UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

(Mark One)

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

                     For the fiscal year ended June 30, 2002
or

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

For the transition period from _____________ to _______________

Commission File Number 000-33441

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


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


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


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

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

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

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

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

The issuer had $5,543,000 in revenues for the fiscal year ended June 30, 2002.

The  aggregate  market  value  of the  issuer's  voting  common  equity  held by
non-affiliates, as of September 23, 2002, was $5,945,046.25.

The number of shares of the issuer's sole class of common equity  outstanding as
of September 23, 2002, was 555,450 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE


Portions of the Annual Report to Shareholders  for the year ended June 30, 2002,
are  incorporated  into Part II.  Portions of the Proxy  Statement  for the 2002
Annual Meeting of Shareholders are incorporated in Part I and Part III.

Transitional Small Business Disclosure Format:     YES ____      NO __X__

                            Exhibit Index on Page E-1
                               Page 1 of 35 pages
<PAGE>

                       CITY SAVINGS FINANCIAL CORPORATION
                                   Form 10-KSB
                                      INDEX

<TABLE>
                                                                                            Page

FORWARD LOOKING STATEMENT ...............................................................     3
PART I
<S>           <C>                                                                             <C>
         Item 1.  Description of Business ...............................................     3
         Item 2.  Description of Property ...............................................    30
         Item 3.  Legal Proceedings .....................................................    31
         Item 4.  Submission of Matters to a Vote of Security Holders....................    31
PART II
         Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters..    31
         Item 6.  Management's Discussion and Analysis or Plan of Operation..............    31
         Item 7.  Financial Statements ..................................................    31
         Item 8.  Changes in and Disagreements with Accountants on Accounting and
                     Financial Disclosure ...............................................    31
PART III
         Item 9.  Directors, Executive Officers, Promoters and Control Persons;
                     Compliance With Section 16(a) of the Exchange Act ..................    32
         Item 10. Executive Compensation ................................................    32
         Item 11. Security Ownership of Certain Beneficial Owners and Management
                     and Related Stockholder Matters ....................................    32
         Item 12. Certain Relationships and Related Transactions ........................    32
         Item 13. Exhibits and Reports on Form 8-K ......................................    32
         Item 14. Controls and Procedures ...............................................    32

SIGNATURES ..............................................................................    33

CERTIFICATIONS ..........................................................................    34
</TABLE>

<PAGE>

                            FORWARD LOOKING STATEMENT


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

Item 1. Description of Business.

General

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

     Michigan City was organized as a  state-chartered  savings  association  in
1885,  and it  currently  conducts its business  from two  full-service  offices
located in Michigan City, Indiana and Rolling Prairie,  Indiana. Michigan City's
principal  business consists of attracting  deposits from the general public and
originating  fixed-rate and  adjustable-rate  loans secured primarily by one- to
four-family  residential  real  estate.  Michigan  City's  deposit  accounts are
insured  up to  applicable  limits by the  Savings  Association  Insurance  Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").

     Michigan City offers a number of financial services, including: (i) one- to
four-family  residential real estate loans; (ii) consumer loans,  including home
equity,  second  mortgages and automobile  loans;  (iii)  commercial real estate
loans;  (iv) real estate  construction  loans; (v) commercial  loans;  (vi) land
loans; (vii) multi-family  residential  loans;  (viii)  certificates of deposit;
(ix) savings  accounts,  including  passbook  accounts;  (x) money market demand
accounts;  and (xi) negotiable order of withdrawal accounts.  Michigan City owns
one subsidiary,  City Savings Financial Services,  Inc. This subsidiary conducts
business  as  Whybrew  Insurance  Agency and offers  insurance  products  to the
community. See "--Service Corporation Subsidiary."

Lending Activities

     We have historically concentrated our lending activities on the origination
of loans  secured by first  mortgage  liens for the  purchase,  construction  or
refinancing  of  one-  to  four-family   residential  real  property.   One-  to
four-family  residential  mortgage  loans  continue to be the major focus of our
loan origination  activities,  representing 60.5% of our total loan portfolio at
June  30,  2002.  We also  offer  commercial  real  estate  loans,  real  estate
construction loans and consumer loans. Mortgage loans secured by commercial real
estate totaled approximately 12.8% of our total loan portfolio at June 30, 2002,
while real estate  construction  loans totaled  approximately  6.8% and consumer
loans  totaled  approximately  10.9% of our total loans at June 30,  2002.  To a
limited extent we also offer multi-family  residential loans, land loans and, to
a growing extent, commercial loans. At June 30, 2002, we had commercial loans of
$4.2 million,  or 6.0% of our loan  portfolio,  compared to commercial  loans of
$2.0 million or 3.5% of our loan portfolio at June 30, 2001.

     Loan Portfolio  Data. The following table sets forth the composition of the
Association's  loan portfolio  (including  loans held for sale) by loan type and
security type as of the dates  indicated,  including a  reconciliation  of gross
loans receivable after  consideration of the allowance for loan losses and loans
in process.
<PAGE>
<TABLE>
<CAPTION>

                                                            At June 30,
                                        -------------------------------------------------
                                                2002                       2001
                                        -----------------------   -----------------------
                                                       Percent                    Percent
                                         Amount       of Total     Amount        of Total
                                        --------      ---------   --------       --------
                                                     (Dollars in thousands)
Type of Loan:
Real estate mortgage loans:
<S>                                     <C>              <C>      <C>              <C>
   One- to four-family ..............   $42,478          60.5%    $40,683          69.5%
   Commercial .......................     8,951          12.8       5,394           9.2
   Land .............................     1,145           1.6         846           1.4
   Multi-family .....................       978           1.4         285           0.5
                                        -------         -----     -------         -----
     Total real estate mortgage loans    53,552          76.3      47,208          80.6

Real estate construction loans ......     4,751           6.8       3,126           5.3

Consumer loans:
   Home equity and second mortgage ..     4,401           6.3       3,436           5.9
   Automobile .......................     1,691           2.4       1,899           3.2
   Other ............................     1,571           2.2         886           1.5
                                        -------         -----     -------         -----
     Total consumer loans ...........     7,663          10.9       6,221          10.6
Commercial loans ....................     4,202           6.0       2,017           3.5
                                        -------         -----     -------         -----
     Gross loans receivable .........   $70,168         100.0%    $58,572         100.0%
                                        =======         =====     =======         =====

Type of Security:
Real estate:
   One- to four-family ..............   $50,782          72.4%    $46,725          79.8%
   Commercial .......................     9,498          13.5       5,915          10.1
   Land .............................     1,145           1.6         846           1.4
   Multi-family .....................     1,279           1.8         285           0.5
                                        -------         -----     -------         -----
     Total real estate ..............    62,704          89.3      53,771          91.8

Consumer:
   Automobile .......................     2,525           3.6       2,494           4.3
   Recreational vehicles ............       867           1.2           0           0.0
   Manufactured homes ...............       462           0.7         407           0.7
                                        -------         -----     -------         -----
     Total consumer .................     3,854           5.5       2,901           5.0
Deposits ............................        50           0.1         138           0.2
Unsecured ...........................        76           0.1         117           0.2
Other security ......................     3,484           5.0       1,645           2.8
                                        -------         -----     -------         -----
   Gross loans receivable ...........    70,168         100.0%     58,572         100.0%
                                        -------         -----     -------         =====
Deduct:
Loans in process ....................     1,420                     1,024
Allowance for loan losses ...........       579                       423
Deferred loan fees ..................        97                       141
                                        -------                   -------
   Net loans receivable .............   $68,072                   $56,984
                                        =======                   =======

Mortgage Loans:
Fixed-rate ..........................   $32,049          55.0%    $29,544          58.7%
Adjustable-rate .....................    26,254          45.0      20,790          41.3
                                        -------         -----     -------         -----
   Total ............................   $58,303         100.0%    $50,334         100.0%
                                        =======         =====     =======         =====
</TABLE>
<PAGE>

     The  following  table  sets forth  certain  information  at June 30,  2002,
regarding  the dollar amount of  commercial,  financial,  agricultural  and real
estate  construction loans maturing in the Association's loan portfolio based on
the  contractual  terms to maturity.  Demand loans having no stated  schedule of
repayments and no stated maturity and overdrafts are reported as due in one year
or less.  This schedule does not reflect the effects of possible  prepayments or
enforcement of due-on-sale  clauses.  Management expects  prepayments will cause
actual maturities to be shorter.

                                         Due During Years Ended June 30,
                          Balance       --------------------------------
                       Outstanding at                2004      2008 and
                       June 30, 2002      2003     and 2007   following
                       --------------    ------    --------   ---------
                                       (Dollars in thousands)

Commercial loans ......     8,951         3,315      1,616      4,020
Land ..................     1,145           456        689         --
Multi-family loans ....       978            35        172        771
Construction loans ....     4,751           672      2,920      1,159
Commercial loans ......     4,202         1,123      3,079         --


     The following  table sets forth,  as of June 30, 2002, the dollar amount of
the above loans due after one year that have fixed  interest  rates and floating
or adjustable interest rates.


                                                Due After June 30, 2003
                                    -----------------------------------------
                                    Fixed Rates     Variable Rates     Total
                                    -----------     --------------    -------
                                                 (Dollars in thousands)

Commercial loans................       $3,477           $2,159         $5,636
Land............................          229              460            689
Multi-family loans..............           --              943            943
Construction loans..............        1,829            2,250          4,079
Commercial loans................          531            2,548          3,079
                                       ------           ------        -------
    Total ......................       $6,066           $8,360        $14,426
                                       ======           ======        =======

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

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

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

     In 2001, we began to sell fixed-rate loans in the secondary market,  and we
sell all 30-year fixed-rate loans that we originate in the secondary market. All
of the fixed-rate  loans that we originate with terms of 30 years are written to
Federal Home Loan Mortgage Corporation standards. During the twelve-month period
ended June 30, 2002,  we sold 51  fixed-rate  loans with an aggregate  amount of
$5.6 million.  We generally retain in our loan portfolio the other loans that we
originate. We do not retain the servicing rights on the loans that we sell.

     Adjustable-rate mortgage loans decrease the risk associated with changes in
interest rates by periodically  repricing,  but involve other risks because,  as
interest rates increase,  the underlying payments by the borrower also increase,
thus increasing the potential for default by the borrower. At the same time, the
marketability of the underlying  collateral may be adversely  affected by higher
interest  rates.  Upward  adjustment  of the  contractual  interest rate is also
limited by the maximum periodic and lifetime interest rate adjustment  permitted
by the loan documents,  and, therefore,  is potentially limited in effectiveness
during periods of rapidly rising interest  rates. We retain all  adjustable-rate
mortgage loans that we originate and, at June 30, 2002, approximately 41% of our
one- to four-family residential loans had adjustable rates of interest.

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

     At June 30, 2002, approximately $42.5 million, or 60.5% of our portfolio of
loans,  consisted  of  one-  to  four-family  residential  loans.  Approximately
$848,000,   or  56.6%  of  total  non-performing  loans  consisted  of  one-  to
four-family  residential loans, and were included in nonperforming  assets as of
that date. See " -- Nonperforming and Problem Assets."

     Commercial Real Estate and  Multi-Family  Loans. Our commercial real estate
loans are secured by churches, warehouses, office buildings, car dealerships and
other  commercial  properties.  We originate  commercial  real estate loans with
terms no  greater  than 15 years.  Loans  with  terms of more than two years are
required  to be repaid in equal  monthly  installments,  and loans with terms of
less than two years or which are for  construction  purposes  are required to be
repaid  according  to terms agreed to between us and the  borrower.  At June 30,
2002, we had $9.9 million in commercial and  multi-family  real estate loans. We
generally  require a loan-to-value  ratio of no more than 75% on commercial real
estate loans.  Most  commercial  real estate loans that we originate  have fixed
interest  rates,  although  we also  originate  such loans that have  adjustable
interest rates that are based on the prime rate and which are  adjustable  based
on changes in the prime rate.

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

     At  June  30,  2002,  our  largest  commercial  real  estate  loan  had  an
outstanding  balance of  $782,000  which was secured by a strip mall in Michigan
City. At June 30, 2002,  approximately $9.0 million,  or 12.8% of our total loan
portfolio,  consisted  of  commercial  real  estate  loans.  On the  same  date,
commercial  real estate loans in the aggregate  amount of $451,000 were included
in  nonperforming  assets.  We  generally  intend  to  increase  the  amount  of
commercial  real estate loans in our portfolio by increasing the amount of loans
we make to small  businesses  by 8 to 10%  annually  over the next three  years,
provided  that we can make these  loans  consistent  with  prudent  underwriting
standards.

     At June  30,  2002,  approximately  $978,000,  or 1.4%  of our  total  loan
portfolio,  consisted of mortgage loans secured by multi-family dwellings (those
consisting of more than four units).  We write  multi-family  loans on terms and
conditions similar to our commercial real estate loans. The largest multi-family
loan as of June 30, 2002, was $586,000 and was secured by an apartment  building
in Michigan City,  Indiana.  On the same date, there were multi-family  loans in
the aggregate amount of $45,000 included in nonperforming assets.

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

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

     We also  offer,  in  certain  cases,  construction  loans  to  builders  or
developers for the construction of residential properties on a speculative basis
(i.e., before the  builder/developer  obtains a commitment from a buyer), or for
the  construction  of commercial or multi-family  properties.  In such cases, we
typically  structure the loan as a two-year  balloon loan with either a fixed or
adjustable  interest rate, with interest payable monthly.  Construction loans to
builders or developers  typically have a higher  interest rate than  residential
construction loans to individuals. At June 30, 2002, approximately $4.8 million,
or 6.8% of our total loan portfolio  consisted of  construction  loans. Of these
loans,  approximately  $3.2 million were to individuals for the  construction of
one- to four-family  residences,  $757,000 were speculative loans to developers,
and $825,000 were for the construction of commercial real estate.

     The maximum  loan-to-value  ratio for a construction loan is based upon the
nature of the  construction  project.  For example,  a  construction  loan to an
individual  for the  construction  of a one-  to  four-family  residence  may be
written with a maximum loan-to-value ratio of 95%, while a construction loan for
a commercial project may be written with a maximum  loan-to-value  ratio of 75%.
Inspections are made prior to any disbursement under a construction loan, and we
normally charge a $500 commitment fee for construction loans.

     While  providing us with a comparable,  and in some cases higher yield than
conventional mortgage loans, construction loans sometimes involve a higher level
of risk. For example,  if a project is not completed and the borrower  defaults,
we may have to hire another contractor to complete the project at a higher cost.
Also,  a project  may be  completed,  but may not be salable,  resulting  in the
borrower  defaulting and our taking title to the project.  At June 30, 2002, our
largest construction loan was $525,000 for a single-family  residential project,
secured by a residence in Union Pier,  Michigan.  As of that date,  the loan was
performing according to its terms.

     Land Loans. At June 30, 2002,  approximately  $1.1 million,  or 1.6% of our
total loan  portfolio,  consisted of mortgage loans secured by undeveloped  real
estate. We impose a maximum loan-to-value ratio of 75% of the appraised value of
the land or sales price,  whichever is less, and generally require that the loan
amount not exceed  $250,000  and that the term of the loan does not exceed eight
years. We originate land loans with either fixed or variable  interest rates. At
June 30, 2002, our largest land loan totaled  $432,000 and was secured by vacant
land located in Portage, Indiana.

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

     Consumer Loans. Our consumer loans consist of variable- and fixed-rate home
equity loans and lines of credit,  automobile,  recreational  vehicle,  boat and
motorcycle  loans and loans  secured by  deposits.  Consumer  loans tend to have
shorter terms and higher yields than permanent  residential  mortgage  loans. At
June 30, 2002,  our consumer loans  aggregated  approximately  $7.7 million,  or
10.9% of our total loan portfolio.  Included in consumer loans at June 30, 2002,
were  $2.0  million  of  variable-rate  home  equity  lines  of  credit.   These
variable-rate loans improve our exposure to interest rate risk.

     Second  mortgages  are  generally  written  for up to 80% of the  available
equity (the appraised value of the property less any first mortgage  amount) and
consumer loans secured by real estate are generally written for up to 90% of the
available  equity.  Our home equity and second  mortgage  loans at June 30, 2002
were  approximately  $4.4  million,  or 6.3% of our  total  loan  portfolio.  We
generally will write automobile loans for up to 80% of the acquisition price for
a new automobile and up to the average middle book value for a used  automobile.
Our automobile and manufactured home loans originated during the year ended June
30,  2002,  were  $706,000  compared  to $993,000  during the prior  year.  This
reduction  reflects our decision during 2000 to de-emphasize  the origination of
automobile  loans.  The repayment  schedule of loans  covering both new and used
vehicles is  consistent  with the expected life and normal  depreciation  of the
vehicle. Loans for recreational vehicles,  motorcycles and boats are written for
no more than 80% of the realistic sales price of the collateral, for a term that
is  consistent  with its  expected  life  and  normal  depreciation.  All of our
consumer  loans have a fixed rate of interest  except for home  equity  lines of
credit,  which are offered at a variable rate. At June 30, 2002,  consumer loans
in the amount of $105,000 were included in nonperforming assets.

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

     Commercial  Loans. We offer commercial  loans,  which consist  primarily of
loans to  businesses  that are secured by assets other than real  estate.  As of
June 30, 2002,  commercial loans amounted to $4.2 million,  or 6.0% of our total
loan  portfolio.  Commercial  loans  tend to bear  somewhat  greater  risk  than
residential  mortgage  loans,   depending  on  the  ability  of  the  underlying
enterprise to repay the loan.  Although  commercial  loans have not historically
comprised  a large  portion of our loan  portfolio,  we intend to  increase  the
amount of loans we make to small  businesses  in the future in order to increase
our rate of return and diversify our portfolio.  As of June 30, 2002, commercial
loans in the aggregate amount of $50,000 were included in nonperforming assets.

     Origination, Purchase and Sale of Loans. Historically, we have confined our
loan origination  activities  primarily to LaPorte and Porter Counties.  At June
30,  2002,  substantially  all of our  mortgage  loans were  secured by property
located within Indiana.  Our loan originations are generated from referrals from
existing   customers,   real  estate  brokers,   and  newspaper  and  periodical
advertising.  Loan applications are currently  underwritten and processed at our
main office in Michigan City.

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

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

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

                                                   Year Ended June 30,
                                                  --------------------
                                                    2002         2001
                                                  -------      -------
                                                 (Dollars in thousands)
Loans Originated:
  Real estate mortgage loans:
    One- to four-family loans .................   $18,871      $10,268
    Commercial loans  .........................     4,390        1,762
    Land ......................................       699          604
    Multi-family loans ........................       711           --
  Construction loans ..........................     4,018        2,214
  Commercial loans ............................     4,104        1,904
  Home equity and second mortgage loans .......     3,919        1,551
  Automobiles and manufactured home loans .....       706          993
  Other consumer loans ........................     1,064          244
                                                  -------      -------
      Total originations ......................    38,482       19,540
                                                  -------      -------
Reductions:
  Principal loan repayments  ..................    21,109       13,378
  Proceeds from sale of mortgage loans ........     5,583           --
  Transfers from loans to real estate owned....       578          184
                                                  -------      -------
      Total reductions ........................    27,270       13,562
                                                  -------      -------
      Decrease in other items (1) .............       124          217
                                                  -------      -------
      Net increase ............................   $11,088      $ 5,761
                                                  =======      =======
-----------------
(1) Other items consist of amortization of deferred loan  origination  costs and
the provision for losses on loans.

     The Association's  total loan  originations  during the year ended June 30,
2002,  totaled $38.5 million,  an increase of approximately $19 million compared
to the year ended June 30, 2001.

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

Nonperforming and Problem Assets

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

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

     Nonperforming Assets. At June 30, 2002, $1.8 million, or 2.18% of our total
assets,  were  nonperforming  (nonperforming  loans,  foreclosed real estate and
troubled debt  restructurings)  compared to $1.1 million,  or 1.68% of our total
assets,  at June 30, 2001. We deem any  delinquent  loan that is 90 days or more
past due to be a nonperforming  asset. This increase in nonperforming  assets is
primarily attributable to two loan relationships. The first loan is for $237,000
and is secured by a campground  located near Michigan City. As of June 30, 2002,
the borrower  agreed to a payment plan intended to bring the loan  current,  and
has since done so. The second  loan is in the amount of  $188,000,  secured by a
restaurant in Michigan City. Our largest non-performing loan as of June 30, 2002
was to a borrower with several loans totalling $369,000, secured by rental units
in Michigan City. These loans constitute our largest nonperforming loans at June
30,  2002,  and we  are  currently  working  with  the  remaining  borrowers  to
restructure  their  loans.  We believe  that the  collateral  on these  loans is
sufficient  to protect us from any loss beyond that which is provided for in our
allowance  for loan losses,  although our net income in future  periods could be
affected  depending upon whether we are able to implement a  restructuring  plan
with respect to these loans.

     At June 30, 2002, residential loans accounted for $848,000, or 47.7% of our
nonperforming  assets.  We had real  estate  owned  properties  in the amount of
$41,000 as of June 30, 2002.

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

                                                           At June 30,
                                                       ------------------
                                                         2002      2001
                                                       --------  --------
                                                     (Dollars in thousands)
Nonperforming assets:
  Nonperforming loans:
  Non-accrual ........................................  $1,499    $ 153
  Loans more than 90 past days and still accruing.....      --      687
  Troubled debt restructurings .......................     238       99
                                                        ------   ------
                                                         1,737      939
  Foreclosed assets ..................................      41      171
                                                        ------   ------
Total nonperforming assets ...........................  $1,778   $1,110
                                                        ======   ======
Nonperforming loans to total loans ...................    2.55%    1.65%

Nonperforming assets to total assets .................    2.18%    1.68%

     Interest  income of $58,000  and  $74,000 for the years ended June 30, 2002
and 2001,  respectively,  was recognized on the  nonperforming  loans summarized
above.  Interest income of $121,000 and $83,000 for the year ended June 30, 2002
and the year ended June 30, 2001, respectively, would have been recognized under
the original terms of such loans.

     At June 30, 2002, we held loans delinquent from 30 to 89 days totaling $2.0
million.  As of that  date,  we were  not  aware  of any  other  loans  in which
borrowers were  experiencing  financial  difficulties  and were not aware of any
assets that would need to be disclosed as nonperforming assets.

     Delinquent  Loans.  The following  table sets forth certain  information at
June  30,  2002  and  2001,  relating  to  delinquencies  in  the  Association's
portfolio.  Delinquent  loans  that are 90 days or more past due are  considered
nonperforming assets.
<TABLE>
<CAPTION>

                                                At June 30, 2002                      At June 30, 2001
                                   --------------------------------------- ---------------------------------------
                                        30-89 Days       90 Days or More       30-89 Days        90 Days or More
                                   ------------------- ------------------- ------------------- -------------------
                                             Principal           Principal           Principal           Principal
                                    Number    Balance   Number    Balance   Number    Balance   Number    Balance
                                   of Loans  of Loans  of Loans  of Loans  of Loans  of Loans  of Loans  of Loans
                                   --------  --------  --------  --------  --------  --------  --------  --------
                                                               (Dollars in thousands)
Real estate mortgage loans
<S>                                    <C>    <C>         <C>     <C>          <C>    <C>         <C>      <C>
   One- to four-family loans ...       31     $1,392      10      $753(1)      9      $  678      12       $625
   Multi-family loans ..........       --         --       1        45        --          --       1         47
   Commercial real estate loans         4        406       3       451(2)      3         440      --         --
Automobiles and manufactured
   home loans ..................       17        123       5        22        10          79       8         62
Home equity and second
   mortgage loans ..............        5         93       5        97         7         134       2         47
Other consumer loans ...........        1         24       1        14         5          12      --         --
Commercial loans ...............       --         --       3        55        --          --       3         59
                                       --     ------      --    ------        --      ------      --       ----
   Total .......................       58     $2,038      28    $1,437        34      $1,343      26       $840
                                       ==     ======      ==    ======        ==      ======      ==       ====
Delinquent loans to total loans.                2.99%             2.11%                 2.34%              1.46%
                                                ====              ====                  ====               ====
</TABLE>
----------------

(1)  Of this amount,  $244,000 is  attributable  to one loan,  secured by rental
     properties in Michigan City.

(2)  Of  this  amount,  $238,000  is  attributable  to  one  loan  secured  by a
     campground  located near Michigan City, and $188,000 is  attributable  to a
     loan secured by a restaurant in Michigan City.


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

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

     At June 30,  2002 and  2001,  the  aggregate  amount  of the  Association's
classified assets and of the Association's  general and specific loss allowances
were as follows:

                                                 At June 30,
                                              ---------------
                                                2002    2001
                                              ------   ------
                                           (Dollars in thousands)

Substandard assets .......................    $1,590   $1,754
Doubtful assets ..........................       160      178
Loss assets ..............................        --       --
                                              ------   ------
   Total classified assets ...............    $1,750   $1,932
                                              ======   ======

General loss allowances ..................    $  524   $  400
Specific loss allowances .................        69       57
                                              ------   ------
   Total allowances  .....................    $  593   $  457
                                              ======   ======


     The Association  regularly  reviews its loan portfolio to determine whether
any loans require classification in accordance with applicable regulations.  Not
all of the Association's  classified assets constitute nonperforming assets. The
above  allowances of $593,000 include $579,000 in allowances for loan losses and
$14,000 in allowance for real estate owned losses.

Allowance for Loan Losses

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

     In our  opinion,  our  allowance  for loan  losses  is  adequate  to absorb
probable losses inherent in the loan portfolio at June 30, 2002. However,  there
can be no assurance  that  regulators,  when reviewing our loan portfolio in the
future,  will not require  increases in our  allowances  for loan losses or that
changes in economic conditions will not adversely affect our loan portfolio.

     Summary of Loan Loss  Experience.  The following table analyzes  changes in
the allowance during the past two fiscal years ended June 30, 2002 and 2001.

                                                      Year Ended June 30,
                                                     ----------------------
                                                        2002        2001
                                                     ----------  ----------
                                                     (Dollars in thousands)

Balance at beginning of period ......................   $423        $181
                                                        ----        ----
Charge-offs:
   One- to four-family mortgage loans ...............     74          32
   Commercial loans .................................     19           3
   Auto loans .......................................      9          --
                                                        ----        ----
     Total charge-offs ..............................    102          35
                                                        ----        ----
Recoveries-- one- to four-family mortgage loans .....     --           3
                                                        ----        ----
Provision for losses on loans .......................    258         274
                                                        ----        ----
Balance end of period ...............................   $579        $423
                                                        ====        ====

Allowance for loan losses as a percent of total
   loans outstanding ................................   0.85%       0.74%

Ratio of net charge-offs to average loans outstanding   0.17%       0.06%
Allowance for loan losses as a percent of total
   nonperforming loans ..............................   33.3%       45.0%

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

                                                     At June 30,
                                       ------------------------------------
                                              2002              2001
                                       -----------------  -----------------
                                                 Percent          Percent
                                                 of loans          of loans
                                                 in each           in each
                                                Category          Category
                                                to total          to total
                                       Amount    loans    Amount    loans
                                       ------   --------  ------  ---------
                                             (Dollars in thousands)
Balance at end of period applicable to:
  Real estate mortgage loans:
    One- to four-family ..........      $242      60.5%    $132     69.5%
    Commercial....................       161      12.8      118      9.2
    Multi-family..................        12       1.4        8      0.5
    Land .........................         7       1.6        2      1.4

  Construction loans..............        11       6.8        6      5.3
  Automobiles and manufactured
    home loans....................        33       3.1       69      3.9
  Home equity and second
    mortgage loans................        44       6.2       25      5.9
  Other consumer loans............        18       1.6        1      0.9
  Commercial loans  ..............        51       6.0       62      3.4
  Unallocated.....................        --        --       --       --
                                        ----     -----     ----    -----
      Total ......................      $579     100.0%    $423    100.0%
                                        ====     =====     ====    =====

Investments

     Investments. Our investment policy authorizes us to invest in U.S. Treasury
securities,   securities   guaranteed  by  the  Government   National   Mortgage
Association,  securities  issued  by  agencies  of the  federal  government  and
municipal  governments,  mortgage-backed  securities  issued by the Federal Home
Loan Mortgage  Corporation or the Federal National  Mortgage  Association and in
highly-rated  mortgage-backed  securities,  and investment-grade  corporate debt
securities.  This  policy  permits  our  management  to react  quickly to market
conditions.   Most  of  the   securities  in  our   portfolio   are   considered
available-for-sale.  At June 30, 2002,  our  investment  portfolio  consisted of
investments  in Federal  Home Loan  Mortgage  Corporation,  Government  National
Mortgage Association and Federal National Mortgage  Association  mortgage-backed
securities,  corporate securities,  federal agency securities, Federal Home Loan
Bank stock,  and local and  non-local  municipal  securities.  At June 30, 2002,
approximately  $7.6  million,  or 9.34%,  of our total assets  consisted of such
investments.  We also had  $435,000  in stock of the  Federal  Home Loan Bank of
Indianapolis  as of that  date.  As of that  date,  we also had  pledged  to the
Federal Home Loan Bank of Indianapolis as collateral  mortgage-backed securities
with a carrying value of $213,000.

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

                                                       At June 30,
                                          --------------------------------------
                                                 2002               2001
                                          ------------------  ------------------
                                          Amortized   Fair    Amortized   Fair
                                            Cost      Value     Cost      Value
                                          ---------  -------  ---------  -------
                                                    (Dollars in thousands)
Available for sale:
  Agency securities ....................   $2,250     $2,274   $1,000     $1,017
  State and municipal ..................    2,368      2,418    1,918      1,949
  Corporate obligations ................    2,103      2,155    1,656      1,689
Held to maturity:
  Mortgage-backed securities ...........      334        340      432        433
Federal Home Loan Bank stock (1) .......      435        435      382        382
                                           ------     ------   ------     ------
    Total ..............................   $7,490     $7,622   $5,388     $5,470
                                           ======     ======   ======     ======
------------
(1)  Market  value is based on the price at which the stock may be resold to the
Federal Home Loan Bank of Indianapolis.

     The  following  table  sets  forth  the  amount  of  investment  securities
excluding  mortgage-backed  securities  which mature  during each of the periods
indicated and the weighted  average  yields for each range of maturities at June
30, 2002.
<TABLE>
<CAPTION>

                                                Amount at June 30, 2002, which matures in
                            ------------------------------------------------------------------------------
                                 One Year            One Year           Five Years
                                 Or Less          to Five Years        to Ten Years       Over Ten Years
                            ------------------  ------------------  ------------------  ------------------
                            Amortized  Average  Amortized  Average  Amortized  Average  Amortized  Average
                              Cost      Yield     Cost      Yield     Cost      Yield     Cost      Yield
                            ---------  -------  ---------  -------  ---------  -------  ---------  -------
              (Dollars in thousands)
<S>                                              <C>        <C>       <C>       <C>       <C>       <C>
Agency securities ........                       $1,556     4.55%     $198      5.36%     $496      6.23%
State and municipal ......                          917     4.23       802      5.27       649      4.22
Corporate obligations ....   $  675     7.58%     1,013     6.20       415      5.70
</TABLE>


Sources of Funds

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

     Deposits.  We attract  deposits  principally from within LaPorte and Porter
Counties  through the  offering  of a broad  selection  of deposit  instruments,
including fixed-rate passbook accounts, negotiable order of withdrawal accounts,
variable rate money market accounts,  investment  checking accounts,  fixed-term
certificates of deposit, individual retirement accounts and savings accounts. We
do not actively  solicit or advertise for deposits outside of LaPorte and Porter
Counties,  and  substantially all of our depositors are residents of LaPorte and
Porter  Counties.  Deposit  account terms vary,  with the principal  differences
being the  minimum  balance  required,  the  amount of time the funds  remain on
deposit and the interest  rate.  We accept  brokered  deposits,  but they do not
constitute a material  portion of our  deposits.  We held $4.9 million of public
deposits,  or 7.8%, of our total deposits, at June 30, 2002. We periodically run
specials on certificates of deposit with specific maturities.

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

     Approximately  55.7% of our deposits  consist of  certificates  of deposit,
which generally have higher  interest rates than other deposit  products that we
offer.  We offer special rates on  certificates  of deposit with maturities that
fit our asset and  liability  strategies.  We also offer  money  market  savings
accounts, which represent nearly 14.5% of our deposits.

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

     An analysis of our deposit accounts by type, maturity, and rate at June 30,
2002, is as follows:




                                                  Balance at            Weighted
                                                    June 30,    % of     Average
                                                     2002     Deposits    Rate
                                                  ----------  --------  --------
Type of Account                                        (Dollars in thousands)
---------------
Withdrawable:
   Fixed rate, passbook accounts...............     $10,328     16.4%     2.00%
   Variable rate, money market.................       9,185     14.5%     2.42%
   Negotiable order of withdrawal accounts.....       8,465     13.4%     1.71%
                                                    -------    -----
     Total withdrawable........................      27,978     44.3%     2.05%
                                                    -------    -----
Certificates (original terms)
   3 months or less............................       2,508      4.0%     2.30%
   6 months....................................       5,866      9.3%     2.47%
   12 months...................................       3,299      5.2%     2.88%
   18 months...................................       6,357     10.1%     3.93%
   24 months...................................       3,948      6.2%     5.66%
   36 months...................................       3,437      5.4%     4.94%
   60 months...................................       8,586     13.6%     5.63%
   120 months..................................       1,232      1.9%     6.19%
                                                    -------    -----
      Total certificates.......................      35,233     55.7%     4.26%
                                                    -------    -----
Total deposits ................................     $63,211    100.0%     3.28%
                                                    =======    =====

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

                              At June 30,
                          -------------------
                            2002       2001
                          -------     -------
                         (Dollars in thousands)

1.00 to 1.99% ..........  $   200     $    --
2.00 to 2.99% ..........   11,712          --
3.00 to 3.99% ..........    4,429          --
4.00 to 4.99% ..........    4,039      11,072
5.00 to 5.99% ..........    8,691      10,929
6.00 to 6.99% ..........    5,381      12,350
7.00 to 7.99% ..........      781       1,006
                          -------     -------
   Total ...............  $35,233     $35,357
                          =======     =======

     The following table  represents,  by various interest rate categories,  the
amounts of time deposits  maturing during each of the three years following June
30, 2002. Matured certificates, which have not been renewed as of June 30, 2002,
have been allocated based upon certain rollover assumptions.

                               Amounts at June 30, 2002, Maturing In
                         ------------------------------------------------
                         One Year      Two        Three      Greater Than
                          or Less     Years       Years      Three Years
                         --------    -------     -------     ------------
                                        (Dollars in thousands)

1.00 to 1.99% ..........  $   200      $   --      $   --      $   --
2.00 to 2.99% ..........   11,271         441          --          --
3.00 to 3.99% ..........    2,678       1,351         400          --
4.00 to 4.99% ..........    2,023         524         481       1,011
5.00 to 5.99% ..........    2,430       2,697         776       2,788
6.00 to 6.99% ..........    2,660         554       1,253         914
7.00 to 7.99% ..........      451          10         205         115
                          -------      ------      ------      ------
   Total ...............  $21,713      $5,577      $3,115      $4,828
                          =======      ======      ======      ======

     The  following  table  indicates  the amount of our other  certificates  of
deposit of  $100,000  or more by time  remaining  until  maturity as of June 30,
2002.

                                                   At June 30, 2002
                                                ----------------------
Maturity Period                                 (Dollars in thousands)
  Three months or less ............................     $3,495
  Greater than three months through six months ....      2,643
  Greater than six months through twelve months ...      1,374
  Over twelve months ..............................      2,469
                                                        ------
    Total .........................................     $9,981
                                                        ======


Deposit Activity

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

                                                              At June 30,
                                                        -----------------------
                                                            2002       2001
                                                        -----------  ----------
                                                        (Dollars  in thousands)

Beginning balance ......................................  $58,966     $49,701
  Net deposits (withdrawals) before interest credited ..    2,328       6,928
  Interest credited ....................................    1,917       2,337
                                                          -------     -------
  Net increase in deposits .............................    4,245       9,265
                                                          -------     -------
Ending balance  ........................................  $63,211     $58,966
                                                          =======     =======

     Total deposits at June 30, 2002, were approximately $63.2 million, compared
to  approximately  $59.0  million at June 30,  2001.  Our deposit  base  depends
somewhat upon the manufacturing sector of LaPorte and Porter Counties.  Although
the  manufacturing  sector in these counties is relatively  diversified and does
not significantly  depend upon any industry, a loss of a material portion of the
manufacturing  workforce could adversely  affect our ability to attract deposits
due to the loss of personal income  attributable to the lost  manufacturing jobs
and the attendant loss in service industry jobs.

     Borrowings.  We focus on generating high quality loans and then seeking the
best source of funding from deposits,  investments  or  borrowings.  At June 30,
2002, we had borrowings in the amount of $6.5 million from the Federal Home Loan
Bank of Indianapolis  which bear fixed and variable interest rates and which are
due at various dates through  2011. We are required to maintain  eligible  loans
and  investment  securities,   including  mortgage-backed   securities,  in  our
portfolio of at least 170% of  outstanding  advances as collateral  for advances
from the Federal Home Loan Bank of  Indianapolis.  We also have available  $20.9
million of borrowing  capacity with the Federal Home Loan Bank of  Indianapolis.
We do not anticipate any  difficulty in obtaining  advances  appropriate to meet
our requirements in the future.

     The  following  table  presents   certain   information   relating  to  the
Association's borrowings at or for the years ended June 30, 2002 and 2001.

                                                          At or for the Year
                                                            Ended June 30,
                                                          -----------------
                                                            2002     2001
                                                          -------- --------
                                                        (Dollars in thousands)
Federal Home Loan Bank Advances:
  Outstanding at end of period........................     $6,488   $1,670
  Average balance outstanding for period .............      3,459    1,455
  Maximum amount outstanding at any month end
    during the period ................................      6,488    2,762
  Weighted average interest rate during the period ...       4.80%    5.77%
  Weighted average interest rate at end of period ....       3.74%    5.20%


Service Corporation Subsidiary

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

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

     We currently own one subsidiary,  City Savings  Financial  Services,  Inc.,
which was organized in March 2000 to acquire  substantially all of the assets of
Whybrew Insurance Agency, Inc., a local insurance agency that provided insurance
products  to the  community,  including  property,  casualty,  life  and  health
insurance and fixed annuities.  City Savings Financial Services,  Inc. currently
conducts business as the Whybrew Insurance Agency.

     City Savings Financial Services,  Inc. primarily engages in retail sales of
health,  life,  casualty,  property,  mortgage  and credit  insurance  products.
Products  offered by City Savings  Financial  Services,  Inc.  include group and
individual term mortgage life insurance,  group mortgage  disability  insurance,
group accidental death insurance,  group credit life insurance, and group credit
accident and disability  insurance  policies.  City Savings Financial  Services,
Inc. also markets a variety of tax-deferred  annuity  contracts which are wholly
reinsured by other insurance companies. For the period ended June 30, 2002, City
Savings  Financial   Services,   Inc.   generated  $92,000  in  commissions  and
experienced an operating loss of $37,000.

Employees

     As of June 30, 2002, we employed 26 persons on a full-time basis and one on
a  part-time  basis.  None  of our  employees  is  represented  by a  collective
bargaining group and we consider our employee relations to be good.

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

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


                                   COMPETITION

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

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


                                   REGULATION

General

     As an Indiana-chartered, Savings Association Insurance Fund-insured savings
association, the Association is subject to extensive regulation by the Office of
Thrift  Supervision,  the Department of Financial  Institutions  and the Federal
Deposit Insurance  Corporation.  For example, the Association must obtain Office
of Thrift Supervision and Department of Financial  Institutions  approval before
it may engage in certain  activities  and must file  reports  with the Office of
Thrift  Supervision and the Department of Financial  Institutions  regarding its
activities and financial  condition.  The Office of Thrift  Supervision  and the
Department  of Financial  Institutions  periodically  examine the  Association's
books and  records  and,  in  conjunction  with the  Federal  Deposit  Insurance
Corporation in certain situations, have examination and enforcement powers. This
supervision  and  regulation  are  intended  primarily to protect the safety and
soundness   of  the   Association   and  to   protect   depositors   and   their
federally-insured  deposits.  All savings  associations  must pay a  semi-annual
assessment to the Office of Thrift Supervision based upon a marginal  assessment
rate that decreases as the asset size of the savings association increases,  and
which  includes  a  fixed-cost   component  that  is  assessed  on  all  savings
associations.  The assessment rate that applies to a savings association depends
upon the institution's  size,  condition,  and the complexity of its operations.
The Association's  semi-annual assessment to the Office of Thrift Supervision is
$13,000.  The  Association  also pays an annual  assessment to the Department of
Financial Institutions of $9,500.

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

Savings and Loan Holding Company Regulation

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

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

     City Savings Financial  Corporation  operates as a unitary savings and loan
holding  company.  Prior  to  the  enactment  of the  Gramm-Leach-Bliley  Act on
November  12,  1999,  there were no  restrictions  on the  permissible  business
activities of a unitary savings and loan holding company. The Gramm-Leach-Bliley
Act included a provision that prohibits any new unitary savings and loan holding
company,  defined as a company that  acquires a thrift  after May 4, 1999,  from
engaging in  commercial  activities.  Due to these  restrictions,  City  Savings
Financial Corporation will be authorized to engage only in those activities that
are permissible for a financial  holding company or a multiple  savings and loan
holding company following the conversion. A financial holding company may engage
in activities that are financial in nature,  incidental to financial  activities
or  complementary to a financial  activity.  A multiple savings and loan holding
company  is  generally  limited  to  activities  permissible  for  bank  holding
companies under Section 4(c)(8) of the Bank Holding Company Act,  subject to the
prior  approval  of the Office of Thrift  Supervision,  and  certain  activities
authorized by Office of Thrift Supervision regulations.

     Notwithstanding  the above rules as to permissible  business  activities of
unitary  savings  and  loan  holding  companies,   if  the  savings  association
subsidiary of such a holding  company fails to meet the qualified  thrift lender
test,  then such unitary  holding  company  would be deemed to be a bank holding
company subject to all of the provisions of the Bank Holding Company Act of 1956
and other statutes  applicable to bank holding companies,  to the same extent as
if City  Savings  Financial  Corporation  were a bank  holding  company  and the
Association were a bank. See "-- Qualified Thrift Lender." At June 30, 2002, the
Association's  asset  composition was in excess of that required to qualify as a
qualified thrift lender.

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

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

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

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

Federal Home Loan Bank System

     The  Association  is a member of the Federal Home Loan Bank  system,  which
consists of 12 regional banks. The Federal Housing Finance Board, an independent
agency,  controls the Federal Home Loan Bank System  including  the Federal Home
Loan Bank of Indianapolis.  The Federal Home Loan Bank system provides a central
credit facility primarily for member financial  institutions.  At June 30, 2002,
the  Association's  investment  in  stock  of the  Federal  Home  Loan  Bank  of
Indianapolis was $435,000.  For the fiscal year ended June 30, 2002, the Federal
Home Loan Bank of Indianapolis  paid  approximately  $26,000 in dividends to the
Association.

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

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

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

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

Insurance of Deposits

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

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

     In 1996,  legislation  was enacted  that  included  provisions  designed to
recapitalize the Savings  Association  Insurance Fund and largely  eliminate the
significant  premium  disparity  between the Bank Insurance Fund and the Savings
Association  Insurance Fund. Beginning January 1, 1997, the Association's annual
deposit  insurance  premium was reduced from .23% to .0644% of total  assessable
deposits.  In  addition  to  the  assessment  for  deposit  insurance,   savings
institutions  are  required  to pay on bonds  issued  in the  late  1980s by the
Financing  Corporation,  which  is a  federally-chartered  corporation  that was
organized to provide some of the  financing to resolve the thrift  crisis in the
1980s.  During 1998,  Financing  Corporation  payments  for Savings  Association
Insurance Fund members approximated 6.10 basis points, while Bank Insurance Fund
members  paid 1.22 basis  points.  By law,  payments  on  Financing  Corporation
obligations  have been shared  equally  between Bank  Insurance Fund members and
Savings Association Insurance Fund members since January 1, 2000.

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

Savings Association Regulatory Capital

     Currently,  savings  associations  are  subject to three  separate  minimum
capital-to-assets  requirements:  (i) a leverage limit,  (ii) a tangible capital
requirement,  and (iii) a risk-based  capital  requirement.  The leverage  limit
requires that savings  associations  maintain  "core  capital" of at least 3% of
total assets. Core capital is generally defined as common  shareholders'  equity
(including retained income), noncumulative perpetual preferred stock and related
surplus,   certain  minority  equity   interests  in  subsidiaries,   qualifying
supervisory  goodwill,  purchased mortgage servicing rights and purchased credit
card relationships  (subject to certain limits) less nonqualifying  intangibles.
The Office of Thrift  Supervision  requires a core capital  level of 3% of total
adjusted  assets for savings  associations  that receive the highest  rating for
safety and soundness, and 4% to 5% for all other savings associations. Under the
tangible  capital  requirement,  a savings  association  must maintain  tangible
capital  (core capital less all  intangible  assets  except  purchased  mortgage
servicing  rights which may be included after making the above-noted  adjustment
in an amount up to 100% of tangible  capital) of at least 1.5% of total  assets.
Under the risk-based capital  requirements,  a minimum amount of capital must be
maintained by a savings  association  to account for the relative risks inherent
in the type and amount of assets held by the savings association. The risk-based
capital requirement  requires a savings association to maintain capital (defined
generally for these purposes as core capital plus general  valuation  allowances
and  permanent  or maturing  capital  instruments  such as  preferred  stock and
subordinated  debt,  less  assets  required  to be  deducted)  equal  to 8.0% of
risk-weighted  assets.  Assets are  ranked as to risk in one of four  categories
(0-100%).  A credit  risk-free  asset,  such as  cash,  requires  no  risk-based
capital,  while an asset with a significant  credit risk,  such as a non-accrual
loan,  requires a risk  factor of 100%.  Moreover,  a savings  association  must
deduct from capital, for purposes of meeting the core capital,  tangible capital
and risk-based  capital  requirements,  its entire  investment in and loans to a
subsidiary engaged in activities not permissible for a national bank (other than
exclusively   agency   activities   for  its   customers  or  mortgage   banking
subsidiaries).  At June 30, 2002,  the  Association  was in compliance  with all
capital requirements imposed by law.

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

Prompt Corrective Regulatory Action

     The Federal Deposit Insurance Corporation  Improvement Act requires,  among
other things,  that federal bank regulatory  authorities take "prompt corrective
action"  with  respect  to  institutions   that  do  not  meet  minimum  capital
requirements.  For these purposes,  the statute  establishes five capital tiers:
well  capitalized,  adequately  capitalized,   undercapitalized,   significantly
undercapitalized,  and  critically  undercapitalized.  At  June  30,  2002,  the
Association  was  categorized  as "well  capitalized,"  meaning  that its  total
risk-based  capital  ratio  exceeded  10%, its Tier I risk-based  capital  ratio
exceeded  6%,  its  leverage  ratio  exceeded  5%,  and it was not  subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.

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

Dividend Limitations

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

     The  regulation  permits  certain  savings  associations  to  make  capital
distributions  under certain  circumstances  without first filing a notice or an
application  with the  Office  of  Thrift  Supervision  and  requires  a savings
association  to  file  an  application  for  approval  of  a  proposed   capital
distribution  with the Office of Thrift  Supervision  if the  association is not
eligible  for  expedited   treatment   under  Office  of  Thrift   Supervision's
application  processing rules, or the total amount of all capital distributions,
including the proposed capital  distribution,  for the applicable  calendar year
would  exceed an amount equal to the savings  association's  net income for that
year  to date  plus  the  savings  association's  retained  net  income  for the
preceding two years (the "retained net income standard").  At June 30, 2002, the
Association's retained net income standard was approximately $941,000. A savings
association  must also file an  application  for approval of a proposed  capital
distribution if, following the proposed distribution,  the association would not
be at least adequately capitalized under the Office of Thrift Supervision prompt
corrective action regulations,  or if the proposed  distribution would violate a
prohibition  contained  in any  applicable  statute,  regulation,  or  agreement
between  the  association  and the Office of Thrift  Supervision  or the Federal
Deposit Insurance Corporation.

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

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

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

Limitations on Rates Paid for Deposits

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

Safety and Soundness Standards

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

Real Estate Lending Standards

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

Federal Reserve System

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

Loans to One Borrower

     Under Office of Thrift Supervision regulations and the Indiana statute, the
Association may not make a loan or extend credit to a single or related group of
borrowers in excess of 15% of its  unimpaired  capital and  surplus.  Additional
amounts may be lent, not in excess of 10% of unimpaired capital and surplus,  if
such  loans or  extensions  of credit are fully  secured  by readily  marketable
collateral,  including certain debt and equity securities but not including real
estate.  Office of Thrift Supervision  regulations permit a savings association,
in some  cases,  to lend up to 30% of  unimpaired  capital  and  surplus  to one
borrower for purposes of developing domestic residential housing,  provided that
the  association  meets its regulatory  capital  requirements  and the Office of
Thrift  Supervision  authorizes  the  association  to use this expanded  lending
authority.  The  Association did not have any loans or extensions of credit to a
single or related group of borrowers in excess of its regulatory  lending limits
at June 30, 2002.

Qualified Thrift Lender

     Savings associations must meet a qualified thrift lender test that requires
the   association  to  maintain  an  appropriate   level  of  qualified   thrift
investments,  which  primarily  consist of  residential  mortgages  and  related
investments,   including  certain  mortgage-related   securities.  The  required
percentage of qualified  thrift  investments is 65% of portfolio  assets,  which
includes all assets minus intangible assets, property used by the association in
conducting its business and liquid assets equal to 10% of total assets.  Certain
assets are subject to a percentage  limitation  of 20% of portfolio  assets.  In
addition,  savings  associations may include shares of stock of the Federal Home
Loan  Banks,  Federal  National  Mortgage  Association,  and  Federal  Home Loan
Mortgage  Corporation  as  qualified  thrift  investments.  Compliance  with the
qualified  thrift  lender test is  determined  on a monthly basis in nine out of
every twelve months. As of June 30, 2002, the Association was in compliance with
its qualified thrift lender requirement, with approximately 67.93% of its assets
invested in qualified thrift investments.

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

Acquisitions or Dispositions and Branching

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

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

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

Transactions with Affiliates

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

Federal Securities Law

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

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

Community Reinvestment Act Matters

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

Other Indiana Regulations

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

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

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

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


                                    TAXATION

Federal Taxation

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

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

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

State Taxation

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

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

Item 2. Description of Property.

     The  following  table  provides  certain  information  with  respect to the
Association's offices as of June 30, 2002:

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

Main Office                   Owned     1970   $57,871      $726*      4,600
2000 Franklin Street
Michigan City, IN 46360

Rolling Prairie Branch        Owned     1995   $ 5,340      $ 90         900
101 E. Michigan Street
Rolling Prairie, IN  46371
---------------
*Includes property contiguous to the main office which the Association owns.

     We own computer and data processing  equipment which we use for transaction
processing,  loan  origination,  and  accounting.  The  net  book  value  of our
electronic  data  processing  equipment was  approximately  $108,000 at June 30,
2002.

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

     We have also contracted for the data  processing and reporting  services of
Aurum Technologies,  Inc. in Charlotte,  North Carolina.  The cost of these data
processing services is approximately $12,500 per month.

     We have also executed a Correspondent  Services  Agreement with the Federal
Home Loan Bank of Indianapolis  under which we receive item processing and other
services for a fee of approximately $2,000 per month.

Item 3. Legal Proceedings.

     The Association is a party to a lawsuit asserting, among other things, that
the Association 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 Association's
president,  who also served as president of the GMCCDC during the period covered
by the  lawsuit.  The  Association  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  Association  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 Association may be covered
by  insurance,  but  the  Association's  insurer  is  currently  reviewing  that
determination,  and there are certain  exclusions  in the  policies  which might
apply to deny coverage.  The Association and its president  intend to vigorously
defend the action.  It is impossible at this time for the Association to predict
the  outcome  of this  pending  litigation  or its  impact on the  Association's
operations or financial condition.

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

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

     No matters  were  submitted to a vote of the  security  holders  during the
quarter ended June 30, 2002.


                                     PART II

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

     We have not sold any equity  securities  during the period  covered by this
report  that  were  not  registered  under  the  Securities  Act  of  1933.  The
information  required by this item,  including market information and data as to
holders and dividends,  is  incorporated  by reference to the material under the
heading  "Market   Information"  on  page  36  of  the  Holding  Company's  2002
Shareholder Annual Report (the "Shareholder Annual Report").

     We had no equity compensation plans in effect as of June 30, 2002.

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

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

Item 7. Financial Statements.

     The Holding Company's  Consolidated  Financial Statements and Notes thereto
contained  on  pages  15  through  33  of  the  Shareholder  Annual  Report  are
incorporated herein by reference.

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

     The  disclosure  required by Item 8 has been  previously  disclosed in Form
SB-2 filed September 26, 2001.


                                    PART III

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

     The  information  required  by this  item with  respect  to  directors  and
executive  officers is  incorporated by reference to pages 2 to 3 and page 15 of
the Holding Company's Proxy Statement for its Annual  Shareholder  meeting to be
held October 23, 2002 (the "2002 Proxy Statement").

Item 10. Executive Compensation.

     The  information  required  by this  item  with  respect  to  Directors  is
incorporated  by reference to pages 4 and 5 of the Holding  Company's 2002 Proxy
Statement.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

     The  information  required  by this  item  with  respect  to  Directors  is
incorporated  by reference to pages 1 and 2 of the Holding  Company's 2002 Proxy
Statement.

Item 12. Certain Relationships and Related Transactions.

     The  information  required  by this  item  with  respect  to  Directors  is
incorporated  by reference to pages 7 and 8 of the Holding  Company's 2002 Proxy
Statement.

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

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

                                                                             Annual Report
                                                                                Page No.
     Financial Statements:
<S>                                                                                <C>
     Independent Accountants' Report ...........................................   14
     Consolidated Balance Sheets at June 30, 2002 and 2001 .....................   15
     Consolidated Statements of Income for the Years Ended June 30, 2002 and
        2001 ...................................................................   16
     Consolidated Statements of Shareholders' Equity for the Years Ended
     June 30, 2002 and 2001 ....................................................   17
     Consolidated Statements of Cash Flows for the Years Ended June 30, 2002 and
        2001 ...................................................................   18
     Notes to Consolidated Financial Statements ................................   19
</TABLE>

(b)  Reports on Form 8-K.

     The Holding  Company  filed no reports on Form 8-K during the quarter ended
     June 30, 2002.

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

     Item 14. Controls and Procedures.

     We  currently  have in place  systems  relating  to internal  controls  and
procedures   with  respect  to  our  financial   information.   Our   management
periodically  reviews and  evaluates  these  internal  control  systems with our
internal  auditors and our  independent  accountants.  We have  completed such a
review and evaluation in connection with the preparation of this Form 10-KSB. We
have  determined  that there have been no  significant  changes in our  internal
controls or in other  factors that could  significantly  affect  these  controls
subsequent to our most recent evaluation.
<PAGE>


                                   SIGNATURES


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


         CITY SAVINGS FINANCIAL CORPORATION


Date:  September 26, 2002                   By: /s/ Thomas F. Swirski
                                            ------------------------------------
                                            Thomas F. Swirski, President and
                                            Chief Executive Officer

     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the  Registrant  and  in the  capacities  indicated  on  this  26th  day of
September, 2002.

     Signatures                            Title                          Date
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

(1)  Principal Executive Officer:                                     )
                                                                      )
     /s/ Thomas F. Swirski                                            )
     -----------------------------------                              )
     Thomas F. Swirski                     President and              )
                                           Chief Executive Officer    )
                                                                      )
                                                                      )
(2)  Principal Financial and Accounting                               )
     Officer:                                                         )
    /s/ George L. Koehm                                               )
    -----------------------------------    Treasurer                  )
     George L. Koehm                                                  )
                                                                      )
                                                                      )
(3)  The Board of Directors:                                          )
                                                                      )
                                                                      )   September 26, 2002
    /s/ Bruce W. Steinke                                              )
    -----------------------------------    Chairman of the Board      )
     Bruce W. Steinke                                                 )
                                                                      )
                                                                      )
    /s/ Richard G. Cook                                               )
    -----------------------------------    Director                   )
     Richard G. Cook                                                  )
                                                                      )
                                                                      )
    /s/ George L. Koehm                                               )
    -----------------------------------    Director                   )
     George L. Koehm                                                  )
                                                                      )
                                                                      )
    /s/ Mark T. Savinski                                              )
    -----------------------------------    Director                   )
     Mark T. Savinski                                                 )
                                                                      )
                                                                      )
    /s/ Thomas F. Swirski                                             )
    -----------------------------------    Director                   )
     Thomas F. Swirski                                                )
</TABLE>

<PAGE>

                                  CERTIFICATION


I, Thomas F. Swirski, certify that:

     1. I have  reviewed  this  annual  report on Form  10-KSB  of City  Savings
Financial Corporation;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report; and

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Date: September 26, 2002

                                           /s/ Thomas F. Swirski
                                           -------------------------------------
                                           Thomas F. Swirski
                                           President and Chief Executive Officer


                                  CERTIFICATION


I, George L. Koehm, certify that:

     1. I have  reviewed  this  annual  report on Form  10-KSB  of City  Savings
Financial Corporation;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report; and

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Dated: September 26, 2002

                                           /s/ George L. Koehm
                                           -------------------------------------
                                           George L. Koehm
                                           Treasurer


                                  CERTIFICATION


     By signing below,  each of the undersigned  officers hereby certifies that,
to his or her knowledge, (i) this report fully complies with the requirements of
Section  13(a)  or  15(d) of the  Securities  Exchange  Act of 1934 and (ii) the
information  contained in this report fairly presents, in all material respects,
the financial  condition  and results of  operations  of City Savings  Financial
Corporation.

     Signed this 26th day of September, 2002.

/s/ George L. Koehm                        /s/ Thomas F. Swirski
----------------------------------         -------------------------------------
George L. Koehm,                           Thomas F. Swirski,
Treasurer                                  President and Chief Executive Officer
<PAGE>


                                  EXHIBIT INDEX

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

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

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

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

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

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

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

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

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

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

        (h)    First Amendment to the City Savings Financial Corporation
               Employee Stock Ownership Plan and Trust Agreement, effective
               July 1, 2002.

     13        2002 Annual Report

     21        Subsidiaries of the Registrant

     23        Consent of Independent Accountants

<PAGE>

                                                                   Exhibit 10(h)

                             FIRST AMENDMENT TO THE
                       CITY SAVINGS FINANCIAL CORPORATION
                EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
                           (EFFECTIVE JANUARY 1, 2001)

     Pursuant to Section 9.1 of The City Savings Financial  Corporation Employee
Stock Ownership Plan and Trust Agreement (the "ESOP"), Michigan City Savings and
Loan Association  hereby amends the Plan,  effective July 1, 2002, to provide as
follows:

     1.  Section  6.3 of the Plan is amended to  provide,  in its  entirety,  as
follows:

     Section 1.1.  Vesting.  Any Participant whose employment with the Companies
is terminated as set forth in Section 6.2 shall be entitled to a percentage  (as
determined  below) of the entire balance  credited to his Company  Contributions
Account as of the Valuation Date coincidental with or immediately  following the
date  of  termination  of  his   employment.   The  percentage  of  his  Company
Contributions  Account to which a terminated  Participant  is entitled  shall be
determined on the basis of his Period of Service on such date of  termination of
employment completed after December 31, 2000, as follows:

         Period of Service               Vested Percentage
         -------------------------       -----------------
         Less than five (5) years                 0
         Five (5) years or more                  100%

Notwithstanding  anything  contained  herein to the  contrary,  a  Participant's
Company  Contribution  Account  shall also become  fully vested upon a change in
control  (as defined  below) of the Holding  Company or the Bank but only if the
Participant  is  employed  by the  Company  immediately  prior to the  change in
control. For purposes of this Section, the term "change in control" shall mean a
change in control of the Holding  Company or the Bank,  within the meaning of 12
C.F.R.  ss.  574.4(a)  (other  than a change  resulting  from a trustee or other
fiduciary  holding shares of Stock under an employee  benefit plan of a Company.
Any portion of the terminated  Participant's Company Contributions Account which
is not vested shall be treated as a  forfeiture;  provided,  however,  that such
forfeiture shall not be allocated to the other Plan Participants until the first
(1st) to occur of the following:

     (a)  that  Participant's  consecutive  One Year Service Breaks are at least
          five (5);

     (b)  that Participant's death; or

     (c)  the date on which the Participant receives or is deemed to receive his
          Company Contribution Account;

provided,  further,  that  if  that  Participant  is  reemployed  prior  to  his
completion of five (5) consecutive One Year Service Breaks, the forfeited amount
shall be  reinstated  as the  beginning  balance of that  Participant's  Company
Contribution  Account.  A  Participant  whose vested  percentage  of his Company
Contributions  Account is zero (0) at the date of his  termination of employment
shall  be  deemed  to have  received  a  distribution  upon his  termination  of
employment.

     In the case of any Participant whose consecutive One Year Service Breaks is
at least five (5) years,  that  Participant's  pre-break  service shall count in
vesting of his post-break Company Contributions Account balance only if either:

     (a)  that  Participant  has  any  nonforfeitable  interest  in his  Company
          Contributions  Account  balance  at the  time of his  separation  from
          service with the Companies; or

     (b)  upon  returning  to service  with a Company his  consecutive  One Year
          Service  Breaks are less than five (5) or, if  greater,  less than his
          Period of Service completed prior to his first One Year Service Break.

     In the case of any  Participant  whose  consecutive One Year Service Breaks
are at least five (5) years,  all  service  after such One Year  Service  Breaks
shall be  disregarded  for the  purpose of  vesting  the  Company  Contributions
Account balance that accrued before such One Year Service Breaks.

     Separate sub-accounts shall be maintained for that Participant's  pre-break
and post-break Company  Contributions  Account. Both sub-accounts shall share in
the earnings and losses of the Fund.

     Any Participant  whose employment with the Companies is terminated  because
of his Total  Disability  shall be entitled to his entire Company  Contributions
Account balance and shall also be entitled to receive any Company  contributions
to which he is  entitled  pursuant to Section 4.2 for the Plan Year in which his
employment is so terminated.

     2.  Section  8.17 of the Plan is amended to provide,  in its  entirety,  as
follows:

     Section  1.2.  Voting  Rights of  Participants.  Each  Participant  (or, if
applicable,  his  Beneficiary)  shall have the right to direct the Trustee as to
the manner in which voting  rights of shares of Stock which are allocated to his
Company  Contributions Account are to be exercised with respect to any corporate
matter which  involves the voting of such shares with respect to the approval or
disapproval  of  any  corporate  merger  or   consolidation,   recapitalization,
reclassification,  liquidation, dissolution, sale of substantially all assets of
a trade or business, or such similar transactions which may be prescribed by the
Secretary of Treasury in regulations.  Each Participant (or, if applicable,  his
Beneficiary) shall also have the right to direct the Trustee as to the manner in
which  voting  rights of shares of Stock  which  are  allocated  to his  Company
Contributions  Account are to be exercised at any time the Holding Company has a
class of securities  that are required to be registered  under Section 12 of the
Securities  Exchange  Act of 1934 or that would be required to be so  registered
except for the exemption from  registration  provided by Section  12(g)(2)(H) of
the Securities  Exchange Act of 1934. In all other cases, the Committee shall be
authorized to vote the Stock held by the Trustee as part of the Fund as provided
in Section 7.11. Not less than thirty (30) calendar days prior to each annual or
special  meeting of shareholders of the Holding Company at which one (1) or more
Participants  are entitled to vote shares of Stock  allocated  to their  Company
Contributions  Accounts  under this Section 8.17,  the Trustee shall cause to be
prepared and delivered to each such Participant who has a Company  Contributions
Account as of the record date  established by the Holding  Company a copy of the
notice of the meeting and form of proxy directing the Trustee as to how it shall
vote at such meeting or at any  adjournment  thereof with respect to each issue.
Upon receipt of such proxies,  the Trustee shall vote or may grant the Committee
a proxy to vote the shares of Stock in accordance  with the proxies  received by
the Participants. To the extent permitted by applicable law, the shares of Stock
for which no direction is received by the  Participant  (or, if applicable,  his
Beneficiary)  shall be voted by the  Committee.  The Trustee shall take steps to
keep a Participant's  voting directions  confidential and shall not provide them
to the Companies.

     This First Amendment has been executed on this 13th day of March, 2002.


                                      MICHIGAN CITY SAVINGS AND LOAN
                                      ASSOCIATION

                                      By:  /s/ Thomas F. Swirski
                                           ------------------------------------
                                      Printed:  Thomas F. Swirski
                                                -------------------------------
                                      Its:   President and CEO
                                             ----------------------------------
ATTEST:

By:  /s/ Richard G. Cook
     -------------------------------
Printed:  Richard G. Cook
         ---------------------------
Its:  Secretary
      ------------------------------
<PAGE>

                                                                      Exhibit 21


               SUBSIDIARIES OF CITY SAVINGS FINANCIAL CORPORATION


Subsidiaries of City Savings Financial Corporation

                      Name                         Jurisdiction of Incorporation
-------------------------------------------------- -----------------------------
    Michigan City Savings and Loan Association                Indiana
       City Savings Financial Services, Inc.                  Indiana

<PAGE>

                                                                      Exhibit 23

                    Consent of Independent Public Accountants

We  hereby  consent  to the  incorporation  by  reference  to  the  Registration
Statement  on Form S-8,  File Number  333-76060,  of our report  dated August 9,
2002,  on the  consolidated  financial  statements  of  City  Savings  Financial
Corporation,  Michigan  City,  Indiana,  which  report is included in the Annual
Report on Form 10-KSB of City Savings Financial  Corporation for the fiscal year
ended June 30l, 2002.


/s/ BKD, LLP
-------------------------
BKD, LLP

Indianapolis, Indiana
September 25, 2002