-maturity.........................      162         (13)         149          36          70         106
 Loans receivable...........................    1,791      (1,540)         251         839        (593)        246
 Stock in FHLB of Indianapolis..............       25          15           40          12         (22)        (10)
                                               ------     -------        -----       -----       -----      ------

   Total interest-earning assets............   $1,964     $(1,626)         338       $ 978       $(589)        389
                                               ======     =======        -----       =====       =====      ------

Interest-bearing liabilities:
 Demand and NOW accounts....................   $   62     $  (254)        (192)      $  75       $ (49)         26
 Savings deposits...........................       36        (309)        (273)         30        (106)        (76)
 Money market accounts......................      462          34          496         117          52         169
 Certificate accounts.......................       83        (703)        (620)        650         271         921
 Borrowings.................................      306        (165)         141        (369)        (63)       (432)
                                               ------     --------       -----       -----       -----     -------

   Total interest-bearing liabilities.......   $  949     $(1,397)        (448)      $ 503       $ 105         608
                                               ======     =======        -----       =====       =====     -------

Net interest income.........................                             $ 786                                (219)
                                                                         =====                              ======

</TABLE>

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
1998

     GENERAL. Net income for year ended December 31, 1999 decreased $3.3 million
to $846,000 compared to $4.1 million for the year ended December 31, 1998. The
decline in net income was primarily due to a one-time nonrecurring $4.5 million
contribution to the Mutual Federal Savings Bank Charitable Foundation, Inc. made
in connection with the stock conversion.


                                       10

<PAGE>



     NET INTEREST INCOME. Net interest income increased $786,000, or 5.3%, to
$15.6 million for 1999 from $14.8 million for 1998 reflecting a $448,000 or 2.3%
decrease in interest expense and a $338,000 or 1% increase in interest income.
Our interest rate spread increased to 3.24% for 1999 from 3.21% for 1998. In
addition, the ratio of average interest earning assets to average interest
bearing liabilities decreased to 104.05% for 1999 from 104.56% for 1998.

     INTEREST INCOME. The increase in interest income during the year ended
December 31, 1999 was due to an increase in the average balance of interest
earning assets partially offset by a lower yield. The average balance of the
loan portfolio increased $22.6 million or 5.7% to $422.6 million for 1999 from
$400 million for 1998 due to continued strong loan demand. The average yield on
our loan portfolio decreased from 8.12% in 1998 to 7.75% in 1999 primarily due
to continued refinancing activity resulting from lower market rates of interest.

     INTEREST EXPENSE. The decrease in interest expense during the year ended
December 31, 1999 was primarily due to a reduction in the average rate paid on
deposits and borrowed funds from 4.76% in 1998 to 4.38% in 1999. This was
partially offset by an increase in the average balances of borrowings and
deposits from $413.6 million in 1998 to $439.2 million in 1999.

     PROVISION FOR LOAN LOSSES. For the year ended December 31, 1999, the
provision for loan losses amounted to $760,000 compared to a provision for loan
losses in 1998 of $1.3 million. The decrease was primarily due to a $500,000
provision for loans in litigation in 1998 with no corresponding provision in
1999.

     OTHER INCOME. Other income amounted to $2.9 million and $3.4 million for
the years ended December 31, 1999 and 1998, respectively. For the year 1999,
service charges and fee income was $1.7 million compared to $1.5 million for
1998 representing an increase of $200,000 or 13.3%. This increase was primarily
due to higher fees collected as a result of increased volumes in checking
account activity. Net gains on loan sales in 1998 were $806,000; there were no
loan sales in 1999.

     OTHER EXPENSES. Exclusive of the $4.5 million contribution to the
foundation, total operating expenses increased to $12.2 million for 1999
compared to $10.8 million for year 1998 representing an increase of $1.4 million
or 13%. This increase was primarily attributed to a $1.1 million increase in
salaries and employee benefits due to a full year of expense for the employee
stock ownership plan in the fourth quarter, an increased bank-wide incentive
bonus, increased retirement benefit cost and staff expansion in branches and
business banking activity. Additionally, equipment expenses increased to
$829,000 for 1999 from $613,000 for 1998 primarily due to a change in the
estimated useful life of certain data processing equipment.

     INCOME TAX EXPENSE. Income tax expense decreased $1.9 million, or 93.3%,
from 1998 to 1999. This variation in income tax expense is directly related to
taxable income and the low income housing income tax credits earned during those
years. The effective tax rate was 14% and 33.1% for 1999 and 1998, respectively.
The effective rate declined in 1999 as compared to 1998 because the low-income
housing income tax credits remained relatively constant while the level of
income declined. The effective tax rate is expected to increase in future
periods.


                                       11

<PAGE>



COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1997

     GENERAL. We reported net income of $4.1 million for the years ended
December 31, 1998 and 1997.

     NET INTEREST INCOME. Net interest income decreased $219,000, or 1.5%, to
$14.8 million for 1998 from $15.0 million for 1997, reflecting a $608,000, or
3.2%, increase in interest expense, partially offset by a $389,000, or 1.1%,
increase in interest income. Our interest rate spread decreased to 3.21% for
1998 from 3.34% for 1997. In addition, the ratio of average interest-earning
assets to average interest-bearing liabilities decreased to 104.6% for 1998 from
105.2% for 1997.

     INTEREST INCOME. The increase in interest income during the year ended
December 31, 1998 was primarily due to an increase in the average balance of
interest-earning assets offset by a lower yield. The average balance of the loan
portfolio increased $10.3 million, or 2.6%, to $400.0 million for 1998 from
$389.7 for 1997, due to increased loan demand. The average yield earned on our
loan portfolio decreased from 8.27% in 1997 to 8.12% in 1998, primarily due to
refinancing activity resulting from a general decrease in market rates of
interest.

     INTEREST EXPENSE. The increase in interest expense during the year ended
December 31, 1998 was primarily due to the increase of $21.1 million, or 6.3%,
in the average balance of deposits, primarily due to the acquisition of $14.0
million in deposits at the end of 1997. This was partially offset by a decrease
in the average balance of borrowings. The average rate paid on deposits
increased slightly from 4.57% in 1997 to 4.59% in 1998, due to an increase in
the average rate paid on certificate accounts. The average rate paid on
borrowings decreased from 5.98% in 1997 to 5.88% in 1998.

     PROVISION FOR LOAN LOSSES. For the year ended December 31, 1998, the
provision for loan losses amounted to $1.3 million compared to a provision for
loan losses in 1997 of $700,000. The increase was primarily due to a $500,000
provision for loans in litigation.

     OTHER INCOME. Other income amounted to $3.4 million and $2.1 million for
the years ended December 31, 1998 and 1997, respectively. The increase consisted
primarily of a $806,000 gain from the sale of mortgage loans in 1998 compared to
a $184,000 gain in 1997, as well as a growth in transaction accounts.

     OTHER EXPENSES. Other expenses increased $668,000, or 6.6%, to $10.8
million for the year ended December 31, 1998 compared to the year ended December
31, 1997. This increase was primarily due to a $567,000 or 10.2% increase in
personnel expenses and a $27,000 or 4.5% increase in occupancy costs resulting
from the purchase of a full service branch office late in 1997.

LIQUIDITY AND COMMITMENTS

     Mutual Federal is required to maintain minimum levels of investments that
qualify as liquid assets under Office of Thrift Supervision regulations.
Liquidity may increase or decrease depending upon the availability of funds and
comparative yields on investments in relation to the return on

                                       12

<PAGE>



loans. Historically, we have maintained liquid assets at levels above the
minimum requirements imposed by Office of Thrift Supervision regulations and
above levels believed to be adequate to meet the requirements of normal
operations, including potential deposit outflows. Cash flow projections are
regularly reviewed and updated to ensure that adequate liquidity is maintained.
At December 31, 1999, our regulatory liquidity ratio, which is our liquid assets
as a percentage of net withdrawable savings deposits with a maturity of one year
or less and current borrowings, was 9.93%.

     Our liquidity, represented by cash and cash equivalents, is a product of
our operating, investing and financing activities. Our primary sources of funds
are deposits, amortization, prepayments and maturities of outstanding loans and
mortgage-backed securities, maturities of investment securities and other
short-term investments and funds provided from operations. While scheduled
payments from the amortization of loans and mortgage-backed securities and
maturing investment securities and short-term investments are relatively
predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions and competition. In
addition, we invest excess funds in short-term interest-earning assets, which
provide liquidity to meet lending requirements. We also generate cash through
borrowings. We utilize Federal Home Loan Bank advances to leverage our capital
base and provide funds for our lending and investment activities, and to enhance
our interest rate risk management.

     Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits or U.S. Agency securities. We use our sources of
funds primarily to meet our ongoing commitments, to pay maturing certificates of
deposit and savings withdrawals, to fund loan commitments and to maintain our
portfolio of mortgage-backed securities and investment securities. At December
31, 1999, the total approved loan origination commitments outstanding amounted
to $11.0 million. At the same date, the unadvanced portion of construction loans
was $4.7 million. At December 31, 1999, unused home equity lines of credit
totaled $26.0 million and outstanding letters of credit totaled $3.6 million. As
of December 31, 1999, certificates of deposit scheduled to mature in one year or
less totaled $158.5 million, and investment and mortgage-backed securities
scheduled to mature in one year or less totaled $2.1 million. Based on
historical experience, management believes that a significant portion of
maturing deposits will remain with us. We anticipate that we will continue to
have sufficient funds, through deposits and borrowings, to meet our current
commitments.

CAPITAL

     Consistent with our goals to operate a sound and profitable financial
organization, Mutual Federal actively seeks to remain a "well capitalized"
institution in accordance with regulatory standards. Total stockholders' equity
of MFS Financial, Inc. was $96.7 million at December 31, 1999, or 17.76% of
total assets on that date. As of December 31, 1999, Mutual Federal exceeded all
capital requirements of the Office of Thrift Supervision. Mutual Federal's
regulatory capital ratios at December 31, 1999 were as follows: core capital
13.6%; Tier I risk-based capital, 20.7%; and total risk-based capital, 21.7%.
The regulatory capital requirements to be considered well capitalized are 5.0%,
6.0% and 10.0%, respectively.


                                       13

<PAGE>



IMPACT OF ACCOUNTING PRONOUNCEMENTS

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and hedging activities. The Statement requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Statement is
effective for our financial statements for all fiscal quarters for the fiscal
year ending December 31, 2001. The adoption of this Statement is not expected to
have a material impact on our consolidated financial statements.

IMPACT OF INFLATION

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

     Our primary assets and liabilities are monetary in nature. As a result,
interest rates affect our performance more than general levels of inflation.
Interest rates, however, do not necessarily move in the same direction or with
the same magnitude as the price of goods and services, since such prices are
affected by inflation. In a period of rapidly rising interest rates, the
liquidity and maturity structure of our assets and liabilities are critical to
the maintenance of acceptable performance levels.

     The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of noninterest expense. Expense items such as
employee compensation, employee benefits and occupancy and equipment costs may
increases because of inflation. Inflation also may increase the dollar value of
the collateral securing loans that we have made. We are unable to determine the
extent to which properties securing our loans have appreciated in dollar value
due to inflation.


                                       14

<PAGE>


SELECTED QUARTERLY FINANCIAL INFORMATION

     The following table sets forth certain quarterly results for the years
ended December 31, 1999 and 1998. Earninga per share information for the periods
before Mutual Federal's conversion to a stock savings bank on December 29, 1999
is not meaningful and is therefore not provided in the table below.

<TABLE>
<CAPTION>

                                        Interest         Interest        Net Interest    Provision for
           Quarter Ended                 Income          Expense            Income        Loan-Losses        Net Income
------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>              <C>               <C>              <C>               <C>
               1999
March                                    $ 8,247          $ 4,604           $ 3,643          $   190           $   967
June                                       8,499            4,647             3,852              190               956
September                                  8,570            4,837             3,733              190               951
December                                   9,495            5,154             4,341              190            (2,028)
                                         -------          -------           -------          -------           -------
         Total                           $34,811          $19,242           $15,569          $   760           $   846
                                         =======          =======           =======          =======           =======

               1998
March                                    $ 8,715          $ 4,960           $ 3,755          $   191           $ 1,096
June                                       8,825            5,013             3,812              192             1,135
September                                  8,459            4,883             3,576              391             1,057
December                                   9,475            4,834             3,641              491               851
                                         -------          -------           -------          -------           -------
         Total                           $34,474          $19,690           $14,784          $ 1,265           $ 4,139
                                         =======          =======           =======          =======           =======
</TABLE>

                                       15

<PAGE>
                               MFS FINANCIAL, INC.
                                 AND SUBSIDIARY

                        Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997





<PAGE>





                       MFS Financial, Inc. and Subsidiary
                                Table of Contents


                                                                           Page
--------------------------------------------------------------------------------


Independent Auditor's Report                                                   1


Financial Statements

     Consolidated balance sheet                                                2

     Consolidated statement of income                                          3

     Consolidated statement of stockholders' equity                            4

     Consolidated statement of cash flows                                      5

     Notes to consolidated financial statements                                6






<PAGE>










                          Independent Auditor's Report


     Board of Directors
     MFS Financial, Inc. and Subsidiary
     Muncie, Indiana


     We have audited the accompanying consolidated balance sheet of MFS
     Financial, Inc. and subsidiary as of December 31, 1999 and 1998, and the
     related consolidated statements of income, stockholders' equity, and cash
     flows for each of the three years in the period ended December 31, 1999.
     These consolidated financial statements are the responsibility of the
     Company's management. Our responsibility is to express an opinion on these
     consolidated financial statements based on our audits.

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

     In our opinion, the consolidated financial statements described above
     present fairly, in all material respects, the consolidated financial
     position of MFS Financial, Inc. and subsidiary as of December 31, 1999 and
     1998, and the results of their operations and their cash flows for each of
     the three years in the period ended December 31, 1999 in conformity with
     generally accepted accounting principles.

     Olive LLP


     Indianapolis, Indiana
     February 4, 2000



<PAGE>





<TABLE>
<CAPTION>

                                      MFS Financial, Inc. and Subsidiary
                                          Consolidated Balance Sheet



December 31                                                                                 1999             1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>

Assets
     Cash and due from banks                                                            $  19,217,186     $  11,368,571
     Interest-bearing demand deposits                                                         765,945         1,569,531
                                                                                        -----------------------------------
            Cash and cash equivalents                                                      19,983,131        12,938,102
     Trading assets, at fair value                                                          1,234,884
     Investment securities
       Available for sale                                                                  29,598,800        14,207,620
       Held to maturity (fair value of $12,016,000 and $11,021,000)                        12,449,013        11,003,674
                                                                                        -----------------------------------
            Total investment securities                                                    42,047,813        25,211,294
     Loans, net of allowance for loan losses of $3,652,073 and $3,423,650                 442,786,919       398,146,043
     Premises and equipment                                                                 7,800,460         7,728,569
     Federal Home Loan Bank stock                                                           5,338,500         3,612,400
     Investment in limited partnerships                                                     5,274,840         5,265,796
     Cash surrender value of life insurance                                                10,806,957         9,350,000
     Foreclosed assets                                                                        728,737            45,911
     Interest receivable                                                                    2,652,959         2,186,552
     Core deposit intangibles and goodwill                                                  1,466,928         1,702,465
     Deferred income tax benefit                                                            2,670,886         1,024,450
     Other assets                                                                           1,730,426         2,303,843
                                                                                        -----------------------------------
            Total assets                                                                 $544,523,440      $469,515,425
                                                                                        ===================================

Liabilities
     Deposits
       Noninterest bearing                                                              $  14,360,929     $  14,884,904
       Interest bearing                                                                   350,243,469       351,114,505
                                                                                        -----------------------------------
            Total deposits                                                                364,604,398       365,999,409
   Securities sold under repurchase agreements                                                840,000
   Federal Home Loan Bank advances                                                         72,289,384        50,632,307
   Note payable                                                                             1,768,354         1,829,711
   Advances by borrowers for taxes and insurance                                            1,289,179         1,260,298
     Interest payable                                                                       2,153,475         2,327,966
     Other liabilities                                                                      4,866,330         3,619,938
                                                                                        -----------------------------------
            Total liabilities                                                             447,811,120       425,669,629
                                                                                        -----------------------------------

Commitments and Contingencies

Stockholders' Equity
     Preferred stock, $.01 par value
       Authorized and unissued--5,000,000 shares
     Common stock, $.01 par value
       Authorized--20,000,000 shares
       Issued and outstanding--5,819,611 shares                                                58,196
     Additional paid-in capital                                                            56,740,190
     Retained earnings                                                                     44,647,767        43,801,385
     Accumulated other comprehensive income (loss)                                           (284,047)           44,411
     Unearned employee stock ownership plan (ESOP) shares                                  (4,449,786)
                                                                                        -----------------------------------
            Total stockholders' equity                                                     96,712,320        43,845,796
                                                                                        -----------------------------------

            Total liabilities and stockholders' equity                                   $544,523,440      $469,515,425
                                                                                        ===================================

</TABLE>

See notes to consolidated financial statements.



                                                                   (2)

<PAGE>



<TABLE>
<CAPTION>


                                            MFS Financial, Inc. and Subsidiary
                                             Consolidated Statement of Income



Year Ended December 31                                                         1999            1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>              <C>            <C>

Interest and Dividend Income
     Loans receivable                                                       $32,739,166      $32,488,310    $32,241,792
     Trading account securities, at fair value                                   66,535           19,983         39,203
   Investment securities
       Mortgage-backed securities                                               323,266          329,093        334,605
       Federal Home Loan Bank stock                                             317,938          277,765        288,838
       Other investment securities                                            1,203,727          999,945        964,289
     Deposits with financial institutions                                       160,812          358,346        216,646
                                                                            -----------------------------------------------
            Total interest and dividend income                               34,811,444       34,473,442     34,085,373
                                                                            -----------------------------------------------

Interest Expense
     Deposits                                                                15,854,093       16,442,842     15,403,164
     Federal Home Loan Bank advances                                          3,350,567        3,223,168      3,647,970
     Other interest expense                                                      37,598           23,685         31,421
                                                                            -----------------------------------------------
            Total interest expense                                           19,242,258       19,689,695     19,082,555
                                                                            -----------------------------------------------

Net Interest Income                                                          15,569,186       14,783,747     15,002,818
     Provision for loan losses                                                  760,000        1,265,000        700,000
                                                                            -----------------------------------------------
   Net Interest Income After Provision for Loan Losses                       14,809,186       13,518,747     14,302,818
                                                                            -----------------------------------------------

Other Income
     Service fee income                                                       1,728,487        1,544,398      1,315,902
     Net realized gains on sales of available-for-sale securities                32,326            1,000          3,000
     Net trading assets profit (loss)                                          (189,741)          24,922         31,173
     Equity in losses of limited partnerships                                   (11,702)         (14,435)      (311,874)
     Commissions                                                                486,706          420,414        504,193
     Net gains on loan sales                                                                     805,676        184,828
     Increase in cash surrender value of life insurance                         490,957          383,856        240,000
     Other income                                                               314,817          262,302        115,701
                                                                            -----------------------------------------------
            Total other income                                                2,851,850        3,428,133      2,082,923
                                                                            -----------------------------------------------

Other Expenses
     Salaries and employee benefits                                           7,235,933        6,115,471      5,548,356
     Net occupancy expenses                                                     655,494          636,396        609,199
     Equipment expenses                                                         829,058          613,329        680,395
     Data processing fees                                                       472,621          479,001        477,643
     Advertising and promotion                                                  412,604          462,632        401,419
     Charitable contributions                                                 4,569,937           97,116         68,743
     Other expenses                                                           2,501,003        2,354,715      2,305,010
                                                                            -----------------------------------------------
            Total other expenses                                             16,676,650       10,758,660     10,090,765
                                                                            -----------------------------------------------

Income Before Income Tax                                                        984,386        6,188,220      6,294,976
     Income tax expense                                                         138,004        2,049,000      2,160,000
                                                                            -----------------------------------------------
   Net Income                                                               $   846,382     $  4,139,220   $  4,134,976
                                                                            ===============================================

</TABLE>



See notes to consolidated financial statements.


                                                                   (3)

<PAGE>



<TABLE>
<CAPTION>

                                                MFS Financial, Inc. and Subsidiary
                                          Consolidated Statement of Stockholders' Equity


                                     Common Stock                                               Accumulated
                                -----------------------                                           Other
                                                        Additional                             Comprehensive Unearned
                                   Shares                Paid-in    Comprehensive   Retained     Income        ESOP
                                 Outstanding   Amount    Capital       Income       Earnings     (Loss)       Shares     Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>       <C>          <C>           <C>         <C>            <C>      <C>

   Balances, January 1, 1997                                                      $35,527,189  $ (47,800)              $35,479,389

     Comprehensive income
       Net income                                                    $4,134,976     4,134,976                            4,134,976
       Other comprehensive
        income, net of tax
         Unrealized gains on
          securities, net of
          reclassification
          adjustment                                                     45,295                   45,295                    45,295
                                                                   ------------
     Comprehensive income                                            $4,180,271
                                -----------------------------------============---------------------------------------------------

   Balances, December 31, 1997                                                     39,662,165     (2,505)               39,659,660

     Comprehensive income
       Net income                                                    $4,139,220     4,139,220                            4,139,220
       Other comprehensive
        income, net of tax
         Unrealized gains on
          securities, net of
          reclassification
          adjustment                                                     46,916        46,916                               46,916
                                                                   ------------
     Comprehensive income                                            $4,186,136
                                -----------------------------------============---------------------------------------------------

   Balances, December 31, 1998                                                     43,801,385     44,411                43,845,796

     Comprehensive income
       Net income                                                      $846,382       846,382                              846,382
       Other comprehensive
        loss, net of tax
         Unrealized losses on
          securities, net of
          reclassification
          adjustment                                                   (328,458)                (328,458)                 (328,458)
                                                                   ------------
     Comprehensive income                                              $517,924
                                                                   ============
     Stock issued in
      conversion, net of
      costs                     5,595,780    $55,958   $54,510,552                                                      54,566,510
     Stock contributed to
      charitable foundation       223,831      2,238     2,236,072                                                       2,238,310
     Contribution of
      unearned ESOP shares                                                                                 $(4,655,680) (4,655,680)
     ESOP shares earned                                     (6,434)                                            205,894     199,460
                                -----------------------------------               ------------------------------------------------

   Balances, December 31, 1999  5,819,611    $58,196   $56,740,190                $44,647,767 $(284,047)   $(4,449,786$96,712,320
                                ===================================               ================================================

</TABLE>


See notes to consolidated financial statements.



                                                                   (4)

<PAGE>

<TABLE>
<CAPTION>
                                              MFS Financial, Inc. and Subsidiary
                                             Consolidated Statement of Cash Flows


Year Ended December 31                                                                 1999          1998           1997
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>           <C>           <C>
Operating Activities
     Net income                                                                   $    846,382  $ 4,139,220   $  4,134,976
     Adjustments to reconcile net income to net cash
      provided by operating activities
       Provision for loan losses                                                       760,000    1,265,000        700,000
       Common stock contributed to charitable foundation                             2,238,310
       Securities gains                                                                (32,326)      (1,000)        (3,000)
       Net loss on disposal of premise and equipment                                    19,301
       Net loss on sale of real estate owned                                            58,676      137,112
       Securities amortization (accretion), net                                        (15,813)     (26,390)            90
       ESOP shares earned                                                              199,460
       Equity in losses of limited partnerships                                         11,702       14,435        311,874
       Amortization of net loan origination costs                                    1,371,722      842,251        840,125
       Amortization of core deposit intangibles and goodwill                           235,537      246,194         33,078
       Depreciation and amortization                                                   802,486      570,184        616,787
       Deferred income tax                                                          (1,418,864)     282,942       (269,454)
       Loans originated for sale                                                                (16,295,533)    (5,706,313)
       Proceeds from sales on loans held for sale                                                35,447,044      5,743,831
       Gains on sales of loans held for sale                                                       (548,491)       (37,518)
       Change in
         Trading account securities                                                 (1,234,884)                    454,732
         Interest receivable                                                          (466,407)     192,210        (47,054)
         Other assets                                                                  573,417     (847,971)       106,847
         Interest payable                                                             (174,491)    (141,538)        33,975
         Other liabilities                                                           1,246,392     (542,445)       405,047
         Increase in cash surrender value of life insurance                           (490,957)     (383,856)     (240,000)
       Other adjustments                                                                               6,646       258,439
                                                                                  --------------------------------------------
            Net cash provided by operating activities                                4,510,342    24,375,315     7,336,462
                                                                                  --------------------------------------------
Investing Activities
     Purchases of securities available for sale                                    (25,866,267)   (7,016,986)  (10,828,305)
     Proceeds from maturities and paydowns of securities available for sale          1,711,883     2,150,076       894,391
     Proceeds from sales of securities available for sale                            8,252,785     4,115,510     9,415,998
     Purchases of securities held to maturity                                       (8,463,897)  (11,793,604)   (5,684,297)
     Proceeds from maturities and paydowns of securities held to maturity            7,021,088    10,973,718     4,505,500
     Net change in loans                                                           (47,744,581)  (20,685,925)  (24,212,540)
     Purchases of premises and equipment                                              (874,377)   (1,461,965)     (903,571)
     Proceeds from real estate owned sales                                             266,798     1,565,489        52,425
     Purchase of FHLB of Indianapolis stock                                         (1,726,100)                   (241,700)
     Purchase of interest in limited partnership                                                  (2,085,000)
     Distribution from (to) limited partnership                                        (20,746)       55,074       137,098
     Purchases of insurance contracts                                                 (966,000)   (3,000,000)     (300,000)
     Cash received on branch acquisition                                                             309,413    11,903,914
     Other investing activities                                                        (36,319)      (22,778)      118,676
                                                                                  --------------------------------------------
            Net cash used by investing activities                                  (68,445,733)  (26,896,978)  (15,142,411)
                                                                                  --------------------------------------------
Financing Activities
     Net change in
       Noninterest-bearing, interest-bearing demand and savings deposits             1,275,554    23,571,794    (9,259,396)
       Certificates of deposits                                                     (2,670,565)   (2,784,446)    9,811,301
       Securities sold under repurchase agreements                                     840,000                  (1,400,000)
     Repayment of note payable                                                         (61,357)      (25,566)
     Proceeds from FHLB advances                                                   157,000,000    53,700,000   113,195,000
     Repayment of FHLB advances                                                   (135,342,923)  (69,322,214) (106,649,421)
     Net change in advances by borrowers for taxes and insurance                        28,881       (28,351)      (83,756)
     Proceeds from sale of common stock, net of costs                               49,910,830
                                                                                  --------------------------------------------
            Net cash provided by financing activities                               70,980,420     5,111,217     5,613,728
                                                                                  --------------------------------------------

Net Change in Cash and Cash Equivalents                                              7,045,029     2,589,554    (2,192,221)

Cash and Cash Equivalents, Beginning of Year                                        12,938,102    10,348,548    12,540,769
                                                                                  --------------------------------------------
Cash and Cash Equivalents, End of Year                                             $19,983,131   $12,938,102   $10,348,548
                                                                                  ============================================
Additional Cash Flows Information
     Interest paid                                                                 $19,416,749   $19,831,233   $19,048,580
     Income tax paid                                                                 1,716,402     2,524,700     2,449,536
     Transfers from loans to foreclosed real estate                                    971,983       128,288     1,873,356
     Note payable issued for investment in limited partnership                                     1,855,277
     Loans transferred to loans held for sale                                                     18,603,020
     Mortgage servicing rights capitalized                                                           257,185       146,828
     Common stock issued to ESOP leveraged with an employee loan                     4,655,680

</TABLE>


See notes to consolidated financial statements.


                                                                   (5)

<PAGE>



                       MFS Financial, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)


Note 1 -- Nature of Operations and Summary of Significant Accounting Policies

The accounting and reporting  policies of MFS Financial,  Inc. (Company) and its
wholly  owned  subsidiary,  Mutual  Federal  Savings  Bank (Bank) and the Bank's
wholly owned  subsidiaries,  First MFSB Corporation and Third MFSB  Corporation,
conform to generally  accepted  accounting  principles  and reporting  practices
followed  by the thrift  industry.  The more  significant  of the  policies  are
described below.

During 1998, Kosciusko Service  Corporation,  a formerly wholly owned subsidiary
of the Bank, was merged into the Bank.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

The  Company  is a  thrift  holding  company  whose  principal  activity  is the
ownership of the Bank.  The Bank  operates  under a federal  thrift  charter and
provides full banking services.  As a federally  chartered  thrift,  the Bank is
subject to  regulation  by the  Office of Thrift  Supervision,  and the  Federal
Deposit  Insurance  Corporation.

The Bank generates mortgage, consumer and commercial loans and receives deposits
from  customers   located  primarily  in  Delaware,   Kosciusko,   Randolph  and
surrounding  counties.  The Bank's loans are generally secured by specific items
of collateral  including real  property,  consumer  assets and business  assets.
First MFSB sells  various  insurance  products.  Third MFSB offers tax  deferred
annuities and long-term health care and life insurance products.

Consolidation--The consolidated financial statements include the accounts of the
Company  and  the  Bank  after   elimination   of  all   material   intercompany
transactions.

Investment  Securities--Debt  securities are classified as held to maturity when
the  Company  has the  positive  intent and  ability to hold the  securities  to
maturity.  Securities  held to maturity  are  carried at  amortized  cost.  Debt
securities  not  classified  as held to  maturity,  or  included  in the trading
account  and  marketable  equity  securities  not  classified  as  trading,  are
classified as available for sale.  Securities  available for sale are carried at
fair value with unrealized  gains and losses reported  separately in accumulated
other comprehensive  income, net of tax. Trading account securities are held for
resale in  anticipation  of short-term  market  movements and are valued at fair
value.  Gains and losses,  both realized and  unrealized,  are included in other
income.

Amortization  of premiums  and  accretion of  discounts  are recorded  using the
interest  method as interest income from  securities.  Realized gains and losses
are  recorded  as net  security  gains  (losses).  Gains and  losses on sales of
securities are determined on the specific-identification method.

                                       (6)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Loans are carried at the principal amount outstanding.  A loan is impaired when,
based on current  information or events, it is probable that the Company will be
unable to collect all amounts due  (principal  and  interest)  according  to the
contractual terms of the loan agreement.  Payments with insignificant delays not
exceeding 90 days outstanding are not considered  impaired.  Certain  nonaccrual
and substantially delinquent loans may be considered to be impaired. The Company
considers its investmen in  one-to-four  family  residential  loans and consumer
loans to be homogeneous and therefore excluded from separate  identification for
evaluation of impairment.  Interest income is accrued on the principal  balances
of  loans.  The  accrual  of  interest  on  impaired  and  nonaccrual  loans  is
discontinued when, in management's  opinion,  the borrower may be unable to meet
payments as they become due. When interest accrual is  discontinued,  all unpaid
accrued interest is reversed when considered  uncollectible.  Interest income is
subsequently  recognized only to the extent cash payments are received.  Certain
loan fees and direct costs are being  deferred and amortized as an adjustment of
yield on the loans over the contractual maturity of the loans.

Allowance  for  loan  losses  is  maintained  to  absorb  loan  losses  based on
management's  continuing  review and  evaluation  of the loan  portfolio and its
judgment  as to  the  impact  of  economic  conditions  on  the  portfolio.  The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio,  the current  condition and amount of loans
outstanding,  and the probability of collecting all amounts due.  Impaired loans
are  measured by the present  value of expected  future cash flows,  or the fair
value of the collateral of the loan, if collateral dependent.

The  determination  of the adequacy of the allowance for loan losses is based on
estimates  that are  particularly  susceptible  to  significant  changes  in the
economic  environment  and market  conditions.  Management  believes  that as of
December  31,  1999,  the  allowance  for  loan  losses  is  adequate  based  on
information  currently available.  A worsening or protracted economic decline in
the area within which the Company  operates  would  increase the  likelihood  of
additional  losses due to credit and market  risks and could create the need for
additional loss reserves.

Premises  and  equipment  are carried at cost net of  accumulated  depreciation.
Depreciation is computed using the straight-line method based principally on the
estimated useful lives of the assets which range from 3 to 50 years. Maintenance
and repairs are expensed as incurred while major additions and  improvements are
capitalized.   Gains  and  losses  on  dispositions   are  included  in  current
operations.

Federal Home Loan Bank stock is a required  investment for institutions that are
members of the Federal Home Loan Bank system.  The  required  investment  in the
common stock is based on a predetermined formula.

Investment  in limited  partnerships  is  recorded  using the  equity  method of
accounting. Losses due to impairment are recorded when it is determined that the
investment  no longer has the  ability  to  recover  its  carrying  amount.  The
benefits of low income  housing tax credits  associated  with the investment are
accrued when earned.

Foreclosed  assets are carried at the lower of cost or fair value less estimated
selling costs. When foreclosed assets are acquired,  any required  adjustment is
charged to the allowance for loan losses. All subsequent activity is included in
current operations.




                                       (7)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Intangible  assets  are  being  amortized   primarily  on  a  straight-line  and
accelerated  basis  over a period  of 15 years.  Such  assets  are  periodically
evaluated as to the recoverability of their carrying value.

Mortgage  servicing rights on originated loans are capitalized by allocating the
total cost of the mortgage loans between the mortgage  servicing  rights and the
loans based on their  relative  fair values.  Capitalized  servicing  rights are
amortized in proportion to and over the period of estimated servicing revenues.

Income tax in the consolidated  statement of income includes deferred income tax
provisions or benefits for all significant  temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiary.

Earnings per share will be computed  based upon the weighted  average common and
potential common shares  outstanding  during the period subsequent to the Bank's
conversion  to a stock  savings bank on December 29, 1999.  Net income per share
for the periods prior to the conversion is not meaningful.

Reclassifications of certain amounts in the 1998 and 1997 consolidated financial
statements have been made to conform to the 1999 presentation.


Note 2 -- Conversion

On  December  29,  1999,  the Bank  completed  the  conversion  from a federally
chartered mutual institution to a federally chartered stock savings bank and the
formation  of the  Company as the  holding  company of the Bank.  As part of the
conversion,  the  Company  issued  5,595,780  shares of common  stock at $10 per
share.  Net proceeds of the Company's stock issuance,  after costs of $1,391,000
and  excluding  the  shares  issued  for the ESOP,  were  $49,911,000,  of which
$27,284,000  was used to acquire 100% of th stock and ownership of the Bank. The
transaction  was accounted for at  historical  cost in a manner  similar to that
utilized in a pooling of  interests.  In  connection  with the  Conversion,  the
Company  contributed  223,831  shares of common stock and cash of  $2,238,000 to
Mutual Federal  Savings Bank Charitable  Foundation,  Inc. (the  Foundation),  a
charitable  foundation  dedicated to  community  development  activities  in the
Company's  market  areas.  This  resulted in the  recognition  of an  additional
$4,477,000 charitable contribution expense for the year ended December 31, 1999.

Note 3 -- Restriction on Cash

The Bank is required to maintain  reserve  funds in cash and/or on deposit  with
the Federal  Reserve  Bank.  The reserve  required at  December  31,  1999,  was
$2,925,000.



                                       (8)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 4 -- Investment Securities

<TABLE>
<CAPTION>

                                                                                             1999
                                                          -----------------------------------------------------------------
                                                                                 Gross          Gross
                                                               Amortized       Unrealized     Unrealized         Fair
December 31                                                      Cost           Gains           Losses          Value
---------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>            <C>             <C>

         Available for sale
              Mortgage-backed securities                       $  9,517           $25           $(155)          $  9,387
              Collateralized mortgage obligations                 4,584                           (48)             4,536
              Federal agencies                                    2,416                           (34)             2,382
              Corporate obligations                               7,781                           (74)             7,707
              Marketable equity securities                        5,781                          (194)             5,587
                                                          -----------------------------------------------------------------
                Total available for sale                         30,079            25            (505)            29,599
                                                          -----------------------------------------------------------------
         Held to maturity
              Federal agencies                                   10,200                          (413)             9,787
              Corporate obligations                               2,099                           (20)             2,079
              Municipal obligation                                  150                                              150
                                                          -----------------------------------------------------------------
                Total held to maturity                           12,449                          (433)            12,016
                                                          -----------------------------------------------------------------
                Total investment securities                     $42,528           $25           $(938)           $41,615
                                                          =================================================================

</TABLE>

<TABLE>
<CAPTION>
                                                                                             1998
                                                          -----------------------------------------------------------------
                                                                                 Gross          Grosss
                                                               Amortized       Unrealized     Unrealized         Fair
December 31                                                      Cost           Gains           Losses          Value
---------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>            <C>             <C>
         Available for sale
              Mortgage-backed securities                       $  5,129          $171           $  (3)          $  5,297
              Federal agencies                                    1,244            42                              1,286
              Marketable equity securities                        7,761                          (136)             7,625
                                                          -----------------------------------------------------------------
                Total available for sale                         14,134           213            (139)            14,208
                                                          -----------------------------------------------------------------

         Held to maturity
              Federal agencies                                    6,220            13             (13)             6,220
              Corporate obligations                               4,634            22              (5)             4,651
              Municipal                                             150                                              150
                                                          -----------------------------------------------------------------
                Total held to maturity                           11,004            35             (18)            11,021
                                                          -----------------------------------------------------------------

                Total investment securities                     $25,138          $248           $(157)           $25,229
                                                          =================================================================
</TABLE>

Marketable equity  securities  consist of shares in mutual funds which invest in
government obligations and mortgage-backed securities.


                                       (9)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


The amortized  cost and fair value of securities  held to maturity and available
for sale at  December  31,  1999,  by  contractual  maturity,  are shown  below.
Expected maturities will differ from contractual  maturities because issuers may
have the right to call or prepay  obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
                                                                                            1999
                                                        -------------------------------------------------------------------
                                                                    Available for Sale                 Held to Maturity
                                                        -------------------------------------------------------------------
                                                             Amortized          Fair           Amortized           Fair
December 31                                                    Cost             Value            Cost              Value
---------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>              <C>               <C>
       Within one year                                                                         $  1,862          $  1,854
       One to five years                                     $  8,283         $  8,197            5,944             5,778
       Five to ten years                                          970              956            3,493             3,336
       After ten years                                            501              500            1,150             1,048
                                                        -------------------------------------------------------------------
                                                                9,754            9,653           12,449            12,016
       Mortgage-backed securities                               9,517            9,387
       Collateralized mortgage obligations                      4,584            4,536
       Small Business Administration                              443              436
       Marketable equity securities                             5,781            5,587
                                                        -------------------------------------------------------------------

                Totals                                        $30,079          $29,599          $12,449           $12,016
                                                        ===================================================================
</TABLE>

Securities with a carrying value of $30,159,000 and $12,803,000  were pledged at
December 31, 1999 and 1998 to secure FHLB advances.

Proceeds  from sales of  securities  available  for sale  during the years ended
December 31, 1999,  1998 and 1997 were  $8,253,000,  $4,116,000 and  $9,416,000.
Gross gains of $79,000,  $1,000 and $3,000 were realized on those sales in 1999,
1998 and 1997. Gross losses of $47,000 were recognized on those sales in 1999.

Trading  account  securities at December 31, 1999 consisted of U. S.  Government
bonds with a fair value of  $1,235,000.  Unrealized  holding  losses of $212,000
were included in earnings for the year ended December 31, 1999 and there were no
unrealized holding gains or losses on trading securities included in earnings in
1998 and 1997. Trading account securities with a carrying value of $823,000 were
pledged at December 31, 1999 to secure repurchase agreements.




                                      (10)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 5 -- Loans and Allowance


<TABLE>
<CAPTION>

December 31                                                    1999             1998
-----------------------------------------------------------------------------------------
<S>                                                           <C>               <C>
       Loans
         Real estate loans
           One-to-four family                                 $286,578          $264,461
           Multi family                                          5,544             6,282
           Commercial                                           14,559            10,293
           Construction and development                         12,470            11,805
                                                       ----------------------------------
                                                               319,151           292,841
                                                       ----------------------------------
         Consumer loans
           Auto                                                 19,887            17,820
           Home equity                                          10,585            10,253
           Home improvement                                     14,588            12,108
           Mobile home                                          12,305            15,466
           Recreational vehicles                                25,629            19,100
           Boats                                                32,374            23,608
           Credit cards                                          2,180             2,281
           Other                                                 2,374             3,472
                                                       ----------------------------------
                                                               119,922           104,108
         Commercial business loans                              10,764             7,285
                                                       ----------------------------------
                                                               449,837           404,234

         Undisbursed portion of loans                           (4,844)           (3,353)
         Deferred loan fees, and costs, net                      1,446               689
         Allowance for loan losses                              (3,652)           (3,424)
                                                       ----------------------------------
                Total loans                                   $442,787          $398,146
                                                       ==================================
</TABLE>


                                      (11)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

<TABLE>
<CAPTION>

Year Ended December 31                                                       1999          1998          1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>          <C>
Allowance for loan losses
       Balances, January 1                                                    $3,424        $3,091         $2,990
       Provision for losses                                                      760         1,265            700
       Recoveries on loans                                                       119           106             91
       Loans charged off                                                        (651)       (1,038)          (690)
                                                                       ---------------------------------------------
       Balances, December 31                                                  $3,652        $3,424         $3,091
                                                                       =============================================

</TABLE>

Information on impaired loans is summarized below.

<TABLE>
<CAPTION>

December 31                                                                                               1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                        <C>
Impaired loans with an allowance                                                                            $504
                                                                                                     ===============
Allowance for impaired loans included in the Company's allowance for loan losses                            $100
                                                                                                     ===============
</TABLE>

<TABLE>
<CAPTION>

Year Ended December 31                                                           1999         1998         1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>           <C>         <C>
Average balance of impaired loans                                                 $429         $517         $949
Interest income recognized on impaired loans                                         9           56
Cash-basis interest included above                                                   9           56

</TABLE>

There were no impaired loans at December 31, 1999 and 1997.


Note 6 -- Premises and Equipment

<TABLE>
<CAPTION>

December 31                                                                                  1999            1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>            <C>
Cost
       Land                                                                                  $1,691         $1,557
       Buildings and land improvements                                                        8,269          8,213
       Equipment                                                                              5,236          4,635
                                                                                      ------------------------------
         Total cost                                                                          15,196         14,405
Accumulated depreciation                                                                     (7,396)        (6,676)
                                                                                      ------------------------------

         Net                                                                                 $7,800         $7,729
                                                                                      ==============================

</TABLE>
                                      (12)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 7 -- Investment In Limited Partnerships

<TABLE>
<CAPTION>

December 31                                                                                     1999           1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>

Pedcor Investments 1988-V (98.97 percent ownership, equity method of accounting)             $  522         $   523
Pedcor Investments 1990-XIII (99.00 percent ownership, equity method of accounting)             683             696
Pedcor Investments 1990-XI (19.79 percent ownership, at amortized cost)                          96             107
Pedcor Investments 1997-XXVlll (99.00 percent ownership, equity method of accounting)         3,974           3,940
                                                                                            -------------------------------
                                                                                             $5,275          $5,266
                                                                                            ===============================
</TABLE>

The limited partnerships build, own and operate apartment complexes. The Company
records its equity in the net income or loss of the Pedcor  Investments  1988-V,
1990-XIII,  and 1997-XXVIII based on the Company's interest in the partnerships.
The Company has recorded its  investment in Pedcor  Investments  1990-XI,  which
represents  less than a 20 percent  ownership,  at  amortized  cost and  records
income when  distributions are received.  In addition,  the Company has recorded
the benefit of low income housing  credits of $262,000 for 1999,  1998 and 1997.
Condensed  financial  statements for Pedcor Investments 1988-V,  1990-XIII,  and
1997-XXVIII recorded under the equity method of accounting are as follows:

<TABLE>
<CAPTION>

 December 31                                                       1999            1998
--------------------------------------------------------------------------------------------
<S>                                                              <C>            <C>
Condensed statement of financial condition
  Assets
   Cash                                                          $     313       $     198
   Land and property                                                22,401          18,664
   Other assets                                                      1,694           6,303
                                                             -------------------------------

        Total assets                                               $24,408         $25,165
                                                             ===============================

  Liabilities
   Notes payable                                                   $22,656         $23,021
   Other liabilities                                                   820           1,020
                                                             -------------------------------
        Total liabilities                                           23,476          24,041
                                                             -------------------------------
  Partners' equity (deficit)
   General partners                                                 (2,423)         (2,194)
   Limited partners                                                  3,355           3,318
                                                             -------------------------------
        Total partners' equity                                         932           1,124
                                                             -------------------------------

        Total liabilities and partners' equity                     $24,408         $25,165
                                                             ===============================

</TABLE>

                                      (13)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


<TABLE>
<CAPTION>

Year Ended December 31                                                            1999         1998          1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>           <C>
Condensed statement of operations
        Total revenue                                                           $2,497        $2,389        $2,418
        Total expenses                                                           2,499         2,377         2,418
                                                                            -----------------------------------------
          Net income                                                          $     (2)     $     12      $      0
                                                                            =========================================
</TABLE>

Note 8 -- Deposits

<TABLE>
<CAPTION>

December 31                                                                               1999              1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                <C>
Noninterest-bearing demand                                                             $  14,361         $  14,885
Interest-bearing demand                                                                   38,199            42,354
Regular passbook                                                                          37,601            39,418
90-day passbook                                                                            2,191             2,824
Money market savings                                                                      42,091            33,686
Certificates and other time deposits of $100,000 or more                                  44,804            36,148
  Other certificates                                                                     185,357           196,684
                                                                                 -----------------------------------

         Total deposits                                                                 $364,604          $365,999
                                                                                 ===================================
</TABLE>

Certificates including other time deposits of $100,000 or more maturing in years
ending December 31:


2000                                                           $158,502
2001                                                             55,516
2002                                                              7,848
2003                                                              4,535
2004                                                              3,760
                                                         ----------------

                                                               $230,161
                                                         ================


Note 9 -- Securities Sold Under Repurchase Agreements

Securities  sold  under  repurchase  agreements  consist of  obligations  of the
Company to other parties.  The  obligations  are secured by U. S. Treasury bonds
and such collateral is held in trust at a financial services company.

There was one  outstanding  agreement of $840,000 at December 31, 1999  maturing
January  13,  2000 and none at the end of 1998 nor were  there  any  outstanding
agreements  at any  month-end  during 1998.  The maximum  amount of  outstanding
agreements at any month-end  during 1999 and 1997 totaled  $895,000 and $875,000
respectively.  The monthly average of such agreements  totaled $400,000,  $2,000
and $20,000 for the years ended December 31, 1999, 1998 and 1997.


                                      (14)

<PAGE>


MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 10 -- Federal Home Loan Bank Advances

<TABLE>
<CAPTION>
                                                   Weighted
                                                   Average
Maturities Year Ending December 31                   Rate            Amount
------------------------------------------------------------------------------
<S>                                                 <C>             <C>
         2000                                       5.89%           $45,205
         2001                                       5.23              1,000
         2002                                       5.91              2,000
         2003                                       5.09              8,131
         2004
         Thereafter                                 5.43             15,953
                                                                ----------------

                                                    5.69%           $72,289
                                                                ================
</TABLE>

The terms of a security  agreement  with the FHLB  require the Bank to pledge as
collateral for advances and outstanding  letters of credit both qualifying first
mortgage  loans and  investment  securities  in an amount  equal to at least 170
percent  of these  advances  and  letters  of credit.  Advances  are  subject to
restrictions or penalties in the event of prepayment.


Note 11 -- Note Payable

The Bank has a  noninterest-bearing,  unsecured  term  note  payable  to  Pedcor
Investments 1997-XXVIII,  L.P. of $1,768,000 at December 31, 1999 and $1,830,000
at December 31, 1998 payable in semiannual installments through January 1, 2010.
At  December  31, 1999 and 1998,  the Bank was  obligated  under an  irrevocable
direct pay letter of credit  for the  benefit of a third  party in the amount of
$1,254,000  relating to this note and the financing for an apartment  project by
Pedcor Investments 1997-XXVIII L.P. (see Note 7).



                                                                     Note
                                                                    Payable
Maturities Year Ending December 31                                  Pedcor
--------------------------------------------------------------------------------

2000                                                               $     61
2001                                                                     61
2002                                                                     61
2003                                                                     61
2004                                                                     61
Thereafter                                                            1,463
                                                                 ---------------

                                                                     $1,768
                                                                 ===============




                                      (15)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 12 -- Loan Servicing

Loans  serviced  for others are not  included in the  accompanying  consolidated
balance  sheet.  The unpaid  principal  balances of these  loans  consist of the
following:

<TABLE>
<CAPTION>

December 31                                       1999            1998            1997
-----------------------------------------------------------------------------------------------
<S>                                             <C>              <C>             <C>
Mortgage loan portfolio serviced for
       Freddie Mac                               $22,128         $26,906          $16,785
       Fannie Mae                                  9,977          14,520              908
       Other investors                               311             882              904
                                             --------------- ---------------- --------------

                                                 $32,416         $42,308          $18,597
                                             =============== ================ ==============
</TABLE>

The aggregate fair value of capitalized  mortgage  servicing  rights at December
31, 1999,  1998 and 1997 is based on comparable  market values and expected cash
flows,  with impairment  assessed based on portfolio  characteristics  including
product type, investor type, and interest rates.

No valuation allowance was necessary at December 31, 1999, 1998 and 1997.

<TABLE>
<CAPTION>

Year Ended December 31                            1999             1998             1997
--------------------------------------------------------------------------------------------------
<S>                                             <C>              <C>              <C>
Mortgage Servicing Rights
       Balances, January 1                      $339,904          $128,298
       Servicing rights capitalized                                257,185         $146,828
       Amortization of servicing rights          (60,735)          (45,579)         (18,530)
                                            ----------------- ---------------  ----------------

       Balances, December 31                    $279,169          $339,904         $128,298
                                            ================= ===============  ================

</TABLE>


                                      (16)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 13 -- Income Tax

<TABLE>
<CAPTION>

Year Ended December 31                                                        1999          1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>           <C>
Income tax expense
  Currently payable
    Federal                                                                  $1,088        $1,308         $1,837
    State                                                                       469           458            592
  Deferred
    Federal                                                                  (1,408)          216           (212)
    State                                                                       (11)           67            (57)
                                                                      ----------------------------------------------

         Total income tax expense                                            $  138        $2,049         $2,160
                                                                      ==============================================

Reconciliation of federal statutory to actual tax expense
    Federal statutory income tax at 34%                                      $  335        $2,104         $2,140
    Effect of state income taxes                                                302           347            353
    Low income housing credits                                                 (262)         (262)          (262)
    Tax exempt income--increase in cash surrender value                        (167)         (131)           (81)
    Other                                                                       (70)           (9)            10
                                                                      ----------------------------------------------
         Actual tax expense                                                  $  138        $2,049         $2,160
                                                                      ==============================================

Effective tax rate                                                          14.0%          33.1%         34.3%
                                                                      ==============================================
</TABLE>






                                      (17)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


The components of the deferred asset are as follows:

<TABLE>
<CAPTION>

December 31                                                                                   1999           1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>            <C>
Assets
  Allowance for loan losses                                                             $1,485         $1,342
  Deferred compensation                                                                  1,205          1,075
  Charitable contribution carryover                                                      1,390
  Unrealized loss on securities available for sale                                         198
  Other                                                                                    193            110
                                                                                 ------------------------------
    Total assets                                                                         4,471          2,527
                                                                                 ------------------------------

Liabilities
  FHLB stock                                                                              (165)          (165)
  Depreciation                                                                            (116)           (84)
  State income tax                                                                         (92)           (88)
  Loan fees                                                                             (1,125)          (811)
  Increase in tax bad debt reserve over base year                                          (92)          (115)
  Unrealized gain on securities available for sale                                                        (30)
  Mortgage servicing rights                                                               (119)          (144)
  Investments in limited partnership                                                       (91)           (66)
                                                                                 ------------------------------
    Total liabilities                                                                   (1,800)        (1,503)
                                                                                 ------------------------------

                                                                                        $2,671         $1,024
                                                                                 ==============================
</TABLE>

The Company has a charitable  contribution  carryover of $4,570,000 that expires
in the year ending December 31, 2005.

Income tax expense attributable to securities gains was $12,800, $400 and $1,200
for the years ended December 31, 1999 and 1998 and 1997.

Retained earnings include approximately  $6,443,000 for which no deferred income
tax  liability  has been  recognized.  This amount  represents  an allocation of
income to bad debt  deductions  as of December 31, 1987 for tax  purposes  only.
Reduction of amounts so allocated for purposes other than tax bad debt losses or
adjustments  arising from carryback of net operating  losses would create income
for tax  purposes  only,  which  income  would be  subject  to the  then-current
corporate  income tax rate. The unrecorded  deferred income tax liability on the
above amounts was approximately $2,552,000.




                                      (18)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 14 -- Other Comprehensive Income

<TABLE>
<CAPTION>

                                                                                                     1999
                                                                          -------------------------------------------------
                                                                                                Tax
                                                                             Before-Tax      (Expense)       Net-of-Tax
Year Ended December 31                                                         Amount         Benefit          Amount
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>              <C>
Unrealized losses on securities
     Unrealized holding losses arising during the year                           $515          $206            $(309)
     Less: reclassification adjustment for gains realized in net income            32           (13)              19
                                                                          -------------------------------------------------

     Net unrealized losses                                                      $(547)         $219            $(328)
                                                                          =================================================

</TABLE>

<TABLE>
<CAPTION>
                                                                                                     1998
                                                                          -------------------------------------------------
                                                                                                Tax
                                                                             Before-Tax      (Expense)       Net-of-Tax
Year Ended December 31                                                         Amount         Benefit          Amount
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>           <C>
Unrealized gains on securities
     Unrealized holding gains arising during the year                             $79            $(31)             $48
     Less: reclassification adjustment for gains realized in net income             1                                1
                                                                          -------------------------------------------------

     Net unrealized gains                                                         $78            $(31)             $47
                                                                          =================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                                     1997
                                                                          -------------------------------------------------
                                                                                                Tax
                                                                             Before-Tax      (Expense)       Net-of-Tax
Year Ended December 31                                                         Amount         Benefit          Amount
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>              <C>
Unrealized gains on securities
     Unrealized holding gains arising during the year                             $78            $(31)             $47
     Less: reclassification adjustment for gains realized in net income             3              (1)               2
                                                                          -------------------------------------------------

     Net unrealized gains                                                         $75            $(30)             $45
                                                                          =================================================

</TABLE>

Note 15 -- Commitments and Contingent Liabilities

In  the  normal  course  of  business  there  are  outstanding  commitments  and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements.  The
Bank's exposure to credit loss in the event of nonperformance by the other party
to the  financial  instruments  for  commitments  to extend  credit and  standby
letters of credit is represented by the  contractual or notional amount of those
instruments.  The Bank uses the same credit policies in making such  commitments
as it does for instruments  that are included in the  consolidated  statement of
financial condition.



                                      (19)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Financial  instruments  whose  contract  amount  represents  credit risk were as
follows:

<TABLE>
<CAPTION>

December 31                                       1999           1998
-------------------------------------------------------------------------------
<S>                                             <C>            <C>
Loan commitments                                $41,700        $33,530
Loans sold with recourse                             93            165
Standby letters of credit                         3,617          2,500

</TABLE>

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent future cash  requirements.  The Bank evaluates each customer's  credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's  credit
evaluation.  Collateral held varies,  but may include  residential  real estate,
income-producing commercial properties, or other assets of the borrower.

Standby  letters of credit  are  conditional  commitments  issued by the Bank to
guarantee the performance of a customer to a third party.

The Company and  subsidiary  are also subject to claims and lawsuits which arise
primarily in the ordinary  course of business.  It is the opinion of  management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material  adverse effect on the  consolidated  financial  position of the
Company.


Note 16 -- Dividend and Capital Restrictions

The  Company is not  subject to any  regulatory  restrictions  on the payment of
dividends to its stockholders.

Without prior approval,  current  regulations allow the Bank to pay dividends to
the Company not exceeding retained net income for the current calendar year plus
those for the previous two calendar years. The Bank normally restricts dividends
to a  lesser  amount  because  of the  need  to  maintain  an  adequate  capital
structure.

At the time of conversion,  a liquidation  account was  established in an amount
equal to the Banks' net worth as reflected in the latest  statement of condition
used in its final  conversion  offering  circular.  The  liquidation  account is
maintained  for the benefit of eligible  deposit  account  holders who  maintain
their deposit account in the Bank after  conversion.  In the event of a complete
liquidation,  and only in such event,  each eligible deposit account holder will
be entitled to receive a liquidation  distribution from the liquidation  account
in the  amount of the then  current  adjusted  subaccount  balance  for  deposit
accounts  then  held,  before  any  liquidation  distribution  may  be  made  to
stockholders.  Except for the repurchase of stock and payment of dividends,  the
existence of the liquidation account will not restrict the use or application of
net worth. The initial balance of the liquidation account was $45,619,000.

At December 31, 1999, the stockholder's  equity of the Bank was $74,628,000,  of
which approximately $7,966,000 was available for the payment of dividends to the
Company.


                                      (20)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 17 -- Regulatory Capital

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies and is assigned to a capital category. The assigned
capital  category is largely  determined  by three  ratios  that are  calculated
according to the  regulations:  total risk adjusted  capital,  Tier 1 risk-based
capital,  and core leverage  ratios.  The ratios are intended to measure capital
relative to assets and credit risk  associated with those assets and off-balance
sheet  exposures  of the entity The capital  category  assigned to an entity can
also be affected by qualitative  judgments made by regulatory agencies about the
risk  inherent in the entity's  activities  that are not part of the  calculated
ratios.

There are five capital categories defined in the regulations,  ranging from well
capitalized to critically  undercapitalized.  Classification of a bank in any of
the  undercapitalized  categories can result in actions by regulators that could
have a material  effect on a bank's  operations.  At December 31, 1999 and 1998,
the Bank is categorized as well capitalized and met all subject capital adequacy
requirements.  There are no  conditions  or events since  December 31, 1999 that
management believes have changed the Bank's classification.

The Bank's actual and required capital amounts and ratios are as follows:

<TABLE>
<CAPTION>
                                                                                    Required for             To Be Well
                                                                Actual            Adequate Capital(1)        Capitalized(1)
                                                        ----------------------------------------------------------------------
                                                          Amount      Ratio      Amount       Ratio      Amount       Ratio
------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>        <C>         <C>          <C>         <C>         <C>
As of December 31, 1999

Total risk-based capital 1 (to risk-weighted assets)      $76,994     21.7%       $28,357     8.0%        $35,446     10.00%

Tier 1 risk-based capital 1 (to risk-weighted assets)      73,445     20.7%        14,179     4.0%         21,268      6.00%

Core capital 1 (to adjusted total assets)                  73,445     13.6%        16,252     3.0%         27,086      5.00%

Core capital 1 (to adjusted tangible assets)               73,445     13.6%        10,835     2.0%             NA        NA

Tangible capital 1 (to adjusted total assets)              73,445     13.6%         8,126     1.5%             NA        NA

As of December 31, 1998

Total risk-based capital 1 (to risk-weighted assets)      $45,243     15.27%      $23,710     8.0%        $29,637     10.0%

Tier 1 risk-based capital 1 (to risk-weighted assets)      42,100     14.21%       11,855     4.0%         17,782      6.0%

Core capital 1 (to adjusted total assets)                  42,100      9.03%       13,992     3.0%         23,320      5.0%

Core capital 1 (to adjusted tangible assets)               42,100      9.03%        9,328     2.0%             NA       NA

Tangible capital 1 (to adjusted total assets)              42,100      9.03%        6,996     1.5%             NA       NA

(1) As defined by regulatory agencies

</TABLE>
                                      (21)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 18 -- Employee Benefits

The Company has a  retirement  savings  401(k) plan in which  substantially  all
employees may participate.  The  contributions  are discretionary and determined
annually.  For the years ended  December  31, 1999,  1998 and 1997,  the Company
matched  employees'  contributions  at  the  rate  of 50%  for  the  first  $600
participant  contributions  to the 401(k) and made a contribution  to the profit
sharing plan of 7% of qualified compensation. The Company's expense for the plan
was $286,000,  $284,000 and $252,500 fo the years ended December 31, 1999,  1998
and 1997.

The  Company  has a  supplemental  retirement  plan  and  deferred  compensation
arrangements for the benefit of certain officers.  These arrangements are funded
by life  insurance  contracts  which have been  purchased  by the  Company.  The
Company's expense for the plan was $214,000, $188,000 and $164,000 for the years
ended December 31, 1999, 1998 and 1997.

The  Company has  deferred  compensation  arrangements  with  certain  directors
whereby,   in  lieu  of  currently   receiving  fees,  the  directors  or  their
beneficiaries  will be paid  benefits for an  established  period  following the
director's  retirement or death. These arrangements are funded by life insurance
contracts  which have been purchased by the Company.  The Company's  expense for
the plan was  $106,000,  $117,000 and $105,000 for the years ended  December 31,
1999, 1998 and 1997.

As part of the  conversion  in 1999,  the Company  established  an ESOP covering
substantially all its employees. The ESOP acquired 465,568 shares of the Company
common stock at $10 per share in the  conversion  with funds  provided by a loan
from the Company.  Accordingly,  the  $4,655,680 of common stock acquired by the
ESOP is shown as a reduction of stockholders'  equity. At December 31, 1999, the
Company had 444,979 unearned ESOP shares with a fair value of $4,339,000. Shares
are released to participants proportionately as the loan is repaid. Dividends on
allocated  shares are  recorded as dividends  and charged to retained  earnings.
Dividends on unallocated  shares,  which may be distributed to participants,  or
used to repay the loan are treated as compensation expense. Compensation expense
is  recorded  equal to the fair  market  value of the stock when  contributions,
which are determined annually by the Board of Directors of the Company and Bank,
are made to the ESOP.  Expense  under the ESOP for the year ended  December  31,
1999 was  $199,000.  At December  31, 1999,  the ESOP had no  allocated  shares,
444,979 suspense shares and 20,589 committed-to-be released shares.

In  connection  with the  conversion,  the Board of  Directors  approved a Stock
Option Plan and a  Recognition  and Award Plan  (RAP).  The Plans are subject to
stockholders'  approval.  Under the stock option plan,  stock  options  covering
shares  representing an aggregate of up to 10% of the common stock issued in the
conversion may be granted to directors and executive officers.  Restricted stock
awards  covering up to 4% of the common  stock issued in the  conversion  may be
awarded to directors and executiv officers under the RAP.




                                      (22)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 19 -- Fair Values of Financial Instruments

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instrument:

Cash  and  Cash  Equivalents--The  fair  value  of  cash  and  cash  equivalents
approximates carrying value.

Securities  and  Mortgage-Backed  Securities--Fair  values  are  based on quoted
market prices.

Loans--The  fair  value for  loans  are  estimated  using  discounted  cash flow
analyses  using interest  rates  currently  being offered for loans with similar
terms to borrowers of similar credit quality.

FHLB  Stock--Fair  value of FHLB  stock is based on the price at which it may be
resold to the FHLB.

Interest  Receivable/Payable--The  fair  values of  interest  receivable/payable
approximate carrying values.

Deposits--The fair values of  noninterest-bearing,  interest-bearing  demand and
savings  accounts are equal to the amount payable on demand at the balance sheet
date.  Fair values for fixed-rate  certificates of deposit are estimated using a
discounted  cash flow  calculation  that applies  interest rates currently being
offered on certificates to a schedule of aggregated  expected monthly maturities
on such time deposits.

Securities Sold Under  Repurchase  Agreements--Securities  sold under repurchase
agreements  are  short-term  borrowing  arrangements.  The rates at December 31,
1999, approximate market rates, thus the fair value approximates carrying value.

Federal  Home  Loan  Bank  Advances--The  fair  value  of these  borrowings  are
estimated using a discounted cash flow  calculation,  based on current rates for
similar debt for periods  comparable to the remaining terms to maturity of these
advances.

Note  Payable  to  Pedcor--The  fair  value of this  note is  estimated  using a
discount calculation based on current rates.

Advances  by  Borrowers  for Taxes and  Insurance--The  fair value  approximates
carrying value.

Off-Balance Sheet  Commitments--Commitments  include commitments to purchase and
originate  mortgage  loans,  commitments  to sell  mortgage  loans,  and standby
letters of credit and are generally of a short-term  nature.  The fair values of
such  commitments  are based on fees  currently  charged to enter  into  similar
agreements,  taking into account the remaining  terms of the  agreements and the
counterparties'  credit standing.  The carrying amount of these  investments are
reasonable estimates of the fair value of these financial statements.



                                      (23)

<PAGE>



MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


The estimated fair values of the Company's financial instruments are as follows:

<TABLE>
<CAPTION>

                                                                   1999                           1998
                                                       ----------------------------------------------------------
                                                        Carrying        Fair           Carrying        Fair
December 31                                              Amount         Value           Amount          Value
-----------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>              <C>           <C>
Assets
  Cash and cash equivalents                             $19,983        $19,983          $12,938       $12,938
  Trading account securities                              1,235          1,235
  Securities available for sale                          29,599         29,599           14,208        14,208
  Securities held to maturity                            12,449         12,016           11,004        11,021
  Loans                                                 442,787        433,630          398,146       402,455
  Stock in FHLB                                           5,339          5,339            3,612         3,612
  Interest receivable                                     2,653          2,653            2,187         2,187

Liabilities
  Deposits                                              364,604        365,566          365,999       366,377
  Securities sold under repurchase agreements               840            840
  FHLB Advances                                          72,289         72,304           50,632        50,988
  Note payable--Pedcor                                    1,768            986            1,830           919
  Interest payable                                        2,153          2,153            2,328         2,328
  Advances by borrowers for taxes and insurance           1,289          1,289            1,260         1,260

</TABLE>

Note 20 -- Condensed Financial Information (Parent Company Only)

Presented  below is condensed  financial  information as to financial  position,
results of operations and cash flows of the Company:


                             Condensed Balance Sheet

December 31                                                             1999
--------------------------------------------------------------------------------

Assets
  Short-term noninterest-bearing deposit with subsidiary               $20,470
  Investment in common stock of subsidiary                              74,628
  Deferred income tax                                                    1,393
  Other assets                                                             343
                                                                      ----------

         Total assets                                                  $96,834
                                                                      ==========

Liabilities--other                                                     $   122

Stockholders' Equity                                                    96,712
                                                                      ----------

         Total liabilities and stockholders' equity                    $96,834
                                                                      ==========


                                      (24)

<PAGE>


MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)



                          Condensed Statement of Income

<TABLE>
<CAPTION>

Year Ended December 31                                                                  1999           1998          1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>              <C>         <C>
Expenses
  Interest expense                                                                    $   40
  Charitable contribution                                                              4,477
                                                                                    ---------------------------------------

Loss before income tax benefit and equity in undistributed income of subsidiary
                                                                                       4,517

Income tax benefit                                                                     1,536
                                                                                    ---------------------------------------

Loss before equity in undistributed income of subsidiary                              (2,981)

Equity in undistributed income of subsidiary                                           3,827          $4,139        $4,135
                                                                                    ---------------------------------------

Net Income                                                                            $  846          $4,139        $4,135
                                                                                    =======================================

</TABLE>

                        Condensed Statement of Cash Flows

<TABLE>
<CAPTION>

Year Ended December 31                                                                  1999           1998          1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>             <C>           <C>
Operating Activities
  Net income                                                                          $  846          $4,139        $4,135
  Adjustments to reconcile net income to net cash used by operating activities
    Earned ESOP shares                                                                   199
    Charitable contribution of Company's common stock                                  2,238
    Deferred income tax benefit                                                       (1,393)
    Undistributed income of subsidiary                                                (3,827)
    Other                                                                               (221)         (4,139)      (4,135)
                                                                                    ---------------------------------------
         Net cash used by operating activities                                        (2,158)

Investing Activity--capital contribution to subsidiary                               (27,283)

Financing Activity--proceeds from sale of common stock, net of costs                  49,911
                                                                                    ---------------------------------------

Short-Term Interest-Bearing Deposit with Subsidiary at End of Year                   $20,470          $    0       $    0
                                                                                    =======================================

Additional Cash Flow and Supplementary Information
  Common stock issued to ESOP leveraged with an employee loan                        $ 4,656


</TABLE>

                                                                (25)