CITY SAVINGS FINANCIAL CORPORATION                            2002 ANNUAL REPORT


                               TABLE OF CONTENTS

Message to Shareholders ...................................................    2
Selected Consolidated Financial Data ......................................    3
Management's Discussion and Analysis ......................................    4
Independent Accountants' Report ...........................................   14
Consolidated Balance Sheets ...............................................   15
Consolidated Statements of Income .........................................   16
Consolidated Statements of Shareholders' Equity ...........................   17
Consolidated Statements of Cash Flows .....................................   18
Notes to Consolidated Financial Statements ................................   19
Directors and Officers ....................................................   34
Shareholder Information ...................................................   36


Description of Business

     City Savings  Financial  Corporation (the "Holding  Company" and,  together
with its  subsidiary,  the  "Company")  is an Indiana  corporation  organized in
September  2001,  to  become  a  savings  and  loan  holding  company  upon  its
acquisition  of all the issued and  outstanding  capital  stock of Michigan City
Savings  and  Loan  Association  (the  "Association")  in  connection  with  the
Association's  conversion  from mutual to stock form. The Holding Company became
the  Association's  holding  company  on  December  27,  2001;  therefore,   all
historical  financial and other data contained for periods prior to December 27,
2001 herein  relate solely to the  Association  while  historical  financial and
other data contained herein for the period after December 27, 2001 relate to the
Company.  The principal asset of the Holding Company currently  consists of 100%
of the issued and outstanding shares of capital stock, without par value, of the
Association.

     At June 30, 2002, the Association,  a state savings association,  conducted
its business from two  full-service  offices located in Michigan City,  Indiana,
and Rolling Prairie, Indiana, with the main office located in Michigan City.

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


<PAGE>


To Our Shareholders:


     On  behalf  of the  directors,  officers  and  employees  of  City  Savings
Financial Corporation and its wholly-owned subsidiary, Michigan City Savings and
Loan Association,  I am pleased to present to you, our  shareholders,  our first
annual  report.  We want to take this  opportunity  to thank you for your  great
support of our initial public offering. On July 11, 2001, our Board of Directors
adopted a Plan of  Conversion  pursuant to which  Michigan City Savings and Loan
Association  converted from the mutual to the stock form of ownership and became
a wholly-owned  subsidiary of City Savings Financial  Corporation.  We completed
our  conversion to a stock  institution  on December 27, 2001,  selling  555,450
shares of City Savings  Financial  Corporation stock to our depositors at $10.00
per share.  On that day,  our shares of common  stock  began  trading on the OTC
"Electronic Bulletin Board" under the symbol "CSFC". We believe this infusion of
new capital will allow us to grow and move  strategically into new market areas,
while allowing customers and local residents to participate in our success.

     In addition to our home office in Michigan  City,  we  currently  operate a
branch office in Rolling Prairie,  Indiana. Our Rolling Prairie branch continues
to show modest  improvement  in  profitability  and  continues to be a source of
funds for our overall operations. We are very excited about our recent agreement
to purchase land to establish a new branch in  Chesterton,  Indiana.  Subject to
local government approval,  we plan to start construction in the Spring of 2003.
We have chosen this area because of the growing  residential  housing market and
the lack of  community-oriented  financial  service  providers.  We believe this
offers us the opportunity to attract new core deposits.

     As you  examine  our  financial  results for the fiscal year ended June 30,
2002, you will note strong  improvements  in a number of key areas.  During that
period,  our demand deposit and money market account  balances  increased 22% to
$17.7 million.  Similarly, our savings account deposits increased 12.9% to $10.3
million at June 30,  2002.  Our loan  portfolios  have  continued to enjoy above
average  growth,  as a result of our staff's  commitment  to fast,  personalized
service.  During the fiscal year ended June 30,  2002,  our home equity lines of
credit increased 360% from $404,000 to $1.85 million. Our commercial nonmortgage
loans  increased  110% over the same  period,  growing from $2.0 million to $4.2
million of which growth in commercial lines of credit  contributed to 50% of the
year over year increase.  Over the same period, our commercial real estate loans
increased 67% from $5.4 million to $9.0  million,  while our  multi-family  real
estate loans increased from $235,000 to $973,000.

     The  Management  and the  Board of  Directors  want to  thank  you for your
business,   your  support  and  your   confidence  in  City  Savings   Financial
Corporation.  We encourage  you to recommend us to your  friends,  neighbors and
associates,  and we look  forward  to  serving  you with  the same  professional
service that has marked our performance for over 115 years.


                                       Sincerely,

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

<PAGE>


                     SELECTED CONSOLIDATED FINANCIAL DATA OF
               CITY SAVINGS FINANCIAL CORPORATION AND SUBSIDIARIES

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

                                                             At June 30,
                                                        ------------------------
                                                         2002             2001
                                                        ------------------------
                                                         (Dollars in thousands)
Selected Financial Condition Data:
Total assets ............................................   $ 81,394   $ 66,253
Loans receivable ........................................     68,651     57,407
Allowance for loan losses ...............................        579        423
Net loans receivable ....................................     68,072     56,984
Cash and cash equivalents ...............................      3,215      1,322
Securities available for sale ...........................      6,847      4,655
Securities to be held to maturity .......................        334        432
Total borrowings ........................................      6,488      1,670
Deposits ................................................     63,211     58,966
Equity capital - substantially restricted ...............     10,197      5,103

Selected Operating Data:
Total interest income ...................................   $  5,052   $  4,784
Total interest expense ..................................      2,553      2,932
                                                            --------   --------
   Net interest income ..................................      2,499      1,852
Provision for loan losses ...............................        258        274
                                                            --------   --------
   Net interest income after provision for loan losses ..      2,241      1,578
                                                            --------   --------
Noninterest income:
   Service charges on deposit accounts ..................         92         50
   Commission income ....................................         97        101
   Gain on sale of investments ..........................         49         --
   Net gains on loan sales ..............................        104         29
   Other ................................................        148        132
                                                            --------   --------
      Total noninterest income ..........................        490        312
                                                            --------   --------
Noninterest expense:
   Compensation and benefits ............................      1,024        833
   Occupancy and equipment ..............................        268        284
   Professional fees ....................................        110         48
   Data processing ......................................        163        131
   Advertising ..........................................        122         73
   Goodwill impairment ..................................         --         98
   Other ................................................        305        268
                                                            --------   --------
      Total noninterest expense .........................      1,993      1,735
                                                            --------   --------
Income before taxes .....................................        738        155
Income tax expense (benefit) ............................        268         (9)
                                                            --------   --------
   Net income ...........................................   $    470   $    164
                                                            ========   ========

-----------------
Table continued on following page
<PAGE>
                                                             At June 30,
                                                        ------------------------
                                                         2002             2001
                                                        ------------------------
Supplemental Data:
Dividends per share                                          --              --
Dividend payout ratio                                        --              --
Interest rate spread during period                         3.04%           2.68%
Net yield on interest-earning assets (1)                   3.48            3.05
Return on assets (2)                                       0.63            0.26
Return on equity (3)                                       6.16            3.25
Equity to assets (4)                                      12.53            7.70
Average interest-earning assets to average
   interest-bearing liabilities                          112.46          107.74
Nonperforming assets to total assets (4)                   2.19            1.68
Allowance for loan losses to total
   loans outstanding (4)                                   0.85            0.74
Allowance for loan losses to nonperforming loans (4)      38.63           45.05
Net charge-offs to average total loans outstanding         0.17            0.06
Other expenses to average assets (5)                       2.68            2.75
Number of full-service offices (4)                            2               2
------------------
(1)  Net interest income divided by average interest-earning assets.
(2)  Net income divided by average total assets.
(3)  Net income divided by average total equity.
(4)  At end of period.
(5)  Other expenses divided by average total assets.


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

General

     The Holding Company was  incorporated  for the purpose of owning all of the
outstanding shares of the Association.  The following discussion and analysis of
the Company's  financial  condition and results of operations  should be read in
conjunction with and with reference to the consolidated financial statements and
the notes thereto included herein.

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

     1)   Management's determination of the amount of loan loss allowance;
     2)   The effect of changes in interest rates; and
     3)   Changes in deposit insurance premiums.

Average Balances and Interest Rates and Yields

     The  following  tables  present for the years ended June 30, 2002 and 2001,
the balances,  interest rates and average daily balances of each category of the
Company's  interest-earning  assets and  interest-bearing  liabilities,  and the
interest earned or paid on such amounts.
<PAGE>

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

                                                                      Year Ended June 30,
                                             ---------------------------------------------------------------------
                                                          2002                                 2001
                                             ---------------------------------------------------------------------
                                                        Interest                             Interest
                                             Average     Earned/     Average      Average     Earned/    Average
                                             Balance      Paid     Yield/Rate     Balance      Paid     Yield/Rate
                                             ---------------------------------------------------------------------
                                                                    (Dollars in thousands)
Assets:
Interest-earning assets:
<S>                                          <C>         <C>           <C>        <C>          <C>         <C>
   Interest-earning deposits ...........     $ 2,847     $   76        2.67%      $ 1,913      $  120      6.27%
   Securities available for sale (1) ...       6,785        371        5.47           758          41      5.41
   Securities to be held to maturity ...         381         23        6.04         3,741         229      6.12
   Loans receivable (2) (5) ............      61,318      4,556        7.43        53,903       4,365      8.10
   Stock in Federal Home Loan
      Bank of Indianapolis .............         396         26        6.57           354          29      8.19
                                             -------     ------                   -------      ------
      Total interest-earning assets ....      71,727      5,052        7.04        60,669       4,784      7.89
                                                         ------                                ------
Noninterest earning assets, net of
   allowance for loan losses ...........       2,711                                2,479
                                             -------                              -------
      Total assets .....................     $74,438                              $63,148
                                             =======                              =======

Liabilities and equity capital:
   Savings deposits ....................     $ 9,829        243        2.47       $ 8,861         306      3.45
   Interest-bearing demand deposits ....      14,787        426        2.88        11,416         477      4.18
   Certificates of deposit .............      35,703      1,718        4.81        34,577       2,065      5.97
   Federal Home Loan Bank advances .....       3,459        166        4.80         1,455          84      5.77
                                             -------     ------                   -------      ------
      Total interest-bearing liabilities      63,778      2,553        4.00        56,309       2,932      5.21
                                                         ------                                ------
   Other liabilities ...................       3,025                                1,800
      Total liabilities ................      66,803                               58,109
   Equity capital ......................       7,635                                5,039
                                             -------                              -------
      Total liabilities and equity
        capital ........................     $74,438                              $63,148
                                             =======                              =======
Net earning assets .....................     $ 7,949                              $ 4,360
                                             =======                              =======
Net interest income ....................                 $2,499                                $1,852
                                                         ======                                ======
Interest rate spread (3) ...............                               3.04%                               2.68%
                                                                       ====                                ====
Net yield on average earning
   assets (4) ..........................                               3.48%                               3.05%
                                                                       ====                                ====
Average interest-earning  assets to
   average interest-bearing liabilities       112.46%                              107.74%
                                              ======                               ======
</TABLE>

-------------------
(1)  Mortgage-backed   securities   available  for  sale  and  other  investment
     securities  available for sale are at amortized  cost prior to SFAS No. 115
     adjustments.

(2)  Total loans, less loans in process and deferred loan fees.
(3)  Interest rate spread is calculated by subtracting weighted average interest
     rate  cost  from  weighted  average  interest  rate  yield  for the  period
     indicated.
(4)  The net yield on weighted average  interest-earning assets is calculated by
     dividing net interest income by weighted  average  interest-earning  assets
     for the period indicated.
(5)  The balances include nonaccrual loans.


Interest Rate Spread

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

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

                                                          Year Ended June 30,
                                                        ------------------------
                                                         2002             2001
                                                        ------------------------
Weighted average interest rate earned on:
   Interest-earning deposits ......................      2.67%            6.27%
   Securities available for sale ..................      5.47             5.41
   Securities to be held to maturity ..............      6.04             6.12
   Loans receivable ...............................      7.43             8.10
   Federal Home Loan Bank stock ...................      6.57             8.19
      Total interest-earning assets ...............      7.04             7.89

Weighted average interest rate cost of:
   Savings deposits ...............................      2.47             3.45
   Interest-bearing demand deposits ...............      2.88             4.18
   Certificates of deposit ........................      4.81             5.97
   Federal Home Loan Bank advances ................      4.80             5.77
      Total interest-bearing liabilities ..........      4.00             5.21

Interest rate spread (1) ..........................      3.04             2.68
Net yield on weighted average interest-earning
   assets (2)                                            3.48             3.05
-------------------
(1)  Interest rate spread is calculated by subtracting combined weighted average
     interest rate cost from combined  weighted average interest rate earned for
     the period  indicated.  Interest rate spread  figures must be considered in
     light of the relationship  between the amounts of  interest-earning  assets
     and interest-bearing liabilities.
(2)  The net yield on weighted average  interest-earning assets is calculated by
     dividing net interest income by weighted  average  interest-earning  assets
     for the period indicated.


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


                                      Increase (Decrease) in Net Interest Income
                                      ------------------------------------------
                                           Due to       Due to      Total Net
                                            Rate        Volume        Change
                                      ------------------------------------------
                                                    (In thousands)
Year ended June 30, 2002, compared
to year ended June 30, 2001
  Interest-earning assets:
    Interest-earning deposits ...........  $ (69)       $  25        $ (44)
    Securities available for sale .......     --          330          330
    Securities held to maturity .........     (3)        (203)        (206)
    Loans receivable ....................   (361)         552          191
    Federal Home Loan Bank stock ........     (6)           3           (3)
                                           -----        -----        -----
      Total interest-earning assets .....   (439)         707          268
                                           -----        -----        -----

  Interest-bearing liabilities:
    Savings deposits ....................    (87)          24          (63)
    Interest-bearing demand deposits ....   (148)          97          (51)
    Certificates of deposit .............   (401)          54         (347)
    Federal Home Loan Bank advances .....    (14)          96           82
                                           -----        -----        -----
      Total interest-bearing liabilities    (650)         271         (379)
                                           -----        -----        -----

  Change in net interest income .........  $ 211        $ 436        $ 647
                                           =====        =====        =====


Financial Condition at June 30, 2002 Compared to Financial Condition at June 30,
2001

     Total assets  increased  approximately  $15.1 million,  or 22.8%,  to $81.4
million at June 30, 2002,  from $66.3 million at June 30, 2001.  The increase in
assets  was  primarily  due to  loan  growth,  an  increase  in  the  investment
securities  available  for  sale  portfolio  and an  increase  in cash  and cash
equivalents.  Net loans  increased by $11.1 million,  or 19.5%, to $68.1 million
due to an increase in customer demand.  Investment securities available for sale
increased $2.2 million or 47.1%,  and cash and cash  equivalents  increased $1.9
million or 143.2%.  The  increase  in  investment  securities  and cash and cash
equivalents  was due to the  investment of proceeds  received from the Company's
sale of 555,450  shares of common stock at $10.00 per share in  connection  with
the Association's mutual to stock conversion.

     Loans and  Allowance  for Loan Losses.  The  Company's  allowance  for loan
losses  increased  $156,000 or 36.9% to $579,000 at June 30, 2002, from $423,000
at June 30,  2001.  The  increase  in the  allowance  resulted  from  loan  loss
provisions  of  $258,000  during  the  year  ended  June  30,  2002,  less  loan
charge-offs  of $102,000.  The 2002  provision was  predicated on a year-to-year
increase in the level of  nonperforming  loans,  growth in the loans  receivable
portfolio as well as growth in the  commercial  loan  portfolios.  The Company's
level of nonperforming loans increased $659,000 or 78.5% to $1.5 million at June
30, 2002, from $840,000 at June 30, 2001. The increase in nonperforming loans is
primarily attributable to two commercial  nonresidential mortgage loans totaling
$425,000 where the borrowers are  experiencing  cash flow  difficulties  and the
loans  have  been  placed on  nonaccrual  status.  The  Company's  portfolio  of
commercial  loans,   including   nonresidential   mortgages,   multi-family  and
commercial nonmortgage loans increased by 83.6% or $6.4 million between June 30,
2002  and June  30,  2001  and  accounted  for 58% of the  total  growth  in the
Company's  loans  receivable  portfolio  for  the  fiscal  year  2002.  Although
management  believes  that its  allowance  for loan  losses at June 30, 2002 was
adequate  based  upon the  available  facts and  circumstances,  there can be no
assurance  that  additions  to such  allowance  will not be  necessary in future
periods, which could negatively affect the Company's results of operations.

     Deposits. Deposits increased $4.2 million or 7.1%, to $63.2 million at June
30, 2002 from $59.0 million at June 30, 2001.  Increased  deposits were utilized
to fund loan growth.  The growth in deposits was attributable to $1.2 million or
13.2%  increase in passbook  account  balances,  a $851,000 or 10.2% increase in
money  market  account  balances,  a $826,000  or 13.4%  increase in now account
balances and a $506,000 or 52.9% increase in demand deposit  balances  partially
offset  by a  $124,000  or 0.4%  decrease  in  certificate  of  deposit  account
balances.

     Federal Home Loan Bank  Advances.  Advances from the Federal Home Loan Bank
increased  $4.8  million to $6.5  million at June 30, 2002 from $1.7  million at
June 30, 2001. The Company utilized  advances to fund mortgage loan growth.  The
weighted cost of Federal Home Loan Bank advances at June 30, 2002 was 3.7%.

     Other Liabilities.  Other liabilities increased $983,000 to $1.5 million at
June 30, 2002 from $515,000 at June 30, 2001. The increase in other  liabilities
is primarily  attributable  to an $802,000  increase in the  Company's  internal
operating account. During the current fiscal year, the Company began writing all
cashier and  accounts  payable  checks on an internal  account  rather than on a
demand deposit account held with a correspondent bank.

     Shareholders'  Equity.  Shareholders'  equity totaled $10.2 million at June
30,  2002,  an increase of $5.1  million or 100.0% from $5.1 million at June 30,
2001. The increase  resulted from net proceeds from the common stock offering of
$4.6  million,  net income for the year ended June 30, 2002 of $470,000,  and by
the  after-tax  increase  in  the  unrealized  gain  on  the  available-for-sale
investment portfolio of $27,000.

     New Branch Office.  The Company has signed an agreement to purchase land in
Chesterton,  Indiana,  for the purpose of opening a full-service  branch office.
Pending local government approval, construction on the new office is anticipated
to begin in the Spring of 2003.


Comparison of Operating Results for Years Ended June 30, 2002 and 2001

     General. Net income for the twelve months ended June 30, 2002 was $470,000,
an increase of $306,000 or 186.6% from the $164,000  reported for the year ended
June 30,  2001.  The return on average  assets was 0.63% and 0.26% for the years
ended June 30, 2002 and 2001, respectively.

     Interest Income.  Interest income was $5.1 million for the fiscal year 2002
compared to $4.8  million for the prior  fiscal  year.  The increase in interest
income was  primarily  due to an  increase  in average  earning  assets of $11.0
million,  or 18.1%, from $60.7 million for fiscal year 2001 to $71.7 million for
fiscal  year  2002.  The growth in average  assets  was  attributable  to a $7.4
million or 13.7%  increase in average  loans  outstanding  and a $2.7 million or
60.0% increase in average  securities  outstanding over the same respective time
periods.  The average yield on interest- earning assets decreased from 7.89% for
the year ended June 30, 2001 to 7.04% for the year ended June 30, 2002.

     Interest Expense.  Interest expense decreased  $379,000,  or 12.9%, for the
year ended June 30, 2002 compared to the year ended June 30, 2001.  The decrease
in  interest   expense  was   primarily  due  to  a  decrease  in  the  cost  of
interest-bearing liabilities to 4.00% for the twelve months ended June 30, 2002,
from 5.21% for the same period last year. As a result of declining  market rates
of  interest  during the fiscal  year 2002,  the  Company  lowered  the rates of
interest  paid on now  accounts,  money market  accounts,  savings  accounts and
certificates of deposit.  Average  interest-bearing  liabilities  increased $7.5
million,  or 13.3%,  to $63.8 million for the twelve months ended June 30, 2002,
from $56.3  million for the same period last year.  Average  deposits  increased
$5.4 million or 9.8%,  to $60.3  million  during the fiscal year 2002 from $54.9
million  during the prior fiscal  year.  Average FHLB  Advances  increased  $2.0
million or 133.3%,  to $3.5 million for the fiscal year 2002,  from $1.5 million
for the prior year.  The increase in average  interest-bearing  liabilities  was
utilized to fund loan growth.

     Net Interest Income.  Net interest income  increased  $647,000 or 34.9%, to
$2.5 million for the twelve  months  ended June 30, 2002,  from $1.9 million for
the twelve months ended June 30, 2001.  The increase in net interest  income was
primarily due to an increase in the interest rate spread from 2.68% for the year
ended June 30, 2001 to 3.04% for the year ended June 30, 2002 and to an increase
in average interest earning assets.

     Provision for Loan Losses. A provision for loan losses is charged to income
to bring the total allowance for loan losses to a level  considered  appropriate
by management based upon historical  experience,  the volume and type of lending
conducted  by the  Company,  the  status  of past  due  principal  and  interest
payments, general economic conditions, particularly as such conditions relate to
the Company's  market area, and other factors related to the  collectibility  of
the Company's loan portfolio. As a result of such analysis,  management recorded
a $258,000  provision  for  losses on loans for the year  ended  June 30,  2002,
compared  to  $274,000  recorded  in the 2001  period.  The 2002  provision  was
predicated on the increase in the level of nonperforming loans year-to-year,  an
overall  increase in the loan  portfolio as well as increases in the  commercial
loan portfolios. While management believes that the allowance for loan losses is
adequate at June 30, 2002, based upon available facts and  circumstances,  there
can be no  assurance  that the loan loss  allowance  will be  adequate  to cover
losses on loans in the future.

     Noninterest Income. Noninterest income for the twelve months ended June 30,
2002 was  $490,000  compared to $312,000  for the twelve  months  ended June 30,
2001, an increase of $178,000,  or 57.1%. The increase in noninterest income was
primarily the result of a $75,000 increase in net gains on loan sales, a $43,000
increase in service charges on deposit accounts and a $49,000 gain on securities
available for sale. The increase in service charges on deposit  accounts was due
to an increase in nonsufficient fee income on transaction accounts.

     Noninterest  Expense.  Noninterest expense for twelve months ended June 30,
2002 was $2.0 million  compared to $1.7 million for the twelve months ended June
31, 2001, an increase of $258,000 or 15.2%.  Several factors contributing to the
increase were a $191,000 increase in compensation expense, a $62,000 increase in
professional  fees, a $49,000 increase in advertising and promotion  expense,  a
$38,000  increase  in other  expense and a $32,000  increase in data  processing
expense. The increase in compensation  expense was primarily  attributable to an
adjustment for the change in estimate for the estimated  expenses related to the
supplemental director retirement plan, an increase in staffing as well as normal
salary  increases.  The increase in professional fees is related to higher audit
and legal costs and the increase in data processing  expense was due to a higher
level of utilization of the Company's data  processing  system.  The increase in
advertising and promotion expense is related to an increase in marketing efforts
by management to increase loan and deposit relationships.

     Income  Taxes.  The  provision  for income taxes  totaled  $268,000 for the
twelve months ended June 30, 2002, an increase of $277,000  compared to the same
period in 2001 in which the  Company  recorded  an income tax benefit of $9,000.
The increase in the  provision  resulted from a $583,000 year over year increase
in income  before  taxes.  Additionally,  in the prior fiscal year,  the Company
adjusted  its deferred tax asset at July 1, 2001,  by  approximately  $59,000 to
record  additional  deferred tax benefits on the  allowance  for loan losses not
previously  recognized.  The effective tax rate for the twelve months ended June
30, 2002 was 36.3%.


Liquidity and Capital Resources

     The following is a summary of the Company's cash flows,  which are of three
major  types.  Cash flows from  operating  activities  consist  primarily of net
income generated by cash.  Investing  activities generate cash flows through the
origination and principal  collection on loans as well as purchases and sales of
securities.  Investing  activities will generally  result in negative cash flows
when the Company experiences loan growth.  Cash flows from financing  activities
include savings deposits,  withdrawals and maturities and changes in borrowings.
The following table  summarizes cash flows for the years ended June 30, 2002 and
2001.
<TABLE>
<CAPTION>

                                                                 Year Ended June 30,
                                                              -------------------------
                                                                2002             2001
                                                              -------------------------
                                                                    (In thousands)

<S>                                                          <C>                <C>
Operating activities ......................................  $  1,708           $  221
                                                             --------           ------
Investing activities:
  Net change in interest-bearing time deposits ............        (2)            (395)
  Purchase of securities available for sale ...............    (6,378)            (349)
  Proceeds from sales of securities available for sale ....     2,394               --
  Proceeds from maturities of securities available for sale     1,898              914
  Purchase of securities held to maturity .................      --             (1,655)
  Proceeds from maturities of securities held to maturity .        96               --
  Net change in loans .....................................   (11,346)
  Purchases of premises and equipment .....................       (99)            (213)
  Proceeds from sales of premises and equipment ...........        15               --
  Purchase of Federal Home Loan Bank stock ................       (53)             (38)
                                                             --------           ------
    Net cash used by investing activities .................   (13,475)          (7,771)
                                                             --------           ------
Financing activities:
  Net change in deposits ..................................     4,245            9,265
  Proceeds from Federal Home Loan Bank advances ...........    10,600            1,500
  Payments on Federal Home Loan Bank advances .............    (5,782)          (3,092)
  Proceeds from sale of common stock, net of costs ........     5,042               --
  Contribution of unearned ESOP shares ....................      (445)              --
                                                             --------           ------
    Net cash provided by financing activities .............    13,660            7,673
                                                             --------           ------
Net increase (decrease) in cash and cash equivalents ......  $  1,893           $  123
                                                             ========           ======
</TABLE>

     Pursuant  to Office  of Thrift  Supervision  ("OTS")  capital  regulations,
savings associations must currently meet a 1.5% tangible capital requirement,  a
leverage  ratio  (or  core  capital)  requirement  of 3% and a total  risk-based
capital to risk-weighted assets ratio of 8%. At June 30, 2002, the Association's
capital levels exceeded all applicable regulatory capital requirements currently
in  effect.   The  following  table  provides  the  minimum  regulatory  capital
requirements and the Association's capital ratios as of June 30, 2002:

                                            June 30, 2002
                          ------------------------------------------------------
                           OTS Requirement    The Association's Capital Level
                          ------------------------------------------------------
                            % of                % of                 Amount
Capital Standard           Assets   Amount    Assets(1)   Amount   of Excess
-----------------         ------------------------------------------------------
                                       (Dollars in thousands)

Tangible Capital ....      1.50%    $1,219     11.78%    $ 9,571    $8,352
Core Capital (2) ....      4.00%    $3,251     11.78%    $ 9,571    $6,320
Risk-based Capital..       8.00%    $4,317     18.70%    $10,092    $5,775
--------------
(1)  Tangible and core capital levels are shown as a percentage of total assets;
     risk-based  capital  levels  are  shown as a  percentage  of  risk-weighted
     assets.
(2)  The OTS core capital requirement for savings  associations is comparable to
     the Office of the  Comptroller  of the  Currency  requirement  for national
     banks. The OTS regulation requires at least 3% of total adjusted assets for
     savings associations that receive the highest supervisory rating for safety
     and  soundness,  and 4% to 5%  for  all  other  savings  associations.  The
     Association is in compliance with this regulation.


     As of June 30, 2002, management is not aware of any current recommendations
by regulatory authorities which, if they were to be implemented,  would have, or
are reasonably  likely to have, a material  adverse effect on the  Association's
liquidity, capital resources or results of operations.


Critical Accounting Policies

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

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

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

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

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

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


Current Accounting Issues

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business  Combinations  and No.  142,  Goodwill  and  Other  Intangible  Assets,
effective  for fiscal years  beginning  after  December 15, 2001.  Under the new
rules,  goodwill (and other intangible  assets deemed to have indefinite  lives)
will no longer be amortized  but will be subject to annual  impairment  tests in
accordance  with the  Statements.  Other  intangible  assets will continue to be
amortized over their useful lives.

     In August 2001,  the  Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial  Accounting  Standards (SFAS) No. 144, Accounting for the
Impairment  or  Disposal of  Long-Lived  Assets.  SFAS No. 144 carries  over the
recognition and measurement  provisions in SFAS No. 121. Accordingly,  an entity
should  recognize an impairment loss if the carrying value of a long-lived asset
or asset group (a) is not recoverable and (b) exceeds its fair value. Similar to
SFAS No.  121,  No. 144  requires  an entity to test an asset or asset group for
impairment  whenever  events  or  changes  in  circumstances  indicate  that its
carrying amount may not be  recoverable.  SFAS No. 144 differs from SFAS No. 121
in  that  it  provides   guidance  on  estimating  future  cash  flows  to  test
recoverability.  An entity may use  either a  probability-weighted  approach  or
best-estimate   approach  in   developing   estimates   of  cash  flow  to  test
recoverability.  SFAS No. 144 is effective for financial  statements  issued for
fiscal years  beginning after December 15, 2001 and interim periods within those
fiscal years.  Management  adopted SFAS No. 144 effective April 1, 2002, without
material effect on our financial condition or results of operations.

     In June  2002,  the FASB  issued  SFAS No.  146,  Accounting  with  Exit or
Disposal  activities.  SFAS No. 146 nullifies  Emerging Issues Task Force (EITF)
Issue No. 94-3 Liability  Recognition for Certain Employee  Termination Benefits
and Other to Exit an  Activity.  SFAS No. 146  improves  financial  reporting by
requiring  that a  liability  for a cost  associated  with an  exit or  disposal
activity  be  recognized  and  measured  initially  at fair  value only when the
liability is incurred.  The accounting for similar events and circumstances will
be  the  same,   thereby  improving  the   comparability  and   representational
faithfulness of reported  financial  information.  SFAS No. 146 specifies that a
liability for a cost  associated  with an exit or disposal  activity is incurred
when the definition of a liability in Concepts  Statement 6 is met. SFAS No. 146
differs from EITF Issue No. 94-3 in that a liability for an exit cost as defined
in Issue No. 94-3 was  recognized  at the date of an entity's  commitment  to an
exit plan.  SFAS No. 146 is effective for exit or disposal  activities  that are
initiated after December 31, 2002, with early application encouraged.

     The  Company  began  applying  the new rules on  accounting  for  goodwill,
long-lived  assets,  and  costs  associated  with exit or  disposal  activities.
Application of the Statements is not expected to have any significant  impact on
earnings or financial position of the Company.


Impact of Inflation

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

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

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

<PAGE>
                        Independent Accountants' Report


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

We have audited the  accompanying  consolidated  balance  sheets of City Savings
Financial Corporation as of June 30, 2002 and 2001, and the related consolidated
statements of income,  shareholders'  equity,  and cash flows for the years then
ended.  These  consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

In our opinion,  the consolidated  financial  statements described above present
fairly, in all material  respects,  the consolidated  financial position of City
Savings  Financial  Corporation  as of June 30, 2002 and 2001 and the results of
its  operations  and its cash flows for the years then ended in conformity  with
accounting principles generally accepted in the United States of America.

BKD, LLP

Indianapolis, Indiana
August 9, 2002
<PAGE>

<TABLE>
<CAPTION>
                            City Savings Financial Corporation
                               Consolidated Balance Sheets
                                  June 30, 2002 and 2001

                                                                         2002           2001
                                                                  --------------------------------
Assets
<S>                                                                  <C>           <C>
  Cash and due from banks ........................................   $ 1,327,315   $   788,513
  Interest-bearing deposits ......................................     1,888,148       533,777
                                                                     -------------------------
    Cash and cash equivalents ....................................     3,215,463     1,322,290
  Interest-bearing time deposits .................................       695,000       693,000
  Investment securities
    Available for sale ...........................................     6,847,072     4,655,034
    Held to maturity (fair value of $339,887 and $432,589) .......       334,409       431,861
                                                                     -------------------------
      Total investment securities ................................     7,181,481     5,086,895
  Loans, net of allowance for loan losses of $579,148 and $423,292    68,071,945    56,983,896
  Premises and equipment .........................................       815,567       846,265
  Federal Home Loan Bank stock ...................................       435,300       382,400
  Interest receivable ............................................       471,886       424,407
  Other assets ...................................................       507,377       514,194
                                                                     -------------------------
      Total assets ...............................................   $81,394,019   $66,253,347
                                                                     =========================

Liabilities
  Deposits
    Noninterest-bearing ..........................................   $ 1,491,233   $   953,665
    Interest-bearing .............................................    61,719,588    58,012,315
                                                                     -------------------------
      Total deposits .............................................    63,210,821    58,965,980
  Federal Home Loan Bank advances ................................     6,487,921     1,669,824
  Other liabilities ..............................................     1,498,442       514,967
                                                                     -------------------------
      Total liabilities ..........................................    71,197,184    61,150,771
                                                                     -------------------------

Commitments and Contingencies

Equity Received From Contributions to the ESOP ...................            --            --

Shareholders' Equity
  Common stock, no par value
    Authorized - 20,000,000 shares
    Issued and outstanding - 555,450 shares ......................     4,597,741            --
  Retained earnings ..............................................     5,523,364     5,053,556
  Accumulated other comprehensive income .........................        75,730        49,020
                                                                     -------------------------
      Total equity capital .......................................    10,196,835     5,102,576
                                                                     -------------------------
      Total liabilities and equity capital .......................   $81,394,019   $66,253,347
                                                                     =========================


See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            City Savings Financial Corporation
                            Consolidated Statements of Income
                            Years Ended June 30, 2002 and 2001

                                                                      2002           2001
                                                               --------------------------------
Interest Income
<S>                                                                      <C>           <C>
  Loans receivable ...........................................    $4,555,793    $4,364,881
  Investment securities ......................................       394,708       269,575
  Federal Home Loan Bank stock ...............................        25,925        28,908
  Interest-bearing deposits ..................................        75,776       120,651
                                                                  ------------------------
      Total interest income ..................................     5,052,202     4,784,015
                                                                  ------------------------

Interest Expense
  Deposits ...................................................     2,387,282     2,847,670
  Federal Home Loan Bank advances ............................       165,832        83,843
                                                                  ------------------------
      Total interest expense .................................     2,553,114     2,931,513
                                                                  ------------------------

Net Interest Income ..........................................     2,499,088     1,852,502
  Provision for loan losses ..................................       257,881       274,172
                                                                  ------------------------
Net Interest Income After Provision for Loan Losses ..........     2,241,207     1,578,330
                                                                  ------------------------

Other Income
  Service charges on deposit accounts ........................        92,346        49,827
  Net realized gains on sales of available-for-sale securities        49,499            --
  Net gains on loan sales ....................................       104,090        29,044
  Commission income ..........................................        97,076       100,658
  Other income ...............................................       147,429       132,798
                                                                  ------------------------
      Total other income .....................................       490,440       312,327
                                                                  ------------------------

Other Expenses
  Compensation and benefits ..................................     1,024,018       833,262
  Net occupancy expenses .....................................       112,638       130,024
  Equipment expense ..........................................       155,490       154,378
  Professional fees ..........................................       110,016        47,828
  Advertising ................................................       122,183        72,823
  Data processing ............................................       163,120       131,155
  Goodwill impairment ........................................            --        98,333
  Other expenses .............................................       306,183       267,815
                                                                  ------------------------
      Total other expenses ...................................     1,993,648     1,735,618
                                                                  ------------------------
Income Before Income Tax .....................................       737,999       155,039
  Income tax expense (benefit) ...............................       268,191        (9,115)
                                                                  ------------------------
Net Income ...................................................    $  469,808    $  164,154
                                                                  ========================

See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                 City Savings Financial Corporation
                          Consolidated Statements of Shareholders' Equity
                                 Years Ended June 30, 2002 and 2001


                                                                             Accumulated
                                                                                 Other
                                   Common      Retained     Comprehensive   Comprehensive
                                    Stock      Earnings        Income           Income         Total
                              --------------------------------------------------------------------------
<S>            <C>                            <C>                              <C>         <C>
Balances, July 1, 2000.......                 $4,889,402                       $    --     $ 4,889,402
  Comprehensive income
    Net income...............                    164,154       $164,154                        164,154
    Other comprehensive
      income, unrealized
      gains on securities,
      net of tax of $32,139..                                    49,020         49,020          49,020
                                                               --------
  Comprehensive income.......                                  $213,174
                                                               ========
                                              ----------                       -----------------------
Balances, June 30, 2001......                  5,053,556                        49,020       5,102,576
  Comprehensive income
    Net income...............                    469,808       $469,808                        469,808
    Other comprehensive
      income, unrealized
      gains on securities,
      net of tax of $17,519..                                    26,710         26,710          26,710
                                                               --------
  Comprehensive income.......                                  $496,518
                                                               ========
  Stock issued in conversion
    at $0 par value, net of
    costs....................    $5,042,101                                                  5,042,101
  Contribution of unearned
    ESOP shares..............      (444,360)                                                  (444,360)
                                 -----------------------                       -----------------------
Balances, June 30, 2002......    $4,597,741   $5,523,364                       $75,730     $10,196,835
                                 =======================                       =======================


See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                          City Savings Financial Corporation
                                         Consolidated Statements of Cash Flows
                                           Years Ended June 30, 2002 and 2001


                                                                             2002                      2001
------------------------------------------------------------------------------------------------------------------------------------
Operating Activities
<S>                                                                      <C>                       <C>
  Net income .........................................................   $    469,808              $   164,154
  Items not requiring (providing) cash
    Provision for loan losses ........................................        257,881                  274,172
    Depreciation .....................................................        114,725                  130,714
    Deferred income tax ..............................................        (86,792)
    Proceeds from sale of mortgage loans .............................      5,583,265                       --
    Mortgage loans originated for sale ...............................     (5,479,175)                      --
    Investment securities accretion, net .............................        (10,319)
    Investment securities gains ......................................        (49,499)                      --
    Gains on sale of loans ...........................................       (104,090)                      --
  Net change in
    Interest receivable ..............................................        (47,479)
    Other assets .....................................................         76,098                  (28,988)
    Other liabilities ................................................        983,475                   53,024
                                                                         -------------------------------------
      Net cash provided by operating activities ......................      1,707,898                  221,214
                                                                         -------------------------------------
Investing Activities
  Net change in interest-bearing time deposits .......................         (2,000)                (395,000)
  Purchases of securities available for sale .........................     (6,378,209)                (348,990)
  Proceeds from sales of securities available for sale ...............      2,394,124                       --
  Proceeds from maturities and calls of securities available for sale       1,898,000                  914,018
  Purchases of securities held to maturity ...........................             --               (1,655,521)
  Proceeds from maturities and paydowns of securities held to maturity         95,538                       --
  Net change in loans ................................................    (11,345,930)              (6,034,734)
  Purchases of premises and equipment ................................        (98,851)
  Proceeds from sales of premises and equipment ......................         14,824                       --
  Purchase of FHLB stock .............................................        (52,900)                 (37,600)
                                                                         -------------------------------------
      Net cash used in investing activities ..........................    (13,475,404)              (7,771,091)
                                                                         -------------------------------------

Financing Activities
  Net change in
    Demand and savings deposits ......................................      4,368,800                3,524,204
    Certificate of deposits ..........................................       (123,959)               5,741,263
  Proceeds from FHLB advances ........................................     10,600,000                1,500,000
  Payments on FHLB advances ..........................................     (5,781,903)              (3,092,263)
  Proceeds from sale of common stock, net of costs ...................      5,042,101                       --
  Contribution of unearned ESOP shares ...............................       (444,360)                      --
                                                                         -------------------------------------
    Net cash provided by financing activities ........................     13,660,679                7,673,204
                                                                         -------------------------------------
Net Change in Cash and Cash Equivalents ..............................      1,893,173                  123,327

Cash and Cash Equivalents, Beginning of Year .........................      1,322,290                1,198,963
                                                                         -------------------------------------
Cash and Cash Equivalents, End of Year ...............................   $  3,215,463              $ 1,322,290
                                                                         =====================================
Additional Cash Flows Information
  Interest paid ......................................................   $  2,566,010              $ 2,903,033
  Income tax paid ....................................................        339,661                  265,238


See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>

                       City Savings Financial Corporation
                   Notes to Consolidated Financial Statements
                             June 30, 2002 and 2001
                      (Table Dollar Amounts in Thousands)

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

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

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

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

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

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

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

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

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

Loans held for sale are carried at the lower of  aggregate  cost or market.  Net
unrealized  losses are  recognized  through a valuation  allowance by charges to
income. There were no loans held for sale at June 30, 2002. The balance of loans
held for sale at June 30, 2001 was immaterial to the financial statements.

Loans are carried at the principal amount outstanding.  A loan is impaired when,
based on current  information or events, it is probable that the Company will be
unable to collect all amounts due  (principal  and  interest)  according  to the
contractual terms of the loan agreement. Loans with payment delays not exceeding
90 days outstanding are not considered  impaired.  Delinquent  loans,  including
loans delinquent  greater than 90 days, are reviewed on a loan-by-loan  basis to
determine which loans are placed on non-accrual  status.  Certain nonaccrual and
substantially  delinquent  loans may be considered  to be impaired.  The Company
considers its investment in one-to-four  family  residential  loans and consumer
loans to be homogeneous and therefore excluded from separate  identification for
evaluation of impairment.  Interest income is accrued on the principal  balances
of  loans.  The  accrual  of  interest  on  impaired  and  nonaccrual  loans  is
discontinued when, in management's  opinion,  the borrower may be unable to meet
payments as they become due. When interest accrual is  discontinued,  all unpaid
accrued interest is reversed when considered  uncollectible.  Interest income is
subsequently  recognized only to the extent cash payments are received.  Certain
loan fees and direct costs are being  deferred and amortized as an adjustment of
yield on the loans.  When a loan is paid off, any unamortized  loan  origination
fee balance is credited to income.

Real estate  owned is carried at the lower of cost or fair value less  estimated
selling costs. When foreclosed real estate is acquired,  any required adjustment
is charged to the allowance for loan losses. All subsequent activity is included
in current operations. The balance of real estate owned included in other assets
at June 30, 2002 and 2001 is $55,122 and $204,669 with a corresponding valuation
allowance of $14,236 and $33,390.

Allowance for loan losses is  maintained  to absorb losses  inherent in the loan
portfolio.  The  allowance  is based on ongoing,  quarterly  assessments  of the
probable  estimated  losses  inherent in the loan  portfolio.  The  allowance is
increased by the provision for credit losses,  which is charged  against current
period  operating  results and  decreased  by the amount of  chargeoffs,  net of
recoveries.  The Company's  methodology for assessing the appropriateness of the
allowance consists of several key elements, which include the formula or general
allowance and specific allowances for identified problem loans.

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

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

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

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

The  determination  of the adequacy of the allowance for loan losses is based on
estimates  that are  particularly  susceptible  to  significant  changes  in the
economic environment and market conditions.  Management believes that as of June
30,  2002,  the  allowance  for loan  losses is  adequate  based on  information
currently  available  and includes  all known and inherent  losses that are both
probable and reasonable to estimate.  A worsening or protracted economic decline
in the areas within which the Association operates would increase the likelihood
of  additional  losses due to credit and market  risks and could create the need
for additional loss provisions.

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

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

Intangible  assets  consisted of goodwill in connection  with the acquisition of
CSFS. The goodwill was being amortized on a  straight-line  basis over 40 years.
During 2001, CSFS experienced  significant  turnover of key management and other
personnel  along  with the  termination  of the agency  relationship  with CSFS'
primary insurance company.  The Association  determined,  based on this turnover
and other  factors,  that goodwill  recorded had been  impaired and  accordingly
wrote off the remaining balance of $98,333 during 2001.

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

Earnings  per share will be computed  based on the weighted  average  common and
common  equivalent  shares  outstanding  during the  periods  subsequent  to the
Association's  conversion to a stock savings  association.  Net income per share
prior to the  conversion and during the period that contained the conversion are
not  meaningful.  Unearned  ESOP shares will be excluded  from  weighted-average
shares outstanding.

Reclassifications  of  certain  amounts  in  the  2001  consolidated   financial
statements have been made to conform to the 2002 presentation.


Note 2: Conversion

On  December  27,  2001,  the  Association   completed  the  conversion  from  a
state-chartered  mutual savings  association to a state-chartered  stock savings
association.  The  Company was formed on  September  20, 2001 for the purpose of
owning all of the capital stock of the Association following the conversion.  As
part of the conversion, the Company issued 555,450 shares of common stock at $10
per share. Net proceeds of the Company's stock issuance, after costs of $512,000
and  excluding  the  shares  issued  for the  ESOP,  were  $4,598,000,  of which
$4,042,000 was used to purchase 100 percent of the Association.  The transaction
was accounted for at historical  cost in a manner  similar to that utilized in a
pooling of interests.


Note 3: Investment Securities

<TABLE>
<CAPTION>
                                                            2002
                                  ------------------------------------------------------
                                                     Gross        Gross
                                     Amortized    Unrealized    Unrealized      Fair
                                        Cost         Gains        Losses        Value
                                  ------------------------------------------------------
Available for sale
<S>                                    <C>          <C>           <C>          <C>
  Federal agencies .............       $2,250       $   30        $   (6)      $2,274
  State and municipal ..........        2,368           55            (5)       2,418
  Corporate obligations ........        2,103           53            (1)       2,155
                                       ----------------------------------------------
    Total available for sale ...        6,721          138           (12)       6,847

Held to maturity-mortgage-backed
  securities ...................          334            6            --          340
                                       ----------------------------------------------
    Total investment securities        $7,055       $  144        $  (12)      $7,187
                                       ==============================================
</TABLE>
<TABLE>
<CAPTION>
                                                            2001
                                  ------------------------------------------------------
                                                     Gross        Gross
                                     Amortized    Unrealized    Unrealized      Fair
                                        Cost         Gains        Losses        Value
                                  ------------------------------------------------------
Available for sale
<S>                                    <C>      <C>      <C>       <C>         <C>
  Federal agencies .............       $1,000       $   17          $ --       $1,017
  State and municipal ..........        1,918           31            --        1,949
  Corporate obligations ........        1,656           37            (4)       1,689
                                       ----------------------------------------------
    Total available for sale ...        4,574           85            (4)       4,655

Held to maturity-mortgage-backed
  securities ...................          432            1            --          433
                                       ----------------------------------------------
Total investment securities ....       $5,006       $   86           $(4)      $5,088
                                       ==============================================
</TABLE>

At June 30,  2002 and  2001,  mortgage-backed  securities  consisted  solely  of
Federal Home Loan Mortgage  Corporation,  Federal National Mortgage  Corporation
and Government National Mortgage Association issues.

The amortized  cost and fair value of securities  available for sale and held to
maturity at June 30, 2002, by contractual  maturity,  are shown below.  Expected
maturities will differ from contractual  maturities because issuers may have the
right  to  call  or  prepay  obligations  with or  without  call  or  prepayment
penalties.

                              Available for Sale       Held to Maturity
                            ------------------------------------------------
                              Amortized     Fair     Amortized       Fair
                                Cost        Value       Cost        Value
----------------------------------------------------------------------------
Within one year ............   $  675       $  698     $ --          $ --
One to five years ..........    3,486        3,564       --            --
Five to ten years ..........    1,415        1,442       --            --
Thereafter .................    1,145        1,143       --            --
Mortgage-backed securities..       --           --      334           340
                               ------------------------------------------
  Totals ...................   $6,721       $6,847     $334          $340
                               ==========================================

Securities  with a carrying  value of $213,000 and $275,000 were pledged at June
30, 2002 and 2001 to secure certain deposits and for other purposes as permitted
or required by law.

Proceeds  from  sales of  securities  available  for sale  during  2002  totaled
$2,394,000 with gross gains of $49,500  recognized on those sales. There were no
sales of securities during 2001.

With the adoption of Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting  for  Derivative  Instruments  and Hedging  Activities,  in 2001, all
securities,  except for  mortgage-backed  securities,  with an amortized cost of
$4,221,000  were  transferred  from held to maturity to available for sale.  The
securities had an unrealized gain of approximately $85,000.

Note 4: Loans and Allowance
<TABLE>
<CAPTION>

                                                                     2002          2001
--------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>
Commercial and industrial loans not secured by real property ...   $ 4,202       $ 2,017
Real estate loans
  One-to-four family............................................    42,478        40,683
  Commercial ...................................................     8,951         5,394
  Land .........................................................     1,145           846
  Multi-family .................................................       978           285
Construction loans .............................................     4,751         3,126
Individuals' loans for household and other personal expenditures     7,663         6,221
                                                                   ---------------------
                                                                    70,168        58,572

Unamortized deferred loan fees, net ............................       (97)         (141)
Undisbursed portion of loans ...................................    (1,420)       (1,024)
Allowance for loan losses ......................................      (579)         (423)
                                                                   ---------------------
    Total loans.................................................   $68,072       $56,984
                                                                   =====================


                                                                     2002          2001
--------------------------------------------------------------------------------------------
Allowance for loan losses
  Balances, beginning of year...................................      $423          $181
  Provision for losses..........................................       258           274
  Recoveries on loans...........................................        --             3
  Loans charged off.............................................      (102)          (35)
                                                                      ------------------
  Balances, end of year.........................................      $579          $423
                                                                      ==================


Information on impaired loans is summarized below.

                                                                     2002          2001
--------------------------------------------------------------------------------------------
Impaired loans with an allowance................................    $  588          $540
Impaired loans for which the discounted cash flows or
  collateral value exceeds the carrying value of the loan.......       978           182
                                                                    --------------------
    Total impaired loans........................................    $1,566          $722
                                                                    ====================
Allowance for impaired loans (included in the Company's
  allowance for loan losses)....................................    $  124          $ 81
                                                                    ====================

                                                                    2002          2001
--------------------------------------------------------------------------------------------
Average balance of impaired loans...............................    $1,496          $734
Interest income recognized on impaired loans....................        73            67
Cash-basis interest included above..............................        68            16


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

                                                                    2002          2001
--------------------------------------------------------------------------------------------
Non-accrual.....................................................    $1,499          $153
Loans more than 90 days past due and still accruing.............        --           687
                                                                    --------------------
    Total non-performing loans..................................    $1,499          $840
                                                                    ====================
</TABLE>


Note 5: Premises and Equipment

<TABLE>
<CAPTION>
                                                                    2002          2001
--------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>
Land............................................................   $  149        $  149
Buildings.......................................................      846           834
Equipment.......................................................      578           542
Construction in process.........................................        4            --
                                                                   --------------------
    Total cost..................................................    1,577         1,525

Accumulated depreciation........................................     (761)         (679)
                                                                   --------------------
    Net.........................................................   $  816        $  846
                                                                   ====================
</TABLE>


Note 6:   Deposits
<TABLE>
<CAPTION>
                                                                    2002          2001
--------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>
Demand and money-market deposits................................   $17,650       $14,464
Savings deposits................................................    10,328         9,145
Certificates and other time deposits of $100,000 or more........     9,981        12,092
Other certificates and time deposits............................    25,252        23,265
                                                                   ---------------------
  Total deposits................................................   $63,211       $58,966
                                                                   =====================
</TABLE>


Certificates and other time deposits maturing in years ending June 30:
  2003.............................................................      $21,713
  2004.............................................................        5,577
  2005.............................................................        3,115
  2006.............................................................          924
  2007.............................................................        3,337
  Thereafter.......................................................          567
                                                                         -------
                                                                         $35,233
                                                                         =======

Deposits in excess of $100,000 are not federally insured.


Note 7: Federal Home Loan Bank Advances

Federal Home Loan Bank advances  totaled  $6,488,000  and $1,670,000 at June 30,
2002 and 2001.  At June 30, 2002,  the advances  were at interest  rates ranging
from 2.22 to 5.71 percent.

The  Federal  Home Loan Bank  advances  are  secured  by  first-mortgage  loans,
investment securities and FHLB stock totaling $39,341,000.  Advances are subject
to restrictions or penalties in the event of prepayment.

Maturities in years ending June 30:
  2003.............................................................       $3,328
  2004.............................................................          332
  2005.............................................................          351
  2006.............................................................          301
  2007.............................................................        1,258
  Thereafter.......................................................          918
                                                                          ------
                                                                          $6,488
                                                                          ======


Note 8: Income Tax
<TABLE>
<CAPTION>

                                                                      2002          2001
-------------------------------------------------------------------------------------------
Income tax expense (benefit)
  Currently payable
<S>                                                                   <C>           <C>
    Federal .......................................................   $285          $161
    State .........................................................     70            37
  Deferred
    Federal .......................................................    (74)         (169)
    State .........................................................    (13)          (38)
                                                                      ------------------
      Total income tax expense (benefit) ..........................   $268         $  (9)
                                                                      ==================

Reconciliation of federal statutory to actual tax expense (benefit)
  Federal statutory income tax at 34% .............................   $251         $  53
  Tax-exempt interest .............................................    (25)          (22)
  Effect of state income taxes ....................................     38            (1)
  Other ...........................................................      4           (39)
                                                                      ------------------
    Actual tax expense (benefit) ..................................   $268         $  (9)
                                                                      ==================
Effective tax rate ................................................   36.3%         (5.9)%
</TABLE>


A cumulative  net deferred tax asset of $240,000 at June 30, 2002 is included in
other assets. The components of the net asset are as follows:
<TABLE>
<CAPTION>

                                                                      2002          2001
-------------------------------------------------------------------------------------------
Assets
<S>                                                                   <C>           <C>
  Amortization ....................................................   $ 32          $ 31
  Allowance for loan losses .......................................    190           135
  State income tax ................................................     35            31
  Deferred compensation ...........................................     32             3
  Pensions and employee benefits ..................................      8             6
                                                                      ------------------
    Total assets ..................................................    297           206
                                                                      ------------------
Liabilities
  Other ...........................................................     (7)           (3)
  Securities available for sale ...................................    (50)          (32)
                                                                      ------------------
    Total liabilities .............................................    (57)          (35)
                                                                      ------------------
                                                                      $240          $171
                                                                      ==================
</TABLE>


No valuation allowance was necessary for 2002 and 2001.

Retained  earnings include  approximately  $543,000 for which no deferred income
tax  liability  has been  recognized.  This amount  represents  an allocation of
income  to bad debt  deductions  as of June  30,  1987  for tax  purposes  only.
Reduction of amounts so allocated for purposes other than tax bad debt losses or
adjustments  arising from carryback of net operating  losses would create income
for tax  purposes  only,  which  income  would be  subject  to the  then-current
corporate income tax rate. At June 30, 2002, the unrecorded  deferred income tax
liability on the above amount was approximately $209,000.


Note 9: Commitments and Contingent Liabilities

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

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

                                                             2002      2001
-----------------------------------------------------------------------------
Loan commitments
  At variable rates .....................................   $2,907    $2,267
  At fixed rates ranging from 6.0% to 8.5% at
    June 30, 2002 and 6.5% to 11.25% at June 30, 2001 ...   1,953      1,255
Letters of credit .......................................      39         39
Unused lines of credit ..................................   3,795      1,188


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

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

The 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.


Note 10: Dividend and Capital Restrictions

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

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

At June 30, 2002, the  shareholder's  equity of the  Association was $9,647,000.
Although well capitalized,  under current regulations in effect, the Association
is required to provide notice to the Office of Thrift  Supervision before making
any capital distributions to the Company.


Note 11: Regulatory Capital

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

There are five capital categories defined in the regulations,  ranging from well
capitalized to critically undercapitalized.  Classification of an association in
any of the undercapitalized  categories can result in actions by regulators that
could have a material effect on an  association's  operations.  At June 30, 2002
and 2001,  the  Association  was  categorized  as well  capitalized  and met all
subject capital adequacy  requirements.  There are no conditions or events since
June  30,  2002  that  management   believes  have  changed  the   Association's
classification.

The Association's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>

                                                                        Required for         To Be Well
                                                       Actual        Adequate Capital(1)   Capitalized(1)
                                                -------------------------------------------------------------
                                                   Amount    Ratio     Amount    Ratio    Amount    Ratio
-------------------------------------------------------------------------------------------------------------
As of June 30, 2002
Total risk-based capital(1) (to
<S>                                               <C>        <C>       <C>        <C>     <C>       <C>
  risk-weighted assets) ........................  $10,092    18.7%     $4,317     8.0%    $5,396    10.0%
Tier 1 capital(1) (to risk-weighted assets) ....    9,571    17.7       2,158     4.0      3,238     6.0
Core capital(1) (to adjusted total assets) .....    9,571    11.8       3,251     4.0      4,064     5.0
Core capital(1) (to adjusted tangible assets)..     9,571    11.8       1,625     2.0         --     N/A
Tangible capital(1) (to adjusted total assets)..    9,571    11.8       1,219     1.5         --     N/A

As of June 30, 2001
Total risk-based capital(1) (to
  risk-weighted assets) ........................   $5,477    12.5%     $3,492     8.0%    $4,366    10.0%
Tier 1 capital(1) (to risk-weighted assets) ....    5,054    11.6       1,746     4.0      2,619     6.0
Core capital(1) (to adjusted total assets) .....    5,054     7.6       2,648     4.0      3,310     5.0
Core capital(1) (to adjusted tangible assets)...    5,054     7.6       1,324     2.0         --     N/A
Tangible capital(1) (to adjusted total assets)..    5,054     7.6         993     1.5         --     N/A
----------------
(1)  As defined by regulatory agencies
</TABLE>


Note 12: Employee Benefits

The Company has a  retirement  savings  401(k) plan in which  substantially  all
employees may participate.  The Association matches employees'  contributions at
the rate of fifty percent for the first three percent of base salary contributed
by participants.  The Company's expense for the plan was $18,900 and $12,400 for
2002 and 2001.

In 2001, the Company established a supplemental  retirement plan for the benefit
of all directors.  The plan provides for the  continuation of directors fees for
120 months after a director's status is terminated,  subject to a pre-determined
vesting  schedule.  In the event of a director's  death, no further payments are
required.  This  defined-benefit  plan is unfunded and the expense recognized by
the Company was $84,500 and $10,300 during 2002 and 2001.

As part of the  conversion in December  2001,  the Company  established  an ESOP
covering  substantially  all employees of the Company and Association.  The ESOP
provides for the Company to issue a put option  (option) to any  participant who
receives a distribution of Company stock.  The option permits the participant to
sell the stock to the Company at any time during two option periods,  as defined
in the plan,  at the fair market value of the stock.  The ESOP  acquired  44,436
shares of the Company common stock at $10 per share in the conversion with funds
provided by a loan from the Company.  Accordingly,  the $444,360 of common stock
acquired by the ESOP is shown as a reduction of shareholders'  equity.  Unearned
and suspense ESOP shares totaled 44,436 at June 30, 2002 and had a fair value of
$611,000 at that date.  Shares are released to participants  proportionately  as
the loan is repaid.  Dividends on allocated shares are recorded as dividends and
charged to retained earnings.  Dividends on unallocated shares are used to repay
the loan and are treated as compensation  expense.  Expense is recorded equal to
the fair market value of the stock when shares are committed to be released.  At
June 30, 2002, there were 2,222 committed to be released shares and ESOP expense
for 2002 totaled $22,000.

The  Company  intends to adopt a stock  option plan and  recognition  and reward
plan,  pursuant  to which the  Company  intends to reserve a number of shares of
common stock equal to an aggregate of ten and four percent, respectively, of the
common stock issued in the conversion for issuance pursuant to stock options and
stock grants.


Note 13: Other Comprehensive Income
<TABLE>
<CAPTION>

                                                                      2002
                                                                       Tax
                                                       Before-Tax   (Expense)    Net-of-Tax
                                                         Amount      Benefit       Amount
---------------------------------------------------------------------------------------------
Unrealized gains on securities
<S>                                                        <C>        <C>           <C>
  Unrealized holding gains arising during the year .....   $94        $(36)         $58
  Less: reclassification adjustment for gains realized
    in net income ......................................    49         (18)          31
                                                           ----------------------------
                                                           $45        $(18)         $27
                                                           ============================
</TABLE>

At June 30,  2002 and  2001,  other  comprehensive  income  consisted  solely of
unrealized gains on securities.


Note 14: Related Party Transactions

The Company has entered  into  transactions  with certain  directors,  executive
officers,   and  their  affiliates  or  associates   (related   parties).   Such
transactions  were made in the ordinary course of business on substantially  the
same terms and conditions,  including  interest rates and  collateral,  as those
prevailing at the same time for comparable  transactions  with other  customers,
and did not, in the opinion of management,  involve more than normal credit risk
or present other unfavorable features.

Balances, July 1, 2001 ......................   $ 514
New loans, including renewals ...............      85
Payments, including renewals ................    (166)
Change in composition of related parties.....    (236)
                                                -----
Balances, June 30, 2002 .....................   $ 197
                                                =====

Deposits from related  parties held by the Association at June 30, 2002 and 2001
totaled $665,000 and $854,000.


Note 15: Fair Values of Financial Instruments

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

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

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

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

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

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

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

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

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

Off-Balance Sheet Commitments - The fair value of these commitments are based on
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties'  credit standing.  The
difference  between the fair value and  notional  amounts of  off-balance  sheet
commitments at June 30, 2002 and 2001 was not material.

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

                                                     2002                 2001
                                            -------------------------------------------
                                               Carrying   Fair     Carrying    Fair
                                                Amount    Value     Amount     Value
---------------------------------------------------------------------------------------
Assets
<S>                                            <C>       <C>       <C>       <C>
  Cash and cash equivalents .................. $ 3,215   $ 3,215   $ 2,015   $ 2,015
  Interest-bearing time deposits .............     695       695       693       693
  Investment securities available for sale....   6,847     6,847     4,655     4,655
  Investment securities held to maturity .....     334       340       432       433
  Loans, net .................................  68,072    68,619    56,984    57,739
  Interest receivable ........................     472       472       424       424
  Stock in FHLB ..............................     435       435       382       382

Liabilities
  Deposits ...................................  63,211    63,879    58,966    59,424
  FHLB advances ..............................   6,488     6,546     1,670     1,662
  Interest payable ...........................     103       103       116       116
</TABLE>


Note 16: Condensed Financial Information (Parent Company Only)

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

                            Condensed Balance Sheets

                                                            2002       2001
-----------------------------------------------------------------------------
Assets
  Cash .................................................. $   558    $    --
  Investment in subsidiaries ............................   9,647      5,103
  Other assets ..........................................      11         --
                                                          ------------------
    Total assets ........................................ $10,216    $ 5,103
                                                          ==================

Liabilities - other ..................................... $    19    $    --
                                                          ------------------
Shareholders' equity
  Common stock ..........................................   5,042         --
  Retained earnings .....................................   5,523      5,054
  Unearned ESOP .........................................    (444)        --
  Accumulated other comprehensive income ................      76         49
                                                          ------------------
                                                           10,197      5,103
                                                          ------------------
    Total liabilities and shareholders' equity .......... $10,216    $ 5,103
                                                          ==================

                         Condensed Statements of Income

                                                            2002       2001
-----------------------------------------------------------------------------
Income - interest ....................................... $    15    $    --

Expenses ................................................      24         --
                                                          ------------------

Income (loss) before equity in undistributed income of
  subsidiaries and income tax expense ...................      (9)        --
Equity in undistributed income of subsidiaries ..........     475        164
                                                          ------------------
Income before income tax ................................     466        164
Income tax benefit ......................................      (4)        --
                                                          ------------------
Net income .............................................. $   470     $  164
                                                          ==================

                       Condensed Statements of Cash Flows

                                                            2002      2001
-----------------------------------------------------------------------------
Cash flows from operating activities
  Net income ............................................ $   470    $   164
  Other .................................................    (949)      (164)
                                                          ------------------
    Net cash provided by (used in) operating activities..    (479)        --

Cash flows from investing activity - purchase of stock
  of subsidiary .........................................  (4,042)        --

Cash flows from financing activity - proceeds from
  issuance of stock .....................................   5,079         --
                                                          ------------------
Net change in cash ......................................     558         --

Cash at beginning of year ...............................      --         --
                                                          ------------------
Cash at end of year ..................................... $   558    $     0
                                                          ==================
<PAGE>
                             DIRECTORS AND OFFICERS

                               BOARD OF DIRECTORS


        Bruce W. Steinke                                Thomas F. Swirski
      Chairman of the Board                            President and Chief
    Retired President and Chief                    Executive Officer of Holding
Executive Officer of the Association               Company and the Association
   and Chairman of the Board of
        Holding Company


        Richard G. Cook                                 George L. Koehm
   Secretary of Holding Company                   Treasurer of Holding Company
   and the Association, Retired                   and Treasurer and Controller
        Business Manager,                             of the Association
    Michigan City Area Schools


                                Mark T. Savinski
                               District Director,
                                U.S. Congressman,
                               Peter J. Visclosky

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

            EXECUTIVE OFFICERS OF CITY SAVINGS FINANCIAL CORPORATION

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

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

        EXECUTIVE OFFICERS OF MICHIGAN CITY SAVINGS AND LOAN ASSOCIATION

        Thomas F. Swirski                               George L. Koehm
          President and                                  Treasurer and
     Chief Executive Officer                               Controller
<PAGE>
                             DIRECTORS AND OFFICERS

     Richard G. Cook (age 65) has served as Secretary  of Michigan  City Savings
Association  since  2000 and of the  Holding  Company  since its  inception.  He
retired  in 1999 as  Business  Manager  of the  Michigan  City Area  Schools,  a
position that he held for 25 years. He currently serves as an outside consultant
for Educational Services based in Indianapolis.

     George L. Koehm (age 40) has served as Treasurer and Controller of Michigan
City Savings and Loan  Association  since April 1999,  Treasurer of City Savings
Financial Services,  Inc. since April 2000, and Treasurer of the Holding Company
since its inception. From 1997 until 1999, he served as Executive Vice President
and Chief Operating  Officer of Argo Federal Savings Bank. From 1989 until 1997,
Mr. Koehm served as Vice President and Treasurer of Community Bank,  F.S.B., and
as Chief Financial Officer of Community Bank's holding company, CB Bancorp, Inc.

     Mark T.  Savinski  (age 48) has served since 1998 as District  Director for
U.S. Congressman, Peter J. Visclosky, First District of Indiana. From 1989 until
1998, Mr.  Savinski  served as Human Resource  Manager for Modine  Manufacturing
Company in LaPorte, Indiana.

     Bruce W. Steinke (age 70) retired as President and Chief Executive  Officer
of the  Michigan  City Savings and Loan  Association  in 2000.  Mr.  Steinke was
employed  by the  Association  for over 30 years and has  served on the board of
directors since 1969.

     Thomas F. Swirski (age 47) has been President,  Chief Executive Officer and
Compliance  Officer of Michigan City Savings and Loan Association since February
2000 and City Savings Financial Services,  Inc. since November 1999 and has been
President  and  Chief  Executive  Officer  of  the  Holding  Company  since  its
inception.  From 1981 until his appointment as President,  Mr. Swirski served as
Secretary,  Mortgage Loan Manager and Compliance Officer of the Association. Mr.
Swirski  has a Masters  degree  in  Finance  from  Indiana  University  and is a
graduate of the University of Wisconsin Graduate School of Banking.

<PAGE>
Market Information

     The  Association  converted  from a state mutual  savings  association to a
state stock savings association  effective December 27, 2001, and simultaneously
formed a savings and loan  holding  company,  the Holding  Company.  The Holding
Company's Common Stock, is traded on the OTC Electronic Bulletin Board under the
symbol "CSFC." As of July 22, 2002, there were  approximately 364 record holders
of the Holding Company's Common Stock.

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

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

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

                             Stock Bid
                          ---------------
Quarter Ended              High      Low
-------------------       ------   ------
December 31, 2001         $12.55   $12.20
March 31, 2002             14.00    12.25
June 30, 2002              14.50    13.17

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


Market Makers

Moors and Cabot, Inc.
Trident Securities, Inc.
Howe Barnes Investments, Inc.


Transfer Agent and Registrar

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


General Counsel

Barnes & Thornburg
11 South Meridian Street
Indianapolis, Indiana 46204


Independent Auditor

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


Shareholders and General Inquiries

The Company will file an Annual  Report on Form 10-KSB for its fiscal year ended
June 30, 2002 with the Securities and Exchange Commission. Copies of this annual
report may be obtained without charge upon written request to:

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