UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB

(Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
    1934

                    For the fiscal year ended June 30, 2003

or

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

For the transition period from _____________ to _______________

Commission File Number      00-33441

                       CITY SAVINGS FINANCIAL CORPORATION
                 (Name of small business issuer in its charter)



             INDIANA                                 35-2156159
  (State or other jurisdiction           (I.R.S. Employer Identification No.)
of incorporation or organization)



2000 Franklin Street, Michigan City, Indiana           46360
  (Address of principal executive offices)           (Zip Code)

                          Issuer's telephone number:
                                 (219) 879-5364

         Securities registered under Section 12(b) of the Exchange Act:
                                      None

         Securities registered under Section 12(g) of the Exchange Act:
                        Common Stock, without par value
                                (Title of class)

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

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

The issuer had $8,325,000 in revenues for the fiscal year ended June 30, 2003.

The  aggregate  market  value  of the  issuer's  voting  common  equity  held by
non-affiliates, as of September 22, 2003, was $8,643,860

The number of shares of the issuer's sole class of common equity  outstanding as
of September 22, 2003, was 555,450 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders  for the year ended June 30, 2003,
are  incorporated  into Part II.  Portions of the Proxy  Statement  for the 2003
Annual Meeting of Shareholders are incorporated in Part I and Part III.

Transitional Small Business Disclosure Format:  YES  _____    NO __X__

                           Exhibit Index on Page E-1
                               Page 1 of 34 pages
<PAGE>

                       CITY SAVINGS FINANCIAL CORPORATION
                                  Form 10-KSB
                                     INDEX

        Page

FORWARD LOOKING STATEMENT ...............................................      3

PART I
   Item 1.    Description of Business ...................................      3
   Item 2.    Description of Property ...................................     30
   Item 3.    Legal Proceedings .........................................     30
   Item 4.    Submission of Matters to a Vote of Security Holders .......     31

PART II
   Item 5.    Market for Registrant's Common Equity and Related
                 Stockholder Matters ....................................     31
   Item 6.    Management's Discussion and Analysis or Plan of Operation       31
   Item 7.    Financial Statements  .....................................     31
   Item 8.    Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure  ...................     31
   Item 8A.   Controls and Procedures  ..................................     31

PART III
   Item 9.    Directors, Executive Officers, Promoters and Control
                 Persons; Compliance With Section 16(a) of the
                 Exchange Act  ..........................................     31
   Item 10.   Executive Compensation ....................................     32
   Item 11.   Security Ownership of Certain Beneficial Owners and
                 Management and Related Stockholder Matters .............     32
   Item 12.   Certain Relationships and Related Transactions ............     32
   Item 13.   Exhibits and Reports on Form 8-K ..........................     33
   Item 14.   Principal Accountant Fees and Services .....................    33

SIGNATURES ..............................................................     34

EXHIBITS ................................................................    E-1
<PAGE>

                           FORWARD LOOKING STATEMENT

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


Item 1.    Description of Business.

General

     City Savings Financial  Corporation,  an Indiana  corporation (the "Holding
Company" and together with the "Bank",  as defined below,  the  "Company"),  was
organized in September  2001. On December 27, 2001, it acquired the common stock
of Michigan City Savings and Loan  Association  (the "Bank") upon the conversion
of the Bank from a state mutual  savings  association  to a state stock  savings
association.

     The Bank was organized as a  state-chartered  savings  association in 1885,
and it currently conducts its business from two full-service  offices located in
Michigan City, Indiana and Rolling Prairie, Indiana. Effective December 1, 2002,
the name of the Bank was changed to City  Savings Bank to bring the Bank's image
and brand under the  Holding  Company's  name and to  eliminate  any  suggestion
created by the Bank's  former name that its  operations  are  conducted  only in
Michigan  City,  Indiana.  The  Bank  recently  began  construction  on a branch
facility in Chesterton,  Indiana,  which is expected to begin operations in late
January 2004. The Bank's principal business consists of attracting deposits from
the general public and originating  fixed-rate and adjustable-rate loans secured
primarily by one- to  four-family  residential  real estate.  The Bank's deposit
accounts  are  insured  up to  applicable  limits  by  the  Savings  Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").

     The Bank  offers a number of  financial  services,  including:  (i) one- to
four-family  residential real estate loans; (ii) consumer loans,  including home
equity,  second  mortgages and automobile  loans;  (iii)  commercial real estate
loans;  (iv) real estate  construction  loans; (v) commercial  loans;  (vi) land
loans; (vii) multi-family  residential  loans;  (viii)  certificates of deposit;
(ix) savings  accounts,  including  passbook  accounts;  (x) money market demand
accounts;  and (xi) negotiable order of withdrawal  accounts.  The Bank owns one
subsidiary,  City Savings Financial Services,  Inc ("CSFS").  CSFS had conducted
business as Whybrew  Insurance  Agency,  but sold its  property and casualty and
health insurance lines of business and all rights to the name "Whybrew Insurance
Agency" on  January 2, 2003,  and does not  currently  conduct  any  significant
operations.

Lending Activities

     We have historically concentrated our lending activities on the origination
of loans  secured by first  mortgage  liens for the  purchase,  construction  or
refinancing  of  one-  to  four-family   residential  real  property.   One-  to
four-family  residential  mortgage  loans  continue to be the major focus of our
loan origination  activities,  representing 44.9% of our total loan portfolio at
June  30,  2003.  We also  offer  commercial  real  estate  loans,  real  estate
construction loans and consumer loans. Mortgage loans secured by commercial real
estate totaled approximately 15.7% of our total loan portfolio at June 30, 2003,
while real estate  construction  loans totaled  approximately  7.6% and consumer
loans  totaled  approximately  19.8% of our total loans at June 30,  2003.  To a
limited extent we also offer multi-family  residential loans, land loans and, to
a growing extent, commercial loans. At June 30, 2003, we had commercial loans of
$11.9 million,  or 9.9% of our loan portfolio,  compared to commercial  loans of
$4.2 million or 6.0% of our loan portfolio at June 30, 2002.
<PAGE>

     Loan Portfolio  Data. The following table sets forth the composition of the
Bank's loan portfolio  (including loans held for sale) by loan type and security
type as of the  dates  indicated,  including  a  reconciliation  of gross  loans
receivable  after  consideration  of the  allowance for loan losses and loans in
process.
<TABLE>
<CAPTION>
                                                            At June 30,
                                            ------------------------------------------
                                                     2003                 2002
                                            --------------------   -------------------
                                                        Percent               Percent
                                             Amount     of Total    Amount    of Total
                                            --------    --------   --------   --------
                                                        (Dollars in thousands)
<S>                                         <C>           <C>       <C>         <C>
Type of Loan:
Real estate mortgage loans:
   One- to four-family ...............      $ 53,888      44.9%     $42,478     60.5%
   Commercial ........................        18,911      15.7        8,951     12.8
   Land ..............................         1,708       1.4        1,145      1.6
   Multi-family ......................           895       0.7          978      1.4
                                            --------     -----      -------    -----
      Total real estate mortgage loans        75,402      62.7       53,552     76.3
Real estate construction loans .......         9,089       7.6        4,751      6.8
Consumer loans:
   Home equity and second mortgage ...        13,803      11.5        4,401      6.3
   Automobile ........................         1,382       1.2        1,691      2.4
   Other .............................         8,559       7.1        1,571      2.2
                                            --------     -----      -------    -----
      Total consumer loans ...........        23,744      19.8        7,663     10.9
Commercial loans .....................        11,874       9.9        4,202      6.0
                                            --------     -----      -------    -----
      Gross loans receivable .........      $120,109     100.0%     $70,168    100.0%
                                            ========     =====      =======    =====
Type of Security:
Real estate:
   One- to four-family ...............      $ 72,413      60.3%     $50,782     72.4%
   Commercial ........................        21,807      18.1        9,498     13.5
   Land ..............................         1,708       1.4        1,145      1.6
   Multi-family ......................         3,792       3.2        1,279      1.8
                                            --------     -----      -------    -----
      Total real estate ..............        99,720      83.0       62,704     89.3
Consumer:
   Automobile ........................         2,565       2.1        2,525      3.6
   Recreational vehicles .............         7,918       6.6          867      1.2
   Manufactured homes ................           427       0.4          462      0.7
                                            --------     -----      -------    -----
      Total consumer .................        10,910       9.1        3,854      5.5
Deposits .............................           141       0.1           50      0.1
Unsecured ............................            72       0.1           76      0.1
Other security .......................         9,266       7.7        3,484      5.0
                                            --------     -----      -------    -----
      Gross loans receivable .........       120,109     100.0%      70,168    100.0%
                                            --------     =====      -------    =====
Deduct:
Loans in process .....................         1,805                  1,420
Allowance for loan losses ............         1,097                    579
Deferred loan fees ...................           107                     97
                                            --------                -------
      Net loans receivable ...........      $117,100                $68,072
                                            ========                =======
Mortgage Loans:
Fixed-rate ...........................        32,649      38.6%     $32,049     55.0%
Adjustable-rate ......................        51,842      61.4       26,254     45.0
                                            --------     -----      -------    -----
      Total ..........................      $ 84,491     100.0%     $58,303    100.0%
                                            ========     =====      =======    =====
</TABLE>

     The  following  table  sets forth  certain  information  at June 30,  2003,
regarding  the dollar amount of  commercial,  financial,  agricultural  and real
estate  construction  loans maturing in the Bank's loan  portfolio  based on the
contractual  terms to  maturity.  Demand  loans  having  no stated  schedule  of
repayments and no stated maturity and overdrafts are reported as due in one year
or less.  This schedule does not reflect the effects of possible  prepayments or
enforcement of due-on-sale  clauses.  Management expects  prepayments will cause
actual maturities to be shorter.

                                    Balance      Due During Years Ended June 30,
                                 Outstanding at            2005       2009 and
                                 June 30, 2003   2004    and 2008    following
                                 --------------  ----    --------    ---------
                                                (Dollars in thousands)

Commercial real estate loans ...    $18,911     $3,921    $11,641     $3,349
Land ...........................      1,708      1,336        270        102
Multi-family loans .............        895        783        112         --
Construction loans .............      9,089      8,643        446         --
Commercial loans ...............     11,874      8,063      3,552        259
<PAGE>

     The following  table sets forth,  as of June 30, 2003, the dollar amount of
the above loans due after one year that have fixed  interest  rates and floating
or adjustable interest rates.

                                                   Due After June 30, 2004
                                             ----------------------------------
                                             Fixed Rates  Variable Rates  Total
                                             -----------  --------------  -----
                                                     (Dollars in thousands)

Commercial real estate loans ............      $ 6,914       $8,076      $14,990
Land ....................................          372           --          372
Multi-family loans ......................           --          112          112
Construction loans ......................          446           --          446
Commercial loans ........................        3,203          608        3,811
                                               -------       ------      -------
        Total ...........................      $10,935       $8,796      $19,731
                                               =======       ======      =======


     One-  to  Four-Family  Residential  Loans.  Our  primary  lending  activity
consists of the  origination of one- to four-family  residential  mortgage loans
secured by property  located in our primary  market  area.  We  generally do not
originate  one- to  four-family  residential  mortgage loans if the ratio of the
loan amount to the lesser of the current cost or appraised value of the property
exceeds 95%. We require private mortgage insurance on loans with a loan-to-value
ratio in excess of 80%. The cost of such  insurance is factored  into the annual
percentage rate on such loans.

     Our current underwriting criteria for one- to four-family residential loans
focuses on the  collateral  securing  the loan,  income,  debt-to-income  ratio,
stability  of earnings  and credit  history of a potential  borrower,  in making
credit decisions.  We also have incorporated uniform underwriting criteria based
on the Federal Home Loan Mortgage Corporation lending criteria, recognizing that
the sale of  mortgage  loans  has  become an  important  tool in  liquidity  and
interest rate risk management.  We originate  fixed-rate loans which provide for
the payment of principal and interest over a period of 10, 15 or 30 years.

     We also offer six-month and one-year  adjustable-rate mortgage loans pegged
to the one-year U.S. Treasury  securities yield adjusted to a constant maturity,
and three-year  adjustable-rate  mortgage  loans pegged to the  three-year  U.S.
Treasury  securities  yield  adjusted  to a  constant  maturity.  We  may  offer
discounted  initial  interest rates on  adjustable-rate  mortgage loans,  but we
require that the borrower  qualify for the loan at the  fully-indexed  rate (the
index rate plus the margin). The six-month  adjustable-rate  mortgage loans that
we  originate  provide  for a  maximum  interest  rate  adjustment  of 1% over a
six-month period and a maximum adjustment of 6% over the life of the loan, while
the one-year  adjustable-rate  mortgage  loans that we  originate  provide for a
maximum  interest  rate  adjustment  of 2% over a one-year  period and a maximum
adjustment  of 6% over  the life of the  loan.  The  three-year  adjustable-rate
mortgage loans that we originate  provide for a maximum  adjustment of 2% over a
three-year   period  and  6%  over  the  life  of  the  loan.  Our   residential
adjustable-rate  mortgages are  amortized for terms up to 30 years.  Although we
would generally prefer to originate  mortgage loans that have adjustable  rather
than fixed interest rates, the current low-interest rate environment has reduced
borrower demand for adjustable-rate mortgage loans.

     In 2001, we began to sell fixed-rate loans in the secondary market,  and we
sell all 30-year fixed-rate loans that we originate in the secondary market. All
of the fixed-rate  loans that we originate with terms of 30 years are written to
Federal Home Loan Mortgage Corporation standards. During the twelve-month period
ended June 30,  2003,  we sold 181 of these  fixed-rate  loans with an aggregate
amount of $20.1  million.  We generally  retain in our loan  portfolio the other
loans that we originate. We do not retain the servicing rights on the loans that
we sell.

     Adjustable-rate mortgage loans decrease the risk associated with changes in
interest rates by periodically  repricing,  but involve other risks because,  as
interest rates increase,  the underlying payments by the borrower also increase,
thus increasing the potential for default by the borrower. At the same time, the
marketability of the underlying  collateral may be adversely  affected by higher
interest  rates.  Upward  adjustment  of the  contractual  interest rate is also
limited by the maximum periodic and lifetime interest rate adjustment  permitted
by the loan documents,  and, therefore,  is potentially limited in effectiveness
during periods of rapidly rising interest  rates. We retain all  adjustable-rate
mortgage loans that we originate and, at June 30, 2003,  approximately  57.2% of
our one- to four-family residential loans had adjustable rates of interest.

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

     At June 30, 2003, approximately $53.9 million, or 44.9% of our portfolio of
loans,  consisted of one- to four-family  residential loans.  Approximately $1.6
million, or 69.8% of total non-performing loans consisted of one- to four-family
residential  loans, and were included in  nonperforming  assets as of that date.
See " Nonperforming and Problem Assets."

     Commercial Real Estate and  Multi-Family  Loans. Our commercial real estate
loans are secured by churches, warehouses, office buildings, car dealerships and
other  commercial  properties.  We originate  commercial  real estate loans with
terms no  greater  than 15 years.  Loans  with  terms of more than two years are
required  to be repaid in equal  monthly  installments,  and loans with terms of
less than two years or which are for  construction  purposes  are required to be
repaid  according  to terms agreed to between us and the  borrower.  At June 30,
2003, we had $19.8 million in commercial and multi-family  real estate loans. We
generally  require a loan-to-value  ratio of no more than 75% on commercial real
estate loans.  Most  commercial  real estate loans that we originate  have fixed
interest  rates,  although  we also  originate  such loans that have  adjustable
interest rates that are based on the prime rate and which are  adjustable  based
on changes in the prime rate.

     Commercial  real estate loans generally are larger than one- to four-family
residential  loans and involve a greater degree of risk.  Commercial real estate
loans often involve large loan balances to single borrowers or groups of related
borrowers.  Payments  on these  loans  depend to a large  degree on  results  of
operations  and  management of the  properties  and may be affected to a greater
extent  by  adverse  conditions  in the real  estate  market or the  economy  in
general.  Accordingly,  the nature of the loans  makes them more  difficult  for
management  to monitor and  evaluate.  In addition,  balloon loans may involve a
greater degree of risk to the extent the borrower is unable to obtain  financing
or cannot repay the loan when the loan matures or a balloon payment is due.

     At  June  30,  2003,  our  largest  commercial  real  estate  loan  had  an
outstanding  balance of $1.6  million  which was secured by a church  located in
Hobart, Indiana. At June 30, 2003,  approximately $18.9 million, or 15.7% of our
total loan  portfolio,  consisted of commercial  real estate loans.  On the same
date,  commercial  real estate loans in the  aggregate  amount of $257,000  were
included in nonperforming  assets. We generally intend to increase the amount of
commercial  real estate loans in our portfolio by increasing the amount of loans
we make to small  businesses  by 8 to 10%  annually  over the next three  years,
provided  that we can make these  loans  consistent  with  prudent  underwriting
standards.

     At  June  30,  2003,  approximately  $895,000,  or .7% of  our  total  loan
portfolio,  consisted of mortgage loans secured by multi-family dwellings (those
consisting of more than four units).  We write  multi-family  loans on terms and
conditions similar to our commercial real estate loans. The largest multi-family
loan as of June 30, 2003, was $563,000 and was secured by an apartment  building
in Michigan City,  Indiana.  On the same date, there were no multi-family  loans
included in nonperforming assets.

     Multi-family loans, like commercial real estate loans, involve greater risk
than do residential loans. Also, the loans-to-one-borrower limitation limits our
ability  to  make  loans  to  developers   of  apartment   complexes  and  other
multi-family units.

     Construction  Loans.  We offer  construction  loans to individuals  for the
purpose  of  constructing  one- to  four-family  residences,  but only where the
borrower commits to permanent  financing on the finished project. In such cases,
we write the construction loan as a rider to the underlying  permanent financing
agreement  with a term of six  months  to one year,  and with  either a fixed or
adjustable rate of interest.  During the construction  phase, the loan agreement
requires  monthly  interest  payments by the borrower on the amount drawn on the
loan.  When the  construction  of the residence is completed,  the  construction
rider  terminates and the loan converts into a one- to  four-family  residential
mortgage loan.

     We also  offer,  in  certain  cases,  construction  loans  to  builders  or
developers for the construction of residential properties on a speculative basis
(i.e., before the  builder/developer  obtains a commitment from a buyer), or for
the  construction  of commercial or multi-family  properties.  In such cases, we
typically  structure the loan as a two-year  balloon loan with either a fixed or
adjustable  interest rate, with interest payable monthly.  Construction loans to
builders or developers  typically have a higher  interest rate than  residential
construction loans to individuals. At June 30, 2003, approximately $9.1 million,
or 7.6% of our total loan portfolio  consisted of  construction  loans. Of these
loans,  approximately  $3.8 million were to individuals for the  construction of
one-  to  four-family  residences,   $1.0  million  were  speculative  loans  to
developers, and $4.3 million were for the construction of commercial real estate
and multi-family properties.

     The maximum  loan-to-value  ratio for a construction loan is based upon the
nature of the  construction  project.  For example,  a  construction  loan to an
individual  for the  construction  of a one-  to  four-family  residence  may be
written with a maximum loan-to-value ratio of 95%, while a construction loan for
a commercial project may be written with a maximum  loan-to-value  ratio of 75%.
Inspections are made prior to any disbursement under a construction loan, and we
normally charge a $750 commitment fee for construction loans.

     While  providing us with a comparable,  and in some cases higher yield than
conventional mortgage loans, construction loans sometimes involve a higher level
of risk. For example,  if a project is not completed and the borrower  defaults,
we may have to hire another contractor to complete the project at a higher cost.
Also,  a project  may be  completed,  but may not be salable,  resulting  in the
borrower  defaulting and our taking title to the project.  At June 30, 2003, our
largest  construction  loan was $1.4 million for  development  of a  condominium
project in New Buffalo, Michigan.

     Land Loans. At June 30, 2003,  approximately  $1.7 million,  or 1.4% of our
total loan  portfolio,  consisted of mortgage loans secured by undeveloped  real
estate. We impose a maximum loan-to-value ratio of 75% of the appraised value of
the land or sales price,  whichever is less, and generally require that the loan
amount not exceed  $250,000  and that the term of the loan does not exceed eight
years. We originate land loans with either fixed or variable  interest rates. At
June 30, 2003, our largest land loan totaled  $432,000 and was secured by vacant
land located in Portage, Indiana.

     Land  loans  present  greater  risk  than  conventional  loans  since  land
development  borrowers  who are over  budget  may divert the loan funds to cover
cost-overruns  rather  than  direct them toward the purpose for which such loans
were  made.  In  addition,  land  loans  are  more  difficult  to  monitor  than
conventional  mortgage loans.  As such, a defaulting  borrower could cause us to
take title to  partially  improved  land that is  unmarketable  without  further
capital investment.

     Consumer Loans. Our consumer loans consist of variable- and fixed-rate home
equity loans and lines of credit,  automobile,  recreational  vehicle,  boat and
motorcycle  loans and loans  secured by  deposits.  Consumer  loans tend to have
shorter terms and higher yields than permanent  residential  mortgage  loans. At
June 30, 2003, our consumer loans  aggregated  approximately  $23.7 million,  or
19.8% of our total loan portfolio.  Included in consumer loans at June 30, 2003,
were  $11.7  million  of  variable-rate  home  equity  lines  of  credit.  These
variable-rate loans improve our exposure to interest rate risk.

     Second  mortgages  are  generally  written  for up to 80% of the  available
equity (the appraised value of the property less any first mortgage  amount) and
consumer loans secured by real estate are generally written for up to 90% of the
available  equity.  Our home equity and second  mortgage  loans at June 30, 2003
were  approximately  $13.8  million,  or 11.5% of our total loan  portfolio.  We
generally will write automobile loans for up to 80% of the acquisition price for
a new automobile and up to the average middle book value for a used  automobile.
Our automobile and manufactured home loans originated during the year ended June
30,  2003,  were  $642,000  compared  to $706,000  during the prior  year.  This
reduction  reflects our decision during 2000 to de-emphasize  the origination of
automobile  loans.  The repayment  schedule of loans  covering both new and used
vehicles is  consistent  with the expected life and normal  depreciation  of the
vehicle. Loans for recreational vehicles,  motorcycles and boats are written for
no more than 80% of the realistic sales price of the collateral, for a term that
is  consistent  with its  expected  life  and  normal  depreciation.  All of our
consumer  loans have a fixed rate of interest  except for home  equity  lines of
credit,  which are offered at a variable rate. At June 30, 2003,  consumer loans
in the amount of $58,000 were included in nonperforming assets.

     Consumer loans may entail  greater risk than  residential  mortgage  loans,
particularly  in the case of consumer loans that are unsecured or are secured by
rapidly  depreciable  assets,  such as  automobiles.  Further,  any  repossessed
collateral for a defaulted  consumer loan may not provide an adequate  source of
repayment  of  the  outstanding  loan  balance.   In  addition,   consumer  loan
collections depend on the borrower's  continuing financial  stability,  and thus
are more likely to be affected by adverse personal  circumstances.  Furthermore,
the  application  of various  federal and state laws,  including  bankruptcy and
insolvency  laws, may limit the amount which can be recovered on such loans. See
" Nonperforming  and Problem Assets." There can be no assurances that additional
delinquencies will not occur in the future.

     Commercial  Loans. We offer commercial  loans,  which consist  primarily of
loans to  businesses  that are secured by assets other than real  estate.  As of
June 30, 2003,  commercial loans amounted to $11.9 million, or 9.9% of our total
loan  portfolio.  Commercial  loans  tend to bear  somewhat  greater  risk  than
residential  mortgage  loans,   depending  on  the  ability  of  the  underlying
enterprise to repay the loan.  Although  commercial  loans have not historically
comprised  a large  portion of our loan  portfolio,  we intend to  increase  the
amount of loans we make to small  businesses  in the future in order to increase
our rate of return and diversify our portfolio.  As of June 30, 2003, commercial
loans in the aggregate amount of $81,000 were included in nonperforming assets.

     Origination, Purchase and Sale of Loans. Historically, we have confined our
loan origination  activities primarily to La Porte and Porter Counties.  At June
30,  2003,  substantially  all of our  mortgage  loans were  secured by property
located within Indiana.  Our loan originations are generated from referrals from
existing   customers,   real  estate  brokers,   and  newspaper  and  periodical
advertising.  Loan applications are currently  underwritten and processed at our
main office in Michigan City.

     Our loan approval  process is intended to assess the borrower's  ability to
repay the loan,  the  viability of the loan and the adequacy of the value of the
property that will secure the loan. To assess the  borrower's  ability to repay,
we study the employment and credit history and information on the historical and
projected income and expenses of our mortgagors.

     We  generally  require   appraisals  on  all  real  property  securing  our
first-mortgage loans.  Appraisals for all real property securing  first-mortgage
loans are performed by independent appraisers who are state-licensed. We require
fire and extended coverage  insurance in amounts at least equal to the principal
amount of the loan and also  require  flood  insurance  to protect the  property
securing our interest if the  property is in a flood  plain.  We also  generally
require  private  mortgage  insurance for all  residential  mortgage  loans with
loan-to-value  ratios of greater than 80%. We generally  require escrow accounts
for  insurance  premiums  and  taxes  for  residential  mortgage  loans  that we
originate with loan-to-value ratios greater than 80%. Our underwriting standards
are intended to protect  against some of the risks  inherent in  conducting  our
business.   Borrower  character,  paying  habits  and  financial  strengths  are
important considerations.

     The Bank's  total loan  originations  during the year ended June 30,  2003,
totaled $78.8 million,  an increase of  approximately  $40.3 million compared to
the year ended June 30, 2002.

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


Nonperforming and Problem Assets

     Our collection  policy is managed by our collection  officer who develops a
list  of   delinquent   commercial,   consumer   and  mortgage   accounts   from
computer-generated  reports.  Monthly  reports  are  forwarded  to the  board of
directors  for all accounts over 30 days  delinquent,  and the  Delinquent  Loan
Committee of the board meets as necessary  to discuss all  delinquent  accounts,
especially any over 60 days delinquent.  The collection officer attempts to make
personal contact with the borrower within the first 30 days of delinquency. When
an account becomes over 90 days  delinquent,  a visit is made to the property or
location of the  collateral for  inspection.  Should the borrower fail to comply
with the terms of the Bank, the Delinquent Loan Committee may recommend that the
Bank commence foreclosure proceedings.

     We place loans on  non-accrual  status no later than 90 days after the loan
becomes delinquent, and all unpaid accrued interest is written off.

     Nonperforming  Assets. At June 30, 2003, $2.6 million, or 1.8% of our total
assets,  were  nonperforming  (nonperforming  loans,  foreclosed real estate and
troubled debt  restructurings)  compared to $1.8 million,  or 2.18% of our total
assets,  at June 30, 2002. We deem any  delinquent  loan that is 90 days or more
past due to be a nonperforming  asset. This increase in nonperforming  assets is
primarily  attributable to one  single-family  mortgage loan with an outstanding
principal  balance of $880,000 in which the borrower is  experiencing  cash flow
difficulties.

     At June 30, 2003, residential loans accounted for $1.8 million, or 69.2% of
our  nonperforming  assets. We had real estate owned properties in the amount of
$42,000 as of June 30, 2003.

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

                                                               At June 30,
                                                         ----------------------
                                                            2003        2002
                                                         ----------   ---------
                                                         (Dollars in thousands)

Nonperforming assets:
  Nonperforming loans:
    Non-accrual ........................................   $2,354      $1,499
    Loans more than 90 past days and still accruing
    Troubled debt restructurings .......................      163         238
                                                           ------      ------
                                                            2,517       1,737
    Foreclosed assets ..................................       42          41
                                                           ------      ------
  Total nonperforming assets ...........................   $2,559      $1,778
                                                           ======      ======
  Nonperforming loans to total loans ...................     2.19%       2.55%
  Nonperforming assets to total assets .................     1.83%       2.18%


     Interest  income of $75,000  and  $58,000 for the years ended June 30, 2003
and 2002,  respectively,  was recognized on the  nonperforming  loans summarized
above.  Interest  income of $161,000  and  $121,000 for the years ended June 30,
2003 and 2002, respectively, would have been recognized under the original terms
of such loans.

     At June 30, 2003, we held loans delinquent from 30 to 89 days totaling $6.7
million.  Delinquent  loans in this  category  increased  $4.7 million over last
year. Management attributes the increase to the slow economy.
<PAGE>

     Delinquent  Loans.  The following  table sets forth certain  information at
June 30,  2003 and 2002,  relating  to  delinquencies  in the Bank's  portfolio.
Delinquent loans that are 90 days or more past due are considered  nonperforming
assets.

<TABLE>
<CAPTION>


                                            At June 30, 2003                      At June 30, 2002
                                  --------------------------------------  ------------------------------------
                                      30-89 Days       90 Days or More       30-89 Days       90 Days or More
                                  -----------------   ------------------  -----------------  -----------------
                                          Principal            Principal          Principal          Principal
                                   Number  Balance     Number   Balance    Number  Balance    Number  Balance
                                  of Loans of Loans   of Loans  of Loans  of Loans of Loans  of Loans of Loans
                                  -------- --------   --------  --------  -------- --------  --------  -------
                                                              (Dollars in thousands)

<S>                                   <C>   <C>           <C>   <C>           <C>   <C>          <C>  <C>
Real estate mortgage loans
  One- to four-family loans ...       43    $2,610        10    $1,556(1)     31    $1,392       10   $  753
  Multi-family loans ..........       --        --        --        --        --        --        1       45
  Commercial real estate loans         9     2,050         3       380(2)      4       406        3      451
Construction loans ............        2     1,101        --        --        --        --       --       --
Automobiles and manufactured
  home loans ..................       14        70         3        14        17       123        5       22
Home equity and second
  mortgage loans ..............       10       280         5        51         5        93        5       97
Other consumer loans ..........        6       226         1         2         1        24        1       14
Commercial loans ..............        5       357         3        81        --        --        3       55
                                      --    ------        --    ------        --    ------       --   ------
  Total .......................       89    $6,694        25    $2,084        58    $2,038       28   $1,437
                                      ==    ======        ==    ======        ==    ======       ==   ======
Delinquent loans to total loans               5.72%               1.78%               2.99%             2.11%
                                              ====                ====                ====              ====

------------------------
(1)  Of this amount, $880,000 is attributable to one loan located in Union Pier,
     Michigan.
(2)  Of  this  amount,  $186,000  is  attributable  to  one  loan  secured  by a
     restaurant in Michigan City.

</TABLE>

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

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

     At June 30, 2003 and 2002,  the aggregate  amount of the Bank's  classified
assets and of the Bank's general and specific loss allowances were as follows:

                                         At June 30,
                                     --------------------
                                       2003        2002
                                    ----------  ----------
                                    (Dollars in thousands)

Substandard assets .................   $4,226     $1,590
Doubtful assets ....................       13        160
Loss assets ........................       --         --
                                       ------     ------
   Total classified assets..........   $4,239     $1,750
                                       ======     ======

General loss allowances ............   $  958     $  524
Specific loss allowances ...........      149         69
                                       ------     ------
   Total allowances ................   $1,107     $  593
                                       ======     ======


     The Bank  regularly  reviews its loan  portfolio to  determine  whether any
loans require classification in accordance with applicable regulations.  Not all
of the Bank's  classified  assets  constitute  nonperforming  assets.  The above
allowances of $1,107,000  include  $1,097,000 in allowances  for loan losses and
$10,000 in allowance for real estate owned losses.


Allowance for Loan Losses

     We maintain our  allowance  for loan losses  through the provision for loan
losses, which is charged to earnings. We determine the allowance for loan losses
in conjunction with our ongoing,  quarterly assessment of the probable estimated
losses inherent in our loan portfolio.  In making this  assessment,  we consider
the following factors:  our historical loan loss experience,  known and inherent
losses in the loan  portfolio  that are both probable and reasonable to estimate
at each reporting date, the estimated value of the underlying  collateral,  loan
volumes and concentrations, regulatory examination results, and current economic
and market  trends  that affect  both our  general  market  area and  particular
segments within our loan portfolio.

     In our  opinion,  our  allowance  for loan  losses  is  adequate  to absorb
probable losses inherent in the loan portfolio at June 30, 2003. However,  there
can be no assurance  that  regulators,  when reviewing our loan portfolio in the
future,  will not require  increases in our  allowances  for loan losses or that
changes in economic conditions will not adversely affect our loan portfolio.

     Summary of Loan Loss  Experience.  The following table analyzes  changes in
the allowance during the past two fiscal years ended June 30, 2003 and 2002.

                                                       Year Ended June 30,
                                                     -----------------------
                                                        2003         2002
                                                     ----------   ----------
                                                     (Dollars in thousands)
Balance at beginning of period ......................   $  579      $423
                                                        ------      ----
Charge-offs:
   One- to four-family mortgage loans ...............       --        74
   Commercial nonresidential mortgage loans .........       13
   Commercial loans .................................       14        19
   Auto loans .......................................       42         9
   Other consumer ...................................        5        --
                                                        ------      ----
      Total charge-offs .............................       74       102

Recoveries ..........................................       --        --
Provision for losses on loans .......................      592       258
                                                        ------      ----
Balance end of period ...............................   $1,097      $579
                                                        ======      ====
Allowance for loan losses as a percent of total
   loans outstanding ................................     0.94%     0.85%
Ratio of net charge-offs to average loans outstanding     0.07%     0.17%
Allowance for loan losses as a percent of total
   nonperforming loans ..............................     43.6%     33.3%
<PAGE>

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

                                                         At June 30,
                                         ---------------------------------------
                                                  2003               2002
                                         --------------------- -----------------
                                                     Percent            Percent
                                                     of loans           of loans
                                                     in each            in each
                                                     Category           Category
                                                     to total           to total
                                          Amount      loans     Amount    loans
                                         --------    --------  -------- --------
                                                   (Dollars in thousands)

Balance at end of period applicable to:
   Real estate mortgage loans:
      One- to four-family .............   $  428       44.9      $242     60.5%
      Commercial ......................      339       15.7       161     12.8
      Multi-family ....................        2        0.7        12      1.4
      Land ............................       13        1.4         7      1.6
   Construction loans .................       43        7.6        11      6.8
   Automobiles and manufactured
      home loans ......................       44        1.2        33      2.4
   Home equity and second
      mortgage loans ..................      110       11.5        44      6.3
   Other consumer loans ...............       22        7.1        18      2.2
   Commercial loans ...................       96        9.9        51      6.0
   Unallocated ........................       --        0.0        --       --
                                          ------      -----      ----    -----
      Total ...........................   $1,097      100.0%     $579    100.0%
                                          ======      =====      ====    =====

Investments

     Investments. Our investment policy authorizes us to invest in U.S. Treasury
securities,   securities   guaranteed  by  the  Government   National   Mortgage
Association,  securities  issued  by  agencies  of the  federal  government  and
municipal  governments,  mortgage-backed  securities  issued by the Federal Home
Loan Mortgage  Corporation or the Federal National  Mortgage  Association and in
highly-rated  mortgage-backed  securities,  and investment-grade  corporate debt
securities.  This  policy  permits  our  management  to react  quickly to market
conditions.   Most  of  the   securities  in  our   portfolio   are   considered
available-for-sale.  At June 30, 2003,  our  investment  portfolio  consisted of
investments  in Federal  Home Loan  Mortgage  Corporation,  Government  National
Mortgage Association and Federal National Mortgage  Association  mortgage-backed
securities,  corporate securities,  federal agency securities, Federal Home Loan
Bank stock,  and local and  non-local  municipal  securities.  At June 30, 2003,
approximately  $12.4  million,  or 8.9%,  of our total assets  consisted of such
investments.  We also had $1.1 million in stock of the Federal Home Loan Bank of
Indianapolis  as of that  date.  As of that  date,  we also had  pledged  to the
Federal Home Loan Bank of Indianapolis as collateral  mortgage-backed securities
with a carrying value of $163,000.

     Investment  Securities.  The following  table sets forth the amortized cost
and the market value of the Bank's investment portfolio at the dates indicated.

                                                   At June 30,
                                  -------------------------------------------
                                          2003                   2002
                                  -------------------   ---------------------
                                  Amortized    Fair      Amortized     Fair
                                    Cost       Value        Cost       Value
                                  ---------   -------    ---------    -------
                                              (Dollars in thousands)
Available for sale:
   Agency securities ...........  $ 5,325     $ 5,333      $2,250      $2,274
   State and municipal .........    3,277       3,271       2,368       2,418
   Corporate obligations .......    3,520       3,583       2,103       2,155
Held to maturity:
   Mortgage-backed securities ..      249         253         334         340
Federal Home Loan Bank stock (1)    1,082       1,082         435         435
                                  -------    --------      ------      ------
      Total ....................  $13,453     $13,522      $7,490      $7,622
                                  =======     =======      ======      ======

----------------
(1)  Market  value is based on the price at which the stock may be resold to the
     Federal Home Loan Bank of Indianapolis.
<PAGE>

     The  following  table  sets  forth  the  amount  of  investment  securities
excluding  mortgage-backed  securities  which mature  during each of the periods
indicated and the weighted  average  yields for each range of maturities at June
30, 2003.

<TABLE>
<CAPTION>


                                                 Amount at June 30, 2003, which matures in
                            -------------------------------------------------------------------------------------------
                                  One Year              One Year                Five Years
                                  Or Less            to Five Years             to Ten Years          Over Ten Years
                            -------------------   --------------------    ---------------------   ---------------------
                            Amortized   Average   Amortized    Average    Amortized     Average   Amortized     Average
                              Cost       Yield       Cost       Yield        Cost        Yield       Cost        Yield
                            ---------   -------   ---------    -------    ---------     -------   ---------     -------
                                                       (Dollars in thousands)
<S>                           <C>        <C>        <C>          <C>        <C>          <C>        <C>          <C>
Agency securities ...         $500       4.65%      $1,055       3.84%      $1,960       3.47%      $1,810       3.95%
State and municipal .           --       0.00          361       5.59          782       3.82        2,134       4.31
Corporate obligations           --       0.00        1,745       5.13        1,775       6.10           --       0.00
</TABLE>


Sources of Funds

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

     Deposits.  We attract deposits  principally from within La Porte and Porter
Counties  through the  offering  of a broad  selection  of deposit  instruments,
including fixed-rate passbook accounts, negotiable order of withdrawal accounts,
variable rate money market accounts,  investment  checking accounts,  fixed-term
certificates of deposit, individual retirement accounts and savings accounts. We
do not actively solicit or advertise for deposits outside of La Porte and Porter
Counties,  and substantially all of our depositors are residents of La Porte and
Porter  Counties.  Deposit  account terms vary,  with the principal  differences
being the  minimum  balance  required,  the  amount of time the funds  remain on
deposit and the interest rate. We accept brokered deposits,  which totaled $17.3
million on June 30, 2003,  or 16.7% of total  deposits.  We held $9.1 million of
public  deposits,  or  8.8%,  of our  total  deposits,  at  June  30,  2003.  We
periodically run specials on certificates of deposit with specific maturities.

     We establish  the interest  rates paid,  maturity  terms,  service fees and
withdrawal  penalties on a periodic basis.  Determination of rates and terms are
predicated  on funds  acquisition  and  liquidity  requirements,  rates  paid by
competitors,  growth goals,  and  applicable  regulations.  We rely, in part, on
customer service and long-standing  relationships  with customers to attract and
retain our deposits.  We also closely price our deposits to the rates offered by
our competitors.

     Approximately  66.0% of our deposits  consist of  certificates  of deposit,
which generally have higher  interest rates than other deposit  products that we
offer.  We offer special rates on  certificates  of deposit with maturities that
fit our asset and  liability  strategies.  We also offer  money  market  savings
accounts, which represent 9.6% of our deposits.

     The flow of  deposits  is  influenced  significantly  by  general  economic
conditions,  changes in money  market and other  prevailing  interest  rates and
competition.  The  variety of deposit  accounts  that we offer has allowed us to
compete  effectively  in  obtaining  funds and to respond  with  flexibility  to
changes in  consumer  demand.  We have  become more  susceptible  to  short-term
fluctuations  in deposit  flows as  customers  have  become more  interest  rate
conscious.   We  manage  the  pricing  of  our  deposits  in  keeping  with  our
asset/liability   management  and   profitability   objectives.   Based  on  our
experience, we believe that our savings accounts, negotiable order of withdrawal
and MMDAs are  relatively  stable sources of deposits.  However,  the ability to
attract and  maintain  certificates  of  deposit,  and the rates we pay on these
deposits,  have been and will  continue to be  significantly  affected by market
conditions.
<PAGE>
     An analysis of our deposit accounts by type, maturity, and rate at June 30,
2003, is as follows:

                                             Balance at                 Weighted
                                              June 30,       % of        Average
                                               2003        Deposits        Rate
                                             ----------    --------     --------
Type of Account                                        (Dollars in thousands)
---------------
Withdrawable:
   Fixed rate, passbook accounts .........    $11,406         11.0%        1.26%
   Variable rate, money market ...........      9,947          9.6         1.77
   Negotiable order of withdrawal accounts     13,850         13.4         1.25
                                              -------         ----
      Total withdrawable .................     35,203         34.0         1.40

Certificates (original terms)
   3 months or less ......................     14,204         13.7         1.40
   6 months ..............................     11,861         11.4         1.52
   12 months .............................     10,994         10.6         1.67
   18 months .............................      4,130          4.0         2.40
   24 months .............................      2,957          2.9         3.06
   36 months .............................      9,904          9.6         3.69
   60 months .............................     12,657         12.2         5.13
   120 months ............................      1,669          1.6         5.78
                                             --------       ------
      Total certificates .................     68,376         66.0         2.73
                                             --------       ------
Total deposits ...........................   $103,579       100.00%        2.28%
                                             ========       ======


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

                                                         At June 30,
                                                    --------------------
                                                      2003        2002
                                                    -------      -------
                                                   (Dollars in thousands)

1.00 to 1.99% ...................................   $35,502      $   200
2.00 to 2.99% ...................................     9,578       11,712
3.00 to 3.99% ...................................     6,456        4,429
4.00 to 4.99% ...................................     5,858        4,039
5.00 to 5.99% ...................................     8,010        8,691
6.00 to 6.99% ...................................     2,633        5,381
7.00 to 7.99% ...................................       339          781
                                                    -------      -------
        Total ...................................   $68,376      $35,233
                                                    =======      =======

     The following table  represents,  by various interest rate categories,  the
amounts of time deposits  maturing during each of the three years following June
30, 2003. Matured certificates, which have not been renewed as of June 30, 2003,
have been allocated based upon certain rollover assumptions.

                               Amounts at June 30, 2003, Maturing In
                             ------------------------------------------
                             One Year    Two       Three   Greater Than
                              or Less   Years      Years    Three Years
                             --------  -------    -------  -------------
                                       (Dollars in thousands)

1.00 to 1.99% ............    $35,065   $  437     $   --     $   --
2.00 to 2.99% ............      5,092    2,013      2,440         33
3.00 to 3.99% ............      1,594    1,619      1,780      1,463
4.00 to 4.99% ............        414      645      1,714      3,085
5.00 to 5.99% ............      2,755      764         60      4,431
6.00 to 6.99% ............        437    1,270        780        146
7.00 to 7.99% ............         10      212        117         --
                              -------   ------     ------     ------
        Total ............    $45,367   $6,960     $6,891     $9,158
                              =======   ======     ======     ======

     The  following  table  indicates  the amount of our other  certificates  of
deposit of  $100,000  or more by time  remaining  until  maturity as of June 30,
2003.

                                                  At June 30, 2003
                                               ----------------------
Maturity Period                                (Dollars in thousands)
   Three months or less ...........................   $19,914
   Greater than three months through six months ...     4,894
   Greater than six months through twelve months ..     2,906
   Over twelve months .............................     4,374
                                                      -------
      Total .......................................   $32,088
                                                      =======

                                       10
<PAGE>

Deposit Activity

     The following  table  presents the deposit  information of the Bank for the
periods indicated.

                                                             At June 30,
                                                         --------------------
                                                           2003         2002
                                                         --------     -------
                                                        (Dollars  in thousands)

Beginning balance ....................................   $ 63,211     $58,966
                                                         --------     -------
   Net deposits (withdrawals) before interest credited     38,475       2,328
   Interest credited .................................      1,893       1,917
                                                         --------     -------
   Net increase in deposits ..........................     40,368       4,245
                                                         --------     -------
Ending balance .......................................   $103,579     $63,211
                                                         ========     =======


     Total  deposits  at June  30,  2003,  were  approximately  $103.6  million,
compared to  approximately  $63.2  million at June 30,  2002.  Our deposit  base
depends somewhat upon the manufacturing  sector of La Porte and Porter Counties.
Although the  manufacturing  sector in these counties is relatively  diversified
and does  not  significantly  depend  upon any  industry,  a loss of a  material
portion of the  manufacturing  workforce could  adversely  affect our ability to
attract  deposits due to the loss of personal  income  attributable  to the lost
manufacturing jobs and the attendant loss in service industry jobs.

     Borrowings.  We focus on generating high quality loans and then seeking the
best source of funding from deposits,  investments  or  borrowings.  At June 30,
2003,  we had  borrowings  in the amount of $16.2  million from the Federal Home
Loan Bank of Indianapolis which bear fixed and variable interest rates and which
are due at various  dates  through  2013.  We are required to maintain  eligible
loans and investment securities,  including  mortgage-backed  securities, in our
portfolio of at least 170% of  outstanding  advances as collateral  for advances
from the Federal Home Loan Bank of  Indianapolis.  We also have available  $17.5
million of borrowing  capacity with the Federal Home Loan Bank of  Indianapolis.
We do not anticipate any  difficulty in obtaining  advances  appropriate to meet
our requirements in the future.

     The following  table presents  certain  information  relating to the Bank's
Federal  Home Loan Bank  borrowings  at or for the years ended June 30, 2003 and
2002.

                                                            At or for the Year
                                                              Ended June 30,
                                                          ----------------------
                                                             2003         2002
                                                          ---------     --------
                                                          (Dollars in thousands)

Federal Home Loan Bank Advances:
   Outstanding at end of period ......................      $16,160      $6,488
   Average balance outstanding for period ............       14,060       3,459
   Maximum amount outstanding at any month end
       during the period .............................       19,578       6,488
   Weighted average interest rate during the period ..         3.22%       4.80%
   Weighted average interest rate at end of period ...         3.11%       3.74%



Service Corporation Subsidiary

     Office  of  Thrift   Supervision   regulations   permit   federal   savings
associations  to invest in the capital  stock,  obligations  or other  specified
types of securities of subsidiaries (referred to as "service  corporations") and
to make loans to such subsidiaries and joint ventures in which such subsidiaries
are  participants in an aggregate  amount not exceeding 2% of the  association's
assets,  plus an  additional  1% of  assets  if the  amount  over 2% is used for
specified community or inner-city  development  purposes.  In addition,  federal
regulations  permit  associations  to make  specified  types  of  loans  to such
subsidiaries  (other than special  purpose  finance  subsidiaries)  in which the
association  owns  more  than  10% of the  stock,  in an  aggregate  amount  not
exceeding  50% of the  association's  regulatory  capital  if the  association's
regulatory  capital is in compliance  with applicable  regulations.  Indiana law
permits  state savings  associations  to form service  corporation  subsidiaries
subject to these same federal limitations.

     A savings association that acquires a non-savings  association  subsidiary,
or that  elects to conduct a new  activity  within a  subsidiary,  must give the
Federal Deposit Insurance Corporation,  the Office of Thrift Supervision and the
Department of Financial  Institutions  at least 30 days advance  written notice.
The Federal  Deposit  Insurance  Corporation  may, after  consultation  with the
Office of Thrift  Supervision,  prohibit  specified  activities if it determines
such activities pose a serious threat to the Savings Association Insurance Fund.
Moreover,  a savings  association  must deduct  from  capital,  for  purposes of
meeting the core capital,  tangible capital and risk-based capital requirements,
its entire  investment in and loans to a subsidiary  engaged in  activities  not
permissible for a national bank (other than  exclusively  agency  activities for
its customers or mortgage banking subsidiaries).

     We currently own one subsidiary,  City Savings  Financial  Services,  Inc.,
which was organized in March 2000 to acquire  substantially all of the assets of
Whybrew Insurance Agency, Inc., a local insurance agency that provided insurance
products  to the  community,  including  property,  casualty,  life  and  health
insurance  and fixed  annuities.  CSFS sold its property and casualty and health
insurance  lines of  business  and all  rights  to the name  "Whybrew  Insurance
Agency" on January 2, 2003 for a net gain of $110,000, and it does not currently
conduct any significant operations.


Employees

     As of June 30, 2003, we employed 26 persons on a full-time basis and 2 on a
part-time basis. None of our employees is represented by a collective bargaining
group and we consider our employee relations to be good.

     Employee benefits for our full-time employees include,  among other things,
hospitalization/major medical insurance, vision and dental insurance,  long-term
disability insurance, life insurance, and participation in the City Savings Bank
Employees'  Savings and Profit Sharing Plan,  which is  administered by Pentegra
Group.  As part of the  conversion to stock form,  the Company  established  the
Employee  Stock  Ownership  Plan and Trust,  designed to provide  directors  and
employees with ownership interest in the Company.

     We consider our employee  benefits to be competitive  with those offered by
other  financial  institutions  and major  employers in our area. See "Executive
Compensation" and "Certain Relationships and Related Transactions."


                                  COMPETITION

     The Bank  originates  most of its loans to and accepts most of its deposits
from residents of La Porte County,  Indiana.  The Bank is subject to competition
from various financial  institutions,  including state and national banks, state
and federal savings associations, credit unions, and certain nonbanking consumer
lenders that  provide  similar  services in La Porte  County with  significantly
larger  resources  than are available to the Bank. In total,  there are 19 other
financial  institutions  located in La Porte County,  including nine banks, nine
credit  unions and one other  savings  association.  The Bank also competes with
money market funds with respect to deposit accounts and with insurance companies
with respect to individual retirement accounts.

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


                                   REGULATION
General

     As an Indiana-chartered, Savings Association Insurance Fund-insured savings
association, the Bank is subject to extensive regulation by the Office of Thrift
Supervision,  the Department of Financial  Institutions  and the Federal Deposit
Insurance  Corporation.  For  example,  the Bank  must  obtain  Office of Thrift
Supervision  and  Department of Financial  Institutions  approval  before it may
engage in certain  activities  and must file  reports  with the Office of Thrift
Supervision  and  the  Department  of  Financial   Institutions   regarding  its
activities and financial  condition.  The Office of Thrift  Supervision  and the
Department of Financial  Institutions  periodically examine the Bank's books and
records and, in conjunction  with the Federal Deposit  Insurance  Corporation in
certain  situations,  have examination and enforcement  powers. This supervision
and regulation are intended primarily to protect the safety and soundness of the
Bank and to protect depositors and their federally-insured deposits. All savings
associations  must  pay  a  semi-annual  assessment  to  the  Office  of  Thrift
Supervision  based upon a marginal  assessment  rate that decreases as the asset
size of the  savings  association  increases,  and which  includes a  fixed-cost
component that is assessed on all savings associations. The assessment rate that
applies to a savings association depends upon the institution's size, condition,
and the complexity of its operations.  The Bank's semi-annual  assessment to the
Office of Thrift Supervision is $21,000. The Bank also pays an annual assessment
to the Department of Financial Institutions of $13,200.

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


Savings and Loan Holding Company Regulation

     City Savings  Financial  Corporation  is  regulated  as a  "non-diversified
savings and loan  holding  company"  within the meaning of the Home Owners' Loan
Act, and subject to regulatory oversight of the Director of the Office of Thrift
Supervision.  As such, City Savings  Financial  Corporation  registered with the
Office of Thrift  Supervision  and will  thereby  be subject to Office of Thrift
Supervision regulations,  examinations,  supervision and reporting requirements.
As a subsidiary  of a savings and loan holding  company,  the Bank is subject to
certain restrictions in its dealings with City Savings Financial Corporation and
with other companies affiliated with City Savings Financial Corporation.

     In general,  the Home Owners' Loan Act prohibits a savings and loan holding
company,  without  obtaining the prior approval of the Director of the Office of
Thrift  Supervision,  from acquiring  control of another savings  association or
savings and loan holding  company or retaining more than 5% of the voting shares
of a  savings  association  or  of  another  holding  company  which  is  not  a
subsidiary.  The Home Owners' Loan Act also  restricts the ability of a director
or officer of City Savings  Financial  Corporation,  or any person who owns more
than 25% of City Savings Financial  Corporation's  stock, from acquiring control
of another  savings  association  or savings and loan  holding  company  without
obtaining  the  prior   approval  of  the  Director  of  the  Office  of  Thrift
Supervision.

     City Savings Financial  Corporation  operates as a unitary savings and loan
holding company.  Prior to the enactment of the  Gramm-Leach-Bliley Act in 1999,
there were no restrictions on the permissible  business  activities of a unitary
savings  and  loan  holding  company.  The  Gramm-Leach-Bliley  Act  included  a
provision  that  prohibits  any new unitary  savings and loan  holding  company,
defined as a company that acquires a thrift after May 4, 1999,  from engaging in
commercial  activities.  Due  to  these  restrictions,  City  Savings  Financial
Corporation  will be  authorized  to engage  only in those  activities  that are
permissible  for a  financial  holding  company or a multiple  savings  and loan
holding company following the conversion. A financial holding company may engage
in activities that are financial in nature,  incidental to financial  activities
or  complementary to a financial  activity.  A multiple savings and loan holding
company  is  generally  limited  to  activities  permissible  for  bank  holding
companies under Section 4(c)(8) of the Bank Holding Company Act,  subject to the
prior  approval  of the Office of Thrift  Supervision,  and  certain  activities
authorized by Office of Thrift Supervision regulations.

     Notwithstanding  the above rules as to permissible  business  activities of
unitary  savings  and  loan  holding  companies,   if  the  savings  association
subsidiary of such a holding  company fails to meet the qualified  thrift lender
test,  then such unitary  holding  company  would be deemed to be a bank holding
company subject to all of the provisions of the Bank Holding Company Act of 1956
and other statutes  applicable to bank holding companies,  to the same extent as
if City Savings  Financial  Corporation were a bank holding company and the Bank
were a bank. See " Qualified  Thrift Lender." At June 30, 2003, the Bank's asset
composition  was in excess of that  required  to qualify as a  qualified  thrift
lender.

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

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

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

     No subsidiary savings association of a savings and loan holding company may
declare or pay a dividend or make a capital  distribution  on its  permanent  or
nonwithdrawable stock unless it first gives the Director of the Office of Thrift
Supervision 30 days advance notice of such declaration and payment. Any dividend
declared  during  such period or without  giving  notice  shall be invalid.  The
payment of dividends by the association is also subject to additional  Office of
Thrift  Supervision and Department of Financial  Institutions  limitations.  See
"Dividend Limitations."


Federal Home Loan Bank System

     The Bank is a member of the Federal Home Loan Bank system,  which  consists
of 12 regional banks. The Federal Housing Finance Board, an independent  agency,
controls the Federal Home Loan Bank System  including the Federal Home Loan Bank
of  Indianapolis.  The Federal Home Loan Bank system  provides a central  credit
facility  primarily for member  financial  institutions.  At June 30, 2003,  the
Bank's  investment  in stock of the Federal Home Loan Bank of  Indianapolis  was
$1.1  million.  For the fiscal year ended June 30,  2003,  the Federal Home Loan
Bank of Indianapolis paid approximately $44,000 in dividends to the Bank.

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

     The Federal Home Loan Bank of  Indianapolis  serves as a reserve or central
bank for member  institutions within its assigned region. It is funded primarily
from proceeds  derived from the sale of consolidated  obligations of the Federal
Home Loan Bank System.  It makes advances to members in accordance with policies
and  procedures  established  by the  Federal  Home  Loan  Bank and the board of
directors of the Federal Home Loan Bank of Indianapolis.

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

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


Insurance of Deposits

     Deposit  Insurance.   The  Federal  Deposit  Insurance  Corporation  is  an
independent federal agency that insures the deposits, up to prescribed statutory
limits,  of banks and thrifts and  safeguards  the safety and  soundness  of the
banking  and  thrift  industries.  The  Federal  Deposit  Insurance  Corporation
administers two separate insurance funds, the Bank Insurance Fund for commercial
banks and state savings  banks and the Savings  Association  Insurance  Fund for
savings  associations,  such as the Bank, and banks that have acquired  deposits
from savings associations. The Federal Deposit Insurance Corporation is required
to maintain designated levels of reserves in each fund.

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

     In addition to the assessment for deposit insurance,  savings  institutions
are  required  to  pay on  bonds  issued  in the  late  1980s  by the  Financing
Corporation,  which is a  federally-chartered  corporation that was organized to
provide some of the financing to resolve the thrift crisis in the 1980s.  During
1998,  Financing  Corporation  payments for Savings  Association  Insurance Fund
members  approximated 6.10 basis points,  while Bank Insurance Fund members paid
1.22 basis points.  By law, payments on Financing  Corporation  obligations have
been shared equally between Bank Insurance Fund members and Savings  Association
Insurance Fund members since January 1, 2000.

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


Savings Association Regulatory Capital

     Currently,  savings  associations  are  subject to three  separate  minimum
capital-to-assets  requirements:  (i) a leverage limit,  (ii) a tangible capital
requirement,  and (iii) a risk-based  capital  requirement.  The leverage  limit
requires that savings  associations  maintain  "core  capital" of at least 3% of
total assets. Core capital is generally defined as common  shareholders'  equity
(including retained income), noncumulative perpetual preferred stock and related
surplus,   certain  minority  equity   interests  in  subsidiaries,   qualifying
supervisory  goodwill,  purchased mortgage servicing rights and purchased credit
card relationships  (subject to certain limits) less nonqualifying  intangibles.
The Office of Thrift  Supervision  requires a core capital  level of 3% of total
adjusted  assets for savings  associations  that receive the highest  rating for
safety and soundness, and 4% to 5% for all other savings associations. Under the
tangible  capital  requirement,  a savings  association  must maintain  tangible
capital  (core capital less all  intangible  assets  except  purchased  mortgage
servicing  rights which may be included after making the above-noted  adjustment
in an amount up to 100% of tangible  capital) of at least 1.5% of total  assets.
Under the risk-based capital  requirements,  a minimum amount of capital must be
maintained by a savings  association  to account for the relative risks inherent
in the type and amount of assets held by the savings association. The risk-based
capital requirement  requires a savings association to maintain capital (defined
generally for these purposes as core capital plus general  valuation  allowances
and  permanent  or maturing  capital  instruments  such as  preferred  stock and
subordinated  debt,  less  assets  required  to be  deducted)  equal  to 8.0% of
risk-weighted  assets.  Assets are  ranked as to risk in one of four  categories
(0-100%).  A credit  risk-free  asset,  such as  cash,  requires  no  risk-based
capital,  while an asset with a significant  credit risk,  such as a non-accrual
loan,  requires a risk  factor of 100%.  Moreover,  a savings  association  must
deduct from capital, for purposes of meeting the core capital,  tangible capital
and risk-based  capital  requirements,  its entire  investment in and loans to a
subsidiary engaged in activities not permissible for a national bank (other than
exclusively   agency   activities   for  its   customers  or  mortgage   banking
subsidiaries).  At June 30, 2003,  the Bank was in  compliance  with all capital
requirements imposed by law.

     The Office of Thrift Supervision issued a final rule in 1993 that set forth
methodology  for  calculating  an  interest  rate risk  component  to be used by
savings  associations in calculating  regulatory  capital.  The Office of Thrift
Supervision delayed  implementation of this rule. In May 2002, the OTS concluded
that a separate  interest rate risk  component is  unnecessary in light of other
tools available to monitor and assess an  association's  interest rate risk, and
it repealed the requirement  that a savings  association with excess exposure to
interest  rate risk make a  deduction  from its  capital.  The  Office of Thrift
Supervision has also revised its standards  regarding the management of interest
rate risk to  include  summary  guidelines  to assist  savings  associations  in
determining  their  exposures to interest rate risk. If an association is not in
compliance with the capital  requirements,  the Office of Thrift  Supervision is
required to prohibit  asset  growth and to impose a capital  directive  that may
restrict,   among  other   things,   the  payment  of  dividends  and  officers'
compensation.  In  addition,  the Office of Thrift  Supervision  and the Federal
Deposit  Insurance  Corporation  generally are  authorized  to take  enforcement
actions  against  a  savings   association   that  fails  to  meet  its  capital
requirements.  These actions may include restricting the operating activities of
the association,  imposing a capital directive, cease and desist order, or civil
money  penalties,  or imposing harsher measures such as appointing a receiver or
conservator or forcing the association to merge into another institution.


Prompt Corrective Regulatory Action

     The Federal Deposit Insurance Corporation  Improvement Act requires,  among
other things,  that federal bank regulatory  authorities take "prompt corrective
action"  with  respect  to  institutions   that  do  not  meet  minimum  capital
requirements.  For these purposes,  the statute  establishes five capital tiers:
well  capitalized,  adequately  capitalized,   undercapitalized,   significantly
undercapitalized,  and critically  undercapitalized.  At June 30, 2003, the Bank
was categorized as "well capitalized," meaning that its total risk-based capital
ratio  exceeded  10%,  its Tier I  risk-based  capital  ratio  exceeded  6%, its
leverage  ratio  exceeded  5%,  and it was not  subject to a  regulatory  order,
agreement or directive  to meet and  maintain a specific  capital  level for any
capital measure.

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


Dividend Limitations

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


     The  regulation  permits  certain  savings  associations  to  make  capital
distributions  under certain  circumstances  without first filing a notice or an
application  with the  Office  of  Thrift  Supervision  and  requires  a savings
association  to  file  an  application  for  approval  of  a  proposed   capital
distribution  with the Office of Thrift  Supervision  if the  association is not
eligible  for  expedited   treatment   under  Office  of  Thrift   Supervision's
application  processing rules, or the total amount of all capital distributions,
including the proposed capital  distribution,  for the applicable  calendar year
would  exceed an amount equal to the savings  association's  net income for that
year  to date  plus  the  savings  association's  retained  net  income  for the
preceding two years (the "retained net income standard").  At June 30, 2003, the
Bank's retained net income standard was  approximately  $2.0 million.  A savings
association  must also file an  application  for approval of a proposed  capital
distribution if, following the proposed distribution,  the association would not
be at least adequately capitalized under the Office of Thrift Supervision prompt
corrective action regulations,  or if the proposed  distribution would violate a
prohibition  contained  in any  applicable  statute,  regulation,  or  agreement
between  the  association  and the Office of Thrift  Supervision  or the Federal
Deposit Insurance Corporation.

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

     In addition to these regulatory restrictions,  the Bank has established and
maintains a liquidation  account for the benefit of certain  depositors  and may
not make capital  distributions to City Savings Financial Corporation if its net
worth would be reduced below the amount required for the liquidation account.

     Under  Indiana  law,  the  Bank may pay  dividends  without  Department  of
Financial  Institutions  approval so long as its capital is  unimpaired  and the
dividends  in any  calendar  year do not exceed the net  profits of the Bank for
that year plus the  retained net profits of the Bank for the previous two years.
Dividends may not exceed undivided  profits on hand (less losses,  bad debts and
expenses).  Additional  stringent  regulatory  requirements  affecting  dividend
payments by the Bank,  however,  are established by the prompt corrective action
provisions of the Federal Deposit Insurance  Corporation  Improvement Act, which
are discussed  above.  The Bank's capital levels  currently  exceed the criteria
established  to  be  designated  as  a  "well  capitalized"  institution.   Such
institutions  are required to have a total  risk-based  capital  ratio of 10% or
greater, a Tier I risk-based capital ratio of 6% or greater and a leverage ratio
of 5% or greater.
<PAGE>

Limitations on Rates Paid for Deposits

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


Safety and Soundness Standards

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


Real Estate Lending Standards

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


Federal Reserve System

     Under  regulations of the Federal  Reserve  Board,  the Bank is required to
maintain  reserves  against its  transaction  accounts  (primarily  checking and
negotiable order of withdrawal  accounts) and non-personal  money market deposit
accounts.  The effect of these  reserve  requirements  is to increase the Bank's
cost of  funds.  The Bank is in  compliance  with its  reserve  requirements.  A
state-chartered   savings  association,   like  other  depository   institutions
maintaining  reservable  accounts,  may borrow  from the Federal  Reserve  Board
"discount  window," to meet these  requirements  but the Federal Reserve Board's
regulations   require  the  savings  association  to  exhaust  other  reasonable
alternative  sources,  including  borrowing from its regional  Federal Home Loan
Bank,  before borrowing from the Federal Reserve Board.  FedICIA imposes certain
limitations on the ability of undercapitalized depository institutions to borrow
from Federal Reserve Boards.


Loans to One Borrower

     Under Office of Thrift Supervision regulations and the Indiana statute, the
Bank may not  make a loan or  extend  credit  to a single  or  related  group of
borrowers in excess of 15% of its  unimpaired  capital and  surplus.  Additional
amounts may be lent, not in excess of 10% of unimpaired capital and surplus,  if
such  loans or  extensions  of credit are fully  secured  by readily  marketable
collateral,  including certain debt and equity securities but not including real
estate.  Office of Thrift Supervision  regulations permit a savings association,
in some  cases,  to lend up to 30% of  unimpaired  capital  and  surplus  to one
borrower for purposes of developing domestic residential housing,  provided that
the  association  meets its regulatory  capital  requirements  and the Office of
Thrift  Supervision  authorizes  the  association  to use this expanded  lending
authority.  The Bank did not have any loans or  extensions of credit to a single
or related group of borrowers in excess of its regulatory lending limits at June
30, 2003.
<PAGE>

Qualified Thrift Lender

     Savings associations must meet a qualified thrift lender test that requires
the   association  to  maintain  an  appropriate   level  of  qualified   thrift
investments,  which  primarily  consist of  residential  mortgages  and  related
investments,   including  certain  mortgage-related   securities.  The  required
percentage of qualified  thrift  investments is 65% of portfolio  assets,  which
includes all assets minus intangible assets, property used by the association in
conducting its business and liquid assets equal to 10% of total assets.  Certain
assets are subject to a percentage  limitation  of 20% of portfolio  assets.  In
addition,  savings  associations may include shares of stock of the Federal Home
Loan  Banks,  Federal  National  Mortgage  Association,  and  Federal  Home Loan
Mortgage  Corporation  as  qualified  thrift  investments.  Compliance  with the
qualified  thrift  lender test is  determined  on a monthly basis in nine out of
every twelve months.  As of June 30, 2003,  the Bank was in compliance  with its
qualified  thrift lender  requirement,  with  approximately  70.5% of its assets
invested in qualified thrift investments.

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


Acquisitions or Dispositions and Branching

     The  Bank  Holding  Company  Act  specifically  authorizes  a bank  holding
company, upon receipt of appropriate regulatory approvals, to acquire control of
any savings association or holding company thereof wherever located.  Similarly,
a savings and loan  holding  company may  acquire  control of a bank.  Moreover,
Office  of  Thrift   Supervision   regulations   authorize  a  federal   savings
associations to acquire or be acquired by any insured depository institution and
the Indiana statute authorizes an Indiana financial institution to acquire or be
acquired by an out-of-state  financial institution.  Regulations  promulgated by
the  Federal   Reserve  Board  restrict  the  branching   authority  of  savings
associations  acquired by bank holding companies.  Savings associations acquired
by bank holding  companies  may be  converted  to banks if they  continue to pay
Savings Association Insurance Fund premiums,  but as such they become subject to
branching and activity restrictions applicable to banks.

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

     Indiana  banks and savings  associations  are  permitted  to acquire  other
Indiana  banks and savings  associations  and to establish  branches  throughout
Indiana. Moreover,  revisions to the Indiana statute adopted in 1996 authorize a
state  savings  association,  with  the  prior  approval  of the  Department  of
Financial  Institutions,  to establish or acquire a branch in another state. The
revised Indiana statute further authorizes an out-of-state financial institution
to establish  branches in Indiana,  provided that the laws of the  institution's
home state permit  Indiana  financial  institutions  to  establish  and maintain
branches in that state on a  reciprocal  basis.  These  revisions to the Indiana
statute are consistent  with the  Riegle-Neal  Interstate  Banking and Branching
Efficiency Act of 1994.


Transactions with Affiliates

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


Federal Securities Law

     The shares of common stock of City Savings Financial  Corporation have been
registered  under the Securities and Exchange  Commission Act of 1934 (the "1934
Act") and, as a result,  City Savings  Financial  Corporation  is subject to the
information,   proxy  solicitation,   insider  trading  restrictions  and  other
requirements  of the  1934  Act and the  rules of the  Securities  and  Exchange
Commission thereunder.  After three years following the Bank conversion to stock
form, if City Savings Financial Corporation has fewer than 300 shareholders,  it
may  deregister  its  shares  under the 1934 Act and cease to be  subject to the
foregoing requirements.

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


Sarbanes-Oxley Act of 2002

     On July 30, 2002,  President Bush signed into law the Sarbanes-Oxley Act of
2002  (the   "Sarbanes-Oxley   Act").  The   Sarbanes-Oxley   Act  represents  a
comprehensive  revision  of  laws  affecting  corporate  governance,  accounting
obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all
companies  with  equity  or debt  securities  registered  under  the  Securities
Exchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) new
requirements  for  audit  committees,  including  independence,  expertise,  and
responsibilities;   (ii)   additional   responsibilities   regarding   financial
statements for the Chief Executive  Officer and Chief  Financial  Officer of the
reporting  company;  (iii) new standards for auditors and  regulation of audits;
(iv) increased  disclosure and reporting  obligations for the reporting  company
and their directors and executive officers;  and (v) new and increased civil and
criminal  penalties for violation of the securities laws. Many of the provisions
became  effective  immediately  while other  provisions  became effective over a
period of 30 to 270 days and are subject to  rulemaking  by the  Securities  and
Exchange  Commission.   Although  the  Holding  Company  anticipates   incurring
additional  expense in complying with the provisions of the  Sarbanes-Oxley  Act
and the resulting  regulations,  management does not expect that such compliance
will have a material impact on our results of operations or financial condition.


Community Reinvestment Act Matters

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


Other Indiana Regulations

     As noted,  the Bank is subject to regulation by the Department of Financial
Institutions.  The  Department  of  Financial  Institutions  has  the  right  to
promulgate rules and regulations necessary for the supervision and regulation of
Indiana-chartered  savings  associations  under  its  jurisdiction  and  for the
protection  of  the  public  investing  in  such  institutions.  The  regulatory
authority of the  Department  of  Financial  Institutions  includes,  but is not
limited to, the  establishment  of reserve  requirements;  the regulation of the
payment of dividends;  the  regulation of stock  repurchases,  the regulation of
incorporators,    shareholders,   directors,   officers   and   employees;   the
establishment of permitted types of withdrawable accounts and types of contracts
for savings programs,  loans and investments;  and the regulation of the conduct
and  management of savings  banks,  chartering  and  branching of  institutions,
mergers, conversions and conflicts of interest.

     The Department of Financial  Institutions generally conducts regular annual
examinations of  Indiana-chartered  savings  associations  such as the Bank. The
purpose of such examination is to assure that institutions are being operated in
compliance with  applicable  Indiana law and regulations and in a safe and sound
manner.  In addition,  the Department of Financial  Institutions  is required to
conduct an examination of any  institution as often as it deems  necessary.  The
Department  of  Financial  Institutions  has the power to issue cease and desist
orders if any person or  institution  is  engaging  in, or has  engaged  in, any
unsafe or unsound practice in the conduct of its business or has or is violating
any other law,  rule or  regulation  and, as to  officers  and  directors  of an
Indiana  savings  association,  breached  his  fiduciary  duty as an  officer or
director.

     With the approval of the Department of Financial  Institutions,  an Indiana
savings  association  may merge or consolidate  with a state or federal  savings
association,  a  state  bank  or  state  savings  bank or a  national  bank.  In
considering whether to approve or disapprove such a merger or consolidation, the
Department of Financial  Institutions is to consider the following factors:  (i)
whether the institutions are operated in a safe, sound and prudent manner;  (ii)
whether the financial  conditions of any of the institutions will jeopardize the
financial  stability  of the other  institutions;  (ii)  whether  the  financial
conditions of any of the institutions will jeopardize the financial stability of
the other institutions;  (iii) whether the proposed merger or consolidation will
result in an institution that has inadequate capital,  unsatisfactory management
or poor earnings  prospects;  (iv) whether the management or other principals of
the   resulting   institution   are   qualified  by  character   and   financial
responsibility to control and operate in a legal and proper manner the resulting
institution;  (v) whether the interests of the  depositors  and creditors of the
institutions  and the public  generally will be jeopardized by the  transaction;
and (vi) whether the institutions  furnish all of the information the Department
of Financial Institutions requires in reaching the its decision.

     Acquisitions  of  control of an Indiana  savings  association  by a foreign
savings  association or bank, or a holding company require the prior approval of
the  Department  of  Financial  Institutions.  Control  is defined as the power,
directly  or  indirectly,  (i) to vote 25.0% or more of the  voting  stock of an
Indiana-chartered  savings association or (ii) to excise a controlling influence
over the management or policies of a savings association.


                                    TAXATION
Federal Taxation

     Historically,  savings associations,  such as the Bank, have been permitted
to compute bad debt deductions  using either the bank  experience  method or the
percentage of taxable income method. However, for years beginning after December
31, 1995, no savings association may use the percentage of taxable income method
of computing  its allowable bad debt  deduction for tax purposes.  Instead,  all
savings associations are required to compute their allowable deduction using the
experience method. As a result of the repeal of the percentage of taxable income
method,  reserves taken after 1987 using the percentage of taxable income method
generally  must be included  in future  taxable  income over a six-year  period,
although  a  two-year  delay  may  be  permitted  for  associations   meeting  a
residential  mortgage loan  origination  test. We do not have any reserves taken
after 1987 that must be recaptured.  However, our pre-1988 reserve, for which no
deferred  taxes have been  recorded,  must be recaptured  into income if (i) the
Bank no longer  qualifies as a bank under the Internal Revenue Code, or (ii) the
Bank  pays out  excess  dividends  or  distributions.  Although  we do have some
reserves from before 1988, we are not required to recapture these reserves.

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

     For federal  income tax  purposes,  we have been  reporting  our income and
expenses on the accrual  method of  accounting.  Our federal  income tax returns
have not been audited in the past ten years.


State Taxation

     We are subject to Indiana's financial institutions tax, which is imposed at
a flat rate of 8.5% on "adjusted  gross  income."  "Adjusted  gross income," for
purposes  of the  financial  institutions  tax,  begins with  taxable  income as
defined by Section  63 of the  Internal  Revenue  Code and,  thus,  incorporates
federal tax law to the extent that it affects the computation of taxable income.
Federal taxable income is then adjusted by several Indiana modifications.  Other
applicable  state taxes include  generally  applicable  sales and use taxes plus
real and personal property taxes.

     Our state income tax returns have not been audited in the past ten years.
<PAGE>

Item 2. Description of Property.

     The following table provides certain information with respect to the Bank's
offices as of June 30, 2003:

                                                        Net Book
                                                        Value of
                                                        Property,    Approximate
                          Owned or   Year     Total     Furniture      Square
Description and Address    Leased   Opened   Deposits   & Fixtures     Footage
-------------------------- ------   ------   --------   ----------   -----------
                             (Dollars in thousands)

Main Office                 Owned    1970    $97,464    $1,376,000*     4,600
2000 Franklin Street
Michigan City, IN 46360

Rolling Prairie Branch      Owned    1995    $ 6,115    $   80,000        900
101 E. Michigan Street
Rolling Prairie, IN  46371
----------------------
*Includes property acquired for future expansion.


     We own computer and data processing  equipment which we use for transaction
processing,  loan  origination,  and  accounting.  The  net  book  value  of our
electronic data processing equipment was approximately $80,000 at June 30, 2003.

     We currently  operate five automatic teller machines,  with one ATM located
at each of our two offices, and three located in restaurants in La Porte County.
Our ATMs participate in the Cirrus and Star networks.

     We have also contracted for the data  processing and reporting  services of
Aurum Technologies,  Inc. in Charlotte,  North Carolina.  The cost of these data
processing services is approximately $15,000 per month.

     We have also executed a Correspondent  Services  Agreement with the Federal
Home Loan Bank of Indianapolis  under which we receive item processing and other
services for a fee of approximately $2,100 per month.


Item 3.  Legal Proceedings.

     The Bank is a party to a lawsuit  asserting,  among other things,  that the
Bank interfered  with  transactional  relationships  between the Indiana Housing
Finance  Authority  (IHFA) and the Greater  Michigan City Community  Development
Corporation (GMCCDC).  Among other defendants is the Bank's president,  who also
served as president of the GMCCDC during the period covered by the lawsuit.  The
Bank accepted deeds in lieu of foreclosure on properties  that it believed to be
collateral  on loans to the GMCCDC.  The IHFA  asserts  certain  rights to those
properties among other claims. The total amount received by the Bank on the sale
of the foreclosed properties was approximately  $320,000.  The IHFA is suing for
unspecified damages and other costs.

     The  defense and other  costs of  litigation  of the Bank may be covered by
insurance, but the Bank's insurer is currently reviewing that determination, and
there are certain exclusions in the policies which might apply to deny coverage.
The Bank and its  president  intend  to  vigorously  defend  the  action.  It is
impossible  at this time for the Bank to predict  the  outcome  of this  pending
litigation or its impact on the Bank's operations or financial condition.

     The Company and  subsidiary  are also  subject to other 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.


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

     No matters  were  submitted to a vote of the  security  holders  during the
quarter ended June 30, 2003.
<PAGE>
                                    PART II

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

     We have not sold any equity  securities  during the period  covered by this
report  that  were  not  registered  under  the  Securities  Act  of  1933.  The
information  required by this item,  including market information and data as to
holders and dividends,  is  incorporated  by reference to the material under the
heading  "Market   Information"  on  page  41  of  the  Holding  Company's  2003
Shareholder Annual Report (the "Shareholder Annual Report").


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

     The information required by this item is incorporated by reference to pages
4 through 16 of the Shareholder Annual Report.


Item 7.  Financial Statements.

     The Holding Company's  Consolidated  Financial Statements and Notes thereto
contained  on  pages  18  through  38  of  the  Shareholder  Annual  Report  are
incorporated herein by reference.


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

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


Item 8A. Controls and Procedures.

     (a) Evaluation of disclosure  controls and procedures.  The Company's chief
executive   officer  and  chief   financial   officer,   after   evaluating  the
effectiveness of the Company's disclosure controls and procedures (as defined in
Sections  13a-15(e)  and  15d-15(e) of the  Securities  Exchange Act of 1934, as
amended), as of the end of the most recent fiscal quarter covered by this annual
report (the "Evaluation  Date"),  have concluded that as of the Evaluation Date,
the Company's  disclosure controls and procedures were adequate and are designed
to ensure that material  information relating to the Company would be made known
to such officers by others within the Company on a timely basis.

     (b) Changes in internal controls.  There were no significant changes in the
Company's  internal  control over financial  reporting  identified in connection
with the Company's  evaluation  of controls  that occurred  during the Company's
last fiscal quarter that has  materially  affected,  or is reasonably  likely to
materially affect, the Company's internal control over financial reporting.


                                    PART III

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

     The  information  required  by this  item with  respect  to  directors  and
executive  officers is  incorporated by reference to pages 2 to 4 and page 10 of
the Holding Company's Proxy Statement for its Annual  Shareholder  meeting to be
held October 22, 2003 (the "2003 Proxy Statement").

     The Company has a separate Audit  Committee  established in accordance with
Section  3(a)(58)(A)  of the  Securities  Exchange Act of 1934.  Its members are
Richard G. Cook, Mark T. Savinski and Bruce W. Steinke.

     The Board of Directors of the Company has determined  that the Company does
not  have  an  "audit  committee   financial  expert,"  as  defined  in  17  CFR
228.401(e)(2),  serving on its Audit  Committee.  The Board has  selected  Audit
Committee members based on the Board's  determination that they are qualified to
oversee the  accounting  and  financial  reporting  processes of the Company and
audits of the Company's financial statements.

     The Company has adopted a code of ethics that applies, among other persons,
to its principal  executive  officer,  principal  financial  officer,  principal
accounting officer or controller,  or persons  performing  similar functions.  A
copy of that Code of Ethics is filed as an exhibit to this Report.


Item 10. Executive Compensation.

     The  information  required  by this  item  with  respect  to  Directors  is
incorporated  by  reference  to  page  6 of the  Holding  Company's  2003  Proxy
Statement.


Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholder Matters.

     The  information  required by this item with respect to certain  beneficial
owners  and  directors  is  incorporated  by  reference  to pages 1 and 2 of the
Holding Company's 2003 Proxy Statement.


Equity Compensation Plan Information

     The following  table provides the  information  about the Company's  common
stock  that may be issued  upon the  exercise  of options  and rights  under all
existing equity compensation plans as of June 30, 2003.

<TABLE>
<CAPTION>

                                                                                          Number of securities
                                                                                        remaining available for
                                                                                         future issuance under
                                    Number of securities          Weighted-average        equity compensation
                                 to be issued upon exercise      exercise price of            plans as of
                                  of outstanding options,           outstanding              June 30, 2003
                                 warrants and rights as of       options, warrants       (excluding securities
                                      June 30, 2003                  and rights         reflected in column (a))
Plan category                              (a)                          (b)                        (c)
------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                          <C>                        <C>
Equity  compensation plans
  approved by security holders:
    City Savings Financial
      Corporation Stock
      Option Plan .................       46,770                       $15.39                     8,775
Equity compensation plans not
  approved by security holders: ...           --                           --                        --

Total .............................       46,770                       $15.39                     8,775

</TABLE>

Item 12. Certain Relationships and Related Transactions.

     The  information  required  by this  item  with  respect  to  Directors  is
incorporated  by  reference  to  page 10 of the  Holding  Company's  2003  Proxy
Statement.


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

  (a)  List the following documents filed as part of the report:
<TABLE>
<CAPTION>

                                                                       Annual Report
                                                                          Page No.

       Financial Statements:

<S>                                                                           <C>
       Independent Accountants' Report .....................................  17

       Consolidated Balance Sheets at June 30, 2003 and 2002 ...............  18

       Consolidated Statements of Income for the Years Ended June 30, 2003
         and 2002 ..........................................................  19

       Consolidated Statements of Shareholders' Equity for the Years Ended
         June 30, 2003 and 2002 ............................................  20

       Consolidated Statements of Cash Flows for the Years Ended June 30,
         2003 and 2002 .....................................................  21

       Notes to Consolidated Financial Statements ..........................  22
</TABLE>


  (b)  Reports on Form 8-K.

       During the quarter  ended June 30,  2003,  the Holding  Company  filed
       reports  on Form 8-K on June 18,  2003  (Items 5 and 7) and on May 13,
       2003  (Items  7 and 9).  The May 13,  2003  Report  included  selected
       financial  data in order to report on  results of  operations  for the
       quarter ended March 31, 2003.

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


Item 14.  Principal Accountant Fees and Services.

     The information  required by this item is incorporated by reference to page
9 of the Holding Company's 2003 Proxy Statement.
<PAGE>

                                   SIGNATURES

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

                                       CITY SAVINGS FINANCIAL CORPORATION


Date:  September 29, 2003              By: /s/ Thomas F. Swirski
                                          Thomas F. Swirski, President and
                                          Chief Executive Officer



     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant  and in the  capacities  indicated on this 29th day of September,
2003.

    Signatures                   Title                     Date
    ---------------------------- ----------------------    --------------------
(1) Principal Executive Officer:                         )
                                                         )
    /s/ Thomas F. Swirski                                )
    ----------------------------                         )
    Thomas F. Swirski            President and           )
                                 Chief Executive Officer )
                                                         )
(2) Principal Financial and                              )
    Accounting Officer:                                  )
                                                         )
    /s/ George L. Koehm                                  )
    ---------------------------- Treasurer               )
    George L. Koehm                                      )
                                                         )
                                                         )
(3) The Board of Directors:                              )
                                                         ) September 29, 2003
    /s/ Bruce W. Steinke                                 )
    ---------------------------- Chairman of the Board   )
    Bruce W. Steinke                                     )
                                                         )
                                                         )
    ---------------------------- Director                )
    Richard G. Cook                                      )
                                                         )
    /s/ George L. Koehm                                  )
    ---------------------------- Director                )
    George L. Koehm                                      )
                                                         )
                                                         )
    ---------------------------- Director                )
    Mark T. Savinski                                     )
                                                         )
    /s/ Thomas F. Swirski                                )
    ----------------------------  Director               )
    Thomas F. Swirski                                    )
<PAGE>

                                 EXHIBIT INDEX



Exhibit No.                      Description
--------------------------------------------------------------------------------

     3(1) Registrant's  Articles of Incorporation  are incorporated by reference
          to to Exhibit 3(1) to the Registrant's  Registration Statement on form
          SB-2  filed  with  the   Commission   on   September   26,  2001  (the
          "Registration Statement").

      (2) Registrant's  Code of By-Laws is  incorporated by reference to Exhibit
          3(2) to the Registration Statement.

    10(a) City   Savings   Financial   Corporation   Stock   Option  Plan  is
          incorporated  by  reference  to  Exhibit  10(2)  to  the  Registration
          Statement.

      (b) Michigan City Savings and Loan  Association  Recognition and Retention
          Plan and Trust is  incorporated  by reference to Exhibit  10(3) to the
          Registration Statement.

      (c) Employment   Agreement   between   Michigan   City  Savings  and  Loan
          Association  and Thomas F.  Swirski is  incorporated  by  reference to
          Exhibit 10(4) to the Registration Statement.

      (d) Employment   Agreement   between   Michigan   City  Savings  and  Loan
          Association  and  George L.  Koehm is  incorporated  by  reference  to
          Exhibit 10(5) to the Registration Statement.

      (e) City Savings Financial  Corporation  Employee Stock Ownership Plan and
          Trust  Agreement is  incorporated by reference to Exhibit 10(6) to the
          Registration Statement.

      (f) ESOP Loan  Commitment  and Exempt  Loan and Share  Purchase  Agreement
          between Trust under City Savings Financial  Corporation Employee Stock
          Ownership  Plan  and  Trust  Agreement  and  City  Savings   Financial
          Corporation  is  incorporated  by  reference  to Exhibit  10(7) to the
          Registration Statement.

      (g) Michigan  City  Savings  and  Loan   Association   Deferred   Director
          Supplemental Retirement Plan (Effective June 27, 2001) is incorporated
          by reference to Exhibit 10(8) to the Registration Statement.

      (h) First  Amendment to the City Savings  Financial  Corporation  Employee
          Stock Ownership Plan and Trust  Agreement  (effective July 1, 2002) is
          incorporated  by  reference  to Exhibit  10(h) of the  Company's  Form
          10-KSB filed September 27, 2002.

    13    2003 Annual Report

    14    Code of Ethics

    21    Subsidiaries of the Registrant

    23    Consent of Independent Accountants

    31(1) CEO Certification

    31(2) CFO Certification

    32    Section 906 Certification