##### 



Exhibit 13.1

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

The following discussion should be read in conjunction with our selected
financial statements and the related notes presented elsewhere in this report,
as well as our historical financial statements which appear in this report.

Certain statements in this section constitute forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements.

Results of Operations for the Years Ended December 31, 2001, 2000 and 1999

Net Income

During 2001, we focused on increasing earnings, continuing to grow total
loans and deposits, and increasing our market share. As a result, 2001 became a
profitable year as expenses stabilized and net interest income and non-interest
income increased. The financial results of the prior two years were adversely
affected by significant increases in non-interest expenses due to aggressive
growth and expansion initiatives. During 1999, we added three additional
branches. We opened a fourth branch in January 2000. Our focus on earnings
during 2001, combined with growing into the infrastructure created during the
prior two years, resulted in net income of $692,000 or $.66 per basic share
($.65 per diluted share) for 2001 compared to a loss of $858,000 or $1.08 per
share (both basic and diluted) for 2000. We reported a net loss of $609,000 in
1999, or $.97 per share (both basic and diluted). Our operating results for
1999 through 2001 do not include income tax expenses or benefits of any
significance, due to our current net operating loss carryforward position. As
earnings continue to improve in future periods, we expect to record income tax
expense which will reduce net income. Since our short-term growth objectives
have been attained, our focus for 2002 and beyond will be to continue to
improve earnings and grow market share through exceptional customer service.

Return on average assets (ROA) for 2001, 2000, and 1999 was .58%,
(.94)%, and (1.19)%, respectively, while return on average equity (ROE) was
9.99%, (17.83)%, and (12.33)%, respectively, for those same periods.

Net Interest Income

Net interest income is the most significant component of our earnings. Net
interest income is the difference between interest and fees realized on earning
assets, which are primarily loans, securities and short-term investments, and
interest paid on deposits and other borrowings. The net interest margin is this
difference expressed as a percentage of average earning assets. Net interest
income is determined by several factors, including the volume of earning assets
and liabilities, the mix of earning assets and liabilities, and interest rates.
For 2001, net interest income totaled $4.4 million, compared to $3.3 million in
2000, an increase of $1.1 million or 33.3%. This increase was driven primarily
by the increase in the volume of earning assets (most notably loans) as we
increased our market share in existing markets. Net interest income also
increased from 1999 to 2000 by $1.2 million or 57.1%, as earning assets also
experienced growth.

Interest income for 2001 totaled $9.2 million, compared to $7.6 million
for 2000, an increase of $1.6 million or 21.1%. While the increase in 2001 can
be attributed to some extent to growth in the investment portfolio, growth in
the loan portfolio was the primary contributor to the increase. Average
investments, including securities and federal funds sold, were $22.7 million in
2001, up by $4.1 million from 2000s $18.6 million level, an increase of 22.0%.
The average loan balance growth was higher, increasing from $65.8 million in
2000 to $88.9 million in 2001, representing an increase of 35.1%. The increased
volume of earning assets has been the dominant factor for growth in interest
income. In contrast, average yields, on a fully tax equivalent basis,
negatively influenced interest income, declining from 9.04% for 2000 to 8.23%
for 2001. During 2001, the Federal Reserve Bank cut interest rates

1



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##### 



several times, resulting in falling rates on the loan portfolio as loans
repriced or customers refinanced loans at market rates.

Interest expense increased from 2000 to 2001 by $469,000 or 10.8%. The
increase was all volume driven, as average deposits increased in all categories
by a total of $23.2 million, or 32.7%, during 2001. Time deposits increased the
most, with the average balance rising by $15.4 million. In the declining
interest rate environment of 2001, the average cost of deposits decreased from
5.55% in 2000 to 4.73% in 2001. Borrowed funds were utilized during 2001 to
support growth. A decrease of $51,000 in interest expense was realized during
2001 compared to 2000 from these funding sources. The average cost of all
interest bearing liabilities decreased from 5.66% in 2000 to 4.75% in 2001.

Interest income totaled $7.6 million for 2000, up $3.7 million or 94.2%
compared to 1999. Average earning assets increased $37.5 million or 80.3%
during this period, with the loan portfolio primarily contributing to the
increase. The yield on interest earning assets increased to 9.04% in 2000 from
8.45% in 1999.

Interest expense increased $2.5 million or 138.9% in 2000, as average
deposit balances increased $32.4 million or 83.9%. Growth occurred in all
deposit categories but was led by increases in time deposits. The total cost of
all interest bearing liabilities increased from 4.57% in 1999 to 5.66% in 2000
as we sought to grow deposits.

The following tables set forth an analysis of our net interest income (on
a tax-equivalent basis) for 2001, 2000, and 1999.

Average Balance Sheets and Interest Rates

ASSETS

|                           |            |                                        |                      |   |                          |         |  |          |       |       |      |         |      |         |         |   |          |        |  |      |       |         |         |  |         |          |   |   |        |        |  |         |       |       |  |  |       |      |  
|-------------------------- | ---------- | -------------------------------------- | -------------------- | - | ------------------------ | ------- |  | -------- | ----- | ----- | ---- | ------- | ---- | ------- | ------- | - | -------- | ------ |  | ---- | ----- | ------- | ------- |  | ------- | -------- | - | - | ------ | ------ |  | ------- | ----- | ----- |  |  | ----- | ---- | -
|                           |            |                                        |                      |   | Years ended December 31, |        
|                           |            |                                        |                      |   |                          |        
|                           |            |                                        |                      |   | 2001                     |         |  | 2000     |       |       | 1999 |        
|                           |            |                                        |                      |   |                          |         |  |          |       |       |      |        
|                           |            |                                        |                      |   | Average                  |         |  |          |       |       |      | Average |      |         | Average |   |          |        |  |      |       | Average |         |  | Average |          |   |   |        |        |  | Average |      
|                           |            |                                        |                      |   | Balance                  |         |  | Interest |       |       | Rate |         |      | Balance |         |   | Interest |        |  | Rate |       |         | Balance |  |         | Interest |   |   | Rate   |       
|                           |            |                                        |                      |   |                          |         |  |          |       |       |      |         |      |         |         |   |          |        |  |      |       |         |         |  |         |          |   |   |        |       
|                           |            |                                        |                      |   | (Dollars in Thousands)   |        
|Interest earning assets    |            |                                        |                      |   |                          |         |  |          |       |       |      |         |      |         |         |   |          |        |  |      |       |         |         |  |         |          |   |   |        |        |  |         |       |       |  | 
|                           | Securities |                                        |                      |   |                          |         |  |          |       |       |      |         |      |         |         |   |          |        |  |      |       |         |         |  |         |          |   |   |        |        |  |         |       |       |  |  |      
|                           |            | Taxable                                |                      | $ | 20,323                   |         |  | $        | 1,313 |       |      |         | 6.46 | %       |         | $ | 16,342   |        |  | $    | 1,105 |         |         |  | 6.76    | %        |   | $ | 9,649  |        |  | $       | 555   |       |  |  | 5.75  | %   
|                           |            | Non-taxable (1)                        |                      |   | 883                      |         |  |          | 62    |       |      |         | 7.02 |         |         |   | 1,090    |        |  |      | 77    |         |         |  | 7.06    |          |   |   | 1,634  |        |  |         | 117   |       |  |  | 7.16  |     
|                           |            | Other                                  |                      |   | 1,354                    |         |  |          | 55    |       |      |         | 4.06 |         |         |   | 1,409    |        |  |      | 87    |         |         |  | 6.17    |          |   |   | 2,685  |        |  |         | 122   |       |  |  | 4.54  |     
|                           |            | Unrealized gain/loss on
AFS securities |                      |   | 182                      |         |  |          |      |       |      |         | 0.00 |         |         |   | (285     | )      |  |      |      |         |         |  | 0.00    |          |   |   | (76    | )      |  |         |      |       |  |  | 0.00  |     
|                           |            |                                        |                      |   |                          |         |  |          |       |       |      |         |      |         |         |   |          |        |  |      |       |         |         |  |         |          |   |   |        |       
|                           |            |                                        | Total securities     |   |                          | 22,742  |  |          |       | 1,430 |      |         |      | 6.29    |         |   |          | 18,556 |  |      |       | 1,269   |         |  |         | 6.84     |   |   |        | 13,892 |  |         |       | 794   |  |  |       | 5.72 |  
|                           | Loans      |                                        |                      |   |                          |         |  |          |       |       |      |         |      |         |         |   |          |        |  |      |       |         |         |  |         |          |   |   |        |        |  |         |       |       |  |  |      
|                           |            | Commercial                             |                      |   | 19,803                   |         |  |          | 1,684 |       |      |         | 8.50 |         |         |   | 12,494   |        |  |      | 1,409 |         |         |  | 11.28   |          |   |   | 10,077 |        |  |         | 996   |       |  |  | 9.88  |     
|                           |            | Real estate                            |                      |   | 44,766                   |         |  |          | 3,978 |       |      |         | 8.89 |         |         |   | 33,886   |        |  |      | 3,221 |         |         |  | 9.51    |          |   |   | 17,864 |        |  |         | 1,619 |       |  |  | 9.06  |     
|                           |            | Installment and other
Consumer         |                      |   | 24,305                   |         |  |          | 2,093 |       |      |         | 8.61 |         |         |   | 19,383   |        |  |      | 1,723 |         |         |  | 8.89    |          |   |   | 4,940  |        |  |         | 542   |       |  |  | 10.97 |     
|                           |            |                                        |                      |   |                          |         |  |          |       |       |      |         |      |         |         |   |          |        |  |      |       |         |         |  |         |          |   |   |        |       
|                           |            |                                        | Total loans          |   |                          | 88,874  |  |          |       | 7,755 |      |         |      | 8.73    |         |   |          | 65,763 |  |      |       | 6,353   |         |  |         | 9.66     |   |   |        | 32,881 |  |         |       | 3,157 |  |  |       | 9.60 |  
|                           |            |                                        |                      |   |                          |         |  |          |       |       |      |         |      |         |         |   |          |        |  |      |       |         |         |  |         |          |   |   |        |       
|                           |            |                                        | Total earning assets |   |                          | 111,616 |  |          | $     | 9,185 |      |         |      | 8.23    | %       |   |          | 84,319 |  |      | $     | 7,622   |         |  |         | 9.04     | % |   |        | 46,773 |  |         | $     | 3,951 |  |  |       | 8.45 | %
|                           |            |                                        |                      |   |                          |         |  |          |       |       |      |         |      |         |         |   |          |        |  |      |       |         |         |  |         |          |   |   |        |       
|Noninterest earning assets |            |                                        |                      |   |                          |         |  |          |       |       |      |         |      |         |         |   |          |        |  |      |       |         |         |  |         |          |   |   |        |        |  |         |       |       |  | 
|                           |            | Allowance for loan losses              |                      |   | (1,009                   | )       |  |          |       |       |      |         |      |         |         |   | (733     | )      |  |      |       |         |         |  |         |          |   |   | (411   | )      |  |         |       |       |  |  |       |      |  
|                           |            | Premises and equipment                 |                      |   | 1,941                    |         |  |          |       |       |      |         |      |         |         |   | 1,928    |        |  |      |       |         |         |  |         |          |   |   | 865    |        |  |         |       |       |  |  |       |      |  
|                           |            | Cash and due from banks                |                      |   | 3,797                    |         |  |          |       |       |      |         |      |         |         |   | 2,733    |        |  |      |       |         |         |  |         |          |   |   | 2,600  |        |  |         |       |       |  |  |       |      |  
|                           |            | Accrued interest and other
Assets      |                      |   | 3,410                    |         |  |          |       |       |      |         |      |         |         |   | 2,725    |        |  |      |       |         |         |  |         |          |   |   | 1,295  |        |  |         |       |       |  |  |       |      |  
|                           |            |                                        |                      |   |                          |         |  |          |       |       |      |         |      |         |         |   |          |        |  |      |       |         |         |  |         |          |   |   |        |       
|                           |            |                                        | Total assets         |   | $                        | 119,755 |  |          |       |       |      |         |      |         |         |   | $        | 90,972 |  |      |       |         |         |  |         |          |   |   | $      | 51,122 |  |         |       |       |  |  |       |      |  
|                           |            |                                        |                      |   |                          |         |  |          |       |       |      |         |      |         |         |   |          |        |  |      |       |         |         |  |         |          |   |   |        |       

2



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##### 



LIABILITIES AND SHAREHOLDERS EQUITY

|                                |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |        |        |       |         |       |       |      |      |      |      |  
|------------------------------- | -------------------------------------------- | -------------------------------------- | ------------------------------------------ | ---------------------------------- | ------ | ------------------------ | ------- | ----- | -------- | ----- | ----- | ---- | ------- | ---- | ------- | ------- | ------ | -------- | ------ | ----- | ----- | ----- | ------- | ------- | ---- | ------- | -------- | ----- | ------ | ------ | ------ | ----- | ------- | ----- | ----- | ---- | ---- | ---- | ---- | -
|                                |                                              |                                        |                                            |                                    |        | Years ended December 31, |        
|                                |                                              |                                        |                                            |                                    |        |                          |        
|                                |                                              |                                        |                                            |                                    |        | 2001                     |         |       | 2000     |       |       | 1999 |        
|                                |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |        
|                                |                                              |                                        |                                            |                                    |        | Average                  |         |       |          |       |       |      | Average |      |         | Average |        |          |        |       |       |       | Average |         |      | Average |          |       |        |        |        |       | Average |      
|                                |                                              |                                        |                                            |                                    |        | Balance                  |         |       | Interest |       |       | Rate |         |      | Balance |         |        | Interest |        |       | Rate  |       |         | Balance |      |         | Interest |       |        | Rate   |       
|                                |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |        |       
|                                |                                              |                                        |                                            |                                    |        | (Dollars in Thousands)   |        
|Interest-bearing liabilities    |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |        |        |       |         |       |       |     
|                                | Deposits                                     |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |        |        |       |         |       |       |      |     
|                                |                                              | Interest-bearing demand
deposits       |                                            | $                                  | 26,006 |                          |         | $     | 800      |       |       |      | 3.08    | %    |         | $       | 18,717 |          |        | $     | 920   |       |         |         | 4.92 | %       |          | $     | 10,768 |        |        | $     | 406     |       |       |      | 3.77 | %   
|                                |                                              | Savings deposits                       |                                            |                                    | 5,565  |                          |         |       | 104      |       |       |      | 1.87    |      |         |         | 5,136  |          |        |       | 111   |       |         |         | 2.16 |         |          |       | 5,615  |        |        |       | 153     |       |       |      | 2.72 |     
|                                |                                              | Time deposits                          |                                            |                                    | 62,540 |                          |         |       | 3,552    |       |       |      | 5.68    |      |         |         | 47,090 |          |        |       | 2,905 |       |         |         | 6.17 |         |          |       | 22,182 |        |        |       | 1,226   |       |       |      | 5.53 |     
|                                |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |       
|                                |                                              |                                        | Total interest-bearing
deposits            |                                    |        | 94,111                   |         |       |          | 4,456 |       |      |         | 4.73 |         |         |        | 70,943   |        |       |       | 3,936 |         |         |      | 5.55    |          |       |        | 38,565 |        |       |         | 1,785 |       |      |      | 4.63 |     
|                                | Borrowed funds                               |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |        |        |       |         |       |       |      |     
|                                |                                              | FHLB advances                          |                                            |                                    | 4,129  |                          |         |       | 204      |       |       |      | 4.94    |      |         |         | 4,047  |          |        |       | 266   |       |         |         | 6.57 |         |          |       | 1,174  |        |        |       | 32      |       |       |      | 2.73 |     
|                                |                                              | Repurchase agreements                  |                                            |                                    | 737    |                          |         |       | 9        |       |       |      | 1.22    |      |         |         |       |          |        |       |      |       |         |         | 0.00 |         |          |       |       |        |        |       |        |       |       |      | 0.00 |     
|                                |                                              | Federal funds purchased                |                                            |                                    | 382    |                          |         |       | 22       |       |       |      | 5.76    |      |         |         | 732    |          |        |       | 51    |       |         |         | 6.97 |         |          |       |       |        |        |       |        |       |       |      | 0.00 |     
|                                |                                              | Notes payable                          |                                            |                                    | 1,755  |                          |         |       | 113      |       |       |      | 6.44    |      |         |         | 875    |          |        |       | 82    |       |         |         | 9.37 |         |          |       |       |        |        |       |        |       |       |      | 0.00 |     
|                                |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |       
|                                |                                              |                                        | Total borrowed funds                       |                                    |        | 7,003                    |         |       |          | 348   |       |      |         | 4.97 |         |         |        | 5,654    |        |       |       | 399   |         |         |      | 7.06    |          |       |        | 1,174  |        |       |         | 32    |       |      |      | 2.73 |     
|                                |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |       
|                                |                                              |                                        |                                            | Total interest-bearing
liabilities |        |                          | 101,114 |       |          | $     | 4,804 |      |         |      | 4.75    | %       |        |          | 76,597 |       |       | $     | 4,335   |         |      |         | 5.66     | %     |        |        | 39,739 |       |         | $     | 1,817 |      |      |      | 4.57 | %
|                                |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |       
|Noninterest-bearing liabilities |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |        |        |       |         |       |       |     
|                                | Noninterest-bearing demand
deposits          |                                        |                                            | 11,128                             |        |                          |         |       |          |       |       |      |         |      |         | 9,373   |        |          |        |       |       |       |         |         |      |         |          | 6,304 |        |        |        |       |         |       |       |      |     
|                                |                                              | Accrued interest and other
liabilities |                                            |                                    | 588    |                          |         |       |          |       |       |      |         |      |         |         | 191    |          |        |       |       |       |         |         |      |         |          |       | 141    |        |        |       |         |       |       |      |      |     
|                                |                                              | Shareholders equity                   |                                            |                                    | 6,925  |                          |         |       |          |       |       |      |         |      |         |         | 4,811  |          |        |       |       |       |         |         |      |         |          |       | 4,938  |        |        |       |         |       |       |      |      |     
|                                |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |        |        |       |        
|                                |                                              |                                        | Total liabilities and
Shareholders equity |                                    | $      | 119,755                  |         |       |          |       |       |      |         |      |         |         | $      | 90,972   |        |       |       |       |         |         |      |         |          |       | $      | 51,122 |        |       |         |       |       |      |      |      |     
|                                |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |        |        |       |        
|Interest margin recap           |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |        |        |       |         |       |       |     
|                                | Net interest income and
interest rate spread |                                        |                                            |                                    |        |                          | $       | 4,381 |          |       |       | 3.48 | %       |      |         |         |        |          | $      | 3,287 |       |       |         | 3.38    | %    |         |          |       |        |        | $      | 2,134 |         |       |       | 3.88 | %   
|                                |                                              |                                        |                                            |                                    |        |                          |         |       |          |       |       |      |         |      |         |         |        |          |        |       |       |       |         |         |      |         |          |       |        |        |        |       |        
|                                | Net interest income margin                   |                                        |                                            |                                    |        |                          |         |       |          |       |       | 3.93 | %       |      |         |         |        |          |        |       |       |       |         | 3.90    | %    |         |          |       |        |        |        |       |         |       |       | 4.56 | %   



---

|(1) |  | Interest income on tax-exempt securities and loans has been adjusted to a tax equivalent basis using a marginal federal income tax rate of 34% for all years.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

3



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##### 



Volume/Rate Analysis

|                        |            |   |                        |     |   |           |       |     |        |   |      |        |   |   |        |     |   |        |       |     |   |   |      |    |  
|----------------------- | ---------- | - | ---------------------- | --- | - | --------- | ----- | --- | ------ | - | ---- | ------ | - | - | ------ | --- | - | ------ | ----- | --- | - | - | ---- | -- | -
|                        |            |   | 2001-2000              |     |   | 2000-1999 |      
|                        |            |   |                        |     |   |           |      
|                        |            |   | Total                  |     |   | Change    |       |     | Change |   |      | Total  |   |   | Change |     |   | Change |      
|                        |            |   | Change                 |     |   | Due To    |       |     | Due To |   |      | Change |   |   | Due To |     |   | Due To |      
|                        |            |   |                        |     |   | Volume    |       |     | Rate   |   |      |        |   |   | Volume |     |   | Rate   |      
|                        |            |   |                        |     |   |           |       |     |        |   |      |        |   |   |        |     |   |       
|                        |            |   | (Dollars in thousands) |    
|INTEREST INCOME         |            |   |                        |     |   |           |       |     |        |   |      |        |   |   |        |     |   |        |       |     |   |   |      |   
|Loans                   |            | $ | 1,402                  |     |   | $         | 2,063 |     |        | $ | (661 | )      |   | $ | 3,196  |     |   | $      | 3,176 |     |   | $ | 20   |   
|Securities              |            |  
|                        | Taxable    |   | 208                    |     |   |           | 259   |     |        |   | (51  | )      |   |   | 550    |     |   |        | 458   |     |   |   | 92   |   
|                        | Tax-exempt |   |                        | (15 | ) |           |       | (15 | )      |   |      |       |   |   |        | (40 | ) |        |       | (38 | ) |   |      | (2 | )
|                        | Other      |   |                        | (32 | ) |           |       | (7  | )      |   |      | (25    | ) |   |        | (35 | ) |        |       | (73 | ) |   |      | 38 |  
|                        |            |   |                        |     |   |           |       |     |        |   |      |        |   |   |        |     |   |       
|Total interest income   |            | $ | 1,563                  |     |   | $         | 2,300 |     |        | $ | (737 | )      |   | $ | 3,671  |     |   | $      | 3,523 |     |   | $ | 148  |   
|                        |            |   |                        |     |   |           |       |     |        |   |      |        |   |   |        |     |   |       
|INTEREST EXPENSE        |            |   |                        |     |   |           |       |     |        |   |      |        |   |   |        |     |   |        |       |     |   |   |      |   
|Interest-bearing DDAs   |            | $ | (120                   | )   |   | $         | 290   |     |        | $ | (410 | )      |   | $ | 514    |     |   | $      | 364   |     |   | $ | 150  |   
|Savings deposits        |            |   | (7                     | )   |   |           | 9     |     |        |   | (16  | )      |   |   | (42    | )   |   |        | (12   | )   |   |   | (30  | ) 
|Time deposits           |            |   | 647                    |     |   |           | 892   |     |        |   | (245 | )      |   |   | 1,679  |     |   |        | 1,522 |     |   |   | 157  |   
|FHLB Advances           |            |   | (62                    | )   |   |           | 5     |     |        |   | (67  | )      |   |   | 234    |     |   |        | 148   |     |   |   | 86   |   
|Federal funds purchased |            |   | (29                    | )   |   |           |      |     |        |   | (29  | )      |   |   | 51     |     |   |        | 51    |     |   |   |     |   
|Repurchase agreements   |            |   | 9                      |     |   |           | 9     |     |        |   |     |        |   |   |       |     |   |        |      |     |   |   |     |   
|Notes payable           |            |   | 31                     |     |   |           | 63    |     |        |   | (32  | )      |   |   | 82     |     |   |        | 82    |     |   |   |     |   
|                        |            |   |                        |     |   |           |       |     |        |   |      |        |   |   |        |     |   |       
|Total interest expense  |            | $ | 469                    |     |   | $         | 1,268 |     |        | $ | (799 | )      |   | $ | 2,518  |     |   | $      | 2,155 |     |   | $ | 363  |   
|                        |            |   |                        |     |   |           |       |     |        |   |      |        |   |   |        |     |   |       
|Net Interest income     |            | $ | 1,094                  |     |   | $         | 1,032 |     |        | $ | 62   |        |   | $ | 1,153  |     |   | $      | 1,368 |     |   | $ | (215 | ) 
|                        |            |   |                        |     |   |           |       |     |        |   |      |        |   |   |        |     |   |       

The effect of the cost of liabilities declining faster than the yield on
earning assets was a slight expansion of the net interest margin. Net interest
income, on a tax equivalent basis, for 2001 was $4.4 million, 33.3% higher than
in 2000. Net interest income increased $1.2 million or 55.7% from 1999 to 2000.
The net interest margin, on a tax equivalent basis for 2001, 2000, and 1999 was
3.93%, 3.90%, and 4.56%. During 1999, average noninterest bearing liabilities
and equity supported 22.3% of average total earning assets, compared to 15.8%
and 15.6% in 2000 and 2001. Time deposits, which tend to carry higher costs,
comprised an increasing percentage of total average deposits from 1999 to 2000
but stabilized during 2001. Average time deposits comprised 66.5% of total
average deposits in 2001, compared to 66.4% and 57.5% in 2000 and 1999,
respectively. Interest expense on borrowed funds, including Federal Home Loan
Bank (FHLB) advances, repurchase agreements, federal funds purchased, and
notes payable declined during 2001 due to the declining variable rates attached
to these funding sources. The cost of borrowed funds actually increased from 1999
to 2000, as these funds were required to support growth.

Provision for Loan Losses and Asset Quality

The provision for loan losses represents charges made to earnings to
maintain an adequate allowance for loan losses. The allowance is maintained at
an amount that we believe to be sufficient to absorb probable incurred losses
in the loan portfolio. Monitoring loan quality and maintaining an adequate
allowance is an ongoing process overseen by our senior management. On at least
a quarterly basis, a formal analysis of the adequacy of the allowance is
prepared and reviewed by management and the board of directors. This analysis
serves as a point in time assessment of the level of the allowance and serves
as a basis for provisions for loan losses.

Our loan quality monitoring process includes assigning loan grades to
commercial loans and the use of a watch list to identify loans of concern. The
analysis of the allowance for loan losses includes the allocation of specific
amounts of the allowance to individual problem loans, generally based on our
analysis of the collateral securing those loans. Portions of the allowance are
allocated to pools of loans, based upon a variety of factors including industry
loss averages for similarly sized institutions, our own loss history, the fact
that our growth in recent years makes our historical experience less
meaningful, trends in delinquent and non-performing loans, and economic trends
affecting our market. These components are added together and compared to the
balance of our allowance at the evaluation date.

4



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##### 



The tables below set forth a summary of the activity in and the
composition of the allowance for loan losses.

Analysis of Allowance for Loan Losses

|                                                |                         |                  |                   |     |                              |      |        |      |    |      |        |     |    |      |  
|----------------------------------------------- | ----------------------- | ---------------- | ----------------- | --- | ---------------------------- | ---- | ------ | ---- | -- | ---- | ------ | --- | -- | ---- | -
|                                                |                         |                  |                   |     | For years ended December 31, |     
|                                                |                         |                  |                   |     |                              |     
|                                                |                         |                  |                   |     | 2001                         |      |        | 2000 |    |      | 1999   |    
|                                                |                         |                  |                   |     |                              |      |        |      |    |      |        |    
|                                                |                         |                  |                   |     | (Dollars in thousands)       |     
|Balance at beginning of year                    |                         | $                | 910               |     |                              | $    | 549    |      |    | $    | 346    |    
|Loans charged-off                               |                         |                  |                   |     |                              |      |        |      |    |      |        |    
|                                                | Commercial              |                  |                   | (58 | )                            |      |        |     |    |      |        | (94 | ) 
|                                                | Real estate-residential |                  |                   | (33 | )                            |      |        | (4   | )  |      |        | (14 | ) 
|                                                | Consumer                |                  |                   | (76 | )                            |      |        | (135 | )  |      |        | (61 | ) 
|                                                |                         |                  |                   |     |                              |      |        |      |   
|                                                |                         |                  | Total charge-offs |     |                              | (167 | )      |      |    | (139 | )      |     |    | (169 | )
|                                                |                         |                  |                   |     |                              |      |        |      |   
|Charge-offs recovered                           |                         |                  |                   |     |                              |      |        |      |    |      |        |    
|                                                | Commercial              |                  |                   | 1   |                              |      |        | 23   |    |      |        | 40  |   
|                                                | Real estate-residential |                  |                   | 14  |                              |      |        | 2    |    |      |        | 12  |   
|                                                | Consumer                |                  |                   | 59  |                              |      |        | 58   |    |      |        | 40  |   
|                                                |                         |                  |                   |     |                              |      |        |      |   
|                                                |                         | Total recoveries |                   |     | 74                           |      |        |      | 83 |      |        |     | 92 |     
|                                                |                         |                  |                   |     |                              |      |        |      |   
|Net loans charged-off                           |                         |                  | (93               | )   |                              |      | (56    | )    |    |      | (77    | )  
|Current year provision                          |                         |                  | 331               |     |                              |      | 417    |      |    |      | 280    |    
|                                                |                         |                  |                   |     |                              |      |        |      |   
|Balance at end of year                          |                         | $                | 1,148             |     |                              | $    | 910    |      |    | $    | 549    |    
|                                                |                         |                  |                   |     |                              |      |        |      |   
|Loans at year end                               |                         | $                | 93,715            |     |                              | $    | 81,903 |      |    | $    | 46,146 |    
|Ratio of allowance to loans at year end         |                         |                  | 1.22              | %   |                              |      | 1.11   | %    |    |      | 1.19   | %  
|Average loans                                   |                         | $                | 88,874            |     |                              | $    | 65,763 |      |    | $    | 32,881 |    
|Ratio of net loans charged-off to average loans |                         |                  | 0.10              | %   |                              |      | 0.09   | %    |    |      | 0.23   | %  

Allocation of Allowance for Loan Losses

|                        |  |                        |       |  |      |   |     |      |  |   |     | 
|----------------------- |  | ---------------------- | ----- |  | ---- | - | --- | ---- |  | - | --- | 
|                        |  | December 31,           |      
|                        |  |                        |      
|                        |  | 2001                   |       |  | 2000 |   |     | 1999 | 
|                        |  |                        |       |  |      |   |     |      | 
|                        |  | (Dollars in thousands) |      
|Commercial              |  | $                      | 510   |  |      | $ | 317 |      |  | $ | 203 | 
|Real estate-residential |  |                        | 110   |  |      |   | 42  |      |  |   | 47  | 
|Consumer                |  |                        | 498   |  |      |   | 525 |      |  |   | 262 | 
|Unallocated             |  |                        | 30    |  |      |   | 26  |      |  |   | 37  | 
|                        |  |                        |       |  |      |   |     |      | 
|Total                   |  | $                      | 1,148 |  |      | $ | 910 |      |  | $ | 549 | 
|                        |  |                        |       |  |      |   |     |      | 

The provision for loan losses was $331,000, $417,000, and $280,000 for
2001, 2000, and 1999, respectively. Total charge-offs in 2001, 2000 and 1999
were relatively consistent from year to year. The provision for all three years
and related increase in the allowance are responsive to the loan growth
realized during those periods and our assessment of the increasing risk in our
portfolio. The risk complexion of the portfolio has increased as we have
increased our commercial, commercial real estate, and construction loans.
Additionally, a significant portion of the consumer loan portfolio consists of
indirect loans, which tend to carry a higher level of risk than direct loans.

The allowance for loan losses at year end 2001 was $1.15 million, or 1.22%
of total loans, compared to $910,000, or 1.11% of total loans, at year end 2000
and $549,000 or 1.19% at year end 1999.

5



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Non-performing loans include nonaccrual loans, restructured loans, and
loans delinquent 90 days or more. Loans are classified as nonaccrual when we
believe the collection of interest is doubtful, typically when payments are
past due 90 days, unless the loans are well secured and in the process of
collection.

The table below sets forth a summary of non-performing assets.

Nonperforming Assets

|                          |                                               |   |                        |        |   |      |     |        |      |   |     |        |  
|------------------------- | --------------------------------------------- | - | ---------------------- | ------ | - | ---- | --- | ------ | ---- | - | --- | ------ | -
|                          |                                               |   | December 31,           |       
|                          |                                               |   |                        |       
|                          |                                               |   | 2001                   |        |   | 2000 |     |        | 1999 |  
|                          |                                               |   |                        |        |   |      |     |        |      |  
|                          |                                               |   | (Dollars in thousands) |       
|Principal balance         |                                               |   |                        |        |   |      |     |        |      |   |     |       
|                          | Nonaccrual                                    |   | $                      | 312    |   |      | $   | 93     |      |   | $   | 141    |  
|                          | 90 days or more past due                      |   |                        |       |   |      |     | 26     |      |   |     |       |  
|                          |                                               |   |                        |        |   |      |     |        |     
|Total nonperforming loans |                                               | $ | 312                    |        |   | $    | 119 |        |      | $ | 141 |       
|                          |                                               |   |                        |        |   |      |     |        |     
|                          | Nonperforming loans as a percent of loans     |   |                        | 0.33   | % |      |     | 0.15   | %    |   |     | 0.31   | %
|                          | Other real estate owned                       |   | $                      | 39     |   |      | $   |       |      |   | $   |       |  
|                          | OREO as a percent of loans                    |   |                        | 0.04   | % |      |     | 0.00   | %    |   |     | 0.00   | %
|                          | Allowance as a percent of nonperforming loans |   |                        | 367.95 | % |      |     | 764.71 | %    |   |     | 389.36 | %

Non-performing loans increased slightly over the past three years, rising
from $141,000 at year-end 1999 to $312,000 at December 31, 2001, or from .31%
of total loans in 1999 to .33% of total loans in 2001. While the dollar amount
of non-performing loans increased, it has been stable as a percentage of the
total portfolio.

Impaired loans are those loans for which full payment in accordance with
the contractual terms is not expected. The average balance for impaired loans
was $211,000, $0, and $70,000 for 2001, 2000, and 1999, respectively.

We designate certain loans for internal monitoring purposes on a watch
list. Loans may be placed on the watch list as a result of delinquent status,
concern about the borrowers financial condition or the value of the collateral
securing the loan, substandard classification during regulatory examinations,
or simply as a result of our desire to monitor more closely a borrowers
financial condition and performance. Watch category loans may include loans
with loss potential that are still performing and accruing interest and may be
current under the terms of the loan agreement. However, we may have a
significant degree of concern about the borrowers ability to continue
performing according to the terms of the loan. Loss exposure on these loans is
typically evaluated based primarily upon the estimated liquidation value of the
collateral securing the loan. Also, watch list loans may include credits which,
although adequately secured and performing, reflect a past delinquency problem
or unfavorable financial trends exhibited by the borrower.

At December 31, 2001, there were nineteen loans totaling $1.4 million
graded substandard or doubtful included on the watch list. This compares to
sixteen loans totaling $1.2 million graded substandard or doubtful at December
31, 2000. Of the watch list credits, $246,000 and $0 were classified as
impaired at year-end 2001 and 2000, respectively.

6



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##### 



Noninterest Income and Expense

The table below sets forth an analysis of changes in noninterest income
and expense.

Noninterest Income and Expense

|                    |                                               |                          |                           |       |                        |       |  |           |         |      |      |       |     |           |  |          |        |       |   |       |     |       | 
|------------------- | --------------------------------------------- | ------------------------ | ------------------------- | ----- | ---------------------- | ----- |  | --------- | ------- | ---- | ---- | ----- | --- | --------- |  | -------- | ------ | ----- | - | ----- | --- | ----- | 
|                    |                                               |                          |                           |       |                        |       |  |           | Percent |      |      |       |     |           |  | Percent  |        |       |   |       |    
|                    |                                               |                          |                           |       |                        |       |  |           | change  |      |      |       |     |           |  | change   |        |       |   |       |    
|                    |                                               |                          |                           |       | 2001                   |       |  | from 2000 |         |      | 2000 |       |     | from 1999 |  |          | 1999   |      
|                    |                                               |                          |                           |       |                        |       |  |           |         |      |      |       |     |           |  |          |        |      
|                    |                                               |                          |                           |       | (Dollars in Thousands) |      
|Noninterest Income  |                                               |                          |                           |       |                        |       |  |           |         |      |      |       |     |           |  |          |        |       |   |      
|                    | Service charges on deposit accounts           |                          | $                         | 317   |                        |       |  | 69.52     | %       |      | $    | 187   |     |           |  | 46.09    | %      |       | $ | 128   |    
|                    | Mortgage banking activities                   |                          |                           | 451   |                        |       |  | 215.38    |         |      |      | 143   |     |           |  | 1,687.50 |        |       |   | 8     |    
|                    | Increase in cash surrender value of insurance |                          |                           | 117   |                        |       |  | 25.81     |         |      |      | 93    |     |           |  | 244.44   |        |       |   | 27    |    
|                    | Net gain on sale of securities                |                          |                           | 63    |                        |       |  |          |         |      |      |      |     |           |  |         |        |       |   |      |    
|                    | Other                                         |                          |                           | 154   |                        |       |  | 85.54     |         |      |      | 83    |     |           |  | 137.14   |        |       |   | 35    |    
|                    |                                               |                          |                           |       |                        |       |  |           |         |      |      |       |     |           |  |          |       
|                    |                                               | Total noninterest income |                           | $     | 1,102                  |       |  |           | 117.79  | %    |      | $     | 506 |           |  |          | 155.56 | %     |   | $     | 198 |      
|                    |                                               |                          |                           |       |                        |       |  |           |         |      |      |       |     |           |  |          |        |      
|Noninterest Expense |                                               |                          |                           |       |                        |       |  |           |         |      |      |       |     |           |  |          |        |       |   |      
|                    | Salaries and employee benefits                |                          | $                         | 2,559 |                        |       |  | 9.64      | %       |      | $    | 2,334 |     |           |  | 44.52    | %      |       | $ | 1,615 |    
|                    | Occupancy                                     |                          |                           | 355   |                        |       |  | (1.93     | )       |      |      | 362   |     |           |  | 139.74   |        |       |   | 151   |    
|                    | Equipment and data processing                 |                          |                           | 378   |                        |       |  | (1.56     | )       |      |      | 384   |     |           |  | 51.78    |        |       |   | 253   |    
|                    | Core deposit amortization                     |                          |                           | 44    |                        |       |  | 0.00      |         |      |      | 44    |     |           |  | 0.00     |        |       |   | 44    |    
|                    | Postage, freight and express                  |                          |                           | 88    |                        |       |  | 31.34     |         |      |      | 67    |     |           |  | 52.27    |        |       |   | 44    |    
|                    | Advertising                                   |                          |                           | 87    |                        |       |  | (30.40    | )       |      |      | 125   |     |           |  | 6.84     |        |       |   | 117   |    
|                    | Stationery and office supplies                |                          |                           | 79    |                        |       |  | (15.05    | )       |      |      | 93    |     |           |  | 63.16    |        |       |   | 57    |    
|                    | Telephone                                     |                          |                           | 117   |                        |       |  | (4.88     | )       |      |      | 123   |     |           |  | 92.19    |        |       |   | 64    |    
|                    | Committee and director fees                   |                          |                           | 44    |                        |       |  | (2.22     | )       |      |      | 45    |     |           |  | (2.17    | )      |       |   | 46    |    
|                    | Other                                         |                          |                           | 688   |                        |       |  | 9.03      |         |      |      | 631   |     |           |  | 108.25   |        |       |   | 303   |    
|                    |                                               |                          |                           |       |                        |       |  |           |         |      |      |       |     |           |  |          |       
|                    |                                               |                          | Total noninterest expense |       | $                      | 4,439 |  |           |         | 5.49 | %    |       | $   | 4,208     |  |          |        | 56.20 | % |       | $   | 2,694 | 
|                    |                                               |                          |                           |       |                        |       |  |           |         |      |      |       |     |           |  |          |       

Noninterest income increased $596,000, or 117.8% to $1.1 million for 2001
compared to $506,000 in 2000. The increase was attributed to the larger number
of deposit accounts and a change in fee structure on those accounts, which
increased service charge income by 69.5%. Cash surrender value earnings on life
insurance increased $24,000.

Mortgage banking activities generated $451,000 in noninterest income in
2001 compared to $143,000 in 2000. This was the result of increased volume due
to lower interest rates. With the strong mortgage banking activity, we have
relocated our mortgage banking division from our main office to a new facility
in Greenwood, Indiana. We entered into this lease in January 2002. This move
was necessary to accommodate the expansion of this division, as the number of
employees in this area has expanded from 5 to 10.

Noninterest income also rose from 1999 to 2000, increasing by $308,000 or
155.6%. With the mortgage banking division operational for a full year, gains
from mortgage banking activity provided a substantial portion of the increase.
Increases in service charges due to a higher number of deposits and increased
earnings on cash surrender value also contributed to the increase.

During 1999, we opened three new branch locations: two in Greenwood,
Indiana and one in Nashville, Indiana, joining the existing locations of
Morgantown and Trafalgar, Indiana. We opened an additional branch in

7



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##### 



Bargersville, Indiana in January 2000. With the expansion in our branch
network, the number of employees increased from 52 in 1999 to 61 in 2000 and to
70 in 2001. Salary and employee benefit expenses followed suit, increasing from
$1.6 million in 1999 to $2.3 million in 2000, an increase of 43.8%. Salary
expense increased $225,000 or 9.6% from 2000 to 2001.

With fewer branches added during 2000 and 2001, occupancy and equipment
expenses have begun to flatten and actually declined slightly from 2000 to
2001. Occupancy and equipment expenses were $733,000 for 2001 compared to
$746,000 in 2000, a decrease of $13,000 or 1.7%. Advertising expense decreased
from $125,000 in 2000 to $87,000 in 2001. We expect to maintain this
expenditure at this lower level in 2002, since our near term growth goals have
been obtained, and we believe our past marketing efforts have effectively
established awareness of our institution in the market area.

In 2000, as compared to 1999, total noninterest expense increased $1.5
million or 56.2%. This increase resulted largely from the expansion of the
branch network and related staffing and rental expense increases. Advertising
expense was increased from $117,000 in 1999 to $125,000 in 2000, as we
continued an aggressive marketing campaign in our new and existing markets.
Legal, accounting and professional expense rose from $70,000 in 1999 to
$142,000 in 2000, an increase of 102.9%, due primarily to the additional
expenses incurred by the holding company related to the reporting requirements
of being a publicly held company.

Income Taxes

While 2001 was a profitable year, we did not recognize any tax expense for
2001 because the net operating loss carryforwards that we generated in 1999 and
2000 offset all tax expense for 2001. No tax benefit was recognized for 2000,
and the tax benefit recognized in 1999 was $73,000 which was the amount of tax
paid that could be recovered by carrying back the net operating loss. A
valuation allowance was established to reduce the carrying value of our net
deferred tax asset (excluding the net unrealized gain on securities) to zero.
We have a net operating loss carryforward, for tax purposes, of approximately
$599,000. This will serve to reduce taxes payable, and tax expense, in future
periods, provided we are profitable. The net operating loss carryforward
expires in 2015.

Financial Condition at December 31, 2001

Total assets were $128.1 million at year-end 2001 compared to $106.4
million at year-end 2000, an increase of $21.7 million or 20.4%. The increase
in total assets was driven primarily by increased deposits which were
principally utilized to fund additional loans of $9.3 million and to purchase
additional securities of approximately $7 million with $3 million retained in
cash. Federal funds sold, securities and cash balances increased while Fed
funds purchased and FHLB debt were reduced as deposits grew twice as fast as
loans.

During 2001, we moved our Nashville branch into a permanent facility
leased from a company wholly-owned by Frank A. Rogers, chairman of our board of
directors.

During 2000, we completed our initial public offering. Through this
offering, we obtained net proceeds of $2.7 million, much of which was
contributed to First Bank to support growth. This contribution, along with $1.7
million of proceeds advanced under our line of credit that was also contributed
to First Bank, resulted in First Banks restoration to the well-capitalized
classification.

8



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##### 



Securities

Note 2 to the financial statements and the following table set forth
information about securities.

Securities Maturity Schedule

|                   |                                     |                          |   |                        |       |  |              |      |   |               |   |       |               |  |  |         |   |  |      |       |       |         |  |      |      |  |   |         |        |  |  |      |   |  |   |        |        | 
|------------------ | ----------------------------------- | ------------------------ | - | ---------------------- | ----- |  | ------------ | ---- | - | ------------- | - | ----- | ------------- |  |  | ------- | - |  | ---- | ----- | ----- | ------- |  | ---- | ---- |  | - | ------- | ------ |  |  | ---- | - |  | - | ------ | ------ | 
|                   |                                     |                          |   | At December 31, 2001   |      
|                   |                                     |                          |   |                        |      
|                   |                                     |                          |   | 1 Year and Less        |       |  | 1 to 5 Years |      |   | 5 to 10 Years |   |       | Over 10 Years |  |  |         |   | 
|                   |                                     |                          |   |                        |       |  |              |      |   |               |   |       |               |  |  | Total   |  
|                   |                                     |                          |   | Balance                |       |  | Rate         |      |   | Balance       |   |       | Rate          |  |  | Balance |   |  | Rate |       |       | Balance |  |      | Rate |  |   | Balance |       
|                   |                                     |                          |   |                        |       |  |              |      |   |               |   |       |               |  |  |         |   |  |      |       |       |         |  |      |      |  |   |         |       
|                   |                                     |                          |   | (Dollars in thousands) |      
|Available-For-Sale |                                     |                          |   |                        |       |  |              |      |   |               |   |       |               |  |  |         |   |  |      |       |       |         |  |      |      |  |   |         |        |  |  |      |   |  |   |       
|                   | U.S. government & agencies          |                          | $ | 1,021                  |       |  |              | 5.24 | % |               | $ | 4,071 |               |  |  | 5.58    | % |  | $    | 4,999 |       |         |  | 5.73 | %    |  | $ | 2,456   |        |  |  | 6.63 | % |  | $ | 12,547 |       
|                   | States & political subdivisions (1) |                          |   | 11                     |       |  |              | 9.09 |   |               |   | 51    |               |  |  | 9.09    |   |  |      | 483   |       |         |  | 6.68 |      |  |   | 71      |        |  |  | 9.90 |   |  |   | 616    |       
|                   | Other securities                    |                          |   |                       |       |  |              |     |   |               |   |      |               |  |  |        |   |  |      | 206   |       |         |  | 8.00 |      |  |   | 1,586   |        |  |  | 6.31 |   |  |   | 1,792  |       
|                   | Mortgage backed securities          |                          |   |                       |       |  |              |     |   |               |   |      |               |  |  |        |   |  |      | 700   |       |         |  | 6.37 |      |  |   | 7,226   |        |  |  | 6.24 |   |  |   | 7,926  |       
|                   |                                     |                          |   |                        |       |  |              |      |   |               |   |       |               |  |  |         |   |  |      |       |       |         |  |      |      |  |   |         |        |  | 
|                   |                                     | Total available for sale |   | $                      | 1,032 |  |              |      |   |               |   | $     | 4,122         |  |  |         |   |  |      | $     | 6,388 |         |  |      |      |  |   | $       | 11,339 |  |  |      |   |  |   | $      | 22,881 | 
|                   |                                     |                          |   |                        |       |  |              |      |   |               |   |       |               |  |  |         |   |  |      |       |       |         |  |      |      |  |   |         |        |  | 
|Held to Maturity   |                                     |                          |   |                        |       |  |              |      |   |               |   |       |               |  |  |         |   |  |      |       |       |         |  |      |      |  |   |         |        |  |  |      |   |  |   |       
|                   | U.S. government & agencies          |                          | $ |                       |       |  |              |     | % |               | $ |      |               |  |  |        | % |  | $    |      |       |         |  |     | %    |  | $ |        |        |  |  |     | % |  | $ |       |       
|                   | States & political subdivisions (1) |                          |   | 275                    |       |  |              | 7.22 |   |               |   |      |               |  |  |        |   |  |      |      |       |         |  |     |      |  |   |        |        |  |  |     |   |  |   | 275    |       
|                   | Mortgage backed securities          |                          |   |                       |       |  |              |     |   |               |   |      |               |  |  |        |   |  |      |      |       |         |  |     |      |  |   |        |        |  |  |     |   |  |   |       |       
|                   |                                     |                          |   |                        |       |  |              |      |   |               |   |       |               |  |  |         |   |  |      |       |       |         |  |      |      |  |   |         |        |  | 
|                   |                                     | Total held to maturity   |   | $                      | 275   |  |              |      |   |               |   | $     |              |  |  |         |   |  |      | $     |      |         |  |      |      |  |   | $       |       |  |  |      |   |  |   | $      | 275    | 
|                   |                                     |                          |   |                        |       |  |              |      |   |               |   |       |               |  |  |         |   |  |      |       |       |         |  |      |      |  |   |         |        |  | 



---

|(1) |  | Average rates were calculated on a tax equivalent basis using a marginal federal income tax rate of 34%.
|--- |  | --------------------------------------------------------------------------------------------------------

Securities are designated as either available for sale or as held to
maturity. To provide more flexibility, held to maturity securities have been
allowed to mature and pay-off, with all security purchases since 1999
classified as available for sale. The securities portfolio continues to be
largely comprised of U.S. Treasury and government agency securities. The
securities portfolio increased from 2000 to 2001 as deposits grew faster than
loans.

Loans

Note 3 to the financial statements and the following table set forth
information about the loan portfolio.

Loan Portfolio

|                                                           |  |                        |        |  |                   |  |       |         |  |   |         |  |  |  |       |  
|---------------------------------------------------------- |  | ---------------------- | ------ |  | ----------------- |  | ----- | ------- |  | - | ------- |  |  |  | ----- | -
|                                                           |  | December 31, 2001      |        |  | December 31, 2000 | 
|                                                           |  |                        |        |  |                   | 
|                                                           |  | Balance                |        |  | Percent           |  |       | Balance |  |   | Percent | 
|                                                           |  |                        |        |  |                   |  |       |         |  |   |         | 
|                                                           |  | (Dollars in thousands) |       
|Loan Portfolio Composition (including
loans held for sale) |  |                        |        |  |                   |  |       |         |  |   |         |  |  |  |       |  
|Commercial                                                 |  | $                      | 19,606 |  |                   |  | 20.9  | %       |  | $ | 19,047  |  |  |  | 23.3  | %
|Commercial real estate                                     |  |                        | 12,725 |  |                   |  | 13.6  |         |  |   | 6,902   |  |  |  | 8.4   |  
|Residential real estate                                    |  |                        | 27,296 |  |                   |  | 29.1  |         |  |   | 20,721  |  |  |  | 25.3  |  
|Construction                                               |  |                        | 10,292 |  |                   |  | 11.0  |         |  |   | 12,148  |  |  |  | 14.8  |  
|Consumer                                                   |  |                        | 23,796 |  |                   |  | 25.4  |         |  |   | 23,085  |  |  |  | 28.2  |  
|                                                           |  |                        |        |  |                   |  |       |         |  |   |         | 
|                                                           |  | $                      | 93,715 |  |                   |  | 100.0 | %       |  | $ | 81,903  |  |  |  | 100.0 | %
|                                                           |  |                        |        |  |                   |  |       |         |  |   |         | 

9



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##### 



|                        |             |   |                                      |        |  |       |        |        |        |   |       |        |  |   |        |        | 
|----------------------- | ----------- | - | ------------------------------------ | ------ |  | ----- | ------ | ------ | ------ | - | ----- | ------ |  | - | ------ | ------ | 
|                        |             |   | Loan Maturities at December 31, 2001 |       
|                        |             |   |                                      |       
|                        |             |   | 1 Year                               |        |  | 1 - 5 |        |        | Over 5 |   |       | Total  | 
|                        |             |   | and Less                             |        |  | Years |        |        | Years  |   |       |        | 
|                        |             |   |                                      |        |  |       |        |        |        |   |       |       
|                        |             |   | (Dollars in Thousands)               |       
|Commercial              |             | $ | 13,409                               |        |  | $     | 5,518  |        |        | $ | 679   |        |  | $ | 19,606 |       
|Commercial real estate  |             |   | 4,692                                |        |  |       | 4,590  |        |        |   | 3,443 |        |  |   | 12,725 |       
|Real estate-residential |             |   | 15,878                               |        |  |       | 2,658  |        |        |   | 8,760 |        |  |   | 27,296 |       
|Construction            |             |   | 9,369                                |        |  |       | 813    |        |        |   | 110   |        |  |   | 10,292 |       
|Consumer                |             |   | 1,728                                |        |  |       | 14,759 |        |        |   | 7,309 |        |  |   | 23,796 |       
|                        |             |   |                                      |        |  |       |        |        |        |   |       |       
|                        | Total loans |   | $                                    | 45,076 |  |       | $      | 28,338 |        |   | $     | 20,301 |  |   | $      | 93,715 | 
|                        |             |   |                                      |        |  |       |        |        |        |   |       |       

|               |             |   |                                     |        |  |        |        |        |       |   |        |        | 
|-------------- | ----------- | - | ----------------------------------- | ------ |  | ------ | ------ | ------ | ----- | - | ------ | ------ | 
|               |             |   | Sensitivity to Changes in           |       
|               |             |   | Interest Rates at December 31, 2001 |       
|               |             |   |                                     |       
|               |             |   | 1 Year                              |        |  | Over   |        |        | Total |  
|               |             |   | and Less                            |        |  | 1 Year |        |        |       |  
|               |             |   |                                     |        |  |        |        |        |       |   |       
|               |             |   | (Dollars in Thousands)              |       
|Fixed rates    |             | $ | 5,065                               |        |  | $      | 45,190 |        |       | $ | 50,255 |       
|Variable rates |             |   | 32,900                              |        |  |        | 10,560 |        |       |   | 43,460 |       
|               |             |   |                                     |        |  |        |        |        |      
|               | Total loans |   | $                                   | 37,965 |  |        | $      | 55,750 |       |   | $      | 93,715 | 
|               |             |   |                                     |        |  |        |        |        |      

Total loans, including loans held for sale, increased $11.8 million or
14.4% from year-end 2000 to year-end 2001 as we continued to increase market
share in existing markets, principally in the Johnson County, Indiana area.
Loan growth occurred in nearly all categories.

Commercial loans, including commercial real estate loans, grew by 24.6% or
$6.4 million from 2000 to 2001 and comprised 34.5% of our portfolio at December
31, 2001. Growth in this segment was attributed to our continued focus in the
communities we serve. Residential mortgages increased $6.6 million or 31.7% to
$27.3 million. Contributing to this growth was the introduction of a home
equity line of credit in 1999. With the significant growth obtained in other
sectors of the loan portfolio, mortgage loans now comprise the second largest
segment of the portfolio at 29.1%. Nonetheless, a majority of our portfolio
remains secured by real estate, with residential, commercial and construction
real estate loans comprising 53.7% of the portfolio at year end 2001.

Consumer loans experienced modest growth, increasing $711,000 from 2000 to
2001. Total consumer loans were $23.8 million and comprised 25.4% of the
portfolio at year-end 2001. A strong indirect lending program has allowed for
continued growth in consumer loans, as we maintain relationships with several
local auto and recreational vehicle dealers. Underwriting standards for
indirect loans are consistent with the standards applied to direct loans in an
effort to maintain strong asset quality.

While we have achieved double-digit loan growth during 2001, we have
continued to focus on asset quality. This is evidenced by only a modest
increase in our net charge-offs and non-performing loans. While we have
experienced a slight increase in net charge-offs and non-performing loans, our
watch list loans, as a percentage of average loan balances, has declined. The
ratio of watch list loans to average loan balances at December 31, 2001 was
1.57% compared to 1.82% at year-end 2000.

During 1999, we started a mortgage banking division, providing our
customers with a wider array of mortgage loan products. At year-end 2001, loans
held for sale, which are carried at the lower of cost or fair value, totaled
$2.8 million. All mortgage loans sold are sold service released.

10



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##### 



Deposits

Year-end total deposits increased $20.7 million or 22.8%, from 2000 to
2001, with growth driven by further penetration of existing markets and active
advertising campaigns. Noninterest-bearing deposits increased to $11.3 million
from $10.2 million. At December 31, 2001, $28.9 million or 44.1% of our time
deposits had balances of greater than $100,000. The average balance of time
deposits issued in amounts greater than $100,000 totaled $26.6 million in 2001
and $17.8 million in 2000, representing 42.6% and 37.8% of total average time
deposits in each period.

Note 6 to the financial statements and the following table set forth more
information about our deposits.

Maturity Ranges of Time Deposits with Balances of $100,000 or More at December 31, 2001

|                    |       |   |                |        | 
|------------------- | ----- | - | -------------- | ------ | 
|                    |       |   | (In thousands) |       
|3 months or less    |       | $ | 13,358         |       
|3 through 6 months  |       |   | 4,920          |       
|6 through 12 months |       |   | 3,889          |       
|Over 12 months      |       |   | 6,694          |       
|                    |       |   |               
|                    | Total |   | $              | 28,861 | 
|                    |       |   |               

Capital

Our subsidiary, First Bank, is subject to various regulatory capital
guidelines as required by federal and state banking agencies. These guidelines
define the various components of core capital and assign risk weights to
various categories of assets.

Tier 1 capital consists of shareholders equity net of intangible assets
and excluding unrealized gains and losses on securities available for sale, as
defined by bank regulators. The definition of Tier 2 capital includes the
amount of the allowance for loan losses that does not exceed 1.25% of gross
risk weighted assets. Total capital is the sum of Tier 1 and Tier 2 capital.

The minimum requirements under the capital guidelines are generally at
least a 4.00% leverage ratio (Tier 1 capital divided by average assets
excluding unrealized gains/losses), a 4.00% Tier 1 risk-based capital ratio
(Tier 1 capital divided by risk-weighted assets), and an 8.00% total capital
ratio (Tier 1 capital plus Tier 2 capital divided by risk-weighted assets).

The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) requires federal regulatory agencies to define capital tiers. These
are: well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Under these regulations, a
well-capitalized institution must achieve a Tier 1 risk-based capital ratio
of at least 6.00%, and a total capital ratio of at least 10.00%, and a leverage
ratio of at least 5.00%. In order to be well capitalized, an institution also
cannot be under a capital directive order. Failure to meet capital requirements
could cause a regulatory agency to initiate or impose corrective actions that
could have a direct material effect on our results of operations and financial
condition. If an institution is only adequately capitalized, regulatory
approval is required to accept brokered deposits. If an institution is
undercapitalized, capital distributions, asset growth, and expansion are
limited, in addition to the institution being required to submit a capital
restoration plan.

Given our rapid growth rate, the regulatory agencies have required First
Bank to maintain a leverage ratio of at least 7% of actual assets during a
portion of 2000 and for 2001. The first and second quarter calculations were
completed using actual assets. During the third quarter, we were released from
the actual assets requirement. Regulators continued to require that we maintain
a 7.0% leverage ratio calculated on average assets for the fourth quarter of
2001. At December 31, 2001, this ratio was 6.95%, but at January 31, 2002, it
was 7.02%. We notified our regulators regarding the deficiency at December 31,
2001, but we have not received any notice from any regulator indicating that it
intends to take any corrective action. We continue to operate under this
restriction.

11



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##### 



Because we intend to contribute most of the net proceeds from this
offering to First Bank, we anticipate that this restriction will not be
applicable in the future provided our results of operations do not otherwise
adversely affect this ratio.

At December 31, 2001, we were not aware of any current recommendations by
banking regulatory authorities which, if they were to be implemented, would
have, or are reasonably likely to have, a material effect on our consolidated
liquidity, capital resources or operations, other than the borrowing, capital
and dividend restrictions described elsewhere in this report.

Note 11 to the financial statements and the following table set forth
actual capital amounts and ratios of First Bank.

Capital Ratios

|                         |                                              |   |                        |        |   |      |         |       |      |   |        |       |  
|------------------------ | -------------------------------------------- | - | ---------------------- | ------ | - | ---- | ------- | ----- | ---- | - | ------ | ----- | -
|                         |                                              |   | December 31,           |       
|                         |                                              |   |                        |       
|                         |                                              |   | 2001                   |        |   | 2000 |         |       | 1999 |  
|                         |                                              |   |                        |        |   |      |         |       |      |  
|                         |                                              |   | (Dollars in thousands) |       
|Tier 1 capital           |                                              |   |                        |        |   |      |         |       |      |   |        |      
|                         | Shareholders equity                         |   | $                      | 9,014  |   |      | $       | 8,168 |      |   | $      | 4,566 |  
|                         | Add/less: Unrealized loss/gain on securities |   |                        | 5      |   |      |         | (23   | )    |   |        | 147   |  
|                         | Less: intangible assets                      |   |                        | (119   | ) |      |         | (163  | )    |   |        | (206  | )
|                         |                                              |   |                        |        |   |      |         |       |     
|                         | Total Tier 1 capital                         |   | $                      | 8,900  |   |      | $       | 7,982 |      |   | $      | 4,507 |  
|                         |                                              |   |                        |        |   |      |         |       |     
|Total risk-based capital |                                              |   |                        |        |   |      |         |       |      |   |        |      
|                         | Tier 1 capital                               |   | $                      | 8,900  |   |      | $       | 7,982 |      |   | $      | 4,507 |  
|                         | Allowable allowance for loan losses          |   |                        | 1,148  |   |      |         | 910   |      |   |        | 549   |  
|                         |                                              |   |                        |        |   |      |         |       |     
|                         | Total risk-based capital                     |   | $                      | 10,048 |   |      | $       | 8,892 |      |   | $      | 5,056 |  
|                         |                                              |   |                        |        |   |      |         |       |     
|Risk weighted assets     |                                              | $ | 98,656                 |        |   | $    | 87,726  |       |      | $ | 55,334 |      
|                         |                                              |   |                        |        |   |      |         |       |     
|Average assets           |                                              | $ | 128,015                |        |   | $    | 101,385 |       |      | $ | 63,179 |      
|                         |                                              |   |                        |        |   |      |         |       |     
|Risk-based ratios        |                                              |   |                        |        |   |      |         |       |      |   |        |      
|                         | Tier 1                                       |   |                        | 9.02   | % |      |         | 9.10  | %    |   |        | 8.15  | %
|                         | Total risk-based capital                     |   |                        | 10.18  | % |      |         | 10.14 | %    |   |        | 9.14  | %
|Leverage Ratio           |                                              |   | 6.95                   | %      |   |      | 7.87    | %     |      |   | 7.13   | %    

Liquidity and Rate Sensitivity

Liquidity refers to the availability of funds to meet deposit withdrawals
and borrowing repayments, fund loan commitments and pay expenses. We have many
sources of liquid funds, including cash and cash equivalents, payments and
maturities of loans and securities, and growth in deposits. In addition, we
have the ability to sell securities available for sale, and may borrow from the
Federal Reserve and the Federal Home Loan Bank.

We believe we have sufficient liquidity to meet reasonable borrower,
depositor, and creditor needs in the present economic environment. We have not
received any recommendations from regulatory authorities which would materially
affect liquidity, capital resources or operations, other than the borrowing,
capital, and dividend restrictions described elsewhere in this report.

Our interest rate sensitivity position is influenced by the timing of the
maturity or repricing of interest earning assets and interest-bearing
liabilities. One method of gauging sensitivity is by a static gap analysis, as
presented in

12



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##### 



the table below. The gap is the difference between rate sensitive assets and
rate sensitive liabilities within a specific time frame. Gap is considered an
indicator of the effect a change in interest rates may have on net interest
income.

Liquidity and Interest Rate Sensitivity

|                                                 |                                  |                                    |         |                        |        |   |           |        |        |        |         |        |        |   |        |        |        |   |       |        |         | 
|------------------------------------------------ | -------------------------------- | ---------------------------------- | ------- | ---------------------- | ------ | - | --------- | ------ | ------ | ------ | ------- | ------ | ------ | - | ------ | ------ | ------ | - | ----- | ------ | ------- | 
|                                                 |                                  |                                    |         | At December 31, 2001   |       
|                                                 |                                  |                                    |         |                        |       
|                                                 |                                  |                                    |         | 1 to 90                |        |   | 91 to 365 |        |        | 1 to 5 |         |        | Over 5 |   |        | Total  |       
|                                                 |                                  |                                    |         | Days                   |        |   | Days      |        |        | Years  |         |        | Years  |   |        |        |       
|                                                 |                                  |                                    |         |                        |        |   |           |        |        |        |         |        |        |   |       
|                                                 |                                  |                                    |         | (Dollars in thousands) |       
|Interest earning assets                          |                                  |                                    |         |                        |        |   |           |        |        |        |         |        |        |   |        |        |        |   |       |       
|                                                 | Loans                            |                                    | $       | 15,490                 |        |   | $         | 25,493 |        |        | $       | 33,351 |        |   | $      | 19,381 |        |   | $     | 93,715 |        
|                                                 | Federal funds sold and other     |                                    |         | 1,081                  |        |   |           |       |        |        |         |       |        |   |        |       |        |   |       | 1,081  |        
|                                                 | Securities                       |                                    |         | 4,001                  |        |   |           | 6,622  |        |        |         | 4,012  |        |   |        | 8,521  |        |   |       | 23,156 |        
|                                                 | Restricted stock                 |                                    |         | 670                    |        |   |           |       |        |        |         |       |        |   |        |       |        |   |       | 670    |        
|                                                 |                                  |                                    |         |                        |        |   |           |        |        |        |         |        |        |   |       
|                                                 |                                  | Total earning assets               |         | $                      | 21,242 |   |           | $      | 32,115 |        |         | $      | 37,363 |   |        | $      | 27,902 |   |       | $      | 118,622 | 
|                                                 |                                  |                                    |         |                        |        |   |           |        |        |        |         |        |        |   |       
|Interest bearing liabilities                     |                                  |                                    |         |                        |        |   |           |        |        |        |         |        |        |   |        |        |        |   |       |       
|                                                 | Interest-bearing demand deposits |                                    | $       | 28,073                 |        |   | $         |       |        |        | $       |       |        |   | $      |       |        |   | $     | 28,073 |        
|                                                 | Savings deposits                 |                                    |         | 6,628                  |        |   |           |       |        |        |         |       |        |   |        |       |        |   |       | 6,628  |        
|                                                 | Time deposits                    |                                    |         | 20,100                 |        |   |           | 22,814 |        |        |         | 22,401 |        |   |        | 106    |        |   |       | 65,421 |        
|                                                 | Repurchase agreements            |                                    |         | 4,211                  |        |   |           |       |        |        |         |       |        |   |        |       |        |   |       | 4,211  |        
|                                                 | FHLB advances                    |                                    |         |                       |        |   |           |       |        |        |         | 1,000  |        |   |        | 2,000  |        |   |       | 3,000  |        
|                                                 | Note payable                     |                                    |         | 1,780                  |        |   |           |       |        |        |         |       |        |   |        |       |        |   |       | 1,780  |        
|                                                 |                                  |                                    |         |                        |        |   |           |        |        |        |         |        |        |   |       
|                                                 |                                  | Total interest bearing liabilities |         | $                      | 60,792 |   |           | $      | 22,814 |        |         | $      | 23,401 |   |        | $      | 2,106  |   |       | $      | 109,113 | 
|                                                 |                                  |                                    |         |                        |        |   |           |        |        |        |         |        |        |   |       
|Rate sensitive gap                               |                                  | $                                  | (39,550 | )                      |        | $ | 9,301     |        |        | $      | 13,962  |        |        | $ | 25,796 |        |        | $ | 9,509 |       
|Rate sensitive cumulative gap                    |                                  | $                                  | (39,550 | )                      |        | $ | (30,249   | )      |        | $      | (16,287 | )      |        | $ | 9,509  |        |        |   | N/A   |       
|Cumulative gap as a percentage of earning assets |                                  |                                    | (33.34  | )%                     |        |   | (25.50    | )%     |        |        | (13.73  | )%     |        |   | 8.02   | %      |        |   | N/A   |       

As of December 31, 2001, our rate sensitive liabilities exceeded rate
sensitive assets through the one year horizon. This would indicate that when
rates increase, net interest income may decline. In order to accurately
determine the effect of changes in interest rates, the repricing effect of each
type of interest-earning asset and interest-bearing liability must be measured.
Assets and liabilities have different characteristics and the magnitude of
change differs for each. Management continually monitors the changes to net
interest income which may result from changing interest rates.

A significant assumption that creates the large negative gap in the 0 to 3
month category is that all interest-bearing demand and savings accounts are
subject to immediate repricing. While it is true that, contractually, those
accounts are subject to immediate repricing, the rates paid on those accounts
are generally not tied to specific indices and are influenced by market
conditions and other factors. Accordingly, a general movement in interest
rates, either up or down, may not have any immediate effect on the rates paid
on these deposit accounts. The foregoing table illustrates only one source of
information about sensitivity to interest rate movements. Our asset and
liability management process also uses simulations that take into account the
time that various assets and liabilities may reprice and the degree to which
various categories of such assets and liabilities will respond to general
interest rate

13



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##### 



movements. Interest rate risk can only be represented by a measurement of the
effects of changing interest rates given the capacity for and magnitude of
change on specific assets and liabilities.

14