Exhibit 13


CITY SAVINGS FINANCIAL CORPORATION                            2004 ANNUAL REPORT
================================================================================

                               TABLE OF CONTENTS

Message to Shareholders ................................................   2

Selected Consolidated Financial Data ...................................   3

Management's Discussion and Analysis ...................................   4

Report of Independent Registered Public Accounting Firm ................   18

Consolidated Balance Sheets  ...........................................   19

Consolidated Statements of Income ......................................   20

Consolidated Statements of Shareholders' Equity ........................   21

Consolidated Statements of Cash Flows ..................................   22

Notes to Consolidated Financial Statements .............................   23

Directors and Officers .................................................   40

Market Information .....................................................   42

================================================================================

Description of Business

     City Savings  Financial  Corporation (the "Holding  Company" and,  together
with its  subsidiary,  the  "Company")  is an Indiana  corporation  organized in
September  2001,  to  become  a  savings  and  loan  holding  company  upon  its
acquisition  of all the issued and  outstanding  capital  stock of Michigan City
Savings  and Loan  Association  (the  "Bank")  in  connection  with  the  Bank's
conversion  from mutual to stock form.  The  Holding  Company  became the Bank's
holding  company on December 27, 2001.  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 principal asset of the Holding Company currently  consists of 100%
of the issued and outstanding shares of capital stock, without par value, of the
Bank.

     At June 30, 2004,  the Bank, a state  savings  association,  conducted  its
business from three full-service offices located in Chesterton,  Rolling Prairie
and Michigan City,  Indiana,  with the main office located in Michigan City. The
Bank also has a loan origination office in Crown Point, Indiana and now provides
online banking services.

     The Bank offers a variety of lending,  deposit and other financial services
to its retail and commercial  customers.  The Bank's principal business consists
of attracting  deposits from the general public and originating  mortgage loans,
most of which are secured by one-to four-family  residential real property in La
Porte County.  The Bank also offers  commercial real estate loans,  home equity,
second  mortgage  loans  and  other  types  of  consumer   loans,   real  estate
construction  loans,   commercial  loans,   automobile  loans,  land  loans  and
multi-family  residential  loans. The Bank derives most of its funds for lending
from deposits of its  customers,  which  consist  primarily of  certificates  of
deposit, demand accounts and savings accounts.

<PAGE>


To Our Shareholders:


     On  behalf  of the  directors,  officers  and  employees  of  City  Savings
Financial Corporation and its wholly-owned  subsidiary,  City Savings Bank, I am
pleased  to  present  to you,  our  shareholders,  our  third  Annual  Report to
Shareholders.  We converted from a mutual to stock form of ownership in December
2001 and  immediately  began trading on the OTC Electronic  Bulletin Board under
the symbol "CSFC." On December 1, 2002, we changed the name of our  wholly-owned
subsidiary from Michigan City Savings and Loan  Association to City Savings Bank
to align the Bank's  image and brand with that of the holding  company's  and to
eliminate any suggestion  that our operations are limited only to Michigan City,
Indiana.

     Our  home  office  is  located  in  Michigan  City,  Indiana  and  we  have
full-service branch offices in Rolling Prairie and Chesterton,  Indiana, as well
as a loan  origination  office located in Crown Point,  Indiana.  Our Chesterton
branch  opened its doors on February 16, 2004,  and our Crown Point office began
operations on February 28, 2004.

     City Savings Financial Corporation has experienced another outstanding year
of  progress.  The fiscal  year ended June 30, 2004 was a success by a number of
financial measures.

     Our total  assets at June 30, 2004 were $146.1  million  compared to $139.8
million at June 30,  2003,  a growth of $6.3  million or 4.5%.  The  increase in
assets was primarily  attributable  to an increase in net loans  receivable from
$117.1  million at June 30, 2003 to $119.3 million at June 30, 2004, an increase
of $2.2 million or 1.9%, and securities available for sale from $12.2 million at
June 30, 2003 to $13.6  million at June 30, 2004, an increase of $1.4 million or
11.50%.

     Net income for the year ended June 30,  2004 was $1.1  million  compared to
$1.3 million at June 30, 2003, a decrease of approximately  $200,000,  or 13.7%.
Our return on equity,  that is net income divided by average total equity,  also
decreased. Our return on equity was 9.84% for the fiscal year ended was June 30,
2004,  compared to 12.43% for the prior fiscal year. Our return on assets,  that
is net income  divided by average  total  assets,  was 0.77% for the fiscal year
ended June 30, 2004,  compared to 1.11% for the prior year. Our return on equity
and  return  on assets  for the for the  fiscal  year 2002 was 6.16% and  0.63%,
respectively.

     Despite a competitive  interest rate environment,  we were able to maintain
our interest rate spread during the year.  While net income and return on equity
and  assets  have  declined,  this  is  partly  attributable  to  the  Company's
investment in the Chesterton and Crown Point facilities. The entrance into these
vibrant markets is in line with the Company's  strategic plan, and management is
confident these  investments  will contribute to  profitability  and shareholder
value in future periods.

     The  Management  and the  Board of  Directors  want to  thank  you for your
business,  support and  confidence  in City Savings  Financial  Corporation.  We
encourage you to recommend us to your friends,  neighbors and associates, and we
look forward to serving you with the same  professional  service that has marked
our performance for over 118 years.


                                  Sincerely,



                                  /s/ Thomas F. Swirski

                                  Thomas F. Swirski
                                  President & Chief Executive Officer


                                       2
<PAGE>
<TABLE>
<CAPTION>


                     SELECTED CONSOLIDATED FINANCIAL DATA OF
               CITY SAVINGS FINANCIAL CORPORATION AND SUBSIDIARIES

     The  following  selected  consolidated  financial  data of the  Company  is
qualified  in its  entirety  by, and  should be read in  conjunction  with,  the
consolidated financial statements,  including notes thereto,  included elsewhere
in this Annual Report.

                                                                          At  June 30,
---------------------------------------------------------------------------------------------------------
                                                            2004              2003              2002
---------------------------------------------------------------------------------------------------------
                                                                     (Dollars in thousands)
<S>                                                         <C>              <C>                <C>
Selected Financial Condition Data:
Total assets............................................    $146,122         $139,840           $81,394
Loans receivable........................................     120,727          118,197            68,651
Allowance for loan losses...............................       1,457            1,097               579
Net loans receivable....................................     119,270          117,100            68,072
Cash and cash equivalents...............................       2,541            4,952             3,215
Securities available for sale...........................      13,596           12,187             6,847
Securities to be held to maturity.......................         192              249               334
Total borrowings........................................      27,657           22,170             6,488
Deposits ...............................................     104,474          103,579            63,211
Shareholders' equity - substantially restricted.........      11,870           11,075            10,197

Selected Operating Data:
Total interest income...................................    $  8,056         $  7,096          $  5,052
Total interest expense..................................       3,120            2,888             2,553
                                                            --------         --------          --------
   Net interest income..................................       4,936            4,208             2,499
Provision for loan losses...............................         460              592               258
                                                            --------         --------          --------
   Net interest income after provision for loan losses..       4,476            3,616             2,241
                                                            --------         --------          --------
Noninterest income:
   Service charges on deposit accounts..................         135              113                92
   Gain on sale of investments..........................         106              320                49
   Net gains on loan sales..............................         241              359               104
   Other ...............................................         336              437               245
                                                            --------         --------          --------
     Total noninterest income...........................         818            1,229               490
                                                            --------         --------          --------
Noninterest expense:
   Compensation and benefits............................       1,763            1,468             1,024
   Occupancy and equipment..............................         494              260               268
   Professional fees....................................         166              178               110
   Data processing......................................         251              186               163
   Advertising..........................................         198              137               122
   Other ...............................................         605              436               305
                                                            --------         --------          --------
     Total noninterest expense..........................       3,477            2,665             1,993
                                                            --------         --------          --------
Income before taxes.....................................       1,817            2,180               738
Income tax expense (benefit)............................         672              854               268
                                                            --------         --------          --------
   Net income...........................................    $  1,145         $  1,326          $    470
                                                            ========         ========          ========
------------------------
Table continued on following page
</TABLE>

                                       3
<PAGE>
<TABLE>
<CAPTION>

                                                                              At  June 30,
                                                             ------------------------------------------
                                                                 2004            2003            2002
                                                             ------------------------------------------
<S>                                                               <C>             <C>
Supplemental Data:
Dividends per share ....................................          .38             .20              --
Dividend payout ratio ..................................        18.43%           8.38%             --
Interest rate spread during period  ....................         3.32%           3.33%           3.04%
Net yield on interest-earning assets (1) ...............         3.50            3.63            3.48
Return on assets (2) ...................................          .77            1.11            0.63
Return on equity (3) ...................................         9.84           12.43            6.16
Equity to assets (4) ...................................         8.12            7.92           12.53
Average interest-earning assets to average
         interest-bearing liabilities ..................       107.53          112.16          112.46
Nonperforming assets to total assets (4) ...............         3.11            1.83            2.19
Allowance for loan losses to total loans outstanding (4)         1.22            0.94            0.85
Allowance for loan losses to nonperforming loans (4) ...        33.44           43.58           38.63
Net charge-offs to average total loans outstanding .....         0.08            0.07            0.17
Other expenses to average assets (5) ...................         2.34            2.24            2.68
Number of full-service offices (4) .....................            3               2               2
---------------
(1)  Net interest income divided by average interest-earning assets.
(2)  Net income divided by average total assets.
(3)  Net income divided by average total equity.
(4)  At end of period.
(5)  Other expenses divided by average total assets.

</TABLE>

                             =====================

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

General

     The following  discussion and analysis of the Company's financial condition
and results of operations  should be read in conjunction with and with reference
to the consolidated financial statements and the notes thereto included herein.

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

     1)   Management's determination of the amount of loan loss allowance; and

     2)   The effect of changes in interest rates.


Average Balances and Interest Rates and Yields

     The following  tables  present for the years ended June 30, 2004,  2003 and
2002,  the balances,  interest rates and average daily balances of each category
of the Company's interest-earning assets and interest-bearing  liabilities,  and
the interest earned or paid on such amounts.



                                       4
<PAGE>
<TABLE>
<CAPTION>
                                           AVERAGE BALANCE SHEET/YIELD ANALYSIS

                                                                                    Year Ended June 30,
                                          ----------------------------------------------------------------------
                                                         2004                             2003
                                          ----------------------------------------------------------------------
                                                       Interest                          Interest
                                             Average    Earned/   Average      Average    Earned/    Average
                                             Balance     Paid    Yield/Rate    Balance     Paid     Yield/Rate
                                          ----------------------------------------------------------------------
                                                                 (Dollars in thousands)
<S>                                          <C>         <C>         <C>        <C>        <C>          <C>
Assets:
Interest-earning assets:
  Interest-earning deposits ........         $  2,121    $   25      1.18%      $  4,265   $   58       1.36%
  Securities available for sale (1)            13,582       561      4.13         10,142      501       4.94
  Securities to be held to
    maturity .......................              214        10      4.67            295       14       4.75
  Loans receivable (2) (3) .........          123,744     7,385      5.97        100,272    6,479       6.46
  Stock in Federal Home Loan
    Bank of Indianapolis ...........            1,558        75      4.81            842       44       5.23
                                             --------    ------                 --------   ------
    Total interest-earning assets ..          141,219     8,056      5.70        115,816    7,096       6.13
                                                         ------                            ------
Noninterest earning assets, net
  of allowance for loan losses .....            7,133                              3,331
                                             --------                           --------
    Total assets ...................         $148,352                           $119,147
                                             ========                           ========

Liabilities and equity capital:
  Savings deposits .................         $ 11,062       111      1.00       $ 10,860     175        1.61
  Interest-bearing demand
    deposits .......................           20,304       349      1.72         17,022      341       2.00
  Certificates of deposit ..........           68,631     1,848      2.69         60,357    1,903       3.15
  Other borrowed money .............            6,104       235      3.85            965       16       1.66
  Federal Home Loan Bank
    advances .......................           25,227       577      2.29         14,060      453       3.22
                                             --------    ------                 --------   ------
    Total interest-bearing
      liabilities ..................          131,328     3,120      2.38        103,264    2,888       2.80
                                                         ------                            ------
  Other liabilities ................            5,389                              5,218
                                             --------                           --------
    Total liabilities ..............          136,717                            108,482
  Equity capital ...................           11,635                             10,665
                                             --------                           --------
    Total liabilities and equity
      capital ......................         $148,352                           $119,147
                                             ========                           ========

Net earning assets .................         $  9,891                           $ 12,552
                                             ========                           ========
Net interest income ................                     $4,936                            $4,208
                                                         ======                            ======
Interest rate spread (4) ...........                                 3.32%                              3.33%
                                                                     ====                               ====
Net yield on average earning
  assets (5) .......................                                 3.50%                              3.63%
                                                                     ====                               ====
Average interest-earning  assets
  to average interest-bearing
  liabilities................                  107.53%                            112.16%
                                               ======                             ======


[TABLE CONTINUED ON FOLLOWING PAGE]

</TABLE>

                                       5
<PAGE>



                                                       Year Ended June 30,
                                          -------------------------------------
                                                           2002
                                          -------------------------------------
                                                        Interest
                                               Average   Earned/    Average
                                               Balance    Paid     Yield/Rate
                                          -------------------------------------

Assets:
Interest-earning assets:
  Interest-earning deposits ........            $ 2,847    $   76      2.67%
  Securities available for sale (1)               6,785       371      5.47
  Securities to be held to
    maturity .......................                381        23      6.04
  Loans receivable (2) (3) .........             61,318     4,556      7.43
  Stock in Federal Home Loan
    Bank of Indianapolis ...........                396        26      6.57
                                                -------    ------
    Total interest-earning assets ..             71,727     5,052      7.04
                                                           ------
Noninterest earning assets, net
  of allowance for loan losses .....              2,711
                                                -------
    Total assets ...................            $74,438
                                                =======

Liabilities and equity capital:
  Savings deposits .................            $ 9,829       243      2.47
  Interest-bearing demand
    deposits .......................             14,787       426      2.88
  Certificates of deposit ..........             35,703     1,718      4.81
  Other borrowed money .............                 --        --        --
  Federal Home Loan Bank
    advances .......................              3,459       166      4.80
                                                -------    ------
    Total interest-bearing
      liabilities ..................             63,778     2,553      4.00
                                                           ------
  Other liabilities ................              3,025
                                                -------
    Total liabilities ..............             66,803
  Equity capital ...................              7,635
                                                -------
    Total liabilities and equity
      capital ......................            $74,438
                                                =======

Net earning assets .................            $ 7,949
                                                =======
Net interest income ................                       $2,499
                                                           ======
Interest rate spread (4) ...........                                   3.04%
                                                                       ====
Net yield on average earning
  assets (5) .......................                                   3.48%
                                                                       ====
Average interest-earning  assets
  to average interest-bearing
  liabilities................                    112.46%
                                                 ======
-------------------
(1)  Mortgage-backed   securities   available  for  sale  and  other  investment
     securities  available for sale are at amortized  cost prior to SFAS No. 115
     adjustments.
(2)  Total loans, less loans in process and deferred loan fees.
(3)  The balances include nonaccrual loans.
(4)  Interest rate spread is calculated by subtracting weighted average interest
     rate  cost  from  weighted  average  interest  rate  yield  for the  period
     indicated.
(5)  The net yield on weighted average  interest-earning assets is calculated by
     dividing net interest income by weighted  average  interest-earning  assets
     for the period indicated.

                                  5 CONTINUED
<PAGE>


Interest Rate Spread

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

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

<TABLE>
<CAPTION>
                                                                                Year Ended June 30,
                                                                   ---------------------------------------------
                                                                      2004             2003              2002
                                                                   ---------------------------------------------
<S>                                                                   <C>              <C>               <C>
Weighted average interest rate earned on:
   Interest-earning deposits.....................................     1.18%            1.36%             2.67%
   Securities available for sale.................................     4.13             4.94              5.47
   Securities to be held to maturity.............................     4.67             4.75              6.04
   Loans receivable..............................................     5.97             6.46              7.43
   Federal Home Loan Bank stock..................................     4.81             5.23              6.57
     Total interest-earning assets...............................     5.70             6.13              7.04

Weighted average interest rate cost of:
   Savings deposits..............................................     1.00             1.61              2.47
   Interest-bearing demand deposits..............................     1.72             2.00              2.88
   Certificates of deposit.......................................     2.69             3.15              4.81
   Federal Home Loan Bank advances...............................     2.29             3.22              4.80
   Other Borrowed Money..........................................     3.85             1.66                --
     Total interest-bearing liabilities..........................     2.38             2.80              4.00
Interest rate spread (1).........................................     3.32             3.33              3.04
Net yield on weighted average interest-earning assets (2)........     3.50             3.63              3.48
---------------------
(1)  Interest rate spread is calculated by subtracting combined weighted average
     interest rate cost from combined  weighted average interest rate earned for
     the period  indicated.  Interest rate spread  figures must be considered in
     light of the relationship  between the amounts of  interest-earning  assets
     and interest-bearing liabilities.
(2)  The net yield on weighted average  interest-earning assets is calculated by
     dividing net interest income by weighted  average  interest-earning  assets
     for the period indicated.

</TABLE>

                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                     Increase (Decrease) in Net Interest Income
                                                                  --------------------------------------------------
                                                                     Due to            Due to           Total Net
                                                                      Rate             Volume             Change
                                                                  --------------------------------------------------
                                                                                 (In thousands)
<S>                                                                     <C>              <C>               <C>
Year ended June 30, 2004, compared
to year ended June 30, 2003
   Interest-earning assets:
     Interest-earning deposits...................................       $   (8)          $  (25)           $  (33)
     Securities available for sale...............................          (82)             142                60
     Securities held to maturity.................................           --               (4)               (4)
     Loans receivable............................................         (495)           1,401               906
     Federal Home Loan Bank stock................................           (3)              34                31
                                                                        ------           ------            ------
       Total interest-earning assets.............................         (588)           1,548               960
                                                                        ------           ------            ------

   Interest-bearing liabilities:
     Savings deposits............................................          (66)               2               (64)
     Interest-bearing demand deposits............................          (48)              56                 8
     Certificates of deposit.....................................         (278)             223               (55)
     Other Borrowed Money........................................           21              198               219
     Federal Home Loan Bank advances.............................         (131)             255               124
                                                                        ------           ------            ------
       Total interest-bearing liabilities........................         (502)             734               232

   Change in net interest income.................................          (86)             814               728
                                                                        ------           ------            ------

Year ended June 30, 2003, compared
to year ended June 30, 2002
   Interest-earning assets:
     Interest-earning deposits...................................       $  (37)          $   19            $  (18)
     Securities available for sale...............................          (36)             166               130
     Securities held to maturity.................................           (5)              (4)               (9)
     Loans receivable............................................         (594)           2,517             1,923
     Federal Home Loan Bank stock................................           (5)              23                18
                                                                        ------           ------            ------
       Total interest-earning assets.............................         (677)           2,721             2,044
                                                                        ------           ------            ------

   Interest-bearing liabilities:
     Savings deposits............................................          (85)              17               (68)
     Interest-bearing demand deposits............................         (130)              45               (85)
     Certificates of deposit.....................................         (592)             777               185
     Other Borrowed Money........................................           --               16                16
     Federal Home Loan Bank advances.............................          (55)             342               287
                                                                        ------           ------            ------
       Total interest-bearing liabilities........................         (861)           1,196               335

   Change in net interest income.................................
                                                                        ------           ------            ------
       Total Liabilities.........................................       $  184           $1,525            $1,709
                                                                        ======           ======            ======

</TABLE>

                                       7
<PAGE>

Sale of the Whybrew Insurance Agency

     The Company sold its property  and casualty and health  insurance  lines of
business  and all rights to the name  "Whybrew  Insurance  Agency"  to  Michiana
Insurance  on  January 2,  2003.  A net gain of  $110,000  was  recorded  on the
transaction.  The sales  agreement  prohibits  the Company from  engaging in the
property and casualty and health  insurance lines of business in La Porte County
or the surrounding  counties for a period of two years following the date of the
agreement.


Loans Purchased Under Agreements to Resell

     In September of 2002,  the Company  entered into mortgage  loan  repurchase
agreements  with several  mortgage  companies.  Through  these  agreements,  the
Company  buys  conventional  single  family  mortgage  loans  from the  mortgage
companies at par and subsequently  resells the loan to the mortgage companies or
others for  transfer  to an end  investor.  During  the  holding  period,  which
typically  lasts  thirty  days,  the Company  earns a prime based return and fee
income and reports these loans as residential  mortgage  loans. In June of 2003,
at the  request  of the  Office of Thrift  Supervision  ("OTS"),  the  Company's
primary federal regulator,  the Company limited the outstanding balance of loans
purchased  from  any one  mortgage  company  to 25% of the  Bank's  capital  and
unimpaired surplus which was substantially  below the limits that were in place.
The new limits took effect on October 31, 2003.

     The  Company  had  $1.8  million  in  loans  outstanding   purchased  under
agreements  to resell at June 30, 2004 as compared to $12.9  million at June 30,
2003.  During the year ended June 30, 2004 the Company recorded  interest income
of $487,000 and fee income of $44,000 on loans  purchased  via the program.  The
majority of this income was  attributable to the first six months of the year in
which the  Company  recorded  interest  income  of  $414,000  and fee  income of
$35,000.


Trust Preferred Capital Securities

     In  June of  2003,  the  Company  formed  City  Savings  Statutory  Trust I
("Trust").  The Trust is a statutory  business  trust and is wholly owned by the
Company.  The Trust issued $5 million of trust preferred capital securities as a
participant  in a pooled  trust  preferred  securities  offering and $155,000 in
principal  amount of  common  securities  to the  Company.  The  Trust  used the
proceeds to  purchase  $5,155,000  in junior  subordinated  deferrable  interest
debentures  from the Company.  The junior  subordinated  debentures are the sole
assets of the Trust. The junior subordinated  debentures and the trust preferred
securities pay interest and dividends,  respectively,  on a quarterly basis. The
junior subordinated  debentures and the securities bear interest at a rate of 90
day LIBOR plus 3.10% and mature on June 26, 2033 and are  non-callable  for five
years and,  after that period,  the  securities  may be called at any  quarterly
interest  payment  date  at  par.  Dividends  on  the  trust  preferred  capital
securities are recorded as interest expense.  Costs associated with the issuance
of the securities  totaling  $150,000 were  capitalized  and are being amortized
over the estimated life of the securities.


Real Estate Development Project

     On December 8, 2003,  the Company  entered into an agreement to purchase 80
acres of land  located in Crown  Point,  Indiana for $3.4  million.  The Company
planned on developing the land for commercial  purposes  through a joint venture
with a local real estate  developer.  The terms of the agreement  provided for a
180-day due diligence period  commencing one day after the date of the agreement
and required a closing date on or before thirty days after the expiration of the
due  diligence  period.  The Company  intended to fund the  purchase of the real
estate through a credit facility with a correspondent bank and obtained a letter
of non-objection from its primary regulator,  the Office of Thrift  Supervision,
allowing the Company to take on the  additional  borrowings.  Subsequent to June
30,  2004,  the  Office  of  Thrift   Supervision   rescinded  their  letter  of
non-objection.  As a result  of this  action,  the  Company  let its  option  to
purchase the land expire.


Regulatory Examination

     On  April  14,  2004,  the  Board  of  Directors  of  the  Company  adopted
resolutions  to take  certain  actions as a result of practices  and  conditions
referred  to in a Report of  Examination  dated  January  5, 2004  issued by the
Office of Thrift  Supervision.  Such conditions include growth in




                                       8
<PAGE>

commercial  and other lending areas beyond what the Company had projected in its
business plan. These  resolutions  include:  (i) within 90 days from the date of
this resolution,  the Board of Directors shall bring the Company into reasonable
compliance with the business plan  projections  submitted to the OTS on March 8,
2004;  (ii) within 90 days from the date of this  resolution,  the Company shall
hire a loan analyst to oversee an internal loan review function, and make needed
revisions to internal loan review systems and  procedures;  (iii) within 90 days
from the date of this  resolution,  the  Company  shall  make  revisions  to the
Classification of Assets policy and ALLL  methodology;  (iv) within 90 days from
the date of this resolution, the Company shall have reviewed all commercial loan
files to  ensure  necessary  documentation  is in the  files;  (v) the  Board of
Directors  shall  give  strong  consideration  to  adding  an  additional  board
member(s) with  commercial  loan  experience;  (vi) the Board of Directors shall
address  additional items listed on the Matters  Requiring Board Attention pages
of the Report by the specified date  regarding  Management,  Asset Quality,  and
Liquidity;  and  (vii)  within  30  days of the  end of  each  calendar  quarter
subsequent  to the adoption of this  resolution,  the Board of  Directors  shall
submit a written  progress report to both the OTS and the Indiana  Department of
Financial  Institutions  specifically  outlining and detailing the status of the
Bank's  compliance  with  these   resolutions.   Since  the  adoption  of  these
resolutions, the Company has taken various actions to address these issues.


Financial Condition at June 30, 2004 Compared to Financial Condition at June 30,
2003

     Total  assets  at June 30,  2004 were  $146.1  million  compared  to $139.8
million at June 30, 2003, an increase of $6.3 million,  or 4.5%. The increase in
assets was  primarily  attributable  to an increase in premises and equipment of
$2.2  million or 153.9%,  an increase in net loans of $2.2  million or 1.9%,  an
increase in cash value of life insurance of $1.5 million or 148.3%,  an increase
in other assets of $890,000 or 106.3%,  an increase in investment  securities of
$1.4  million or 10.9% and an increase in Federal  Home Loan Bank of $581,000 or
54.2%.

     Premises and  Equipment.  The increase in premises and equipment was due to
the construction of the Chesterton  branch which was completed in February 2004,
renovation  of the Main Office  facility  and the  purchase of real estate in La
Porte, Indiana.

     Net  Loans.  The  increase  in net  loans  was  largely  due to  growth  in
commercial and  construction  lending  activities.  Year over year the Company's
commercial  real  estate  portfolio  increased  $7.1  million  or 35.7% to $26.9
million, the commercial  non-mortgage  portfolio increased $3.8 million or 32.0%
to $15.7 million,  and the construction loan portfolio increased $6.8 million or
74.6% to $15.9 million.  The growth in  construction  lending has been primarily
attributable  to the  Company's  expansion  into the Porter  county market where
there  is a strong  demand  for  single  family  construction  loans  from  both
individuals   and  builders.   Offsetting  the  growth  in  the  Company's  loan
portfolios'  was an $11.6 million or 86.7% decrease in loans  available for sale
resulting from reduced activity in the Company's warehouse lending activities.

     Cash Value of Life Insurance.  At June 30, 2004, the Company's  outstanding
investment  in  bank-owned  life  insurance was $2.5 million as compared to $1.0
million at June 30, 2003. The bank-owned life insurance is used to fund director
and officer supplemental retirement benefits and deferred compensation benefits.

     Other  Assets.  The increase in other assets from $838,000 at June 30, 2003
to $1.7 million at June 30, 2004 was  primarily  attributable  to an increase in
deferred tax assets.

     Investment Securities.  The increase in investment securities was primarily
attributable  to the  redeployment  of  interest  earning  deposits  into higher
yielding  investment  securities.  At June 30, 2004,  the  securities  portfolio
consisted of bank qualified municipal securities totaling $6.5 million,  federal
agency  securities  totaling  $5.7 million,  investment  grade  corporate  bonds
totaling $826,000 and mortgage-backed securities totaling $763,000.


                                       9
<PAGE>

     Federal  Home Loan Bank  Stock.  The  increase  in  Federal  Home Loan Bank
("FHLB")  stock from $1.1  million at June 30, 2003 to $1.7  million at June 30,
2004, is primarily  attributable  to an increase in borrowing  activity with the
Federal Home Loan Bank of Indianapolis which required additional stock purchases
by the Company  during the year.  During the fiscal year end 2004, the Company's
outstanding advances from the Federal Home Loan Bank of Indianapolis ranged from
a high of $30.0 million and a low of $16.2 million.

     Allowance for Loan Losses. The allowance for loan losses increased $360,000
or 32.8% to $1.5 million at June 30,  2004,  from $1.1 million at June 30, 2003.
Over this same time period loans on non-accrual status increased $1.9 million or
79.2% from $2.4 million at June 30, 2003 to $4.3  million at June 30, 2004.  The
increase in non-accrual  loans was primarily  attributable to six loans totaling
$1.7  million  secured  by  commercial  nonresidential  real  estate  where  the
principals are experiencing cash flow difficulties. Although management believes
that its allowance for loan losses at June 30, 2004 was adequate  based upon the
available facts and  circumstances,  there can be no assurance that additions to
such allowance will not be necessary in future periods,  which could  negatively
affect the Company's results of operations.

     Deposits.  Total deposits  increased $895,000 or 0.9%, to $104.5 million at
June 30, 2004 from $103.6 million at June 30, 2003. The increase in deposits was
primarily attributable to a $668,000 or 2.8% increase in demand and money-market
deposits and a $236,000 increase in certificate of deposit  balances.  Year over
year  growth in  deposits  was  achieved  despite  a $2.2  million  decrease  in
noninterest bearing demand deposits due to reduced balances held by the mortgage
companies the Company purchases loans from under agreements to resell and a $5.5
million decrease in broker originated certificate of deposits.  This was largely
due to deposit growth at the Company's  Chesterton branch which began operations
on February 16, 2004 and had total deposits of $7.9 million at June 30, 2004.

     Federal Home Loan Bank  Advances.  Advances from the Federal Home Loan Bank
increased  $3.7 million to $19.8  million at June 30, 2004 from $16.2 million at
June 30, 2003. The Company utilized  advances to fund loan growth.  The weighted
average cost of Federal Home Loan Bank  advances at June 30, 2004 was 2.51% with
a weighted average remaining maturity of 1.5 years.

     Other Liabilities.  Other liabilities  decreased $894,000 or 29.7%, to $2.1
million at June 30, 2004 from $3.0  million at June 30,  2003.  The  decrease in
other liabilities is primarily attributable to decreases in accrued income taxes
payable, accounts payable, and the Company's internal operating account.

     Shareholder's  Equity.  Shareholders'  equity totaled $11.7 million at June
30, 2004,  an increase of $675,000 or 6.1% from $11.0  million at June 30, 2003.
The increase  resulted  from net income for the year ended June 30, 2004 of $1.1
million and by $73,000 of shares held in the Company's Recognition and Retention
Plan ("RRP") Trust  becoming  vested and issued to plan  participants  which was
partially  offset by the payment of common  stock  dividends of $211,000 and the
after-tax decrease in the unrealized gain on the  available-for-sale  investment
portfolio of $332,000.


Comparison of Operating Results for the Years Ended June 30, 2004 and 2003

     General.  Net  income for the twelve  months  ended June 30,  2004 was $1.1
million,  a decrease of $181,000 or 13.7% from the $1.3 million reported for the
year ended June 30, 2003.  The return on average  assets was 0.77% and 1.11% for
the years  ended  June 30,  2004 and 2003,  respectively.  The return on average
equity  was  9.84%  and  12.43%  for the  years  ended  June 30,  2004 and 2003,
respectively.

     Interest Income.  Interest income was $8.1 million for the fiscal year 2004
compared to $7.1  million for the prior  fiscal  year.  The increase in interest
income was  primarily  due to an  increase  in average  earning  assets of $25.4
million,  or 21.9% from $115.8  million for fiscal year 2003  compared to $141.2
million for fiscal year 2004. The growth in average assets was attributable to a
$23.5



                                       10
<PAGE>

million or 23.4%  increase in average  loans  outstanding  and a $3.4 million or
32.2% increase in average  securities  outstanding over the same respective time
periods.  The average yield on interest-earning  assets decreased from 6.13% for
the year ended June 30, 2003 to 5.70% for the year ended June 30, 2004.

     Interest  Expense.  Interest expense increased  $232,000,  or 8.0%, for the
year ended June 30, 2004 compared to the year ended June 30, 2003.  The increase
in interest expense was primarily due to an increase in average interest bearing
liabilities of $28.1 million,  or 27.2%, to $131.3 million for the twelve months
ended June 30, 2004, from $103.3 million for the same period last year.  Average
deposits  increased  $11.8 million or 13.4%, to $100.0 million during the fiscal
year 2004 from $88.2 million during the prior fiscal year. Average FHLB advances
increased  $11.2  million or 79.4%,  to $25.2  million for the fiscal year 2004,
from $14.1 million for the prior year.  The average rate on the cost of interest
bearing  liabilities  decreased  to 2.38% for the twelve  months  ended June 30,
2004, from 2.80% for the same period last year. As a result of declining  market
rates of interest  during the fiscal year 2004, the Company lowered the rates of
interest  paid on now  accounts,  money market  accounts,  savings  accounts and
certificates of deposit.  The increase in average interest  bearing  liabilities
was utilized to fund asset growth.

     Net Interest Income.  Net interest income  increased  $728,000 or 17.3%, to
$4.9 million for the twelve  months  ended June 30, 2004,  from $4.2 million for
the twelve months ended June 30, 2003.  The increase in net interest  income was
primarily due to an increase in average interest  earning assets.  The Company's
interest  rate  spread for the years  ended June 30, 2004 and 2003 was 3.32% and
3.33%, respectively.

     Provision for Loan Losses. A provision for loan losses is charged to income
to bring the total allowance for loan losses to a level  considered  appropriate
by management based upon historical  experience,  the volume and type of lending
conducted  by the  Company,  the  status  of past  due  principal  and  interest
payments, general economic conditions, particularly as such conditions relate to
the Company's  market area, and other factors related to the  collectability  of
the loan portfolio. As a result of such analysis, management recorded a $460,000
provision  for losses on loans for the twelve  months  ended June 30,  2004,  as
compared  to  $592,000  recorded  in the same  period  last  year.  The  current
provision  was  predicated on the increase in the level of  nonperforming  loans
year-to-year,  as well as increases in the  commercial  loan  portfolios.  While
management  believes  that the allowance for loan losses is adequate at June 30,
2004,  based upon available facts and  circumstances,  there can be no assurance
that the loan loss  allowance  will be adequate to cover  losses on loans in the
future.

     Noninterest Income. Noninterest income for the twelve months ended June 30,
2004 was $818,000  compared to $1.2 million for the twelve months ended June 30,
2003,  a decrease of $411,000  or 33.4%.  Included in other  income for the year
ended  2003 is an  $110,000  net  gain  recorded  on the  sale of the  Company's
property and casualty and health insurance lines of business. This sale was also
primarily  attributable to the year over year decrease in commission income. The
Company  also  recorded  less  income  from  the  sale  of  mortgage  loans  and
available-for-sale  securities  during the twelve  months ended June 30, 2004 as
compared to the same period last year.  The decrease in gains on loans sales was
largely due to a slow down in single family mortgage loan origination  activity.
Partially  offsetting the decrease of  noninterest  income was $85,000 of income
related to the Company's investment of bank-owned life insurance.

     Noninterest  Expense.  Noninterest expense for the twelve months ended June
30, 2004 was $3.5 million  compared to $2.7 million for the twelve  months ended
June 30, 2003, an increase of $812,000 or 30.5%.  During the quarter ended March
31, 2004,  the Company  opened up a full service  branch  office in  Chesterton,
Indiana  and  a  loan  origination  office  in  Crown  Point,  Indiana  and  has
experienced  an  increase  in  expenses  related to the start up,  staffing  and
operation of these offices.  The Bank has also experienced higher year over year
compensation and benefit




                                       11
<PAGE>

expenses related to staffing increases in commercial  lending,  loan support and
operations and accounting.

     Income  Taxes.  The  provision  for income taxes  totaled  $672,000 for the
twelve months ended June 30, 2004, a decrease of $182,000 or 21.3%,  as compared
to 2003. The effective tax rates amounted to 37.0% and 39.2% for the years ended
June 30, 2004 and 2003, respectively.


Comparison of Operating Results for the Years Ended June 30, 2003 and 2002

     General.  Net  income for the twelve  months  ended June 30,  2003 was $1.3
million,  an increase of $856,000 or 182.1% from the  $470,000  reported for the
year ended June 30, 2002.  The return on average  assets was 1.11% and 0.63% for
the years ended June 30, 2003 and 2002, respectively,  and the return on average
equity was 12.43% and 6.16% for the same respective time periods.

     Interest Income.  Interest income was $7.1 million for the fiscal year 2003
compared to $5.1  million for the prior  fiscal  year.  The increase in interest
income was  primarily  due to an  increase  in average  earning  assets of $44.1
million,  or 61.5% from $71.7  million for fiscal  year 2002  compared to $115.8
million for fiscal year 2003. The growth in average assets was attributable to a
$39.0 million or 63.5% increase in average loans  outstanding and a $3.4 million
or 49.5% increase in average  securities  outstanding  over the same  respective
time periods. The average yield on interest-earning  assets decreased from 7.04%
for the year ended June 30, 2002 to 6.13% for the year ended June 30, 2003.

     Interest Expense.  Interest expense increased  $335,000,  or 13.1%, for the
year ended June 30, 2003 compared to the year ended June 30, 2002.  The increase
in interest expense was primarily due to an increase in average interest bearing
liabilities of $39.5 million,  or 61.9%, to $103.3 million for the twelve months
ended June 30, 2003,  from $63.8 million for the same period last year.  Average
deposits  increased  $27.9 million or 46.3%,  to $88.2 million during the fiscal
year 2003 from $60.3 million during the prior fiscal year. Average FHLB advances
increased  $10.6  million or 302.9%,  to $14.1 million for the fiscal year 2003,
from $3.5 million for the prior year.  The average yield on the cost of interest
bearing  liabilities  decreased  to 2.80% for the twelve  months  ended June 30,
2003, from 4.00% for the same period last year. As a result of declining  market
rates of interest  during the fiscal year 2003, the Company lowered the rates of
interest  paid on NOW  accounts,  money market  accounts,  savings  accounts and
certificates of deposit.  The increase in average interest  bearing  liabilities
was utilized to fund loan growth.

     Net Interest  Income.  Net interest income increased $1.7 million or 68.0%,
to $4.2 million for the twelve months ended June 30, 2002, from $2.5 million for
the twelve months ended June 30, 2002.  The increase in net interest  income was
primarily due to an increase in the interest rate spread from 3.04% for the year
ended June 30, 2002 to 3.33% for the year ended June 30, 2003 and to an increase
in average interest earning assets.

     Provision for Loan Losses. A provision for loan losses is charged to income
to bring the total allowance for loan losses to a level  considered  appropriate
by Management based upon historical  experience,  the volume and type of lending
conducted by the Bank,  the status of past due principal and interest  payments,
general  economic  conditions,  particularly  as such  conditions  relate to the
Bank's  market area,  and other  factors  related to the  collectability  of the
Bank's  loan  portfolio.  As a result of such  analysis,  Management  recorded a
$592,000  provision  for  losses  on loans  for the year  ended  June 30,  2003,
compared  to  $258,000  recorded  in the 2002  period.  The 2003  provision  was
predicated on the increase in the level of nonperforming loans year-to-year,  an
overall  increase in the loan  portfolio as well as increases in the  commercial
loan portfolios. While Management believes that the allowance for loan losses is
adequate at June 30, 2003, based upon available facts and  circumstances,  there
can be no  assurance  that the loan loss  allowance  will be  adequate  to cover
losses on loans in the future.

     Noninterest Income. Noninterest income for the twelve months ended June 30,
2003 was $1.2




                                       12
<PAGE>

million  compared to $490,000  for the twelve  months  ended June 30,  2002,  an
increase of $738,000 or 150.6%. The increase in noninterest income was primarily
the result of a $255,000  increase in net gains on loan sales,  a $110,000  gain
recorded on the sale of the Company's  insurance agency, an increase of $271,000
in net  gains  on the  sale  of  available-for-sale  securities  and a  $105,000
increase in other income.

     Noninterest  Expense.  Noninterest expense for the twelve months ended June
30, 2003 was $2.7 million  compared to $2.0 million for the twelve  months ended
June 30, 2002, an increase of $671,000 or 33.7%. Several factors contributing to
the  increase  were a $444,000  increase  in  compensation  expense,  a $130,000
increase in other expense,  a $68,000  increase in  professional  expenses and a
$23,000  increase in data  processing  expense.  The  increase  in  compensation
expense was primarily  attributable  to an adjustment for the change in estimate
for the estimated expenses related to the supplemental director retirement plan,
an increase in staffing,  normal salary  increases  and expenses  related to the
Company's Employee Stock Ownership Plan ("ESOP") and RRP.

     Income  Taxes.  The  provision  for income taxes  totaled  $854,000 for the
twelve  months  ended June 30,  2003,  an increase  of  $586,000  or 218.5%,  as
compared to the same period in 2002.  The effective tax rates  amounted to 39.2%
and 36.3% for the twelve months ended June 30, 2003 and 2002, respectively.


Liquidity and Capital Resources

     The following is a summary of the Company's cash flows,  which are of three
major  types.  Cash flows from  operating  activities  consist  primarily of net
income generated by cash.  Investing  activities generate cash flows through the
origination and principal  collection on loans as well as purchases and sales of
securities.  Investing  activities will generally  result in negative cash flows
when the Company experiences loan growth.  Cash flows from financing  activities
include savings deposits,  withdrawals and maturities and changes in borrowings.
The  following  table  summarizes  cash flows for the years ended June 30, 2004,
2003 and 2002.




                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                                                 Year Ended June 30,
                                                                  -----------------------------------------------
                                                                      2004              2003            2002
                                                                  -----------------------------------------------
                                                                                   (In thousands)

<S>                                                                  <C>              <C>             <C>
Operating activities.............................................    $ 11,992         $(10,618)       $  1,708
                                                                     --------         --------        --------

Investing activities:
   Net change in interest-bearing time deposits..................          --              396              (2)
   Purchase of securities available for sale.....................     (15,772)         (21,154)         (6,378)
   Proceeds from sales of securities available for sale..........      11,038           13,872           2,394
   Proceeds from maturities of securities available for sale.....       2,791            2,168           1,898
   Proceeds from maturities of securities held to maturity ......          57               84              96
   Net change in loans...........................................     (14,272)         (36,194)        (11,346)
   Purchases of premises and equipment...........................      (2,437)            (742)            (99)
   Proceeds from sales of premises and equipment.................          --               --              15
   Purchase of Federal Home Loan Bank stock......................        (581)            (646)            (53)
   Purchase of life insurance....................................      (1,399)          (1,001)             --
                                                                     --------         --------        --------
        Net cash used by investing activities....................     (20,575)         (43,217)        (13,475)
                                                                     --------         --------        --------

Financing activities:
   Net change in deposits........................................         895           40,368           4,245
   Proceeds from Federal Home Loan Bank advances.................      48,140           23,100          10,600
   Payments on Federal Home Loan Bank advances...................     (44,472)         (13,428)         (5,782)
   Proceeds from other borrowings................................       1,819            6,010              --
   Proceeds from sale of common stock, net of costs .............          --               --           5,042
   Cash dividends ...............................................        (211)            (111)             --
   Contribution of unearned RRP shares...........................          --             (367)             --
   Contribution of unearned ESOP shares..........................          --               --            (445)
                                                                     --------         --------        --------
        Net cash provided by financing activities................       6,171           55,572          13,660
                                                                     --------         --------        --------

Net increase (decrease) in cash and cash equivalents.............    $ (2,412)        $  1,737        $  1,893
                                                                     ========         ========        ========

</TABLE>

     Pursuant to OTS capital  regulations,  savings  associations must currently
meet a 1.5% tangible  capital  requirement,  a leverage  ratio (or core capital)
requirement of 3% and a total risk-based  capital to risk-weighted  assets ratio
of 8%. At June 30, 2004,  the Bank's  capital  levels  exceeded  all  applicable
regulatory  capital  requirements  currently  in  effect.  The  following  table
provides the minimum  regulatory  capital  requirements  and the Bank's  capital
ratios as of June 30, 2004:



                                       14
<PAGE>

                                             June 30, 2004
                            ----------------------------------------------------
                            OTS Requirement        The Bank's Capital Level
                            ----------------------------------------------------
                             % of                 % of                   Amount
Capital Standard            Assets    Amount    Assets(1)   Amount     of Excess
----------------            ----------------------------------------------------
                                           (Dollars in thousands)
Tangible Capital.......      1.5%     $2,193     10.3%     $14,740     $12,547
Core Capital (2).......      4.0%     $5,848     10.3%     $14,740     $ 8,892
Risk-based Capital.....      8.0%     $9,913     13.2%     $16,405     $ 6,492
----------------
(1)  Tangible and core capital levels are shown as a percentage of total assets;
     risk-based  capital  levels  are  shown as a  percentage  of  risk-weighted
     assets.
(2)  The OTS core capital requirement for savings  associations is comparable to
     the Office of the  Comptroller  of the  Currency  requirement  for national
     banks. The OTS regulation requires at least 3% of total adjusted assets for
     savings associations that receive the highest supervisory rating for safety
     and soundness, and 4% to 5% for all other savings associations. The Bank is
     in compliance with this regulation.


     As of June 30, 2004, Management is not aware of any current recommendations
by regulatory authorities which, if they were to be implemented, would have, or
are reasonably likely to have, a material adverse effect on the Bank's
liquidity, capital resources or results of operations.

                             =====================

Critical Accounting Policies

     Allowance  for Loan  Losses.  The  allowance  for loan losses  ("ALL") is a
significant estimate that can and does change based on Management's  assumptions
about specific borrowers and applicable  economic and environmental  conditions,
among other  factors.  Management  reviews the adequacy of the ALL on at least a
quarterly basis.  This review is based on four components:  specific  identified
risks or anticipated  losses in individual  loans, a percentage  factor based on
the  type of loan and the  classification  assigned  to the  credit,  growth  or
shrinkage in the overall portfolio and Management's analysis of overall economic
conditions  such as employment,  bankruptcy  trends,  property value changes and
change in delinquency levels.

     Credits are evaluated  individually  based on degree of delinquency  and/or
identified  risk ratings of special mention or worse.  Credits with  delinquency
levels of less than 90 days and not subject to  classification  are  reviewed in
the aggregate.  Percentage  factors  applied to individual  credits are based on
risk  rating,  the type of credit and  estimated  potential  losses in the event
liquidation  becomes necessary.  Percentage factors applied to loans reviewed in
the  aggregate  are based  solely on the type of credit.  Anticipated  losses on
other real estate owned are recognized immediately upon recording the asset.

     The ALL may also include a component based on  Management's  assumptions of
changes  in risk in  non-qualified  areas  such as market  conditions,  property
values, employment conditions and perceived changes in overall portfolio quality
due to changes in  concentration,  underwriting  changes and both  national  and
regional trends.

     External  factors such as increases in unemployment,  regional  softness in
property  values,   increasing   national   numbers  in  bankruptcy,   unsecured
delinquency and charge-offs and internal factors such as the continuing increase
in the  commercial  loan  portfolios  may  result  in larger  losses in  current
economic conditions.



                                       15
<PAGE>

     Changes in  concentration,  delinquency and portfolio are addressed through
the variation in percentages  used in calculating  the reserve for various types
of credit as well as individual review of "high risk" credits and large loans.

Foreclosed asset and real estate acquired for development. Foreclosed assets and
real estate acquired for development are carried at the lower of cost or fair
value less estimated selling costs. Management estimates the fair value of the
properties based on current appraisal information. Fair value estimates are
particularly susceptible to significant changes in the economic environment,
market conditions, and real estate market. A worsening or protracted economic
decline would increase the likelihood of a decline in property values and could
create the need to write down the properties through current operations.


Current Accounting Issues

     In  March  2004,  the  Securities  and  Exchange  Commission  issued  Staff
Accounting Bulletin No. 105 (SAB 105),  Application of Accounting  Principles to
Loan  Commitments.  Current  accounting  guidance  requires  the  commitment  to
originate  mortgage loans to be held for sale be recognized on the balance sheet
at fair value from  inception  through  expiration or funding.  SAB 105 requires
that the fair-value  measurement include only differences between the guaranteed
interest rate in the loan commitment and a market  interest rate,  excluding any
expected  future  cash  flows  related  to the  customer  relationship  or  loan
servicing.  SAB 105 is effective for commitments to originate  mortgage loans to
be held for sale that are entered  into after March 31,  2004.  Its adoption did
not have a material impact on the consolidated  financial position or results of
operations of the Company.

     In March 2004, the Financial Accounting Standards Board's ("FASB") Emerging
Issues Task Force  reached a consensus  on EITF Issue No.  03-1,  The Meaning of
Other-Than-Temporary  Impairment and Its Application to Certain Investments. The
guidance  prescribes a three-step model for determining whether an investment is
other-than-temporarily impaired and requires disclosures about unrealized losses
on  investments.  The  accounting  guidance is effective for  reporting  periods
beginning after June 15, 2004,  while the disclosure  requirements are effective
for annual  reporting  periods  ending after June 15, 2004. The adoption of this
EITF did not have a material effect on the  consolidated  financial  position or
results of operation of the Company.

     In May 2003, the FASB issued  Statement of Financial  Accounting  Standards
("SFAS")  No.  150,   Accounting   for  Certain   Financial   Instruments   with
Characteristics of both Liabilities and Equity.  SFAS 150 establishes  standards
for  classification  and  measurement in the statement of financial  position of
certain  financial  instruments  with  characteristics  of both  liabilities and
equity. The Company has determined that it has no such instruments.

     In April 2003, the FASB issued SFAS No. 149,  Amendment of Statement 133 on
Derivative   Instruments  and  Hedging  Activities.   This  statement  clarifies
reporting of contracts as either derivatives or hybrid instruments.  The Company
has determined that it has no such instruments.

     In January  2003,  the FASB issued FASB  Interpretation  No. 46 ("FIN 46"),
Consolidation  of Variable  Interest  Entities.  FIN 46 provides  guidance  with
respect  to  variable  interest  entities  and  when  the  assets,  liabilities,
noncontrolling interest, and results of operations of a variable interest entity
need to be included in a company's consolidated financial statements. A variable
interest  entity  exists when either the total equity  investment at risk is not
sufficient  to permit the entity to finance  its  activities  by itself,  or the
equity  investors  lack one of three  characteristics  associated  with owning a
controlling financial interest. Those characteristics are the direct or indirect
ability to make decisions about an entity's  activities through voting rights or
similar  rights,  the  obligation to absorb the expected  losses of an entity if
they occur, and the right to receive the expected residual returns of the entity
if they occur.

     FIN 46 was  effective  immediately  for new  entities  that were created or
acquired  after  January  31,  2003,  and became  effective  on July 1,




                                       16
<PAGE>

2003 for entities in which the Company had a variable interest prior to February
1, 2003.  The Company  adopted FIN 46 on a prospective  basis and,  accordingly,
will not  restate  prior  periods.  The  effect of the  adoption  did not have a
material impact on the results of operations,  financial  position or cash flows
of the Company.


Impact of Inflation

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

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

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


Off-Balance Sheet Arrangements

     As of the date of this Report,  the Company  does not have any  off-balance
sheet  arrangements  that have or are  reasonably  likely  to have a current  or
future  effect  on  the  Company's  financial  condition,  change  in  financial
condition,  revenues or  expenses,  results of  operations,  liquidity,  capital
expenditures  or capital  resources  that are  material to  investors.  The term
"off-balance sheet arrangement" generally means any transaction,  agreement,  or
other contractual arrangement to which an entity unconsolidated with the Company
is a party  under  which the  Company  has (i) any  obligation  arising  under a
guarantee  contract,  derivative  instrument  or  variable  interest;  or (ii) a
retained or contingent  interest in assets transferred to such entity or similar
arrangement  that serves as credit,  liquidity  or market risk  support for such
assets.


                                       17
<PAGE>




            Report of Independent Registered Public Accounting Firm


To the Board of Directors
City Savings Financial Corporation
Michigan City, Indiana


We have audited the  accompanying  consolidated  balance  sheets of City Savings
Financial Corporation as of June 30, 2004 and 2003, and the related consolidated
statements  of  income,  shareholders'  equity and cash flows for the years then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of  City  Savings  Financial
Corporation  as of June 30, 2004 and 2003, and the results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.



/s/ BKD, LLP

Indianapolis, Indiana
August 6, 2004


                                       18
<PAGE>
<TABLE>
<CAPTION>

                                       City Savings Financial Corporation
                                           Consolidated Balance Sheets
                                             June 30, 2004 and 2003

                                                                                     2004               2003
-------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                  <C>
Assets
   Cash and due from banks.................................................     $  1,828,965         $  1,262,961
   Interest-bearing deposits...............................................          711,859            3,689,408
                                                                                ------------         ------------
       Cash and cash equivalents...........................................        2,540,824            4,952,369
   Interest-bearing time deposits..........................................          299,000              299,000
   Investment securities
     Available for sale....................................................       13,596,211           12,187,159
     Held to maturity (fair value of $195,000 and $253,000)................          192,016              249,137
                                                                                ------------         ------------
       Total investment securities.........................................       13,788,227           12,436,296
   Loans held for sale.....................................................        1,784,178           13,426,130
   Loans, net of allowance for loan losses of $1,457,000 and
     $1,097,000............................................................      117,485,739          103,673,914
   Premises and equipment..................................................        3,696,277            1,455,882
   Federal Home Loan Bank stock............................................        1,652,700            1,071,700
   Interest receivable.....................................................          662,276              685,841
   Cash value of life insurance............................................        2,484,944            1,000,877
   Other assets............................................................        1,728,214              837,775
                                                                                ------------         ------------
       Total assets........................................................     $146,122,379         $139,839,784
                                                                                ============         ============

Liabilities
   Deposits
     Noninterest-bearing...................................................     $  3,033,147         $  5,232,170
     Interest-bearing......................................................      101,440,953           98,346,878
                                                                                ------------         ------------
       Total deposits......................................................      104,474,100          103,579,048
   Federal Home Loan Bank advances.........................................       19,827,713           16,159,869
   Other borrowings........................................................        7,829,111            6,010,120
   Other liabilities.......................................................        2,121,748            3,015,623
                                                                                ------------         ------------
       Total liabilities...................................................      134,252,672          128,764,660
                                                                                ------------         ------------

Commitments and Contingencies

Equity Received From Contributions to the ESOP.............................          186,632               66,655
                                                                                ------------         ------------

Shareholders' Equity
   Common stock, no par value
     Authorized - 20,000,000 shares
     Issued and outstanding - 555,450 shares...............................        4,597,741            4,597,741
   Retained earnings.......................................................        7,671,613            6,738,011
   Unearned compensation...................................................         (293,313)            (366,606)
   Accumulated other comprehensive income (loss)...........................         (292,966)              39,323
                                                                                ------------         ------------
       Total shareholder's equity..........................................       11,683,075           11,008,469
                                                                                ------------         ------------

       Total liabilities and shareholders' equity..........................     $146,122,379         $139,839,784
                                                                                ============         ============

See Notes to Consolidated Financial Statements

</TABLE>

                                       19
<PAGE>
<TABLE>
<CAPTION>

                                      City Savings Financial Corporation
                                       Consolidated Statements of Income
                                      Years Ended June 30, 2004 and 2003


                                                                            2004               2003
---------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                  <C>
Interest Income
   Loans receivable...............................................       $7,384,704           $6,479,259
   Investment securities..........................................          570,666              515,213
   Federal Home Loan Bank stock...................................           75,451               43,536
   Interest-bearing deposits......................................           25,292               57,937
                                                                         ----------           ----------
       Total interest income......................................        8,056,113            7,095,945
                                                                         ----------           ----------

Interest Expense
   Deposits.......................................................        2,307,819            2,418,814
   Federal Home Loan Bank advances................................          576,885              468,801
   Other borrowings...............................................          235,279                   --
                                                                         ----------           ----------
       Total interest expense.....................................        3,119,983            2,887,615
                                                                         ----------           ----------

Net Interest Income...............................................        4,936,130            4,208,330
   Provision for loan losses......................................          459,790              591,979
                                                                         ----------           ----------
Net Interest Income After Provision for Loan Losses...............        4,476,340            3,616,351
                                                                         ----------           ----------

Other Income
   Service charges on deposit accounts............................          134,861              112,999
   Net realized gains on sales of available-for-sale securities...          105,703              320,485
   Net gains on loan sales........................................          240,617              358,777
   Increase in value of life insurance............................           85,325                   --
   Net gain on sale of agency.....................................               --              110,000
   Other income...................................................          251,228              326,438
                                                                         ----------           ----------
       Total other income.........................................          817,734            1,228,699
                                                                         ----------           ----------

Other Expenses
   Compensation and benefits......................................        1,763,347            1,467,600
   Net occupancy expenses.........................................          181,300              111,032
   Equipment expense..............................................          312,339              149,662
   Professional fees..............................................          165,938              177,831
   Advertising....................................................          198,034              136,528
   Data processing................................................          250,749              186,045
   Other expenses.................................................          605,610              436,414
                                                                         ----------           ----------
       Total other expenses.......................................        3,477,317            2,665,112
                                                                         ----------           ----------

Income Before Income Tax..........................................        1,816,757            2,179,938
   Income tax expense.............................................          672,084              854,201
                                                                         ----------           ----------

Net Income........................................................       $1,144,673           $1,325,737
                                                                         ==========           ==========

Basic Earnings Per Share..........................................       $     2.30           $     2.64
                                                                         ==========           ==========

Diluted Earnings Per Share........................................       $     2.23           $     2.62
                                                                         ==========           ==========


See Notes to Consolidated Financial Statements

</TABLE>

                                       20
<PAGE>
<TABLE>
<CAPTION>

                                                  City Savings Financial Corporation
                                            Consolidated Statements of Shareholders' Equity
                                                  Years Ended June 30, 2004 and 2003


                                                                                      Accumulated
                                                                                         Other
                                          Common       Retained       Unearned       Comprehensive
                                           Stock       Earnings     Compensation     Income (Loss)      Total
                                         ----------------------------------------------------------------------
<S>            <C>                       <C>           <C>                             <C>          <C>
Balances, July 1, 2002...............    $4,597,741    $5,523,364                      $   75,730   $10,196,835
   Comprehensive income
     Net income......................                   1,325,737                                     1,325,737
     Other comprehensive loss,
       unrealized loss on securities,
       net of tax of $23,879.........                                                     (36,407)      (36,407)
                                                                                                    -----------
   Comprehensive income..............                                                                 1,289,330
   Dividends on common stock $.20
     per share.......................                    (111,090)                                     (111,090)
   Contribution of unearned RRP
     Shares..........................                                  $(366,606)                      (366,606)
                                         ----------    ----------      ---------        ---------   -----------

Balances, June 30, 2003..............     4,597,741     6,738,011       (366,606)          39,323    11,008,469
   Comprehensive income
     Net income......................                   1,144,673                                     1,144,673
     Other comprehensive loss,
       unrealized loss on securities,
       net of tax of $217,858........                                                    (332,289)     (332,289)
                                                                                                    -----------
   Comprehensive income..............                                                                   812,384
   Dividends on common stock $.38
     per share.......................                    (211,071)                                     (211,071)
   Distribution of earned RRP
     Shares..........................                                     73,293                         73,293
                                         ----------    ----------      ---------        ---------   -----------

Balances, June 30, 2004..............    $4,597,741    $7,671,613      $(293,313)       $(292,966)  $11,683,075
                                         ==========    ==========      =========        =========   ===========










See Notes to Consolidated Financial Statements


</TABLE>

                                       21
<PAGE>
<TABLE>
<CAPTION>
                                                  City Savings Financial Corporation
                                                 Consolidated Statements of Cash Flows
                                                  Years Ended June 30, 2004 and 2003

                                                                                     2004               2003
-------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                  <C>
Operating Activities
   Net income..............................................................    $   1,144,673        $   1,325,737
   Items not requiring (providing) cash
     Provision for loan losses.............................................          459,790              591,979
     Depreciation..........................................................          196,546              101,384
     Deferred income tax...................................................           89,654             (264,524)
     Proceeds from sale of mortgage loans..................................      156,788,212          207,600,724
     Mortgage loans originated for sale....................................     (144,905,643)        (220,668,077)
     Investment securities amortization, net...............................           89,277               35,716
     Investment securities gains...........................................         (105,703)            (320,485)
     Amortization of RRP shares............................................           73,293                    --
     Amortization of ESOP shares...........................................          119,977               66,655
     Gains on loan sales...................................................         (240,617)            (358,777)
     Increase in cash value of life insurance..............................          (85,325)                   --
   Net change in
     Interest receivable...................................................           23,565             (203,955)
     Other assets..........................................................         (980,093)             (65,875)
     Other liabilities.....................................................         (676,017)           1,541,050
                                                                               -------------        -------------
       Net cash provided by (used in) operating activities.................       11,991,589          (10,618,448)
                                                                               -------------        -------------

Investing Activities
   Net change in interest-bearing time deposits............................               --              396,000
   Purchases of securities available for sale..............................      (15,771,530)         (21,154,851)
   Proceeds from sales of securities available for sale....................       11,037,984           13,872,275
   Proceeds from maturities and calls of securities available for sale.....        2,790,773            2,168,000
   Proceeds from maturities and paydowns of securities held to maturity....           57,121               84,255
   Net change in loans.....................................................      (14,271,615)         (36,193,948)
   Purchases of premises and equipment.....................................       (2,436,941)            (741,699)
   Purchase of FHLB stock..................................................         (581,000)            (646,400)
   Purchase of life insurance..............................................       (1,398,742)          (1,000,877)
                                                                               -------------        -------------
       Net cash used in investing activities...............................      (20,573,950)         (43,217,245)
                                                                               -------------        -------------

Financing Activities
   Net change in
     Demand and savings deposits...........................................          660,373            7,224,220
     Certificate of deposits...............................................          234,679           33,144,007
   Proceeds from FHLB advances.............................................       48,140,000           23,100,000
   Payments on FHLB advances...............................................      (44,472,156)         (13,428,052)
   Proceeds from other borrowings..........................................        1,818,991            6,010,120
   Cash dividends..........................................................         (211,071)            (111,090)
   Contribution of unearned RRP shares.....................................               --             (366,606)
                                                                               -------------        -------------
       Net cash provided by financing activities...........................        6,170,816           55,572,599
                                                                               -------------        -------------

Net Change in Cash and Cash Equivalents....................................       (2,411,545)           1,736,906

Cash and Cash Equivalents, Beginning of Year...............................        4,952,369            3,215,463
                                                                               -------------        -------------

Cash and Cash Equivalents, End of Year.....................................    $   2,540,824        $   4,952,369
                                                                               =============        =============

Additional Cash Flows Information
   Interest paid...........................................................    $   3,101,692        $   2,866,141
   Income tax paid.........................................................        1,709,948              313,282

See Notes to Consolidated Financial Statements

</TABLE>

                                       22
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


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

The  accounting  and reporting  policies of City Savings  Financial  Corporation
(Company), its wholly owned subsidiary, City Savings Bank (Bank), and the Bank's
wholly owned subsidiary,  City Savings Financial Services,  Inc. (CSFS), conform
to accounting  principles generally accepted in the United States of America and
reporting practices followed by the thrift industry. The more significant of the
policies are described below.

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

The  Company  is a  thrift  holding  company  whose  principal  activity  is the
ownership  and  management of the Bank.  The Bank operates  under a state thrift
charter and provides full banking  services.  As a state-chartered  thrift,  the
Bank is subject to  regulation  by the State of Indiana  Department of Financial
Institutions,  Office of Thrift  Supervision,  and the Federal Deposit Insurance
Corporation.

The Company  generates  commercial,  mortgage  and  consumer  loans and receives
deposits from customers  located  primarily in LaPorte  County,  and surrounding
counties.  The  Company's  loans are  generally  secured  by  specific  items of
collateral including real property, consumer assets and business assets.

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

Cash and Cash  Equivalents - The Company  considers all liquid  investments with
original maturities of three months or less to be cash equivalents.

Investment  Securities - Debt securities are classified as held to maturity when
the  Company  has the  positive  intent and  ability to hold the  securities  to
maturity.  Securities  held to maturity  are  carried at  amortized  cost.  Debt
securities not classified as held to maturity and marketable  equity  securities
are classified as available for sale.  Securities available for sale are carried
at  fair  value  with  unrealized  gains  and  losses  reported   separately  in
accumulated other comprehensive income, net of tax.

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

Loans Held for Sale - Mortgage  loans  originated  and  intended for sale in the
secondary  market are  carried  at the lower of  aggregate  cost or market.  Net
unrealized  losses,  if any,  are  recognized  through a valuation  allowance by
charges to income.

Loans are carried at the principal amount outstanding.  A loan is impaired when,
based on current  information or events, it is probable that the Company will be
unable to collect all amounts due  (principal  and  interest)  according  to the
contractual terms of the loan agreement. Loans with payment delays not exceeding
90 days outstanding are not considered  impaired.  Delinquent  loans,  including
loans delinquent  greater than 90 days, are reviewed on a loan-by-loan  basis to
determine which loans are placed on non-accrual  status.  Certain nonaccrual and
substantially  delinquent  loans may be considered  to be impaired.  The Company
considers its investment in one-to-four  family  residential  loans and consumer
loans to be




                                       23
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


homogeneous and therefore  excluded from separate  identification for evaluation
of impairment.  Interest  income is accrued on the principal  balances of loans.
The accrual of interest on impaired and nonaccrual  loans is discontinued  when,
in  management's  opinion,  the borrower may be unable to make  payments as they
become due. When interest accrual is  discontinued,  all unpaid accrued interest
is reversed  when  considered  uncollectible.  Interest  income is  subsequently
recognized only to the extent cash payments are received.  Certain loan fees and
direct costs are being  deferred and  amortized as an adjustment of yield on the
loans.  When a loan is paid off, any unamortized loan origination fee balance is
credited to income.

Allowance for loan losses is  maintained  to absorb losses  inherent in the loan
portfolio.  The  allowance  is based on ongoing,  quarterly  assessments  of the
probable  estimated  losses  inherent in the loan  portfolio.  The  allowance is
increased by provisions for loan losses charged against income.  Loan losses are
charged against the allowance when management believes the uncollectibility of a
loan balance is confirmed.  Subsequent  recoveries,  if any, are credited to the
allowance.  The Company's  methodology for assessing the  appropriateness of the
allowance  consists  of several  key  elements,  which  include  the formula for
general allowance and specific allowances for identified problem loans.

The  formula  allowance  is  calculated  by  applying  loss  factors  to certain
classified  loans,  pools of loans and certain  unused  commitments.  Changes in
classifications of both performing and nonperforming  loans affect the amount of
the formula allowance.  Loss factors are based on the Company's  historical loss
experience  and may be adjusted for  significant  factors that, in  management's
judgment, affect the collectibility of the portfolio as of the evaluation date.

Specific  allowances are  established  in cases where  management has identified
significant  conditions  or  circumstances  related to a credit that  management
believes indicate the probability that a loss has been incurred in excess of the
amount determined by the application of the formula allowance.

The  unallocated  allowance  is based upon  management's  evaluation  of various
conditions,  the effects of which are not directly measured in the determination
of the formula and specific allowances. The evaluation of the inherent loss with
respect to these conditions is subject to a higher degree of uncertainty because
they are not  identified  with specific  credits.  The  conditions  evaluated in
connection with the unallocated  allowance may include existing general economic
and business conditions affecting the Company's key lending area, credit quality
trends,  collateral values,  loan volumes and  concentrations,  seasoning of the
loan portfolio,  specific industry conditions within portfolio segments,  recent
loss experience in particular segments of the portfolio, duration of the current
business cycle, and regulatory examination results.

The  allowance  for loan  losses  also  incorporates  the  results of  measuring
impaired  loans as  provided  in SFAS  Nos.  114 and 118.  A loan is  considered
impaired when management determines that it is probable that the Company will be
unable to collect all amounts due according to the original contractual terms of
the loan  agreement.  Impairment  is  measured  by the  difference  between  the
recorded  investment  in the  loan  and the  estimated  present  value  of total
expected future cash flows, discounted at the loan's effective rate, or the fair
value of the  collateral  of the loan, if  collateral  dependent.  Impairment is
recognized by adjusting an allocation of the existing allowance for loan losses.

The  determination  of the adequacy of the allowance for loan losses is based on
estimates  that are  particularly  susceptible  to  significant  changes  in the
economic environment and market conditions.  Management believes that as of June
30,  2004,  the  allowance  for loan  losses is  adequate  based on  information
currently  available  and includes  all known and inherent  losses that are both
probable and reasonable to estimate.  A worsening or protracted economic decline
in the areas within which the Bank  operates  would  increase the




                                       24
<PAGE>


                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


likelihood of additional  losses due to credit and market risks and could create
the need for additional loss provisions.

Premises  and  equipment  are carried at cost net of  accumulated  depreciation.
Depreciation is computed using  straight-line and accelerated methods over lives
ranging  from three to forty  years.  Maintenance  and repairs  are  expensed as
incurred  while major  additions and  improvements  are  capitalized.  Gains and
losses on dispositions are included in current operations.

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

Stock options - The Company has a stock-based employee  compensation plan, which
is described more fully in Note 13. The Company accounts for this plan under the
recognition  and  measurement  principles of APB Opinion No. 25,  Accounting for
Stock Issued to Employees, and related interpretations.  No stock-based employee
compensation  cost is reflected in net income,  as all options granted under the
plan had an exercise  price equal to the market value of the  underlying  common
stock on the grant  date.  The  following  table  illustrates  the effect on net
income  and  earnings  per  share if the  Company  had  applied  the fair  value
provisions  of  Statement  of  Financial  Accounting  Standards  (SFAS) No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation in
2003 and 2004.

                                                                2004       2003
                                                              ------------------
   Net income, as reported.................................    $1,145    $1,326
   Less:  Total stock-based employee compensation cost
     determined under the fair value based method, net of
     income taxes..........................................       (45)      (64)
                                                               ------    ------

   Pro forma net income....................................    $1,100    $1,262
                                                               ======    ======

   Earnings per share
     Basic - as reported...................................    $ 2.30    $ 2.64
     Basic - pro forma.....................................      2.21      2.51
     Diluted - as reported.................................      2.23      2.62
     Diluted - pro forma...................................      2.14      2.50


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

Earnings per share is computed based on the  weighted-average  common and common
equivalent   shares   outstanding.   Unearned  ESOP  shares  are  excluded  from
weighted-average shares outstanding.

Reclassifications  -  Certain  reclassifications  have  been  made  to the  2003
financial  statements to conform to the 2004 financial  statement  presentation.
These reclassifications had no effect on net income.


Note 2:  Restriction on Cash

The Bank is required to maintain  reserve  funds in cash and/or on deposit  with
the Federal Reserve Bank. The reserve required at June 30, 2004 was $225,000.


                                       25
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


Note 3:  Investment Securities
                                                        2004
                                      ------------------------------------------
                                                     Gross       Gross
                                       Amortized  Unrealized  Unrealized  Fair
                                         Cost        Gains      Losses    Value
                                      ------------------------------------------
   Available for sale
     Federal agencies................  $ 5,799        $   4      $(154)  $ 5,649
     Mortgage backed securities......      581           --        (10)      571
     State and municipal.............    6,862           17       (329)    6,550
     Corporate obligations...........      839            1        (14)      826
                                       -------        -----      -----   -------
       Total available for sale......   14,081           22       (507)   13,596

   Held to maturity - mortgage-
     backed securities...............      192            3         --       195
                                       -------        -----      -----   -------

       Total investment securities ..  $14,273        $  25      $(507)  $13,791
                                       =======        =====      =====   =======


                                                        2003
                                      ------------------------------------------
                                                     Gross       Gross
                                       Amortized  Unrealized  Unrealized  Fair
                                         Cost        Gains      Losses    Value
                                      ------------------------------------------

   Available for sale
     Federal agencies................  $ 5,325         $ 22     $  (14)  $ 5,333
     State and municipal.............    3,277           50        (56)    3,271
     Corporate obligations...........    3,520           92        (29)    3,583
                                       -------        -----      -----   -------
       Total available for sale......   12,122          164        (99)   12,187

   Held to maturity - mortgage-
     backed securities...............      249            4         --       253
                                       -------        -----      -----   -------

       Total investment securities...  $12,371         $168     $  (99)  $12,440
                                       =======        =====      =====   =======


At June 30, 2004 and 2003,  mortgage-backed  securities  available  for sale and
held to maturity  consisted  solely of Federal Home Loan  Mortgage  Corporation,
Federal  National   Mortgage   Corporation  and  Government   National  Mortgage
Association issues.



                                       26
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)



The amortized  cost and fair value of securities  available for sale at June 30,
2004, by contractual maturity,  are shown below. Expected maturities will differ
from contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.

                                                        Amortized         Fair
                                                          Cost            Value
                                                       -------------------------
     Within one year...........................          $   258        $   260
     One to five years.........................            1,354          1,340
     Five to ten years.........................            7,151          6,977
     Thereafter................................            4,737          4,448
     MBS available for sale....................              581            571
                                                         -------        -------
         Totals ...............................          $14,081        $13,596
                                                         =======        =======

Certain investments in debt securities are reported in the financial  statements
at an  amount  less  than  their  historical  cost.  Total  fair  value of these
investments at June 30, 2004, was $12,168,000, which is approximately 88 percent
of the Company's  available-for-sale and held-to-maturity  investment portfolio.
These  declines  primarily  resulted  from recent  increases in market  interest
rates.

Based on evaluation of available  evidence,  including  recent changes in market
interest  rates,  credit  rating  information  and  information   obtained  from
regulatory  filings,  management  believes  the declines in fair value for these
securities are temporary.

Should the impairment of any of these  securities  become other than  temporary,
the  cost  basis  of the  investment  will be  reduced  and the  resulting  loss
recognized  in net income in the period the  other-than-temporary  impairment is
identified.

The following  table shows our  investments'  gross  unrealized  losses and fair
value,  aggregated  by  investment  category and length of time that  individual
securities have been in a continuous unrealized loss position at June 30, 2004:

<TABLE>
<CAPTION>


                                     Less than 12 Months        12 Months or More               Total
     Description of                             Unrealized                  Unrealized                Unrealized
     Securities                    Fair Value     Losses      Fair Value     Losses     Fair Value      Losses
----------------------------------------------------------------------------------------------------------------
<S>                                  <C>           <C>          <C>           <C>        <C>            <C>
     Federal agency................  $ 4,257       $(141)       $1,045        $(13)      $ 5,302        $(154)
     Mortgage-backed securities....      585         (10)           --          --           585          (10)
     State and municipal...........    5,010        (258)          903         (71)        5,913         (329)
     Corporate obligation..........      368         (14)           --          --           368          (14)
                                     -------       -----        ------        ----       -------        -----
       Total temporarily impaired
         securities................  $10,220       $(423)       $1,948        $(84)      $12,168        $(507)
                                     =======       =====        ======        ====       =======        =====
</TABLE>


Securities with a carrying value of $5,273,000 and $161,000 were pledged at June
30, 2004 and 2003 to secure certain deposits and for other purposes as permitted
or required by law.

Proceeds  from  sales of  securities  available  for sale  during  2004 and 2003
totaled  $11,038,000 and  $13,872,000  with gross gains of $115,000 and $320,000
and gross losses of $(9,000) in 2004 recognized on those sales.  The tax expense
for the  gains on  security  transactions  for 2004  and  2003 was  $42,000  and
$127,000.


                                       27
<PAGE>
<TABLE>
<CAPTION>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


Note 4:  Loans and Allowance

                                                                                      2004           2003
                                                                                  ---------------------------
<S>                                                                                <C>            <C>
   Commercial and industrial loans not secured by real property............         $ 15,677      $  11,874
   Real estate loans
     One-to-four family....................................................           41,052         40,462
     Commercial............................................................           26,298         18,911
     Land..................................................................            2,723          1,708
     Multi-family..........................................................              582            895
   Construction loans......................................................           15,869          9,089
   Individuals' loans for household and other personal expenditures........           22,705         23,744
                                                                                    --------       --------
                                                                                     124,906        106,683
   Unamortized deferred loan fees, net.....................................             (191)          (107)
   Undisbursed portion of loans............................................           (5,772)        (1,805)
   Allowance for loan losses...............................................           (1,457)        (1,097)
                                                                                    --------       --------
       Total loans.........................................................         $117,486       $103,674
                                                                                    ========       ========


                                                                                     2004           2003
                                                                                  ---------------------------
   Allowance for loan losses
     Balances, beginning of year...........................................         $  1,097       $    579
     Provision for losses..................................................              460            592
     Loans charged off.....................................................             (100)           (74)
                                                                                    --------       --------

     Balances, end of year.................................................         $  1,457       $  1,097
                                                                                    ========       ========


Information on impaired loans is summarized below.
                                                                                     2004            2003
                                                                                  ---------------------------
   Impaired loans with an allowance........................................         $    381       $    308
   Impaired loans for which the discounted cash flows or
     collateral value exceeds the carrying value of the loan...............            3,473          1,851
                                                                                    --------       --------

       Total impaired loans................................................         $  3,854       $  2,159
                                                                                    ========       ========

   Allowance for impaired loans (included in the Company's
     allowance for loan losses)............................................         $     85       $     71
                                                                                    ========       ========



                                                                                     2004            2003
                                                                                  ---------------------------
   Average balance of impaired loans.......................................         $  4,118       $  2,499
   Interest income recognized on impaired loans............................              199            127
   Cash-basis interest included above......................................              191            118


                                       28
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


The following table summarizes the Company's non-performing loans:

                                                                                        2004           2003
                                                                                  ---------------------------
   Non-accrual.............................................................         $  4,255       $  2,354
   Loans more than 90 days past due and still accruing.....................               --             --
                                                                                    --------       --------

         Total non-performing loans........................................         $  4,255       $  2,354
                                                                                    ========       ========

Note 5:  Premises and Equipment
                                                                                      2004             2003
                                                                                  ---------------------------
   Land  ..................................................................         $    800       $    149
   Buildings...............................................................            2,579            849
   Equipment...............................................................            1,377            625
   Construction in process.................................................               --            695
                                                                                    --------       --------
       Total cost..........................................................            4,756          2,318
   Accumulated depreciation................................................           (1,060)          (862)
                                                                                    --------       --------

       Net.................................................................         $  3,696       $  1,456
                                                                                    ========       ========

Note 6:  Deposits
                                                                                      2004            2003
                                                                                  ---------------------------
   Demand and money-market deposits........................................         $ 24,465       $ 23,797
   Savings deposits........................................................           11,397         11,406
   Certificates and other time deposits of $100,000 or more................           29,003         32,088
   Other certificates and time deposits....................................           39,609         36,288
                                                                                    --------       --------

       Total deposits......................................................         $104,474       $103,579
                                                                                    ========       ========

Certificates and other time deposits maturing in years ending June 30:

   2005  ........................................................................................  $ 44,889
   2006  ........................................................................................     9,353
   2007  ........................................................................................     5,747
   2008  ........................................................................................     4,020
   Thereafter....................................................................................     4,603
                                                                                                   --------
                                                                                                   $ 68,612
</TABLE>


Brokered deposits at June 30, 2004 and 2003 totaled $11,774,000 and $17,257,000.

Deposits from related parties held by the Bank at June 30, 2004 and 2003 totaled
$834,000 and $774,000.


Note 7: Borrowings

Federal Home Loan Bank advances totaled  $19,828,000 and $16,160,000 at June 30,
2004 and 2003.  At June 30, 2004,  the advances  were at interest  rates ranging
from 1.55 to 5.64 percent.

The Federal  Home Loan Bank  advances  are secured by  first-mortgage  loans and
investment securities totaling $44,603,000. Advances are subject to restrictions
or penalties in the event of prepayment.


                                       29
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)



   Maturities in years ending June 30
     2005...................................................   $13,500
     2006...................................................        --
     2007...................................................     1,000
     2008...................................................     1,500
     2009...................................................       500
     Thereafter.............................................     3,328
                                                               -------
                                                               $19,828


In 2003,  the Company  formed the City Savings  Statuary Trust I (the Trust) and
the Trust issued 5,000 floating  Preferred  Trust  Securities with a liquidation
amount of $1,000 per  preferred  Security in a private  placement to an offshore
entity for an aggregate offering price of $5,000,000. The proceeds of $5,000,000
were used by the Trust to  purchase  $5,155,000  in Floating  Rate  Subordinated
Debentures  from the Company.  The Debentures  and Securities  have a term of 30
years,  bear interest at the annual rate of 4.68 percent  adjusted  quarterly at
the rate of the 3-Month  LIBOR plus 3.15  percent.  The proceeds of the offering
was used for general corporate purposes of the Company.

The Company has a $4,000,000 line of credit from another financial  institution.
Interest  accrues on the account at the federal funds borrowing rate. As of June
30, 2004 and 2003, there was $2,674,000 and $1,010,000 outstanding on the line.

<TABLE>
<CAPTION>

Note 8: Income Tax
                                                                       2004        2003
                                                                    ---------------------
<S>                                                                   <C>         <C>
   Income tax expense
     Currently payable
       Federal..................................................      $  437      $  912
       State....................................................         145         207
     Deferred
       Federal..................................................          76        (225)
       State....................................................          14         (40)
                                                                      ------      ------

         Total income tax expense...............................      $  672      $  854
                                                                      ======      ======

   Reconciliation of federal statutory to actual tax expense
     Federal statutory income tax at 34%........................      $  618      $  741
     Tax-exempt interest........................................         (71)        (36)
     Other nontaxable income....................................         (29)         --
     Effect of state income taxes...............................         105         110
     Other......................................................          49          39
                                                                      ------      ------

         Actual tax expense.....................................      $  672      $  854
                                                                      ======      ======

     Effective tax rate.........................................       37.0%       39.2%


</TABLE>

                                       30
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


A cumulative  net deferred tax asset of $657,000 at June 30, 2004 is included in
other assets. The components of the net asset are as follows:

                                                      2004           2003
                                                   -----------------------
   Assets
     Securities available for sale........           $  192        $   --
     Amortization.........................                1             2
     Allowance for loan losses............              495           376
     State income tax.....................               79            69
     Deferred compensation................              122            90
     Pensions and employee benefits.......               18            24
                                                     ------        ------
         Total assets.....................              907           561
                                                     ------        ------

   Liabilities
     Depreciation.........................             (224)           (6)
     FHLB stock dividend..................              (26)           --
     Securities available for sale........               --           (26)
                                                     ------        ------
         Total liabilities................             (250)          (32)
                                                     ------        ------
                                                     $  657        $  529
                                                     ======        ======

No valuation allowance was necessary for 2004 and 2003.

Retained  earnings include  approximately  $543,000 for which no deferred income
tax  liability  has been  recognized.  This amount  represents  an allocation of
income  to bad debt  deductions  as of June  30,  1987  for tax  purposes  only.
Reduction of amounts so allocated for purposes other than tax bad debt losses or
adjustments  arising from carryback of net operating  losses would create income
for tax  purposes  only,  which  income  would be  subject  to the  then-current
corporate income tax rate. At June 30, 2004, the unrecorded  deferred income tax
liability on the above amount was approximately $209,000.


Note 9: Commitments and Contingent Liabilities

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

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

                                                                 2004       2003
                                                               -----------------
   Loan commitments
     At variable rates.......................................  $ 5,577   $ 5,055
     At fixed rates ranging from 5.625% to 7.75% at June 30,
       2004 and 4.625% to 7.25% at June 30, 2003.............    1,650     3,026
   Letters of credit.........................................    3,977     2,283
   Unused lines of credit....................................   13,031    10,964


                                       31
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


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

Letters of credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party.

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 Bank 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.


Note 10: Dividend and Capital Restrictions

The  Company  is not  subject  to  regulatory  restrictions  on the  payment  of
dividends to its shareholders,  although the source of such dividends depends in
part upon the  receipt  of  dividends  from the Bank.  Without  prior  approval,
current regulations allow the Bank to pay dividends to the Company not exceeding
retained  net  income  for the  current  year plus  those for the  previous  two
calendar years.

At the time of conversion,  a liquidation  account was  established in an amount
equal to the Bank's net worth as reflected in the latest statements of condition
used in its final  conversion  offering  circular.  The  liquidation  account is
maintained  for the benefit of eligible  deposit  account  holders who  maintain
their deposit account in the Bank after  conversion.  In the event of a complete
liquidation,  and only in such event,  each eligible deposit account holder will
be entitled to receive a liquidation  distribution from the liquidation  account
in the  amount of the then  current  adjusted  subaccount  balance  for  deposit
accounts  then  held,  before  any  liquidation  distribution  may  be  made  to
shareholders.  Except for the repurchase of stock and payment of dividends,  the
existence of the liquidation account will not restrict the use or application of
net worth. The initial balance of the liquidation account was $5,216,000.



                                       32
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


At June 30, 2004, the shareholder's  equity of the Bank was $14,740,000 of which
$12,083,000 was not available for dividend payments.  Although well capitalized,
under current  regulations in effect,  the Bank is required to provide notice to
the Office of Thrift Supervision before making any capital  distributions to the
Company.


Note 11: Regulatory Capital

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

There are five capital categories defined in the regulations,  ranging from well
capitalized to critically  undercapitalized.  Classification of a bank in any of
the  undercapitalized  categories can result in actions by regulators that could
have a material  effect on a bank's  operations.  At June 30, 2004 and 2003, the
Bank was categorized as well  capitalized  and met all subject capital  adequacy
requirements.  There  are no  conditions  or  events  since  June 30,  2004 that
management believes have changed the Bank's classification.

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

<TABLE>
<CAPTION>
                                                                             Required for           To Be Well
                                                           Actual          Adequate Capital        Capitalized
                                                    -------------------------------------------------------------
                                                      Amount     Ratio     Amount     Ratio     Amount     Ratio
                                                    -------------------------------------------------------------
As of June 30, 2004
<S>                                                  <C>         <C>        <C>       <C>      <C>         <C>
Total risk-based capital (to risk-weighted assets).  $16,405     13.2%      $9,913    8.0%     $12,391     10.0%
Tier 1 capital (to risk-weighted assets)...........   14,740     12.1        4,957    4.0        7,435      6.0
Core capital (to adjusted total assets)............   14,740     10.3        5,848    4.0        7,310      5.0
Core capital (to adjusted tangible assets).........   14,740     10.3        2,924    2.0          N/A      N/A
Tangible capital (to adjusted total assets)........   14,740     10.3        2,193    1.5          N/A      N/A

As of June 30, 2003
Total risk-based capital (to risk-weighted assets).  $14,547     13.3%      $8,763    8.0%     $10,954     10.0%
Tier 1 capital (to risk-weighted assets)...........   13,592     12.4        4,381    4.0        6,572      6.0
Core capital (to adjusted total assets)............   13,592      9.8        5,573    4.0        6,967      5.0
Core capital (to adjusted tangible assets).........   13,592      9.8        2,787    2.0          N/A      N/A
Tangible capital (to adjusted total assets)........   13,592      9.8        2,090    1.5          N/A      N/A

</TABLE>


Note 12: Employee Benefits

The Company has a  retirement  savings  401(k) plan in which  substantially  all
employees may participate. The Bank matches employees' contributions at the rate
of fifty  percent for the first  three  percent of base  salary  contributed  by
participants.  The  Company's  expense  for the plan was $27,900 and $19,300 for
2004 and 2003.



                                       33
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


The Company has a supplemental retirement plan for the benefit of all directors.
The plan provides for the  continuation of directors fees for 120 months after a
director's status is terminated,  subject to a pre-determined  vesting schedule.
In the event of a director's death, no further payments are required.  This plan
is unfunded and the expense  recognized  by the Company was $13,200 and $172,000
during 2004 and 2003.

Also,  the Company has  agreements  with certain  active  officers  that provide
monthly payments based on compensation  prior to retirement or death. The charge
to expense for the  agreements  was $84,300 for 2004.  Such charges  reflect the
accrual over the period until full  eligibility of the present value of benefits
due each participant on the full eligibility date.

The Company has established an ESOP covering  substantially all employees of the
Company and the Bank. The ESOP provides for the Company to issue a put option to
any participant who receives a distribution of Company stock. The option permits
the  participant  to sell the stock to the Company at any time during two option
periods, as defined in the plan, at the fair market value of the stock. The ESOP
acquired  44,436  shares  of the  Company  common  stock at $10 per share in the
conversion  with funds  provided by a loan from the  Company.  Unallocated  ESOP
shares  totaled 33,327 and 37,771 at June 30, 2004 and 2003 and had a fair value
of $842,000 and  $859,000.  Allocated  ESOP shares  totaled 8,887 as of June 30,
2004. Shares are released to participants proportionately as the loan is repaid.
Dividends on allocated  shares are recorded as dividends and charged to retained
earnings.  Dividends  on  unallocated  shares are used to repay the loan and are
treated as  compensation  expense.  Expense is recorded equal to the fair market
value of the stock when shares are  committed to be released.  At June 30, 2004,
there were 2,222  committed to be released  shares and ESOP expense for 2004 and
2003 totaled $137,000 and $87,000.

     Below are the transactions affecting the ESOP equity accounts:

<TABLE>
<CAPTION>


                                                                                2004
                                                                     Additional       Unearned
                                                     Common           Paid-in           ESOP
                                                      Stock           Capital          Shares            Total
---------------------------------------------------------------------------------------------------------------
<S>              <C>                                <C>                              <C>               <C>
   Balance, July 1, 2002.........................   $444,360               --        $(444,360)        $     --
     ESOP shares earned..........................         --           22,219           44,436           66,655
                                                    --------          -------        ---------         --------
   Balance, June 30, 2003........................    444,360           22,219         (399,924)          66,655
     ESOP shares earned..........................         --           75,541           44,436          119,977
                                                    --------          -------        ---------         --------

   Balance, June 30, 2004........................   $444,360          $97,760        $(355,488)        $186,632
                                                    ========          =======        =========         ========

</TABLE>

The Company also has a recognition  and retention  plan (RRP) which provides for
the award and issuance of up to 22,218 shares of the Company's  stock to members
of the Board of Directors and management. The RRP has purchased 22,218 shares of
the  Company's  common  stock in the open  market and at June 30 2003,  all such
shares had been awarded. Common stock awarded under the RRP vests ratably over a
five-year  period,  commencing with the date of the award.  Expenses  recognized
under the RRP plan totaled approximately $75,000 for 2004.


Note 13:  Stock Option Plan

The Company has a fixed  option plan under which it may grant  options that vest
over five years to employees.  The exercise  price of each option is intended to
equal the fair value of the  Company's  stock on the date of grant.  An option's
maximum term is ten years.



                                       34
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


During 2004 and 2003, the Company  granted  options to purchase 3,000 and 46,770
shares of common stock and there were no exercises,  forfeitures,  or expiration
of the options for the years ended June 30, 2004 and 2003.

The fair value of options granted is estimated on the date of the grant using an
option-pricing model with the following weighted-average assumptions:

                                                           2004       2003
                                                       ----------------------
   Dividend yields................................        1.12%       1.36%
   Volatility factors of expected market
      price of common stock.......................        9.04%       6.40%
   Risk-free interest rates.......................        4.03%       3.96%
   Expected life of options.......................       10 years    10 years

   Weighted-average fair value of options
      granted during the year.....................        $6.76       $3.19


The following table  summarizes  information  about stock options under the plan
outstanding at June 30, 2004:


                                       Options Outstanding
                                        Weighted-Average
      Exercise          Number              Remaining           Options
       Prices         Outstanding       Contractual Life      Exercisable
-------------------------------------------------------------------------------
       $14.00             23,604            8.0 years            4,720
       $14.99              4,166            8.0 years             833
       $17.20             19,000            8.0 years            3,800
       $27.74              3,000            9.5 years              --


<TABLE>
<CAPTION>

Note 14:  Other Comprehensive Income
                                                                         2004      2003
----------------------------------------------------------------------------------------
<S>                                                                    <C>        <C>
   Unrealized gains (losses) on securities
     Unrealized holding gains (losses) arising during the year......   $(444)     $ 260
     Less: reclassification adjustment for gains realized in net
       income.......................................................     106        320
                                                                       -----      -----
                                                                        (550)     $ (60)
   Tax expense (benefit)............................................    (218)       (24)
                                                                       -----      -----
                                                                       $(332)     $ (36)
                                                                       =====      =====
</TABLE>


At June  30,  2004 and  2003,  accumulated  other  comprehensive  income  (loss)
consisted solely of net unrealized losses on securities.



                                       35
<PAGE>
<TABLE>
<CAPTION>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


Note 15: Earnings Per Share

 Earnings per share were computed as follows:

                                                 2004                                      2003
                                               Weighted-                                 Weighted-
                                                Average       Per Share                   Average      Per Share
                                   Income       Shares         Amount        Income       Shares        Amount
                                  -------------------------------------------------------------------------------
                                                                (not in thousands)
<S>                                   <C>        <C>           <C>           <C>          <C>            <C>
   Basic earnings per share
   Income available to common
     stockholders.............        $1,145     497,303       $2.30         $1,326       502,921        $2.64
   Effect of dilutive stock
     options..................                    15,799                                    2,146
                                      ------     -------                     ------       -------
   Diluted earnings per share
     Income available to
       common stockholders
       and assumed
       conversions............        $1,145     513,102       $2.23         $1,326       505,067        $2.62
                                      ======     =======       =====         ======       =======        =====
</TABLE>

Options to purchase 3,000 and 19,000 shares of common stock at $27.74 and $17.20
per share were  outstanding  at June 30, 2004 and 2003, but were not included in
the  computation of diluted EPS because the options'  exercise price was greater
than the average market price of the common shares.


Note 16:  Fair Values of Financial Instruments

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

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

Interest-bearing  time  deposits  - The  fair  value  of  interest-bearing  time
deposits approximates carrying value.

Securities  and  mortgage-backed  securities  - Fair  values are based on quoted
market prices.

Loans  -  For  both  short-term  loans  and  variable-rate  loans  that  reprice
frequently and with no significant  change in credit risk, fair values are based
on  carrying  values.  The fair  values for certain  mortgage  loans,  including
one-to-four  family  residential,  are based on quoted  market prices of similar
loans  sold  in  conjunction  with  securitization  transactions,  adjusted  for
differences in loan characteristics. The fair value for other loans is estimated
using discounted cash flow analyses using interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality.

Loans  held  for  sale - The fair  value  of  loans  held for sale  approximates
carrying value.

Interest  receivable  - The  fair  values  of  interest  receivable  approximate
carrying values.

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

Deposits - The fair values of  noninterest-bearing,  interest-bearing demand and
savings  accounts are equal to the amount payable on demand at the balance sheet
date. The carrying amounts for variable rate, fixed-term certificates of deposit
approximate  their  fair  values at the  balance  sheet  date.  Fair  values for
fixed-rate


                                       36
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


certificates of deposit are estimated  using a discounted cash flow  calculation
that  applies  interest  rates  currently  being  offered on  certificates  to a
schedule of aggregated expected monthly maturities on such time deposits.

Federal Home Loan Bank  Advances and Other  Borrowings - The fair value of these
borrowings  are estimated  using a discounted  cash flow  calculation,  based on
current rates for similar debt.

Off-Balance Sheet Commitments - The fair value of these commitments are based on
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties'  credit standing.  The
difference  between the fair value and  notional  amounts of  off-balance  sheet
commitments  at June 30,  2004 and 2003 was not  material.

The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>

                                                                2004                                2003
                                                 -----------------------------------------------------------------
                                                     Carrying           Fair            Carrying           Fair
                                                      Amount            Value            Amount            Value
                                                 -----------------------------------------------------------------
<S>                                               <C>               <C>              <C>               <C>
   Assets
     Cash and cash equivalents................... $    2,541        $    2,541       $    4,952        $    4,952
     Interest-bearing time deposits..............        299               299              299               299
     Investment securities available for sale....     13,596            13,596           12,187            12,187
     Investment securities held to maturity......        192               195              249               253
     Loans, net..................................    117,486           117,554          103,674           105,022
     Loans held for sale.........................      1,748             1,748           13,426            13,426
     Interest receivable.........................        662               662              686               686
     FHLB stock..................................      1,653             1,653            1,072             1,072
     Cash value of life insurance................      2,485             2,485            1,001             1,001

   Liabilities
     Deposits....................................    104,474           104,852          103,579           105,346
     FHLB advances...............................     19,828            20,015           16,160            16,628
     Other borrowings............................      7,829             7,829            6,010             6,010

</TABLE>



                                       37
<PAGE>
<TABLE>
<CAPTION>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


Note 17: Condensed Financial Information (Parent Company Only)

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

                            Condensed Balance Sheets
                                                                                     2004                  2003
                                                                                 ----------------------------------
<S>                                                                                  <C>                  <C>
   Assets
     Cash..................................................................          $ 1,882              $ 2,275
     Investment in Bank....................................................           14,740               13,631
     Investment in unconsolidated subsidiary...............................              155                  155
     Other assets..........................................................              336                  191
                                                                                     -------              -------
       Total assets........................................................          $17,113              $16,252
                                                                                     =======              =======

   Liabilities
     Borrowings............................................................          $ 5,155              $ 5,155
     Other.................................................................               89                   22
                                                                                     -------              -------
       Total Liabilities...................................................            5,244                5,177
                                                                                     -------              -------

   Equity received from contributions to the ESOP..........................              186                   67
                                                                                     -------              -------

   Shareholders' equity
     Common stock..........................................................            4,598                4,598
     Retained earnings.....................................................            7,671                6,738
     Unearned RRP..........................................................             (293)                (367)
     Accumulated other comprehensive income (loss).........................             (293)                  39
                                                                                     -------              -------
                                                                                      11,683               11,008
                                                                                     -------              -------

       Total liabilities and shareholders' equity..........................          $17,113              $16,252
                                                                                     =======              =======



                         Condensed Statements of Income

                                                                                        2004                2003
                                                                                   -------------------------------
   Income - interest.......................................................          $    49              $    30
                                                                                     -------              -------

   Expenses
     Interest..............................................................              220                    3
     Other.................................................................               73                   92
                                                                                     -------              -------
                                                                                         293                   95
                                                                                     -------              -------

   Loss before equity in undistributed income of Bank and income
     tax expense...........................................................             (244)                 (65)

   Equity in undistributed income of Bank..................................            1,292                1,365
                                                                                     -------              -------
   Income before income tax................................................            1,048                1,300
   Income tax benefit......................................................              (97)                 (26)
                                                                                     -------              -------

   Net income..............................................................          $ 1,145              $ 1,326
                                                                                     =======              =======


</TABLE>

                                       38
<PAGE>
<TABLE>
<CAPTION>

                       City Savings Financial Corporation
                   Notes to Consolidted Financial Statements
                             June 30, 2004 and 2003
           (Table Dollar Amounts in Thousands, Except Per Share Data)


                       Condensed Statements of Cash Flows

                                                                                       2004                  2003
                                                                                 ----------------------------------
<S>                                                                                  <C>                  <C>
   Cash flows from operating activities
     Net income............................................................          $ 1,145              $ 1,326
     Other.................................................................           (1,327)              (1,476)
                                                                                     -------              -------
       Net cash used in operating activities...............................             (182)                (150)
                                                                                     -------              -------

   Cash flows from investing activity - investment in Bank.................               --               (3,177)
                                                                                     -------              -------

   Cash flows from financing activities
     Proceeds from issuance of debt........................................               --                5,155
     Dividends paid........................................................             (211)                (111)
                                                                                     -------              -------
       Net cash provided by financing activities...........................             (211)               5,044
                                                                                     -------              -------

   Net change in cash......................................................             (393)               1,717

   Cash at beginning of year...............................................            2,275                  558
                                                                                     -------              -------

   Cash at end of year.....................................................          $ 1,882              $ 2,275
                                                                                     =======              =======

</TABLE>




                                       39
<PAGE>

                             DIRECTORS AND OFFICERS

                               BOARD OF DIRECTORS

       Bruce W. Steinke                                Thomas F. Swirski
    Chairman of the Board                             President and Chief
  Retired President and Chief                     Executive Officer of Holding
 Executive Officer of the Bank                         Company and the Bank
 and Chairman of the Board of
        Holding Company                                 George L. Koehm
                                                  Treasurer of Holding Company
       Richard G. Cook                            and Executive Vice President,
Secretary of the Holding Company                      Treasurer of the Bank
       Corporate Manager,
  Metropolitan School District                          James E. Magnuson
     of New Durham Township                                President,
                                                      Beacon Hills Golf Club
     L. Charles Lukmann III
            Partner,                                     Mark T. Savinski
     Harris Welsh & Lukmann                             Paralegal Analyst,
                                                      Office of Hearings and
        Dale Parkison                                Appeals, Social Security
          President,                                     Administration
  Parkison & Hinton, Inc. P.C.                         (Director Emeritus)



================================================================================

            EXECUTIVE OFFICERS OF CITY SAVINGS FINANCIAL CORPORATION

        Thomas F. Swirski                               George L. Koehm
          President and                                    Treasurer
     Chief Executive Officer


================================================================================

                      SENIOR OFFICERS OF CITY SAVINGS BANK

       Thomas F. Swirski                                George L. Koehm
         President and                              Executive Vice President
    Chief Executive Officer                              and Treasurer

       Debra L. Moffitt                                 Michael L. Zappia
    Vice President, Mortgage                             Vice President,
      and Consumer Lending                              Commercial Lending




                                       40
<PAGE>

                             DIRECTORS AND OFFICERS

     Richard  G.  Cook  (age 67)  retired  in 1999 as  Business  Manager  of the
Michigan City Area Schools,  a position that he held for 25 years.  He currently
serves as corporate  manager of the  Metropolitan  School District of New Durham
Township in LaPorte  County,  Indiana.  He has served as  Secretary  of the Bank
since 2000 and of the Holding Company since September 2001.

     George  L.  Koehm  (age 42) has  served as  Executive  Vice  President  and
Treasurer of the Bank since  November  2002,  and prior thereto as Treasurer and
Controller  of the Bank since April 1999,  Treasurer of City  Savings  Financial
Services,  Inc.  since April 2000,  and  Treasurer of the Holding  Company since
September  2001. From 1997 until 1999, he served as Executive Vice President and
Chief Operating  Officer of Argo Federal Savings Bank. From 1989 until 1997, Mr.
Koehm served as Vice President and Treasurer of Community Bank,  F.S.B.,  and as
Chief Financial Officer of Community Bank's holding company, CB Bancorp, Inc.

     L.  Charles  Lukmann  III (age 51) has served as partner of Harris  Welsh &
Lukmann,  a law firm based in  Chesterton,  Indiana,  since  1979.  He is also a
member  of  Woodlake  Springs  LLC  (owner of lots in  Chesterton)  and of Ennis
Builders LLC (homebuilding in Chesterton).

     James E. Magnuson  (age 53) served as President of North Shore Sales,  Inc.
(Lincoln Mercury automobile  dealership based in LaPorte,  Indiana) between 1973
and 2002. He has served as President of Beacon Hills Golf Club,  Inc. (golf club
based in LaPorte, Indiana) since 1996.

     Debra L.  Moffitt  (age 46) has served as Vice  President  of Mortgage  and
Consumer  Lending of the Bank since  November  2002, and Manager of the Mortgage
and Consumer  Lending  Department since November 2000. From 1997 until 2000, Ms.
Moffitt  served as  Assistant  Vice  President of  Community  Bank,  FSB in many
different capacities including Branch Management and Lending in the Consumer and
Mortgage areas. Ms. Moffitt has served in management  positions at several other
local banks since 1975.

     Dale  Parkison,  C.P.A.  (age 43) has  served as  President  of  Parkison &
Hinton, Inc. P.C. (certified public accountants based in LaPorte, Indiana) since
1992.

     Mark T.  Savinski  (age  50) is a  Paralegal  Analyst  with the  Office  of
Hearings  and  Appeals  for the  Social  Security  Administration.  He served as
District  Director for U.S.  Congressman  Peter J. Visclosky,  First District of
Indiana from 1998 until June 2004.  From 1989 until 1998, Mr. Savinski served as
Human Resource Manager for Modine  Manufacturing  Company in La Porte,  Indiana.
Mr. Savinski is a director emeritus of the Company.

     Bruce W. Steinke (age 72) retired as President and Chief Executive  Officer
of the Bank in 2000.  Mr. Steinke was employed by the Bank for over 30 years and
has served on the board of directors  since 1969.  He has served as the Chairman
of the Board of the Bank since  January  2000 and of the Holding  Company  since
September 2001.

     Thomas F. Swirski (age 49) has been President,  Chief Executive Officer and
Compliance Officer of the Bank since February 2000 and of City Savings Financial
Services, Inc. since November 1999, and President and Chief Executive Officer of
the Holding  Company since  September  2001.  From 1981 until his appointment as
President, Mr. Swirski served as Secretary, Mortgage Loan Manager and Compliance
Officer of the Bank.  Mr.  Swirski has a Masters  degree in Finance from Indiana
University and is a graduate of the University of Wisconsin  Graduate  School of
Banking.

     Michel L. Zappia (age 42) joined City  Savings  Bank as Vice  President  of
Commercial Lending in September of 2004. From 2002 to 2004, Mr. Zappia served as
a Commercial Loan Officer with Centier Bank in Chesterton, Indiana. From 1999 to
2002,  Mr. Zappia served as Credit  Analyst and was later promoted to Commercial
Loan Officer at South Holland Bank, in South Holland,  Illinois.  Mr. Zappia has
served as Credit  Manager  and  Credit  Analyst at  several  national  banks and
finance  companies.  Mr.  Zappia has a Bachelor  of Science  Degree in  Business
Management and Labor Relations from Indiana University.



                                       41
<PAGE>

Market Information

     The Bank converted from a state mutual savings association to a state stock
savings  association  effective December 27, 2001, and  simultaneously  formed a
savings and loan holding  company,  the Holding Company.  The Holding  Company's
Common Stock,  is traded on the OTC  Electronic  Bulletin Board under the symbol
"CSFC." As of July 31, 2004, there were  approximately 320 record holders of the
Holding Company's Common Stock.

     Any dividends paid by the Holding Company will be subject to  determination
and declaration by the Board of Directors in its discretion.  In determining the
level of any future dividends, the Board of Directors will consider, among other
factors,  the  following:  tax  considerations;   industry  standards;  economic
conditions;  capital levels; regulatory restrictions on dividend payments by the
Bank to the Holding Company; and general business practices.

     The Holding  Company is not subject to OTS regulatory  restrictions  on the
payment of dividends to its  shareholders  although the source of such dividends
will depend in part upon the receipt of dividends from the Bank.  Applicable law
restricts  the  amount  of  dividends  the Bank may pay to the  Holding  Company
without  obtaining  the prior  approval  of the OTS to an  amount  that does not
exceed the Bank's  year-to-date  net income plus its retained net income for the
preceding  two  years.  The  Holding  Company  is  subject,   however,   to  the
requirements  of Indiana law, which  generally limit the payment of dividends to
amounts  that will not affect  the  ability of the  Holding  Company,  after the
dividend  has been  distributed,  to pay its  debts in the  ordinary  course  of
business and will not exceed the difference  between the Holding Company's total
assets and total liabilities plus  preferential  amounts payable to shareholders
with rights  superior to those of the  holders of the Holding  Company's  common
stock.

     In addition to the foregoing,  the portion of the Bank's earnings which has
been  appropriated  for bad debt  reserves and  deducted for federal  income tax
purposes cannot be used by the Bank to pay cash dividends to the Holding Company
without  the  payment of federal  income  taxes by the Bank at the then  current
income  tax rate on the amount  deemed  distributed,  which  would  include  any
federal income taxes attributable to the distribution.  The Holding Company does
not contemplate any distribution by the Bank that would result in a recapture of
the Bank's bad debt reserve or otherwise create federal tax liabilities.

                                      Stock Bid
                               ----------------------
Quarter Ended                   High             Low
------------------             ------          ------
September 30, 2002             $14.00          $13.50
December 31, 2002               16.40           13.25
March 31, 2003                  18.00           16.00
June 30, 2003                   21.00           17.75
September 30, 2003              21.30           19.81
December 31, 2003               27.74           21.30
March 31, 2004                  28.00           26.75
June 30, 2004                   28.00           25.25

Quotations reflect  inter-dealer  prices,  without retail mark-up,  mark-down or
commission  and  may  not  represent  actual  transactions.  The  source  of bid
information is the OTC Bulletin Board.

Market Makers
-------------
Howe Barnes Investments, Inc.
Moors and Cabot, Inc.
Monroe Securities, Inc.
Trident Securities, Inc.
Hill, Thompson, Magid & Co., Inc.

Transfer Agent and Registrar
----------------------------
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey  10701
(800) 525-7686

General Counsel
---------------
Barnes & Thornburg LLP
11 South Meridian Street
Indianapolis, Indiana  46204

Independent Auditor
-------------------
BKD, LLP
201 N. Illinois Street, Suite 700S
Indianapolis, Indiana  46204

Shareholders and General Inquiries
----------------------------------
The Company will file an Annual Report on Form 10-KSB for its fiscal year ended
June 30, 2004 with the Securities and Exchange Commission. Copies of this annual
report may be obtained without charge upon written request to:

George L. Koehm
Treasurer
2000 Franklin Street
Michigan City, IN  46360


                                       42