SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________

COMMISSION FILE NUMBER 000-27905

MFS FINANCIAL, INC.

(Exact Name of Registrant as Specified in its Charter)

            Maryland                     110 E. Charles Street, Muncie, Indiana
------------------------------------    ----------------------------------------
(State or other jurisdiction            (Address of principal executive offices)
of incorporation or organization)


           35-2085640                                  47305-2419
------------------------------------     --------------------------------------
(I.R.S. Employer Identification No.)                   (Zip Code)

Registrant's telephone number, including area code: (765) 747-2800

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X ]

The aggregate market value of the voting common stock held by non-affiliates of the registrant, computed by reference to the last sale price of such stock on the Nasdaq National Market on March 1, 2000, was approximately $49.8 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.)

As of March 1, 2000, there were issued and outstanding 5,819,611 shares of the registrant's common stock.

DOCUMENTS INCORPORATED BY REFERENCE

PART II of Form 10-K--Portions of registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1999. PART III of Form 10-K--Portions of registrant's Proxy Statement for its 2000 Annual Meeting of Stockholders.

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ITEM 1. BUSINESS

General

MFS Financial, Inc., a Maryland corporation, is a savings and loan holding company which has as its wholly-owned subsidiary Mutual Federal Savings Bank. MFS Financial was formed in September 1999 to become the holding company of Mutual Federal in connection with Mutual Federal's conversion from mutual to stock form of organization on December 29, 1999. The words "we," "our" and "us" refer to MFS Financial and Mutual Federal on a consolidated basis, except that references to us prior to December 29, 1999 refer only to Mutual Federal.

At December 31, 1999, we had total assets of $544.5 million, deposits of $364.6 million and stockholders' equity of $96.7 million. Our executive offices are located at 110 E. Charles Street, Muncie, Indiana 47305-2400.

Our principal business consists of attracting retail deposits from the general public and investing those funds primarily in permanent loans secured by first mortgages on owner-occupied, one- to four-family residences and a variety of consumer loans. We also originate loans secured by commercial and multi-family real estate, commercial business loans and construction loans secured primarily by residential real estate.

Our revenues are derived principally from interest on loans and interest on investments and mortgage-backed securities.

We offer deposit accounts having a wide range of interest rates and terms, which generally include passbook and statement savings accounts, money market deposit accounts, NOW and non-interest bearing checking accounts and certificates of deposit with terms ranging from seven days to 71 months. We solicit deposits in our market areas and we have not accepted brokered deposits.

FORWARD-LOOKING STATEMENTS

This Form 10-K contains various forward-looking statements which are based on assumptions and describe our future plans and strategies and our expectations. These forward- looking statements are generally identified by words such as "believe," "expect," "intend," "anticipate," "estimate," "project," or similar words. Our ability to predict results or the actual effect of future plans or strategies is uncertain. Factors which could cause actual results to differ materially from those estimated include, but are not limited to, changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of our loan and investment portfolios, demand for our loan products, deposit flows, our operating expenses, competition, demand for financial services in our market areas and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and you should not rely too much on these statements.

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MARKET AREAS

We are a community-oriented financial institution offering a variety of financial services to meet the needs of the communities we serve. We are headquartered in Muncie, Indiana and have 13 retail offices primarily serving Delaware, Randolph and Kosciusko counties in Indiana. We also originate mortgage loans in contiguous counties and we originate indirect consumer loans throughout Indiana and western Ohio. See "Lending Activities -- Consumer and Other Lending."

LENDING ACTIVITIES

GENERAL. Our mortgage loans carry either a fixed or an adjustable rate of interest. Mortgage loans are generally long-term and amortize on a monthly basis with principal and interest due each month. At December 31, 1999, our net loan portfolio totaled $442.8 million, which constituted 81.3% of our total assets.

Mortgage loans up to $240,000 may be approved by individual officers. Any mortgage loan over this amount but not over $300,000 must be approved by the local market area committee (i.e., Muncie, Winchester or Warsaw markets comprising Delaware, Randolph and Kosciusko counties). Individual loan officers may approve multi-family and commercial real estate loans up to $250,000, with authority up to $500,000 with the approval of two senior officers. Mortgage loans over $300,000, multi-family and commercial real estate loans over $500,000 and any loans, regardless of amount, outside our general underwriting guidelines, must be approved by Mutual Federal's board of directors.

At December 31, 1999, the maximum amount which we could lend to any one borrower and the borrower's related entities was approximately $11.2 million. At December 31, 1999, our largest lending relationship to a single borrower or a group of related borrowers consisted of ten loans to a local developer/entrepreneur and related entities totaling $3.8 million. Although the relationship dates back to 1980, 87.4% of the outstanding debt has been originated since June 30, 1998, and consists of refinancing existing debt. The loans are diverse and are secured by apartment complexes, medical facilities and a bank branch, each with independent income streams to support debt service requirements. Each of the loans to this group of borrowers was current and performing in accordance with its terms at December 31, 1999.

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The following table presents information concerning the composition of our loan portfolio in dollar amounts and in percentages as of the dates indicated.

                                                                               December 31,
                                            ------------------------------------------------------------------------------
                                                       1999                       1998                       1997
                                            ------------------------------------------------------------------------------
                                                Amount       Percent      Amount       Percent       Amount      Percent
                                            ------------------------------------------------------------------------------
                                                                          (Dollars in Thousands)
Real Estate Loans:
 One- to four-family.......................      $286,578     63.70%     $264,461       65.42%      $266,971      65.77%
 Multi-family..............................         5,544      1.23         6,282        1.56          7,694       1.90
 Commercial................................        14,559      3.24        10,293        2.54          8,131       2.00
 Construction and development..............        12,470      2.77        11,805        2.92         10,385       2.56
                                                 --------    ------      --------      ------       --------     ------
     Total real estate loans...............       319,151     70.94       292,841       72.44        293,181      72.23
                                                 --------    ------      --------      ------       --------     ------
Other Loans:
 Consumer Loans:
  Automobile...............................        19,887      4.42        17,820        4.41         19,977       4.92
  Home equity..............................        10,585      2.36        10,253        2.54         11,366       2.80
  Home improvement.........................        14,588      3.24        12,108        2.99         14,485       3.57
  Manufactured housing.....................        12,305      2.74        15,466        3.83         20,017       4.93
  R.V......................................        25,629      5.70        19,100        4.72         14,564       3.59
  Boat.....................................        32,374      7.20        23,608        5.84         21,553       5.31
  Other....................................         4,554      1.01         5,753        1.42          5,585       1.38
                                                 --------    ------      --------      ------       --------     ------
     Total consumer loans..................       119,922     26.67       104,108       25.75        107,547      26.50
 Commercial business loans.................        10,764      2.39         7,285        1.81          5,211       1.27
                                                 --------    ------      --------      ------       --------     ------
     Total other loans.....................       130,686     29.06       111,393       27.56        112,758      27.77
                                                 --------    ------      --------      ------       --------     ------
 Total loans receivable, gross.............       449,837    100.00%      404,234      100.00%       405,939     100.00%
                                                             ======                    ======                    ======
Less:
 Undisbursed portion of loans..............         4,844                   3,353                      3,998
 Deferred loan fees and costs..............        (1,446)                   (689)                      (440)
 Allowance for losses......................         3,652                   3,424                      3,091
                                                 --------                --------                   --------
 Total loans receivable, net...............      $442,787                $398,146                   $399,290
                                                 ========                ========                   ========

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                                                                  December 31,
                                              ----------------------------------------------------
                                                       1996                        1995
                                              ----------------------------------------------------
                                                Amount       Percent       Amount       Percent
                                              ----------------------------------------------------
                                                               (Dollars in thousands)
Real Estate Loans:
 One- to four-family.......................      $244,518      63.17%       $224,526      63.02%
 Multi-family..............................         9,598       2.48           6,544       1.84
 Commercial................................         7,878       2.03          10,090       2.83
 Construction and development..............        22,040       5.69          17,201       4.83
                                                 --------     ------        --------     ------
     Total real estate loans...............       284,034      73.37         258,361      72.52
                                                  -------      -----        --------     ------

Other Loans:
 Consumer Loans:
  Automobile...............................        20,164       5.21          19,297       5.42
  Home equity..............................        10,885       2.81           9,246       2.59
  Home improvement.........................        12,066       3.12          10,994       3.08
  Manufactured housing.....................        24,933       6.44          29,768       8.36
  R.V......................................        11,503       2.97          10,528       2.96
  Boat.....................................        17,244       4.45          11,721       3.29
  Other....................................         5,676       1.47           6,340       1.78
                                                 --------     ------        --------     ------
     Total consumer loans..................       102,471      26.47          97,894      27.48
 Commercial business loans.................           596       0.16             ---        ---
                                                 --------     -------       --------     ------
     Total other loans.....................       103,067      26.63          97,894      27.48
                                                  -------     ------        --------     ------
 Total loans receivable, gross.............       387,101     100.00%        356,255     100.00%
                                                              ======                     ======
Less:
 Undisbursed portion of loans..............
 Deferred loan fees and costs..............         6,073                      7,951
 Allowance for losses......................          (252)                      (188)
                                                    2,990                      2,754
 Total loans receivable, net...............      --------                   --------
                                                 $378,290                   $345,738
                                                 ========                   ========

4

The following table shows the composition of our loan portfolio by fixed- and adjustable-rate at the dates indicated.

                                                                              December 31,
                                            ----------------------------------------------------------------------------------
                                                       1999                       1998                       1997
                                            ----------------------------------------------------------------------------------
                                               Amount       Percent       Amount       Percent       Amount        Percent
                                            ----------------------------------------------------------------------------------
                                                                         (Dollars in Thousands)
Fixed-Rate Loans:
 Real estate:
  One- to four-family......................   $178,033       39.58%      $163,262       40.39%     $141,024          34.74%
  Multi-family.............................      2,270         .50          2,656        0.66         2,485           0.61
  Commercial...............................      6,220        1.38          2,398        0.59         1,447           0.36
  Construction and development.............      5,043        1.12          8,076        2.00         4,108           1.01
                                              --------      ------       --------     -------      --------         ------
     Total real estate loans...............    191,566       42.58        176,392       43.64       149,064          36.72

 Consumer..................................    106,563       23.69         93,855       23.22        96,181          23.70
 Commercial business.......................      3,320         .74          1,972        0.49         4,454           1.09
                                              --------      ------       --------     -------      --------         ------
     Total fixed-rate loans................    301,449       67.01        272,219       67.35       249,699          61.51
                                              --------      ------       --------      ------      --------         ------
Adjustable-Rate Loans:
 Real estate:
  One- to four-family......................    108,545       24.13        101,199       25.03       125,947          31.03
  Multi-family.............................      3,274         .73          3,626        0.90         5,209           1.29
  Commercial...............................      8,339        1.85          7,895        1.95         6,684           1.64
  Construction and development.............      7,427        1.65          3,729        0.92         6,277           1.55
                                              --------      ------       --------     -------      --------         ------
     Total real estate loans...............    127,585       28.36        116,449       28.80       144,117          35.51

 Consumer..................................     13,359        2.97         10,253        2.53        11,366           2.80
 Commercial business.......................      7,444        1.66          5,313        1.32           757           0.18
                                              --------      ------       --------    ---------     --------         -------
     Total adjustable-rate loans...........    148,388       32.99        132,015       32.65       156,240          38.49
                                              --------      ------       --------     -------      --------         ------
     Total loans...........................    449,837      100.00%       404,234      100.00%      405,939         100.00%
                                                            ======                     ======                       ======
Less:
 Undisbursed portion of loans..............      4,844                       3,353                    3,998
 Deferred loan fees and costs..............     (1,446)                       (689)                    (440)
 Allowance for loan losses.................      3,652                       3,424                    3,091
                                              --------                    --------                 --------
    Total loans receivable, net............   $442,787                    $398,146                 $399,290
                                              ========                    ========                 ========

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                                                                December 31,
                                             ----------------------------------------------------
                                                        1996                        1995
                                             ----------------------------------------------------
                                                 Amount       Percent       Amount       Percent
                                             ----------------------------------------------------
                                                             (Dollars in thousands)
Fixed-Rate Loans:
 Real estate:
  One- to four-family......................      $132,095        34.12%      $118,381       33.23%
  Multi-family.............................         3,161         0.82            734        0.21
  Commercial...............................         1,280         0.33          2,030        0.57
  Construction and development.............        11,271         2.91          6,710        1.88
                                                 --------       ------       --------      ------
     Total real estate loans...............       147,807        38.18        127,855       35.89

 Consumer..................................        91,586        23.66         88,648       24.88
 Commercial business.......................           596         0.16            ---         ---
                                                 --------       ------       --------      ------
     Total fixed-rate loans................       239,989        62.00        216,503       60.77
                                                 --------       ------       --------      ------
Adjustable-Rate Loans:
 Real estate:
  One- to four-family......................       112,423        29.05        106,145       29.79
  Multi-family.............................         6,437         1.66          5,810        1.63
  Commercial...............................         6,598         1.70          8,060        2.26
  Construction and development.............        10,769         2.78         10,491        2.95
                                                 --------       ------       --------      ------
     Total real estate loans...............       136,227        35.19        130,506       36.63

 Consumer..................................        10,885         2.81          9,246        2.60
 Commercial business.......................           ---          ---            ---         ---
                                                 --------       ------       --------      ------
     Total adjustable-rate loans...........       147,112        38.00        139,752       39.23
                                                 --------       ------       --------      ------
     Total loans...........................       387,101       100.00%       356,255      100.00%
                                                                ======                     ======
Less:
 Undisbursed portion of loans..............         6,073                       7,951
 Deferred loan fees and costs..............          (252)                       (188)
 Allowance for loan losses.................         2,990                       2,754
                                                 --------                    --------
    Total loans receivable, net............      $378,290                    $345,738
                                                 ========                    ========

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The following schedule illustrates the contractual maturity of our loan portfolio at December 31, 1999. Mortgages which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.

                                                                        Real Estate
                        ------------------------------------------------------------------------------------------------------------
                                                        Multi-family and             Construction
                           One- to Four-Family             Commercial             and Development(1)              Consumer
                        ------------------------------------------------------------------------------------------------------------
                                       Weighted                   Weighted                   Weighted                     Weighted
                                        Average                    Average                    Average                     Average
                           Amount        Rate         Amount        Rate         Amount        Rate          Amount         Rate
                        ------------------------------------------------------------------------------------------------------------
                                                                                             (Dollars in Thousands)
      Due During
     Years Ending
     December 31,
-----------------------


2000(2)................    $  1,082      7.20%       $   858         8.47%      $    80          9.25%      $  6,439        9.65%
2001...................         678      7.54             69         8.77             2          9.38          3,474        9.30
2002...................         922      8.18             53         9.13           ---           ---          7,404        8.90
2003 and 2004..........       5,326      7.40          1,957         8.05            91          8.46         22,367        8.71
2005 to 2006...........       6,554      7.48          4,746         7.80           284          7.52         11,584        9.52
2007 to 2021...........     131,846      7.18         12,355         8.25         3,547          7.59         68,531(2)     9.01
2022 and following.....     140,170      7.29             65         7.25         8,466          7.30            123        9.99
                           --------                  -------                    -------                     --------
 Total.................    $286,578                  $20,103                    $12,470                     $119,922
                           ========                  =======                    =======                     ========

                               Commercial
                                Business                    Total
                      -----------------------------------------------------
                                      Weighted                   Weighted
                                       Average                    Average
                           Amount        Rate         Amount        Rate
                      -----------------------------------------------------
                                        (Dollars in thousands)
     Due During
     Years Ending
     December 31,
-----------------------

2000(2)................    $ 4,588        9.23%      $  13,047       9.22%
2001...................         78        9.11           4,301       9.01
2002...................      2,650        8.64          11,029       8.78
2003 and 2004..........        906        8.54          30,647       8.44
2005 to 2006...........      2,155        8.74          25,323       8.58
2007 to 2021...........        387        8.69         216,666       7.83
2022 and following.....        ---         ---         148,824       7.29
                           -------                   ---------
 Total.................    $10,764                    $449,837
                           =======                    ========


-------------------------

(1) Once the construction phase has been completed, these loans will automatically convert to permanent financing.
(2) Includes demand loans, loans having no stated maturity and overdraft loans.

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The total amount of loans due after December 31, 2000 which have predetermined interest rates is $296.7 million, while the total amount of loans due after such date which have floating or adjustable interest rates is $140.1 million.

ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LENDING. We focus our lending efforts primarily on the origination of loans secured by first mortgages on owner-occupied, one- to four-family residences in our market areas. At December 31, 1999, one- to four-family residential mortgage loans totaled $286.6 million, or 63.7% of our gross loan portfolio.

We generally underwrite our one- to four-family loans based on the applicant's employment and credit history and the appraised value of the subject property. Presently, we lend up to 100% of the lesser of the appraised value or purchase price for one- to four-family residential loans. For loans with a loan-to-value ratio in excess of 80%, we generally require private mortgage insurance in order to reduce our exposure to below 80%. Properties securing our one- to four-family loans are appraised by independent state licensed fee appraisers approved by Mutual Federal's board of directors. We require borrowers to obtain title and hazard insurance, and flood insurance, if necessary, in an amount not less than the value of the property improvements.

We originate one- to four-family mortgage loans on either a fixed- or adjustable-rate basis, as consumer demand dictates. Our pricing strategy for mortgage loans includes setting interest rates that are competitive with Freddie Mac and other local financial institutions, and consistent with our internal needs. Adjustable-rate mortgage, or ARM, loans are offered with a six-month, one-year, three-year, five-year or seven-year term to the initial repricing date. After the initial period, the interest rate for each ARM loan adjusts consistently with the initial term for the six-month, one-year and three-year terms, respectively, and annually for the five-year and seven-year terms, for the remainder of the term of the loan. We use the weekly average of the appropriate term Treasury Bill Constant Maturity Index to reprice our ARM loans. During fiscal 1999, we originated $23 million of one- to four-family ARM loans and $48.3 million of one- to four-family fixed rate mortgage loans. Also during 1999, we bought $3.3 million of one- to four-family arm loans that conform to our underwriting standards to help reduce our interest rate risk exposure. During fiscal 1998, we originated $19.8 million of one- to four-family ARM loans, and $96.7 million of one- to four-family fixed-rate mortgage loans.

Fixed-rate loans secured by one- to four-family residences have contractual maturities of up to 30 years, and are generally fully amortizing, with payments due monthly. These loans normally remain outstanding, however, for a substantially shorter periods of time because of refinancing and other prepayments. A significant change in interest rates could alter considerably the average life of a residential loan in our portfolio. Our one- to four-family loans are generally not assumable, do not contain prepayment penalties and do not permit negative amortization of principal. Most are written using underwriting guidelines which make them saleable in the secondary market. Our real estate loans generally contain a "due on sale" clause allowing us to declare the unpaid principal balance due and payable upon the sale of the security property.

Our one- to four-family residential ARM loans are fully amortizing loans with contractual maturities of up to 30 years, with payments due monthly. Our ARM loans generally provide for

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specified minimum and maximum interest rates, with a lifetime cap and floor, and a periodic adjustment on the interest rate over the rate in effect on the date of origination. As a consequence of using caps, the interest rates on these loans may not be as rate sensitive as is our cost of funds. We offer a one-year ARM loan that is convertible into a fixed-rate loan. When these loans convert, they are usually sold in the secondary market.

In order to remain competitive in our market areas, we originate ARM loans at initial rates below the fully indexed rate.

ARM loans generally pose different credit risks than fixed-rate loans, primarily because as interest rates rise, the borrower's payment rises, increasing the potential for default. We have not experienced difficulty with the payment history for these loans. See "Asset Quality -- Non-performing Assets" and "-- Classified Assets." At December 31, 1999, our one- to four-family ARM loan portfolio totaled $178 million, or 39.6% of our gross loan portfolio. At that date, the fixed-rate one- to four-family mortgage loan portfolio totaled $108.6 million, or 24.1% of our gross loan portfolio.

MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. We offer a variety of multi-family and commercial real estate loans. These loans are secured primarily by multi-family dwellings, small retail establishments, churches and small office buildings located in our market areas. At December 31, 1999, multi-family and commercial real estate loans totaled $20.1 million, or 4.5% of our gross loan portfolio.

Our loans secured by multi-family and commercial real estate are originated with either a fixed or adjustable interest rate. The interest rate on adjustable-rate loans is based on a variety of indices, generally determined through negotiation with the borrower. Loan-to-value ratios on our multi-family and commercial real estate loans typically do not exceed 80% of the appraised value of the property securing the loan. These loans typically require monthly payments, may not be fully amortizing and have maximum maturities of 20 years.

Loans secured by multi-family and commercial real estate are underwritten based on the income producing potential of the property and the financial strength of the borrower. The net operating income, which is the income derived from the operation of the property less all operating expenses, must be sufficient to cover the payments related to the outstanding debt. We generally require personal guarantees of the borrowers in addition to the security property as collateral for such loans. We also generally require an assignment of rents or leases in order to be assured that the cash flow from the project will be used to repay the debt. Appraisals on properties securing multi-family and commercial real estate loans are performed by independent state licensed fee appraisers approved by Mutual Federal's board of directors. See "Loan Originations, Purchases, Sales and Repayments."

We generally do not maintain a tax or insurance escrow account for loans secured by multi-family and commercial real estate. In order to monitor the adequacy of cash flows on income-producing properties, the borrower is requested or required to provide periodic financial information.

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Loans secured by multi-family and commercial real estate are generally larger and involve a greater degree of credit risk than one- to four-family residential mortgage loans. Multi-family and commercial real estate loans typically involve large balances to single borrowers or groups of related borrowers. Because payments on loans secured by multi-family and commercial real estate are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. If the cash flow from the project is reduced, or if leases are not obtained or renewed, the borrower's ability to repay the loan may be impaired. See "Asset Quality -- Non-performing Assets."

CONSTRUCTION AND DEVELOPMENT LENDING. We originate construction loans primarily secured by existing residential building lots. We make construction loans to builders and to individuals for the construction of their residences. Substantially all of these loans are secured by properties located within our market areas. At December 31, 1999, we had $12.5 million in construction and development loans outstanding, representing 2.8% of our gross loan portfolio.

Construction and development loans are obtained through continued business with builders who have previously borrowed from us, from walk-in customers and through referrals from realtors and architects. The application process includes submission of accurate plans, specifications and costs of the project to be constructed. These items are used to determine the appraised value of the subject property. Loans are based on the lesser of the current appraised value and/or the cost of construction, including the land and the building. We generally conduct regular inspections of the construction project being financed.

Construction loans for one- to four-family homes are generally granted with a construction period of up to one year. During the construction phase, the borrower generally pays interest only on a monthly basis. Loans to individuals for the construction of their residences may be either short term construction financing or a construction/permanent loan which automatically converts to a long term mortgage consistent with our one- to four-family residential loan products. Loan-to-value ratios on our construction and development loans typically do not exceed 80% of the appraised value of the project on an as completed basis. Single family construction loans with loan-to-value ratios over 80% require private mortgage insurance.

Because of the uncertainties inherent in estimating construction and development costs and the market for the project upon completion, it is difficult to evaluate accurately the total loan funds required to complete a project, the related loan-to-value ratios and the likelihood of ultimate success of the project. These loans also involve many of the same risks discussed above regarding multi-family and commercial real estate loans and tend to be more sensitive to general economic conditions than many other types of loans. In addition, payment of interest from loan proceeds can make it difficult to monitor the progress of a project.

CONSUMER AND OTHER LENDING. Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates, and carry higher rates of interest than one- to four-family residential mortgage loans. In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our customer

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base by increasing the number of customer relationships and providing cross-marketing opportunities. At December 31, 1999, our consumer loan portfolio totaled $119.9 million, or 26.7% of our gross loan portfolio. We offer a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, auto loans, boat and recreational vehicle loans, manufactured housing loans and loans secured by savings deposits. We also offer a limited amount of unsecured loans. We originate our consumer loans both in our market areas and throughout Indiana and western Ohio.

At December 31, 1999, our home equity loans, including lines of credit, and home improvement loans totaled $25.2 million, or 5.6% of our gross loan portfolio. These loans may be originated in amounts, together with the amount of the existing first mortgage, of up to 100% of the value of the property securing the loan. The term to maturity on our home equity and home improvement loans may be up to 10 years. Home equity lines of credit have a maximum term to maturity of 20 years and require the payment of 2% of the outstanding loan balance per month, which amount may be reborrowed at any time. Other consumer loan terms vary according to the type of collateral, length of contract and creditworthiness of the borrower.

We directly and indirectly originate auto loans, boat and recreational vehicle loans and manufactured housing loans. We generally buy indirect auto loans on a rate basis, paying the dealer a cash payment for loans with an interest rate in excess of the rate we require. This premium is amortized over the remaining life of the loan. Any prepayments or delinquencies are charged to future amounts owed to that dealer, with no dealer reserve or other guarantee of payment if the dealer stops doing business with us.

We underwrite indirect auto loans using the Fair-Isaacs credit scoring system. We have experienced some difficulty in building the volume of our indirect auto loan portfolio due to our willingness to accept only the more qualified buyers based on our scoring. We also directly originate auto loans through bank personnel. These loans are underwritten more traditionally, with a review of the borrower's employment and credit history and an assessment of the borrower's ability to repay the loan.

At December 31, 1999, auto loans totaled $19.9 million, or 4.4% of our gross loan portfolio. Auto loans may be written for up to six years and usually have fixed rates of interest. Loan to value ratios are up to 100% of the sale price for new autos and 110% of value on used cars, based on valuation from official used car guides.

Our boat and recreational vehicle loans are generally originated on an indirect basis. We utilize an independent company to market our loan products and help service and collect our boat and RV loans, keeping down our marketing, collection and related personnel costs. We pay a fee based on a percentage of the loan amounts originated through this company as well as monthly service fees, for these services. We pay dealers a premium for each loan based on the interest rate charged on each loan. We amortize this premium, which is usually significantly smaller than the premium we pay dealers for our indirect auto loans, over the estimated life of each loan.

For our two largest boat and RV dealers, we pay for each loan on a rate basis, just as with our indirect auto loans. With these two dealers, however, we pay only a portion of the cash

11

payment due, holding back a reserve in a Mutual Federal savings account. This dealer holdback is released to the dealer pro-rata over the life of the loan.

We underwrite indirect boat and RV loans using the Fair-Isaacs credit scoring system and, as with our indirect auto loans, tend to accept only the more qualified buyers based on our scoring.

Loans for boats and recreational vehicles totaled $58 million at December 31, 1999, or 12.9% of our gross loan portfolio. This has been the fastest growing portion of our consumer loan portfolio over the past five years. We will finance up to 100% of the purchase price for a new recreational vehicle and 95% for a new boat. The maximum loan to value ratio is 100% for used recreational vehicles and 95% for boats. Values are based on the applicable official used vehicle guides. The term to maturity for these types of loans is up to 10 years for used boats and recreational vehicles and up to 15 years for new boats and recreational vehicles. These loans are generally written with fixed rates of interest.

At December 31, 1999, manufactured housing loans totaled $12.3 million, or 2.7% of our gross loan portfolio. This amount has decreased significantly over the last five years, due to increased competition and regulatory restrictions. Manufactured housing loans are offered at fixed or adjustable rates of interest for terms up to 25 years, and at a maximum loan to value ratio of 95%.

Consumer loans may entail greater risk than one- to four-family residential mortgage loans, especially consumer loans secured by rapidly depreciable assets, such as automobiles, boats and recreational vehicles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower's continuing financial stability and, thus, are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

COMMERCIAL BUSINESS LENDING. At December 31, 1999, commercial business loans totaled $10.8 million, or 2.4% of our gross loan portfolio. Most of our commercial business loans have been extended to finance local businesses and include short term loans to finance machinery and equipment purchases, inventory and accounts receivable. Commercial business loans also involve the extension of revolving credit for a combination of equipment acquisitions and working capital needs and agricultural purposes such as seed, farm equipment and livestock.

The terms of loans extended on the security of machinery and equipment are based on the projected useful life of the machinery and equipment, generally not to exceed seven years. Lines of credit generally are available to borrowers for up to 13 months, and may be renewed by us. We issue a few standby letters of credit which are offered at competitive rates and terms and are generally on a secured basis. We are attempting to expand our volume of commercial business loans.

Our commercial business lending policy includes credit file documentation and analysis of the borrower's background, capacity to repay the loan, the adequacy of the borrower's capital and collateral as well as an evaluation of other conditions affecting the borrower. Analysis of the

12

borrower's past, present and future cash flows also is an important aspect of our credit analysis. We generally obtain personal guarantees on our commercial business loans. Nonetheless, these loans are believed to carry higher credit risk than traditional single family loans.

Unlike residential mortgage loans, commercial business loans are typically made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial business loans may substantially depend on the success of the business itself (which, in turn, often depends in part upon general economic conditions). Our commercial business loans are usually, but not always, secured by business assets. However, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.

LOAN ORIGINATIONS, PURCHASES, SALES AND REPAYMENTS

We originate loans through referrals from real estate brokers and builders, our marketing efforts, and our existing and walk-in customers. We also originate many of our consumer loans through relationships with dealerships. While we originate both adjustable-rate and fixed-rate loans, our ability to originate loans depends upon customer demand for loans in our market areas. Demand is affected by local competition and the interest rate environment. During the last several years, due to low market interest rates, our dollar volume of fixed-rate, one- to four-family loans has exceeded the dollar volume of the same type of adjustable-rate loans. From time to time, we sell fixed rate, one- to four-family residential loans. We have also, on a very limited basis, purchased one- to four-family residential and commercial real estate loans. Furthermore, during the past few years, we, like many other financial institutions, have experienced significant prepayments on loans due to the low interest rate environment prevailing in the United States.

In periods of economic uncertainty, the ability of financial institutions, including us, to originate or purchase large dollar volumes of real estate loans may be substantially reduced or restricted, with a resultant decrease in interest income.

13

The following table shows our loan origination, purchase, sale and repayment activities for the years indicated.

                                                         Year Ended December 31,
                                                 -----------------------------------------
                                                       1999          1998         1997
                                                 -----------------------------------------
Originations by type:
 Adjustable rate:
  Real estate - one- to four-family..............    $  23,002     $  19,835    $  29,502
               - multi-family....................           37         1,051           29
               - commercial......................        3,008         2,701          657
               - construction or development.....        8,710         4,160        7,389
  Non-real estate - consumer.....................          ---           ---          ---
                      - commercial business......          611         3,003        1,106
                                                     ---------     ---------    ---------
         Total adjustable-rate...................       35,368        30,750       38,683
                                                     ---------     ---------    ---------
 Fixed rate:
  Real estate - one- to four-family..............       48,307        96,672       39,223
               - multi-family....................          ---           514          ---
               - commercial......................        4,032         1,240          ---
               - construction or development.....        8,486         7,297        6,857
  Non-real estate - consumer.....................       47,925        32,492       34,730
                      - commercial business......          491           810        2,992
                                                     ---------     ---------    ---------
         Total fixed-rate........................      109,241       139,025       83,802
                                                     ---------     ---------    ---------
         Total loans originated..................      144,609       169,775      122,485
                                                     ---------     ---------    ---------

Purchases:
  Real estate - one- to four-family..............        3,324           ---          ---
               - multi-family....................          ---           ---          ---
               - commercial......................          ---           325          334
               - construction or development.....          ---           ---          ---
  Non-real estate - consumer.....................          ---           ---          ---
                      - commercial business......          ---           ---          ---
                                                     ---------     ---------    ---------
         Total loans purchased...................        3,324           325          334
                                                     ---------     ---------    ---------

Sales and Repayments:
Sales:
  Real estate - one- to four-family..............          ---        35,123        5,753
               - multi-family....................          ---           ---          ---
               - commercial......................          ---           ---          ---
               - construction or development.....          ---           ---          ---
 Non-real estate - consumer......................          ---           ---          ---
                     - commercial business.......          ---           ---          ---
                                                     ---------     ---------    ---------
         Total loans sold........................          ---        35,123        5,753
Principal repayments.............................      100,480       135,909      102,867
                                                     ---------     ---------    ---------
         Total reductions........................      100,480       171,032      108,620
Increase (decrease) in other items, net..........       (1,850)         (773)       4,639
                                                     ---------     ---------    ---------
         Net increase (decrease).................    $  45,603     $  (1,705)   $  18,838
                                                     =========     =========    =========

14

ASSET QUALITY

When a borrower fails to make a payment on a mortgage loan on or before the default date, a late charge notice is mailed 16 days after the due date. When the loan is 31 days past due (16 days for an ARM), we mail a delinquency notice to the borrower. All delinquent accounts are reviewed by a collector, who attempts to cure the delinquency by contacting the borrower once the loan is 30 days past due. If the loan becomes 60 days delinquent, the collector will generally contact the borrower by phone or send a letter to the borrower in order to identify the reason for the delinquency. Once the loan becomes 90 days delinquent, the borrower is asked to pay the delinquent amount in full, or establish an acceptable repayment plan to bring the loan current. Between 100 and 120 days delinquent a drive-by inspection is made. If the account becomes 120 days delinquent, and an acceptable repayment plan has not been agreed upon, a collection officer will generally refer the account to legal counsel, with instructions to prepare a notice of intent to foreclose. The notice of intent to foreclose allows the borrower up to 30 days to bring the account current. During this 30 day period, the collector may accept a written repayment plan from the borrower which would bring the account current within the next 90 days. If the loan becomes 150 days delinquent and an acceptable repayment plan has not been agreed upon, the collection officer will turn over the account to our legal counsel with instructions to initiate foreclosure.

For consumer loans, a similar process is followed, with the initial written contact being made once the loan is 16 days past due. Follow-up contacts are generally made faster than under the mortgage loan procedure.

DELINQUENT LOANS. The following table sets forth, as of December 31, 1999, our loans delinquent 60 - 89 days by type, number, amount and percentage of type.

                                                    Loans Delinquent For:
                                    ---------------------------------------------------
                                                         60-89 Days
                                    ---------------------------------------------------
                                                                             Percent
                                                                             of Loan
                                          Number           Amount           Category
                                    ---------------------------------------------------
                                                   (Dollars in Thousands)
Real Estate:
  One- to four-family...............          7            $ 173              .06%
  Multi-family......................        ---              ---               ---
  Commercial........................        ---              ---               ---
  Construction and
   development......................        ---              ---               ---

Consumer............................         65              616               .51
Commercial business.................        ---              ---               ---
                                          -----            -----             -----

     Total..........................         72            $ 789              .18%
                                          =====            =====              ===

15

NON-PERFORMING ASSETS. The table below sets forth the amounts and categories of non-performing assets in our loan portfolio at the dates indicated. Loans are placed on non-accrual status when the loan becomes more than 90 days delinquent. At all dates presented, we had no troubled debt restructurings which involve forgiving a portion of interest or principal on any loans or making loans at a rate materially less than that of market rates. Foreclosed assets owned include assets acquired in settlement of loans.

                                                                                 December 31,
                                                      -----------------------------------------------------------------
                                                          1999        1998          1997         1996          1995
                                                      -----------------------------------------------------------------
                                                                            (Dollars in Thousands)
Non-accruing loans:
  One- to four-family................................   $  385      $   500       $   243      $   558       $   625
  Multi-family.......................................      ---          ---           ---          ---            19
  Commercial real estate.............................      ---           31           108          471           943
  Construction and development.......................      ---          ---           ---          ---           ---
  Consumer...........................................      368          485           331          ---           ---
  Commercial business................................      ---          ---           ---          ---           ---
                                                        ------      -------       -------      -------       -------
     Total...........................................      753        1,016           682        1,029         1,587
                                                        ------      -------       -------      -------       -------

Accruing loans delinquent 90 days or more:
  One- to four-family................................       16           88            27            8            13
  Multi-family.......................................      ---          ---           ---          ---           ---
  Commercial real estate.............................       12          ---           ---          ---           ---
  Construction and development.......................      ---          ---           ---          ---           ---
  Consumer...........................................      ---           10            51          507           525
  Commercial business................................      ---          ---           ---          ---           ---
                                                        ------      -------       -------      -------       -------
     Total...........................................       28           98            78          515           538
                                                        ------      -------       -------      -------       -------
     Total nonperfoming loans........................      781        1,114           760        1,544         2,125
                                                        ------      -------       -------      -------       -------

Foreclosed assets:
  One- to four-family................................      304           46            83           20            28
  Multi-family.......................................      ---          ---           ---          ---           ---
  Commercial real estate.............................      425          ---         1,498          ---           ---
  Construction and development.......................      ---          ---           ---          ---           ---
  Consumer...........................................      122          223           486          561           232
  Commercial business................................      ---          ---           ---          ---           ---
                                                        ------      -------       -------      -------       -------
     Total...........................................      851          269         2,067          581           260
                                                        ------      -------       -------      -------       -------

Total non-performing assets..........................   $1,632      $ 1,383       $ 2,827      $ 2,125       $ 2,385
                                                        ======      =======       =======      =======       =======
Total as a percentage of total assets................    0.30%        0.29%         0.62%        0.49%         0.59%
                                                        =====       ======        ======       ======        ======

For the year ended December 31, 1999, gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to $33,500. No amount was included in interest income on these loans for the year ended December 31, 1999.

At December 31, 1997, foreclosed commercial real estate consisted of two properties acquired during 1997 from a troubled debtor. The properties, comprised of a 50 unit apartment building and a food pantry, were sold in 1998.

16

At December 31, 1999, foreclosed commercial real estate consisted of one property acquired in the last half of the year from a troubled debtor. The property, an office building in Muncie, is currently being offered for sale. In addition, three residential properties acquired in 1999 from troubled debtors, one with a book value of $210,000, were being offered for sale.

OTHER LOANS OF CONCERN. In addition to the non-performing assets set forth in the table above, as of December 31, 1999, there was an aggregate of $1.3 million in loans with respect to which known information about the possible credit problems of the borrowers have caused management to have doubts as to the abilities of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in the non-performing asset categories. These loans have been considered in management's determination of the adequacy of our allowance for loan losses.

Included in the $1.3 million above are several residential mortgage loans which were obtained from a mortgage broker in 1998. In July 1998, the broker filed for bankruptcy. Shortly before that, we discovered that there were documentation problems with these loans.

On four of these loans, totaling approximately $759,000, the broker failed to pay off and secure a release of the original mortgage loans we refinanced. As a result, none of these loans was fully performing because the borrowers refused to make double loan payments to satisfy both our loan and the loan they thought they had refinanced. We have since bought out the first lien position for two of these loans.

A fifth loan, totaling approximately $157,000, had a similar issue, but we have been informed that the broker subsequently paid sufficient funds to satisfy the prior lienholder's balance, although the prior lien has not yet been released. This loan was current as of December 31, 1999.

The two other loans at issue, totaling approximately $793,000, were both current as of December 31, 1999. On one, our lien position is currently behind that of three other financial institutions. On the other, the mortgage broker failed to assign the mortgage to us.

We are working with two other lenders, in similar situations with the mortgage broker, in order to obtain a release of assets from the bankruptcy trustee. In addition, we have filed a claim with our insurance carrier, although to date the carrier has denied coverage.

This situation has been considered in determining our allowance for loan losses. A portion of the provision in 1998 was attributable to these loans, and two loans, totaling $346,000, were charged-off during 1998. Based on the information available, significant additional losses are not anticipated at this time. Changes in circumstances or adverse actions by the bankruptcy court could, however, result in additional losses.

CLASSIFIED ASSETS. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the Office of Thrift Supervision to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the

17

collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

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

In connection with the filing of Mutual Federal's periodic reports with the Office of Thrift Supervision and in accordance with our classification of assets policy, we regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of management's review, at December 31, 1999, we had classified $1.9 million of Mutual Federal's assets as substandard, $913,000 as doubtful and $90,000 as loss. The total amount classified represented 3% of our equity capital and .5% of our assets at December 31, 1999.

PROVISION FOR LOAN LOSSES. We recorded a provision for loan losses during the year ended December 31, 1999 of $760,000, compared to $1.3 million for the year ended December 31, 1998 and $700,000 for the year ended December 31, 1997. The provision for loan losses is charged to income to bring our allowance for loan losses to a level deemed appropriate by management based on the factors discussed below under "-- Allowance for Loan Losses." The provision for loan losses during the year ended December 31, 1999 was based on management's review of such factors which indicated that the allowance for loan losses was adequate to cover losses inherent in the loan portfolio as of December 31, 1999.

ALLOWANCE FOR LOAN LOSSES. We maintain an allowance for loan losses to absorb losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated losses inherent in the loan portfolio. Our methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance, specific allowances for identified problem loans and portfolio segments and the unallocated allowance. In addition, the allowance incorporates the results of measuring impaired loans as provided in SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and

18

Disclosures." These accounting standards prescribe the measurement methods, income recognition and disclosures related to impaired loans.

The formula allowance is calculated by applying loss factors to outstanding loans based on the internal risk evaluation of such loans or pools of loans. Changes in risk evaluations of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on our historical loss experience as well as on significant factors that, in management's judgment, affect the collectibility of the portfolio as of the evaluation date.

The appropriateness of the allowance is reviewed by management based upon its evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such as credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments and recent loss experience in particular segments of the portfolio that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectibility of the loan. Senior management reviews these conditions quarterly in discussions with our senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management's estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management's evaluation of the loss related to this condition is reflected in the unallocated allowance. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments.

The allowance for loan losses is based on estimates of losses inherent in the loan portfolio. Actual losses can vary significantly from the estimated amounts. Our methodology as described permits adjustments to any loss factor used in the computation of the formula allowance in the event that, in management's judgment, significant factors which affect the collectibility of the portfolio as of the evaluation date are not reflected in the loss factors. By assessing the estimated losses inherent in the loan portfolio on a quarterly basis, we are able to adjust specific and inherent loss estimates based upon any more recent information that has become available. Due to the loss of more than 1,800 manufacturing jobs in the local community during recent years and the increase in higher risk loans, like consumer and commercial loans, as a percentage of total loans, management has concluded that our allowance for loan losses should be greater than historical loss experience would otherwise indicate.

At December 31, 1999, our allowance for loan losses was $3.7 million, or .82% of the total loan portfolio, and approximately 468% of total non-performing loans. Assessing the adequacy of the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans, that are susceptible to significant change. In the opinion of management, the allowance, when taken as a whole, is adequate to absorb reasonable estimated loan losses inherent in our loan portfolio.

19

The following table sets forth an analysis of our allowance for loan losses.

                                                                       Year Ended December 31,
                                             --------------------------------------------------------------------------
                                                  1999           1998           1997           1996           1995
                                             --------------------------------------------------------------------------
                                                                        (Dollars in Thousands)

Balance at beginning of period..............    $ 3,424        $ 3,091        $ 2,990        $ 2,754         $ 2,430
                                                -------        -------        -------        -------         -------

Charge-offs:
  One- to four-family.......................         63            446              3             30              67
  Multi-family..............................        ---             38            ---            ---             ---
  Commercial real estate....................        167             43            237            ---             180
  Construction and development..............        ---            ---            ---            ---             ---
  Consumer..................................        421            511            450            353             242
  Commercial business.......................        ---           ---            ---             ---            ---
                                                -------        -------        -------        -------         ------
                                                    651          1,038            690            383             489
                                                -------        -------        -------        -------         -------

Recoveries:
  One- to four-family.......................         81             40             47              6              32
  Multi-family..............................        ---            ---            ---            ---             ---
  Commercial real estate....................          7            ---            ---            ---              96
  Construction and development..............        ---            ---            ---            ---             ---
  Consumer..................................         31             66             44             43              35
  Commercial business.......................        ---            ---            ---            ---             ---
                                                -------        -------        -------        -------         -------
                                                    119            106             91             49             163
                                                -------        -------        -------        -------         -------

Net charge-offs.............................        532            932            599            334             326
Provisions charged to operations............        760          1,265            700            570             650
                                                -------        -------        -------        -------         -------
Balance at end of period....................    $ 3,652        $ 3,424        $ 3,091        $ 2,990         $ 2,754
                                                =======        =======        =======        =======         =======

Ratio of net charge-offs during the period
 to average loans outstanding during the
 period.....................................      0.13%          0.23%          0.15%          0.09%           0.10%
                                                ======         ======         ======         ======          ======

Allowance as a percentage of
 non-performing loans.......................    467.61%        307.36%        406.71%        193.65%         129.60%
                                                ======         ======         ======         ======          ======

Allowance as a percentage of total loans
 (end of period)............................      0.82%          0.85%          0.77%          0.78%           0.79%
                                                ======         ======         ======         ======          ======

20

The distribution of our allowance for loan losses at the dates indicated is summarized as follows:

                                                                      December 31,
                          ---------------------------------------------------------------------------------------------------
                                         1999                           1998                             1997
                          ---------------------------------------------------------------------------------------------------
                                                  Percent                          Percent                          Percent
                                                  of Loans                         of Loans                         of Loans
                                          Loan    in Each                Loan      in Each                 Loan     in Each
                            Amount of   Amounts   Category  Amount of   Amounts    Category   Amount of   Amounts   Category
                            Loan Loss      by     to Total  Loan Loss      by      to Total   Loan Loss      by     to Total
                            Allowance   Category   Loans    Allowance   Category     Loans    Allowance   Category   Loans
                            ---------   --------  --------  ---------   --------   --------   ---------   --------  --------
                                                                    (In thousands)

One- to four-family.......    $1,038   $286,578     63.70%   $1,181     $264,461     65.42      $  583   $266,971     65.77
Multi-family..............        55      5,544      1.23        57        6,282      1.56         275      7,694      1.90
Commercial real estate....       300     14,559      3.24       174       10,293      2.54         234      8,131      2.00
Construction or
  development.............        62     12,470      2.77        59       11,805      2.92          52     10,385      2.56
Consumer..................     1,647    119,922     26.67     1,535      104,108     25.75       1,480    107,547     26.50
Commercial business.......       215     10,764      2.39       146        7,285      1.81         104      5,211      1.27
Unallocated...............       335        ---       ---       272          ---       ---         363        ---       ---
                              ------   --------    ------    ------     --------    ------      ------   --------    ------
     Total................    $3,652   $449,837    100.00%   $3,424     $404,234    100.00%     $3,091   $405,939    100.00%
                              ======   ========    ======    ======     ========    ======      ======   ========    ======

                                                       December 31,
                              ---------------------------------------------------------------
                                           1996                           1995
                              ---------------------------------------------------------------
                                                    Percent                          Percent
                                                    of Loans                         of Loans
                                            Loan    in Each                  Loan    in Each
                              Amount of   Amounts   Category   Amount of   Amounts   Category
                              Loan Loss      by     to Total   Loan Loss      by     to Total
                              Allowance   Category   Loans     Allowance   Category   Loans
                              ---------   --------  --------   ---------   --------  --------
                                                       (In thousands)

One- to four-family.......     $   683   $244,518     63.17%      $ 674    $224,526    63.02%
Multi-family..............         363      9,598      2.48         253       6,544     1.84
Commercial real estate....         282      7,878      2.03         558      10,090     2.83
Construction or
  development.............         110     22,040      5.69          86      17,201     4.83
Consumer..................       1,367    102,471     26.47       1,094      97,894    27.48
Commercial business.......          12        596      0.16         ---         ---      ---
Unallocated...............         173        ---       ---          89         ---
                                ------   --------    ------      ------    --------   ------
     Total................      $2,990   $387,101    100.00%     $2,754    $356,255   100.00%
                                ======   ========    ======      ======    ========   ======

21

INVESTMENT ACTIVITIES

Federally chartered savings institutions may invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, including callable agency securities, certain certificates of deposit of insured banks and savings institutions, certain bankers' acceptances, repurchase agreements and federal funds. Subject to various restrictions, federally chartered savings institutions also may invest in investment grade commercial paper and corporate debt securities and mutual funds the assets of which conform to the investments that a federally chartered savings institution is otherwise authorized to make directly. See "How We Are Regulated - Mutual Federal" and "- Qualified Thrift Lender Test" for a discussion of additional restrictions on our investment activities.

The Chief Financial Officer has the basic responsibility for the management of our investment portfolio, subject to the direction and guidance of the asset and liability management committee. The Chief Financial Officer considers various factors when making decisions, including the marketability, maturity and tax consequences of the proposed investment. The maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases.

The general objectives of our investment portfolio are to provide liquidity when loan demand is high, to assist in maintaining earnings when loan demand is low and to maximize earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest rate risk. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset and Liability Management and Market Risk" contained in our Annual Report to Stockholders, filed as Exhibit 13 to this Form 10-K.

Our investment securities currently consist of U.S. Government and Agency securities, mortgage-backed securities, marketable equity securities (which consist of shares in mutual funds that invest in government obligations, corporate obligations and mortgage-backed securities) and corporate obligations. See Note 4 of the Notes to Consolidated Financial Statements contained in our Annual Report to Stockholders, filed as Exhibit 13 to this Form 10-K. Our mortgage-backed securities portfolio currently consists of securities issued under government-sponsored agency programs.

While mortgage-backed securities carry a reduced credit risk as compared to whole loans, these securities remain subject to the risk that a fluctuating interest rate environment, along with other factors like the geographic distribution of the underlying mortgage loans, may alter the prepayment rate of the mortgage loans and affect both the prepayment speed and value of the securities.

At times over the past several years, we also have maintained a trading portfolio of U.S. Government securities. Our trading portfolio totaled $1.2 million at December 31, 1999. We are permitted by the board of directors to have a portfolio of up to $5.0 million, and to trade up to $2.0 million in these securities at any one time. See Note 4 of the Notes to Consolidated

22

Financial Statements contained in our Annual Report to Stockholders, filed as Exhibit 13 to this Form 10-K.

Mutual Federal has investments in four separate Indiana limited partnerships that were organized to construct, own and operate three multi-unit apartment complexes in the Indianapolis area and one in Findley, Ohio (the Pedcor Projects). The general partner in each of these Pedcor Projects is Pedcor Investments. We have no financial or other relationships with Pedcor Investments. The three Indianapolis area Pedcor Projects, which are operated as multi-family, low and moderate-income housing projects, have been completed and have been performing as planned for several years. The Findley, Ohio Pedcor Project, which also will be operated as a multi-family, low and moderate-income housing project, is near completion. At the inception of the Findley, Ohio Pedcor Project in February 1998, we invested $2.1 million and committed to invest an additional $1.9 million, as of December 31, 1999, of which $1.8 million remained payable over the next ten years.

A low and moderate-income housing project qualifies for certain federal income tax credits if (1) it is a residential rental property, (2) the units are used on a non-transient basis, and (3) at least 20% of the units in the project are occupied by tenants whose incomes are 50% or less of the area median gross income, adjusted for family size, or alternatively, at least 40% of the units in the project are occupied by tenants whose incomes are 60% or less of the area median gross income. Qualified low-income housing projects generally must comply with these and other rules for 15 years, beginning with the first year the project qualified for the tax credit, or some or all of the tax credit together with interest may be recaptured. The tax credit is subject to the limitation as the use of general business credit, but no basis reduction is required for any portion of the tax credit claimed. As of December 31, 1999, at least 90% of the units in the Indianapolis area Pedcor Projects were occupied, and all of the tenants met the income test required for the tax credits.

We received tax credits of $262,000 from the Indianapolis Pedcor Projects for each of the years ended December 31, 1999 and 1998. Additionally, the Pedcor Projects have incurred operating losses in the early years of their operations primarily due to accelerated depreciation of assets. We have accounted for our investment in three of the four Pedcor Projects on the equity method. Accordingly, we have recorded our share of these losses as reductions to Mutual Federal's investment in the Pedcor Projects. Mutual Federal has less than a 20% ownership interest in the remaining Pedcor Project, and we have recorded its investment in this project at amortized cost.

23

The following summarizes Mutual Federal's equity in the Pedcor Projects' losses and tax credits recognized in our consolidated financial statements.

                                               Year the Year Ended December 31,
                                           ---------------------------------------
                                            1999             1998           1997
                                           ---------------------------------------
                                                        (In Thousands)

Investments in Pedcor low
 income housing projects..................  $5,275           $5,266         $1,407
                                            ======           ======         ======

Equity in losses, net of income
  tax effect..............................  $   (7)          $   (9)        $ (187)
Tax credit................................     262              262            262
                                            ------           ------         ------
Increase in after tax income
 from Pedcor Investments..................  $  255           $  253         $   75
                                            ======           ======         ======

See Note 7 of the Notes to Consolidated Financial Statements contained in our Annual Report to Stockholders filed as Exhibit 13 to this Form 10-K for additional information regarding our limited partnership investments.

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The following table sets forth the composition of our investment and mortgage-related securities portfolio and other investments at the dates indicated. As of December 31, 1999, our investment securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States Government or its agencies.

                                                                                     December 31,
                                                      -----------------------------------------------------------------------
                                                                1999                    1998                    1997
                                                      -----------------------------------------------------------------------
                                                       Amortized     Fair      Amortized    Fair      Amortized     Fair
                                                         Cost       Value        Cost       Value       Cost        Value
                                                      -----------------------------------------------------------------------
                                                                                (Dollars in Thousands)
Investment securities held-to-maturity:
  Federal agency obligations.........................   $10,200   $  9,787      $ 6,220     $ 6,220    $ 8,381     $  8,371
  Corporate obligations..............................     2,099      2,079        4,634       4,651      1,636        1,646
  Municipal obligations..............................       150        150          150         150        150          150
                                                        -------   --------      -------     -------    -------     --------
     Total investment securities held to maturity....    12,449     12,016       11,004      11,021     10,167       10,167
                                                        -------   --------      -------     -------    -------     --------

Investment securities available-for-sale:
  Mutual funds.......................................     5,781      5,587        7,761       7,625      6,843        6,704
  Federal agency obligations.........................     2,416      2,382        1,244       1,286      1,406        1,426
  Mortgage-backed securities.........................     9,517      9,385        5,129       5,297      4,125        4,240
  Collateralized mortgage obligations................     4,584      4,536          ---         ---        ---          ---
  Corporate obligations..............................     7,781      7,707          ---         ---        ---          ---
                                                        -------   --------     --------     -------    -------     --------
     Total investment securities held for sale.......    30,079     29,597       14,134      14,208     12,374       12,370
                                                        -------   --------     --------     -------    -------     --------

Trading account securities:
  U.S. Treasury obligations..........................     1,447      1,235          ---         ---        ---          ---
                                                        -------   --------     --------     -------    -------     --------
     Total trading account securities................     1,447      1,235          ---         ---        ---          ---
                                                        -------   --------     --------     -------    -------     --------

Total investment securities..........................    43,975     42,848       25,138      25,229     22,541       22,537
Investment in limited partnerships...................     5,275        N/A        5,266         N/A      1,407          N/A
Investment in insurance company......................       590        N/A          590         N/A        590          N/A
Federal Home Loan Bank stock.........................     5,339        N/A        3,612         N/A      3,612          N/A
                                                        -------                --------                -------

Total investments....................................   $55,179                 $34,606                $28,150
                                                        =======                 =======                =======

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The following table indicates, as of December 31, 1999, the composition and maturities of our investment securities and mortgage-backed securities portfolio, excluding Federal Home Loan Bank stock and our trading securities.

                                                                      Due in
                                  -----------------------------------------------------------------------------
                                    Less Than      1 to 5       5 to 10        Over              Total
                                     1 Year         Years        Years       10 Years     Investment Securities
                                  ------------- -----------   ----------   -----------    ---------------------
                                    Amortized     Amortized    Amortized     Amortized    Amortized      Fair
                                      Cost          Cost         Cost          Cost         Cost         Value
                                  ------------- -----------   ----------   -----------    ---------     -------
                                                                (Dollars in Thousands)

Corporate obligations.............    $1,113       $ 7,796       $  470       $   501      $ 9,880      $  9,786
Federal agency obligations........       749         6,431        3,993         1,443       12,616        12,169
Municipal obligations.............       ---           ---          ---           150          150           150
Mutual funds......................     5,781           ---          ---           ---        5,781         5,587
Mortgage-backed securities:
  Freddie Mac.....................       ---           530          ---         1,433        1,963         1,953
  Fannie Mae......................       248           593          605         5,609        7,055         6,935
  Ginnie Mae......................       ---           ---          ---         1,467        1,467         1,458
  Other...........................       ---           ---          ---         3,616       3,616          3,575
                                      ------       -------       ------       -------      -------       -------
                                      $7,891       $15,350       $5,068       $14,219      $42,528       $41,613
                                      ======       =======       ======       =======      =======       =======

Weighted average yield............     6.21%         6.21%        6.55%         6.92%         6.63%

SOURCES OF FUNDS

GENERAL. Our sources of funds are deposits, borrowings, payment of principal and interest on loans, interest earned on or maturation of other investment securities and funds provided from operations.

DEPOSITS. We offer deposit accounts to consumers and businesses having a wide range of interest rates and terms. Our deposits consist of passbook accounts, money market deposit accounts, NOW and demand accounts and certificates of deposit. We solicit deposits in our market areas and have not accepted brokered deposits. We primarily rely on competitive pricing policies, marketing and customer service to attract and retain these deposits.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates, and competition. The variety of our deposit accounts has allowed us to be competitive in obtaining funds and to respond to changes in consumer demand. We have become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. We try to manage the pricing of our deposits in keeping with our asset/liability management, liquidity and profitability objectives, subject to competitive factors. Based on our experience, we believe that our deposits are relatively stable sources of funds. Our ability to attract and maintain these deposits, however, and the rates paid on them, has been and will continue to be affected significantly by market conditions.

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The following table sets forth our deposit flows during the years indicated.

                                                             Year Ended December 31,
                                                 --------------------------------------------------
                                                       1999              1998              1997
                                                 --------------------------------------------------

Opening balance.............................       $   365,999        $  344,860        $  330,235
Deposits....................................         1,205,702         1,010,169         1,027,102
Withdrawals.................................        (1,220,992)       (1,003,062)       (1,025,662)
Interest credited...........................            13,895            14,032            13,185
                                                   -----------        ----------        ----------
Ending balance..............................       $   364,604        $  365,999        $  344,860
                                                   ============       ==========        ==========

Net increase (decrease).....................       $    (1,395)       $   21,139        $   14,625
                                                   ===========        ==========        ==========

Percent increase (decrease).................            (.38)%             6.13%             4.43%
                                                       ======              ====              ====

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The following table sets forth the dollar amount of savings deposits in the various types of deposit programs we offered at the dates indicated.

                                                                                 At December 31,
                                                 -------------------------------------------------------------------------------
                                                            1999                       1998                       1997
                                                 -------------------------------------------------------------------------------
                                                                  Percent                    Percent                    Percent
                                                    Amount       of Total      Amount       of Total      Amount       of Total
                                                 -------------------------------------------------------------------------------
                                                                               (Dollars in Thousands)
Transactions and Savings Deposits:

Passbook accounts................................  $ 39,792         10.91%      $ 42,242       11.54%    $ 42,359         12.28%
NOW and demand accounts .........................    52,560         14.42         57,239       15.64       46,703         13.54
Money market accounts............................    42,091         11.54         33,686        9.20       26,236          7.61
                                                  ---------        ------       --------      ------     --------        ------

Total non-certificates...........................   134,443         36.87        133,167       36.38      115,298         33.43
                                                  ---------        ------       --------      ------     --------        ------

Certificates:

 0.00 -  1.99%...................................       ---           ---            ---         ---          ---           ---
 2.00 -  3.99%...................................     5,494          1.51          8,691        2.38          ---           ---
 4.00 -  5.99%...................................   185,993         51.01        171,455       46.85      166,424         48.26
 6.00 -  7.99%...................................    36,957         10.14         50,928       13.91       61,398         17.80
 8.00 -  9.99%...................................     1,717           .47          1,758        0.48        1,740          0.51
10.00% and over..................................       ---           ---            ---         ---          ---           ---
                                                   --------        ------       --------      ------      -------        ------

Total certificates...............................   230,161         63.13        232,832       63.62      229,562         66.57
                                                   --------        ------       --------      ------     --------        ------
Total deposits...................................  $364,604        100.00%      $365,999      100.00%    $344,860        100.00%
                                                   ========        ======       ========      ======     ========        ======

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The following table shows rate and maturity information for our certificates of deposit as of December 31, 1999.

                                    2.00-        4.00-         6.00-        8.00-                     Percent
                                    3.99%        5.99%         7.99%        9.99%         Total      of Total
                                -------------------------- -------------------------- -----------------------
                                                             (Dollars in Thousands)
Certificate accounts maturing
 in quarter ending:

March 31, 2000.................     $5,485     $ 41,150       $11,028    $     ---     $  57,663         25.05%
June 30, 2000..................          9       45,176        11,600          ---        56,785         24.67
September 30, 2000.............        ---       20,844         3,961          ---        24,805         10.78
December 31, 2000..............        ---       17,807         1,442          ---        19,249          8.36
March 31, 2001.................        ---       20,775           441          ---        21,216          9.22
June 30, 2001..................        ---       22,549         1,183          ---        23,732         10.31
September 30, 2001.............        ---        6,498         1,840          ---         8,338          3.62
December 31, 2001..............        ---        2,230           ---          ---         2,230          0.97
March 31, 2002.................        ---          936         1,079          ---         2,015          0.88
June 30, 2002.................         ---          485         1,335           37         1,857          0.81
September 30, 2002.............        ---          207         1,256          631         2,094          0.91
December 31, 2002..............        ---          327         1,102          453         1,882          0.82
2003...........................        ---        3,853            86          596         4,535          1.97
2004                                   ---        3,156           604          ---         3,760          1.63
Thereafter.....................        ---          ---           ---          ---           ---           ---
                                   -------     --------       -------       ------      --------        ------

   Total.......................     $5,494     $185,993       $36,957       $1,717      $230,161        100.00%
                                   =======     ========       =======       ======      ========        ======

   Percent of total............       2.39%       80.81%        16.06%         .74%
                                     =====        =====         =====          ===

The following table indicates, as of December 31, 1999, the amount of our certificates of deposit and other deposits by time remaining until maturity.

                                                                               Maturity
                                                 -------------------------------------------------------------------
                                                                      Over         Over
                                                      3 Months       3 to 6       6 to 12        Over
                                                       or Less       Months       Months       12 months      Total
                                                 -------------------------------------------------------------------

Certificates of deposit less than $100,000.......      $40,916       $44,565      $36,667       $58,209     $180,357

Certificates of deposit of $100,000 or more......        5,687        10,045        6,887        12,550       35,169

Public funds (1).................................       11,060         2,175          500           900       14,635
                                                       -------       -------      -------       -------     --------

Total certificates of deposit....................      $57,663       $56,785      $44,054       $71,659     $230,161
                                                       =======       =======      =======       =======     ========
---------------
(1)  Deposits from governmental and other public entities.

BORROWINGs. Although deposits are our primary source of funds, we may utilize borrowings when they are a less costly source of funds and can be invested at a positive interest rate spread, when we desire additional capacity to fund loan demand or when they meet our

29

asset/liability management goals. Our borrowings historically have consisted of advances from the Federal Home Loan Bank of Indianapolis and securities sold under agreement to repurchase. See Notes 9, 10 and 11 of the Notes to Consolidated Financial Statements contained in our Annual Report to Stockholders, filed as Exhibit 13 to this Form 10-K.

We may obtain advances from the Federal Home Loan Bank of Indianapolis upon the security of certain of our mortgage loans and mortgage-backed securities. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features. At December 31, 1999, we had $72.3 million in Federal Home Loan Bank advances outstanding.

The following table sets forth, for the years indicated, the maximum month-end balance and average balance of Federal Home Loan Bank advances, securities sold under agreement to repurchase and other borrowings.

                                                                   Year Ended December 31,
                                                              -----------------------------------
                                                                1999          1998         1997
                                                               ------        ------       ------
Maximum Balance:
  FHLB advances...........................................      $99,039       $63,754      $70,254
  Securities sold under agreements to repurchase..........          895           ---          875
  Other borrowings........................................        1,799         1,830          ---

Average Balance:
  FHLB advances...........................................      $62,243       $55,232      $61,471
  Securities sold under agreements to repurchase..........          400           ---           73
  Other borrowings........................................        1,784         1,685          ---

The following table sets forth certain information as to our borrowings at the dates indicated.

                                                             December 31,
                                                 ---------------------------------------
                                                     1999          1998          1997
                                                  ----------     ---------     --------

FHLB advances................................        $72,289       $50,632       $66,255
Securities sold under agreements to
 repurchase..................................            840           ---           ---
Other borrowings.............................          1,768         1,830           ---
                                                     -------       -------       -------

     Total borrowings........................        $74,897       $52,462       $66,255
                                                     =======       =======       =======
Weighted average interest rate of FHLB
 advances....................................          5.69%         5.50%         5.89%

Weighted average interest rate of securities
 sold under agreements to repurchase.........          5.50%          ---%          ---%

Weighted average interest rate of other                 ---%          ---%          ---%
 borrowings..................................

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SUBSIDIARY AND OTHER ACTIVITIES

As a federally chartered savings bank, Mutual Federal is permitted by Office of Thrift Supervision regulations to invest up to 2% of its assets, or $10.9 million at December 31, 1999, in the stock of, or unsecured loans to, service corporation subsidiaries. Mutual Federal may invest an additional 1% of its assets in service corporations where such additional funds are used for inner-city or community development purposes.

At December 31, 1999, Mutual Federal had two active subsidiaries, First M.F.S.B. Corporation and Third M.F.S.B. Corporation. First M.F.S.B. owns stock in Family Financial Life Insurance Company, a life and accident and health insurance company chartered in Indiana. Family Financial Life primarily sells mortgage and credit life insurance, as well as accident and disability insurance. It also issues and services annuity contracts. As of December 31, 1999, Mutual Federal's total investment in this subsidiary was $718,000. For the year ended December 31, 1999, First M.F.S.B. reported net income of $83,000, which consisted of dividends from Family Financial Life.

Third M.F.S.B., which does business as Mutual Financial Services, offers tax-deferred annuities, long-term health and life insurance products. All securities related products and services made available through Mutual Financial Services are offered by a third party independent broker-dealer. As of December 31, 1999, Mutual Federal's total investment in this subsidiary was $319,000. For the year ended December 31, 1999, Third M.F.S.B. reported net income of $161,000, which consisted of commissions less expenses.

COMPETITION

We face strong competition in originating real estate and other loans and in attracting deposits. Competition in originating real estate loans comes primarily from other savings institutions, commercial banks, credit unions and mortgage bankers. Other savings institutions, commercial banks, credit unions and finance companies provide vigorous competition in consumer lending.

We attract our deposits through our branch office system. Competition for deposits comes principally from other savings institutions, commercial banks and credit unions located in the same community, as well as mutual funds and other alternative investments. We compete for deposits by offering superior service and a variety of account types at competitive rates.

EMPLOYEES

At December 31, 1999, we had a total of 208 employees, including 58 part-time employees. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good.

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HOW WE ARE REGULATED

Set forth below is a brief description of certain laws and regulations which apply to us. This description, as well as other descriptions of laws and regulations contained in this Form 10- K, is not complete and is qualified in its entirety by reference to the applicable laws and regulations.

Legislation is introduced from time to time in the United States Congress that may affect our operations. In addition, the regulations by which we are governed may be amended from time to time. Any such legislation or regulatory changes could adversely affect us. We cannot assure you as to whether or in what form any such changes will occur.

GENERAL

Mutual Federal, as a federally chartered savings institution, is subject to federal regulation and oversight by the Office of Thrift Supervision extending to all aspects of Mutual Federal's operations. Mutual Federal also is subject to regulation and examination by the FDIC, which insures the deposits of Mutual Federal to the maximum extent permitted by law, and to requirements of the Federal Reserve Board. Federally chartered savings institutions are required to file periodic reports with the Office of Thrift Supervision and are subject to periodic examinations by the Office of Thrift Supervision and the FDIC. The investment and lending authority of savings institutions are prescribed by federal laws and regulations, and savings institutions are prohibited from engaging in any activities not permitted by such laws and regulations. This regulation and supervision primarily is intended for the protection of depositors and not for the purpose of protecting shareholders.

The Office of Thrift Supervision regularly examines Mutual Federal and prepares reports for the consideration of Mutual Federal's board of directors on any deficiencies that it may find in Mutual Federal's operations. The FDIC also has the authority to examine Mutual Federal in its role as the administrator of the Savings Association Insurance Fund. Mutual Federal's relationship with its depositors and borrowers also is regulated to a great extent by both Federal and state laws, especially in such matters as the ownership of savings accounts and the form and content of Mutual Federal's mortgage requirements. Any change in these laws and regulations, whether by the FDIC, the Office of Thrift Supervision or Congress, could have a material adverse impact on our operations.

MFS FINANCIAL

Pursuant to regulations of the Office of Thrift Supervision and the terms of MFS Financial's Maryland articles of incorporation, the purpose and powers of MFS Financial are to pursue any or all of the lawful objectives of a thrift holding company and to exercise any of the powers accorded to a thrift holding company.

If Mutual Federal fails the qualified thrift lender test, MFS Financial must obtain the approval of the Office of Thrift Supervision prior to continuing, directly or through other subsidiaries, any business activity other than those approved for multiple thrift companies or

32

their subsidiaries. In addition, within one year of such failure MFS Financial must register as, and will become subject to, the restrictions applicable to bank holding companies. The activities authorized for a bank holding company are more limited than the activities authorized for a unitary or multiple thrift holding company. See "- Qualified Thrift Lender Test."

MUTUAL FEDERAL

The Office of Thrift Supervision has extensive authority over the operations of savings institutions. Mutual Federal is required to file periodic reports with the Office of Thrift Supervision and is subject to periodic examinations by the Office of Thrift Supervision and the FDIC. The last regular Office of Thrift Supervision examination of Mutual Federal was as of September 30, 1999. When these examinations are conducted by the Office of Thrift Supervision and the FDIC, the examiners may require Mutual Federal to provide for higher general or specific loan loss reserves. All savings institutions are subject to a semi-annual assessment, based upon the savings institution's total assets, to fund the operations of the Office of Thrift Supervision. Mutual Federal's Office of Thrift Supervision assessment for the year ended December 31, 1999 was $96,000.

The Office of Thrift Supervision also has extensive enforcement authority over all savings institutions and their holding companies, including Mutual Federal and MFS Financial. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the Office of Thrift Supervision. Except under certain circumstances, final enforcement actions by the Office of Thrift Supervision must be publicly disclosed.

In addition, the investment, lending and branching authority of Mutual Federal is prescribed by federal laws and it is prohibited from engaging in any activities not permitted by such laws. For instance, no savings institution may invest in non-investment grade corporate debt securities. In addition, the permissible level of investment by federal institutions in loans secured by non-residential real property may not exceed 400% of total capital, except with approval of the Office of Thrift Supervision. Federal savings institutions are also generally authorized to branch nationwide. Mutual Federal is in compliance with the noted restrictions.

Mutual Federal's general permissible lending limit for loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus). At December 31, 1999, Mutual Federal's lending limit under this restriction was $11.2 million. Mutual Federal is in compliance with the loans-to-one- borrower limitation.

The Office of Thrift Supervision, as well as the other federal banking agencies, has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit

33

systems, interest rate risk exposure and compensation and other employee benefits. Any institution which fails to comply with these standards must submit a compliance plan.

INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC

Mutual Federal is a member of the Savings Association Insurance Fund, which is administered by the FDIC. Deposits are insured up to the applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States Government. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the Savings Association Insurance Fund or the Bank Insurance Fund. The FDIC also has the authority to initiate enforcement actions against savings institutions, after giving the Office of Thrift Supervision an opportunity to take such action, and may terminate an institution's deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The FDIC's deposit insurance premiums are assessed through a risk-based system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their level of capital and supervisory evaluation. Under the system, institutions classified as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1 or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at least 6% and a risk-based capital ratio of at least 10%) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a risk-based capital ratio of less than 8%) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period.

The FDIC is authorized to increase assessment rates, on a semi-annual basis, if it determines that the reserve ratio of the Savings Association Insurance Fund will be less than the designated reserve ratio of 1.25% of Savings Association Insurance Fund insured deposits. In setting these increased assessments, the FDIC must seek to restore the reserve ratio to that designated reserve level, or such higher reserve ratio as established by the FDIC. The FDIC also may impose special assessments on Savings Association Insurance Fund members to repay amounts borrowed from the United States Treasury or for any other reason deemed necessary by the FDIC.

Since January 1, 1997, the premium schedule for Bank Insurance Fund and Savings Association Insurance Fund insured institutions has ranged from 0 to 27 basis points. However, Savings Association Insurance Fund insured institutions are required to pay a Financing Corporation assessment, in order to fund the interest on bonds issued to resolve thrift failures in the 1980s. For Savings Association Insurance Fund insured institutions, this assessment is approximately six basis points for each $100 in domestic deposits, and for Bank Insurance Fund insured institutions this assessment is approximately one basis point for each $100 in domestic deposits. It is expected that the assessment will soon be changed to two basis points for all insured institutions, regardless of fund. The assessment, which may be revised further based

34

upon the level of Bank Insurance Fund and Savings Association Insurance Fund deposits, will continue until the bonds mature in the year 2017.

REGULATORY CAPITAL REQUIREMENTS

Federally insured savings institutions, such as Mutual Federal, are required to maintain a minimum level of regulatory capital. The Office of Thrift Supervision has established capital standards, including a tangible capital requirement, a leverage ratio or core capital requirement and a risk-based capital requirement applicable to such savings institutions. These capital requirements must be generally as stringent as the comparable capital requirements for national banks. The Office of Thrift Supervision also may impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.

The capital regulations require tangible capital of at least 1.5% of adjusted total assets, as defined by regulation. Tangible capital generally includes common stockholders' equity and retained income, and certain noncumulative perpetual preferred stock and related income. In addition, all intangible assets, other than a limited amount of purchased mortgage servicing rights, must be deducted from tangible capital for calculating compliance with the requirement. At December 31, 1999, Mutual Federal had $1.5 million of intangible assets.

At December 31, 1999, Mutual Federal had tangible capital of $73.4 million, or 13.6% of adjusted total assets, which is approximately $65.3 million above the minimum requirement of 1.5% of adjusted total assets in effect on that date.

The capital standards also require core capital equal to at least 3.0% of adjusted total assets. Core capital generally consists of tangible capital plus certain intangible assets, including a limited amount of purchased credit card relationships. As a result of the prompt corrective action provisions discussed below, however, a savings institution must maintain a core capital ratio of at least 4.0% to be considered adequately capitalized unless its supervisory condition is such to allow it to maintain a 3.0% ratio. At December 31, 1999, Mutual Federal had $1.5 million of intangible assets which were subject to these tests.

At December 31, 1999, Mutual Federal had core capital equal to $73.4 million, or 13.6% of adjusted total assets, which is $57.2 million above the minimum requirement of 3.0% in effect on that date.

The Office of Thrift Supervision also requires savings institutions to have total capital of at least 8.0% of risk-weighted assets. Total capital consists of core capital, as defined above, and supplementary capital. Supplementary capital consists of certain permanent and maturing capital instruments that do not qualify as core capital and general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy the risk-based requirement only to the extent of core capital. The Office of Thrift Supervision is also authorized to require a savings institution to maintain an additional amount of total capital to account for concentration of credit risk and the risk of non-traditional activities. At December 31, 1999, Mutual Federal had $3.6 million of general loan loss reserves, which was less than 1.25% of risk-weighted assets.

35

In determining the amount of risk-weighted assets, all assets, including certain off- balance sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based on the risk inherent in the type of asset. For example, the Office of Thrift Supervision has assigned a risk weight of 50% for prudently underwritten permanent one- to four-family first lien mortgage loans not more than 90 days delinquent and having a loan-to-value ratio of not more than 80% at origination unless insured to such ratio by an insurer approved by Fannie Mae or Freddie Mac.

As of December 31, 1999, Mutual Federal had total risk-based capital of $77.0 million and risk-weighted assets of $354.5 million; or total capital of 21.7% of risk-weighted assets. This amount was $48.6 million above the 8.0% requirement in effect on that date.

The Office of Thrift Supervision and the FDIC are authorized and, under certain circumstances, required to take actions against savings institutions that fail to meet their capital requirements. The Office of Thrift Supervision is generally required to restrict the activities of an "undercapitalized institution," which is an institution with less than either a 4% core capital ratio, a 4% Tier 1 risked-based capital ratio or an 8.0% risk-based capital ratio. Any such institution must submit a capital restoration plan and, until such plan is approved by the Office of Thrift Supervision, may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions. The Office of Thrift Supervision is authorized to impose the additional restrictions that are applicable to significantly undercapitalized institutions.

As a condition to the approval of the capital restoration plan, any company controlling an undercapitalized institution must agree that it will enter into a limited capital maintenance guarantee with respect to the institution's achievement of its capital requirements.

Any savings institution that fails to comply with its capital plan or has Tier 1 risk-based or core capital ratio of less than 3.0% or a risk-based capital ratio of less than 6.0% and is considered "significantly undercapitalized" must be made subject to one or more additional specified actions and operating restrictions which may cover all aspects of its operations and may include a forced merger or acquisition of the institution. An institution that becomes "critically undercapitalized" because it has a tangible capital ratio of 2.0% or less is subject to further restrictions on its activities in addition to those applicable to significantly undercapitalized institutions. In addition, the Office of Thrift Supervision must appoint a receiver, or conservator with the concurrence of the FDIC, for a savings institution, with certain limited exceptions, within 90 days after it becomes critically undercapitalized. Any undercapitalized institution is also subject to the general enforcement authority of the Office of Thrift Supervision and the FDIC, including the appointment of a conservator or a receiver.

The Office of Thrift Supervision is also generally authorized to reclassify an institution into a lower capital category and impose the restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The imposition by the Office of Thrift Supervision or the FDIC of any of these measures on Mutual Federal may have a substantial adverse effect on our operations and profitability.

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LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS

Office of Thrift Supervision regulations impose various restrictions on distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account.

Generally, savings institutions, such as Mutual Federal, that before and after the proposed distribution remain well-capitalized, may make capital distributions during any calendar year equal to the greater of 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an institution deemed to be in need of more than normal supervision by the Office of Thrift Supervision may have its dividend authority restricted by the Office of Thrift Supervision. Mutual Federal may pay dividends in accordance with this general authority.

Savings institutions proposing to make any capital distribution need not submit written notice to the Office of Thrift Supervision prior to such distribution unless they are a subsidiary of a holding company or would not remain well-capitalized following the distribution. Savings institutions that do not, or would not meet their current minimum capital requirements following a proposed capital distribution or propose to exceed these net income limitations must obtain Office of Thrift Supervision approval prior to making such distribution. The Office of Thrift Supervision may object to the distribution during that 30-day period based on safety and soundness concerns. See "- Regulatory Capital Requirements."

LIQUIDITY

Each savings institution, including Mutual Federal, is required to maintain an average daily balance of liquid assets equal to a certain percentage of the average daily balance of its liquidity base during the preceding calendar quarter or a percentage of the amount of its liquidity base at the end of the preceding quarter. This liquid asset ratio requirement may vary from time to time between 4% and 10%, depending upon economic conditions and savings flows of all savings institutions. At the present time, the minimum liquid asset ratio is 4%.

Penalties may be imposed upon institutions for violations of the liquid asset ratio requirement. At December 31, 1999, Mutual Federal was in compliance with the requirement, with an overall liquid asset ratio of 9.3%.

QUALIFIED THRIFT LENDER TEST

All savings institutions, including Mutual Federal, are required to meet a qualified thrift lender test to avoid certain restrictions on their operations. This test requires a savings institution to have at least 65% of its portfolio assets, as defined by regulation, in qualified thrift investments on a monthly average for nine out of every 12 months on a rolling basis. As an alternative, the savings institution may maintain 60% of its assets in the assets specified in Section 7701(a)(19) of the Internal Revenue Code. Under either test, such assets primarily consist of residential housing related loans and investments. At December 31, 1999, Mutual Federal met the test and has always met the test since its effectiveness.

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Any savings institution that fails to meet the qualified thrift lender test must convert to a national bank charter, unless it requalifies as a qualified thrift lender and thereafter remains a qualified thrift lender. If an institution does not requalify and converts to a national bank charter, it must remain Savings Association Insurance Fund-insured until the FDIC permits it to transfer to the Bank Insurance Fund. If such an institution has not yet requalified or converted to a national bank, its new investments and activities are limited to those permissible for both a savings institution and a national bank, and it is limited to national bank branching rights in its home state. In addition, the institution is immediately ineligible to receive any new Federal Home Loan Bank borrowings and is subject to national bank limits for payment of dividends. If such an institution has not requalified or converted to a national bank within three years after the failure, it must divest of all investments and cease all activities not permissible for a national bank. In addition, it must repay promptly any outstanding Federal Home Loan Bank borrowings, which may result in prepayment penalties. If any institution that fails the qualified thrift lender test is controlled by a holding company, then within one year after the failure, the holding company must register as a bank holding company and become subject to all restrictions on bank holding companies.

COMMUNITY REINVESTMENT ACT

Under the Community Reinvestment Act, every FDIC-insured institution is obligated, consistent with safe and sound banking practices, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the Community Reinvestment Act. The Community Reinvestment Act requires the Office of Thrift Supervision, in connection with the examination of Mutual Federal, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications, such as a merger or the establishment of a branch. An unsatisfactory rating may be used as the basis for the denial of an application. Due to the heightened attention being given to the Community Reinvestment Act in the past few years, Mutual Federal may be required to devote additional funds for investment and lending in its local community. Mutual Federal was examined for Community Reinvestment Act compliance in May 1997, and received a rating of satisfactory.

TRANSACTIONS WITH AFFILIATES

Generally, transactions between a savings institution or its subsidiaries and its affiliates are required to be on terms as favorable to the institution as transactions with non-affiliates. In addition, certain of these transactions, such as loans to an affiliate, are restricted to a percentage of the institution's capital. Affiliates of Mutual Federal include MFS Financial and any company which is under common control with Mutual Federal. In addition, a savings institution may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of most affiliates. The Office of Thrift Supervision has the discretion to treat subsidiaries of savings institutions as affiliates on a case by case basis.

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Certain transactions with directors, officers or controlling persons are also subject to conflict of interest regulations enforced by the Office of Thrift Supervision. These conflict of interest regulations and other statutes also impose restrictions on loans to such persons and their related interests. Among other things, such loans must generally be made on terms substantially the same as loans to unaffiliated individuals.

FEDERAL SECURITIES LAW

The common stock of MFS Financial is registered with the SEC under the Securities Exchange Act of 1934. MFS Financial is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Securities Exchange Act of 1934.

MFS Financial stock held by persons who are affiliates of MFS Financial may not be resold without registration under the Securities Act of 1933 unless sold in accordance with certain resale restrictions. Affiliates are generally considered to be officers, directors and principal stockholders. If MFS Financial meets specified current public information requirements, each affiliate of MFS Financial is permitted to sell in the public market, without registration, a limited number of shares in any three-month period.

FEDERAL RESERVE SYSTEM

The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts, primarily checking, NOW and Super NOW checking accounts. At December 31, 1999, Mutual Federal was in compliance with these reserve requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements that may be imposed by the Office of Thrift Supervision.

Savings institutions are authorized to borrow from the Federal Reserve Bank "discount window," but Federal Reserve Board regulations require institutions to exhaust other reasonable alternative sources of funds, including Federal Home Loan Bank borrowings, before borrowing from the Federal Reserve Bank.

FEDERAL HOME LOAN BANK SYSTEM

Mutual Federal is a member of the Federal Home Loan Bank of Indianapolis, which is one of 12 regional Federal Home Loan Banks that administers the home financing credit function of savings institutions. Each Federal Home Loan Bank serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System. It makes loans or advances to members in accordance with policies and procedures established by the board of directors of the Federal Home Loan Bank, which are subject to the oversight of the Federal Housing Finance Board. All advances from the Federal Home Loan Bank are required to be fully secured by collateral deemed sufficient by the Federal Home Loan Bank. In addition, all long-term advances must be used for residential home financing.

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As a member, Mutual Federal is required to purchase and hold stock in the Federal Home Loan Bank of Indianapolis. At December 31, 1999, Mutual Federal had $5.3 million in Federal Home Loan Bank stock, which was in compliance with this requirement. In past years, Mutual Federal has received substantial dividends on its Federal Home Loan Bank stock. Over the past five fiscal years, these dividends have averaged 7.97% and were 8.10% for 1999.

Under federal law, the Federal Home Loan Banks must provide funds for the resolution of troubled savings institutions and contribute to low- and moderately priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have affected adversely the level of Federal Home Loan Bank dividends paid and could continue to do so in the future. These contributions also could affect adversely the future value of Federal Home Loan Bank stock. A reduction in value of Mutual Federal's Federal Home Loan Bank stock may result in a corresponding reduction in Mutual Federal's capital.

For the year ended December 31, 1999, dividends paid to Mutual Federal by the Federal Home Loan Bank of Indianapolis totaled $318,000, as compared to $289,000 for the year ended December 31, 1998.

FEDERAL TAXATION

GENERAL. We are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to us. Mutual Federal's federal income tax returns have been closed without audit by the IRS through its year ended December 31, 1995.

We expect that MFS Financial and Mutual Federal will file a consolidated federal income tax return commencing with the year 2000, the first taxable year after completion of the conversion.

BAD DEBT RESERVES. Prior to the Small Business Job Protection Act, Mutual Federal was permitted to establish a reserve for bad debts under the percentage of taxable income method and to make annual additions to the reserve utilizing that method. These additions could, within specified formula limits, be deducted in arriving at taxable income. As a result of the Small Business Job Protection Act, savings associations of Mutual Federal's size may now use the experience method in computing bad debt deductions beginning with their 1996 federal tax return. In addition, federal legislation requires Mutual Federal to recapture, over a six year period, the excess of tax bad debt reserves at December 31, 1997 over those established as of the base year reserve balance as of December 31, 1987. As of December 31, 1999 the amount of Mutual Federal's reserves subject to recapture were approximately $358,000.

TAXABLE DISTRIBUTIONS AND RECAPTURE. Prior to the Small Business Job Protection Act, bad debt reserves created prior to the year ended failed December 31, 1997 were subject to recapture into taxable income if Mutual Federal failed to meet certain thrift asset and definitional tests. Recent federal legislation eliminated these thrift related recapture rules. However, under

40

current law, pre-1988 reserves remain subject to recapture should Mutual Federal make certain non-dividend distributions or cease to maintain a thrift/bank charter.

MINIMUM TAX. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, called alternative minimum taxable income. The alternative minimum tax is payable to the extent such alternative minimum taxable income is in excess of an exemption amount. Net operating losses can offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. Mutual Federal has not been subject to the alternative minimum tax, and does not have any such amounts available as credits for carryover.

NET OPERATING LOSS CARRYOVERS. A financial institution may carryback net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. This provision applies to losses incurred in taxable years beginning after August 6, 1997. For losses incurred in the taxable years prior to August 6, 1997, the carryback period was three years and the carryforward period was 15 years. At December 31, 1999, we had no net operating loss carryforwards for federal income tax purposes.

CORPORATE DIVIDENDS-RECEIVED DEDUCTION. MFS Financial may eliminate from its income dividends received from Mutual Federal as a wholly owned subsidiary of MFS Financial if it elects to file a consolidated return with Mutual Federal. The corporate dividends-received deduction is 100% or 80%, in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, depending on the level of stock ownership of the payor of the dividend. Corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct 70% of dividends received or accrued on their behalf.

STATE TAXATION

Mutual Federal is subject to Indiana's financial institutions tax, which is imposed at a flat rate of 8.5% on "adjusted gross income." "Adjusted gross income," for purposes of the financial institutions tax, begins with taxable income as defined by Section 63 of the Internal Revenue Code and incorporates federal tax law to the extent that it affects the computation of taxable income. Federal taxable income is then adjusted by several Indiana modifications.

Other applicable state taxes include generally applicable sales and use taxes plus real and personal property taxes.

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EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

The business experience for at least the past five years for each of our executive officers who do not serve as directors is set forth below.

STEVEN R. CAMPBELL. Age 56 years. Mr. Campbell is Senior Vice President of Mutual Federal's Retail Banking Division, a position he has held since 1991. He has been employed by Mutual Federal since 1984.

DAVID W. HEETER. Age 38 years. Mr. Heeter is Mutual Federal's Vice President of Human Resources, Marketing and Administration. He has served in these positions since 1993, and started with Mutual Federal in 1986.

TIMOTHY J. MCARDLE. Age 49 years. Mr. McArdle, a certified public accountant, has served as Senior Vice President of Mutual Federal since 1995, and Treasurer and Controller of Mutual Federal since 1986. He also serves as Senior Vice President, Treasurer and Controller of MFS Financial. He has been employed by Mutual Federal since 1981.

STEPHEN C. SELBY. Age 54 years. Since 1995, Mr. Selby has served as Senior Vice President of the Operations Division at Mutual Federal. Prior to 1995, he served as Vice President of the Operations Division for nine years. Mr. Selby has served in various other capacities at Mutual Federal since 1964.

ITEM 2. DESCRIPTION OF PROPERTY

At December 31, 1999, we had 13 full service offices. We own the office building in which our home office and executive offices are located. At December 31, 1999, we owned all but one of our other branch offices. The net book value of our investment in premises, equipment and leaseholds, excluding computer equipment, was approximately $6.7 million at December 31, 1999.

We believe that our current facilities are adequate to meet our present and immediately foreseeable needs.

We utilize a third party service provider to maintain our database of depositor and borrower customer information. At December 31, 1999, the net book value of the data processing and computer equipment utilized by us was $1.1 million.

ITEM 3. LEGAL PROCEEDINGS

From time to time we are involved as plaintiff or defendant in various legal actions arising in the normal course of business. We do not anticipate incurring any material liability as a result of such litigation.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 1999.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

On December 29, 1999, the Company's common stock began trading on the Nasdaq National Market under the symbol "MFSF." The Company's Board of Directors intends to declare the payment of cash dividends, dependent on the Company's financial condition and results of operations, tax considerations, economic conditions, statutory and regulatory limitations and other factors. The Company's ability to pay dividends depends, in large part, upon its receipt of dividends from Mutual Federal. Restrictions on Mutual Federal's payment of dividends to the Company are described in Note 16 of the Notes to Consolidated Financial Statements included in the Company's Annual Report to Stockholders for the year ended December 31, 1999, portions of which are included as Exhibit 13 to this Form 10-K.

As of March 29, 2000, the Company had approximately 1,473 stockholders of record.

ITEM 6. SELECTED FINANCIAL DATA

The information under the heading "Selected Financial and Other Data" in the Company's Annual Report to Stockholders for the year ended December 31, 1999, portions of which are included as Exhibit 13 to this Form 10-K, is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report to Stockholders for the year ended December 31, 1999, portions of which are included as Exhibit 13 to this Form 10-K, is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Asset and Liability Management and Market Risk" in the Company's Annual Report to Stockholders for the year ended December 31, 1999, portions of which are included as Exhibit 13 to this Form 10-K, is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and notes thereto contained in the Company's Annual Report to Stockholders for the year ended December 31, 1999, portions of which are included as Exhibit 13 to this Form 10-K, are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

No disclosure under this item is required.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

Information concerning the Company's directors is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held in 2000, which has been filed with the SEC.

EXECUTIVE OFFICERS

Information concerning the executive officers of the Company who are not directors is incorporated herein by reference from Part I of this Form 10-K under the caption "Executive Officers of the Registrant Who Are Not Directors."

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Information concerning compliance with Section 16(a) reporting requirements by the Company's directors and executive officers is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held in 2000, which has been filed with the SEC.

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held in 2000, which has been filed with the SEC. The compensation committee report included in the proxy statement pursuant to Item 402(k) of Regulation S-K is specifically not incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held in 2000, which has been filed with the SEC.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships and related transactions is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held in 2000, which has been filed with the SEC.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

The following are contained in the portions of the Company's Annual Report to Stockholders filed as Exhibit 13 to this Form 10-K and are incorporated by reference into Item 8 of this Form 10-K:

Independent Auditor's Report
Consolidated Balance Sheet at December 31, 1999 and 1998 Consolidated Statement of Income for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statement of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules:

All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable.

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(a)(3) Exhibits:

                                                                              Reference to
                                                                             Prior Filing or
   Regulation S-K                                                            Exhibit Number
   Exhibit Number                          Document                          Attached Hereto
------------------- ------------------------------------------------------   ---------------

        2           Plan of acquisition, reorganization, arrangement,             None
                    liquidation or succession
        3(i)        Articles of Incorporation                                       *
        3(ii)       By-Laws                                                         *
         4          Instruments defining the rights of security holders,
                    including indentures:
                        Form of MFS Financial, Inc. Common Stock                    *
                         Certificate
         9          Voting Trust Agreement                                        None
         10         Material contracts:
                        Employment Agreement with R. Donn Roberts                 10.1
                        Employment Agreement with Timothy J. McArdle              10.2
                        Form of Supplemental Retirement Plan Income               10.3
                         Agreements and related documents for R. Donn
                         Roberts, Steven Campbell, David W. Heeter,
                         Timothy J. McArdle and Stephen C. Selby
                        Form of Agreements and related documents for              10.4
                         Executive Deferred Compensation Plan for
                         R. Donn Roberts, Steven Campbell, David W.
                         Heeter, Timothy J. McArdle and Stephen C. Selby
         11         Statement re computation of per share earnings                None
         12         Statements re computation of ratios                           None
         13         Portions of Annual Report to Security Holders                  13
         16         Letter re change in certifying accountant                     None
         18         Letter re change in accounting principles                     None
         21         Subsidiaries of the registrant                                 21
         22         Published report regarding matters submitted to vote          None
                     of security holders
         23         Consents of Experts and Counsel                           Not Required
         24         Power of Attorney                                             None
         27         Financial Data Schedule                                        27
         99         Additional Exhibits                                           None

--------------------
*    Filed as an exhibit to the Company's Form S-1 registration statement filed
     on September 16, 1999 (File No. 333-87239) pursuant to Section 5 of the
     Securities Act of 1933. Such previously filed document is incorporated
     herein by reference in accordance with Item 601 of Regulation S-K.

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(b) Reports on Form 8-K

During the quarter ended December 31, 1999, no Current Reports on Form 8-K were filed by the Company.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MFS FINANCIAL, INC.

By:    /s/ R. Donn Roberts
       ------------------------------------
       R. Donn Roberts, President,
       Chief Executive Officer and Director
       (Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ R. Donn Roberts                                   /s/ Wilbur R. Davis
-------------------------------------------           --------------------------------------------
R. Donn Roberts, President, Chief Executive           Wilbur R. Davis, Chairman of the Board
Officer and Director (Principal Executive
 Officer)

Date: March 29, 2000                                  Date: March 29, 2000

/s/ Linn A. Crull                                     /s/ Edward J. Dobrow
--------------------------------------------          --------------------------------------------
Linn A. Crull, Director

Date: March 29, 2000                                  Date: March 29, 2000


/s/ William V. Hughes                                 /s/ James D. Rosema
--------------------------------------------          --------------------------------------------
William V. Hughes, Director                           James D. Rosema, Director


Date: March 29, 2000                                  Date: March 29, 2000


/s/ Julie A. Skinner                                  /s/ Timothy J. McArdle
--------------------------------------------          ---------------------------------------------
Julie A. Skinner, Director                            Timothy J. McArdle, Senior Vice President,
                                                       Treasurer and Controller (Principal Financial
                                                       and Accounting Officer)


Date: March 29, 2000                                  Date: March 29, 2000


INDEX TO EXHIBITS

 Number                                       Description
-------                    ---------------------------------------------------

10.1                       Employment Agreement with R. Donn Roberts

10.2                       Employment Agreement with Timothy J. McArdle

10.3                       Form   of   Supplemental   Retirement   Plan   Income
                           Agreements and related documents

10.4                       Form  of   Agreements   and  related   documents  for
                           Executive Deferred Compensation Plan

13                         Portions of Annual Report to Security Holders

21                         Subsidiaries of the Registrant

27                         Financial Data Schedule


EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this 1st day of January, 2000, by and between Mutual Federal Savings Bank (hereinafter referred to as the "Bank") and R. Donn Roberts (the "Employee").

WHEREAS, the Employee is currently serving as President and Chief Executive Officer of the Bank; and

WHEREAS, effective December 29, 1999, the Bank converted to capital stock form as the subsidiary of a holding company (the "Holding Company"); and

WHEREAS, the Board of Directors of the Bank believes it is in the best interests of the Bank to enter into this Agreement with the Employee in order to assure continuity of management of the Bank and to reinforce and encourage the continued attention and dedication of the Employee; and

WHEREAS, the Board of Directors of the Bank has approved and authorized the execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof.

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:

1. Definitions.

(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Bank or the Company within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574 as in effect on the date hereof; or (ii) would be required to be reported in response to Item 1 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (2) any person (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Bank or the Company representing 20% or more of the Bank's or the Company's outstanding securities; (3) individuals who are members of the board of directors of the Bank or the Company on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; or (4) a reorganization, merger, consolidation, sale of all or substantially all of the assets of the Bank or the Company or a similar transaction in which the Bank or the Company is not the resulting entity. The term "Change in Control" shall not include an acquisition of securities by an employee benefit plan of the Bank or the Company. In the application of 12 C.F.R. Part 574 to a determination of a Change in Control, determinations to be made by the OTS or its Director under such regulations shall be made by the Board of Directors.

(b) The term "Commencement Date" means January 1, 2000.

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(c) The term "Date of Termination" means the date upon which the Employee ceases to serve as an employee of the Bank.

(d) The term "Involuntarily Termination" means termination of the employment of Employee without the Employee's express written consent, and shall include a material diminution of or interference with the Employee's duties, responsibilities and benefits as President and Chief Executive Officer, including (without limitation) any of the following actions unless consented to in writing by the Employee: (1) a change in the principal workplace of the Employee to a location outside of a 30 mile radius from the Bank's headquarters office as of the date hereof; (2) a material demotion of the Employee; (3) a material reduction in the number or seniority of other Bank personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Employee, other than as part of a Bank- or Company-wide reduction in staff; (4) a material adverse change in the Employee's salary, perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank or the Company; and (5) a material permanent increase in the required hours of work or the workload of the Employee. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary or permanent prohibition from participation in the conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA").

(e) The terms "Termination for Cause" and "Terminated For Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of the Bank at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.

2. Term. The term of this Agreement shall be a period of three years beginning on the Commencement Date, subject to earlier termination as provided herein.

3. Employment. The Employee is employed as President and Chief Executive Officer of the Bank as of the Commencement Date. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties of an officer of the Bank as the Board of Directors may prescribe from time to time.

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4. Compensation.

(a) Salary. The Bank agrees to pay the Employee during the term of this Agreement, not less frequently than monthly, the salary established by the Board of Directors, which shall be at least $258,000 annually. The amount of the Employee's salary shall be reviewed by the Board of Directors, beginning not later than the first anniversary of the Commencement Date. Adjustments in salary or other compensation shall not limit or reduce any other obligation of the Bank under this Agreement. The Employee's salary in effect from time to time during the term of this Agreement shall not thereafter be reduced.

(b) Discretionary Bonuses. The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Bank in discretionary bonuses as authorized and declared by the Board of Directors to its executive employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such bonuses when and as declared by the Board of Directors.

(c) Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Bank, provided that the Employee accounts for such expenses as required under such policies and procedures.

5. Benefits.

(a) Participation in Retirement and Employee Benefit Plans. The Employee shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life and disability insurance, medical and dental coverage, education, cash bonuses, and other retirement or employee benefits or combinations thereof, in which the Bank's executive officers participate.

(b) Fringe Benefits. The Employee shall be eligible to participate in, and receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's executive officers.

6. Vacations; Leave. The Employee shall be entitled to annual paid vacation in accordance with the policies established by the Board of Directors for executive employees and to voluntary leave of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion.

7. Termination of Employment.

(a) Involuntary Termination. The Board of Directors may terminate the Employee's employment at any time, but, except in the case of Termination for Cause, termination of employment shall not prejudice the Employee's right to compensation or other benefits under this Agreement. In the event of Involuntary Termination other than in connection with or within twelve
(12) months after a Change in Control, (1) the Bank shall pay to the Employee during the remaining

3

term of this Agreement, the Employee's salary at the rate in effect immediately prior to the Date of Termination, payable in such manner and at such times as such salary would have been payable to the Employee under
Section 4 if the Employee had continued to be employed by the Bank, and (2) the Bank shall provide to the Employee during the remaining term of this Agreement substantially the same benefits as the Bank maintained for its executive officers immediately prior to the Date of Termination, including Bank-paid dependent medical and dental coverage.

(b) Termination for Cause. In the event of Termination for Cause, the Bank shall pay the Employee the Employee's salary through the Date of Termination, and the Bank shall have no further obligation to the Employee under this Agreement.

(c) Voluntary Termination. The Employee's employment may be voluntarily terminated by the Employee at any time upon 90 days written notice to the Bank or upon such shorter period as may be agreed upon between the Employee and the Board of. In the event of such voluntary termination, the Bank shall be obligated to continue to pay to the Employee the Employee's salary and benefits only through the Date of Termination, at the time such payments are due, and the Bank shall have no further obligation to the Employee under this Agreement.

(d) Change in Control. In the event of Involuntary Termination in connection with or within 12 months after a Change in Control which occurs at any time while the Employee is employed under this Agreement, the Bank shall, subject to Section 8 of this Agreement, (1) pay to the Employee in a lump sum in cash within 25 business days after the Date of Termination an amount equal to 299% of the Employee's "base amount" as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"); and (2) provide to the Employee during the remaining term of this Agreement substantially the same health benefits as the Bank maintained for its executive officers immediately prior to the Change in Control.

(e) Death; Disability. In the event of the death of the Employee while employed under this Agreement and prior to any termination of employment, the Employee's estate, or such person as the Employee may have previously designated in writing, shall be entitled to receive from the Bank the salary of the Employee through the last day of the calendar month in which the Employee died. If the Employee becomes disabled as defined in the Bank's then current disability plan, if any, or if the employee is otherwise unable to serve in his current capacity, this Agreement shall continue in full force and effect, except that the salary paid to the Employee shall be reduced by any disability insurance payments made to Employee on policies of insurance maintained by the Bank at its expense.

(f) Temporary Suspension or Prohibition. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate in whole or in part any of its obligations which were suspended.

4

(g) Permanent Suspension or Prohibition. If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

(h) Default of the Bank. If the Bank is in default (as defined in
Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties.

(i) Termination by Regulators. All obligations of the Bank under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (1) by the Director of the Office of Thrift Supervision (the "Director") or his or her designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the Director or his or her designee, at the time the Director or his or her designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by any such action.

8. Certain Reduction of Payments by the Bank.

(a) Notwithstanding any other provision of this Agreement, if payments under this Agreement, together with any other payments received or to be received by the Employee in connection with a Change in Control would cause any amount to be nondeductible for federal income tax purposes pursuant to
Section 280G of the Code, then benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize payments to the Employee without causing any amount to become nondeductible. The Employee shall determine the allocation of such reduction among payments to the Employee.

(b) Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. ss. 1828(k) and any regulations promulgated thereunder.

9. No Mitigation. The Employee shall not be required to mitigate the amount of any salary or other payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits after the Date of Termination or otherwise.

10. Attorneys Fees. In the event the Bank exercises its right of Termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 17 that cause did not exist for such termination, or if in any event it is determined by any such court or arbitrator that the Bank has failed to make timely payment of any amounts owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs,

5

including attorneys' fees, incurred in challenging such termination or collecting such amounts. Such reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under this Agreement.

11. No Assignments.

(a) This Agreement is personal to each of the parties hereto, and no party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation from the Bank in the same amount and on the same terms as the compensation pursuant to Section 7(d) hereof. For purposes of implementing the provisions of this Section 11(a), the date on which any such succession becomes effective shall be deemed the Date of Termination.

(b) This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate.

12. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank at its home office, to the attention of the Board of Directors with a copy to the Secretary, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Bank.

13. Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.

14. Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

15. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

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16. Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the State of Indiana.

17. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE

ENFORCED BY THE PARTIES.

Attest:                                 MUTUAL FEDERAL SAVINGS BANK



-------------------------------         ------------------------------------
Secretary                               By: Wilbur R. Davis
                                        Its: Chairman of the Board

Employee


R. Donn Roberts

7

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this 1st day of January, 2000, by and between Mutual Federal Savings Bank (hereinafter referred to as the "Bank") and Timothy J. McArdle (the "Employee").

WHEREAS, the Employee is currently serving as Senior Vice President, Treasurer and Controller of the Bank; and

WHEREAS, effective December 29, 1999, the Bank converted to capital stock form as the subsidiary of a holding company (the "Holding Company"); and

WHEREAS, the Board of Directors of the Bank believes it is in the best interests of the Bank to enter into this Agreement with the Employee in order to assure continuity of management of the Bank and to reinforce and encourage the continued attention and dedication of the Employee; and

WHEREAS, the Board of Directors of the Bank has approved and authorized the execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof.

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:

1. Definitions.

(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Bank or the Company within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574 as in effect on the date hereof; or (ii) would be required to be reported in response to Item 1 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (2) any person (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Bank or the Company representing 20% or more of the Bank's or the Company's outstanding securities; (3) individuals who are members of the board of directors of the Bank or the Company on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; or (4) a reorganization, merger, consolidation, sale of all or substantially all of the assets of the Bank or the Company or a similar transaction in which the Bank or the Company is not the resulting entity. The term "Change in Control" shall not include an acquisition of securities by an employee benefit plan of the Bank or the Company. In the application of 12 C.F.R. Part 574 to a determination of a Change in Control, determinations to be made by the OTS or its Director under such regulations shall be made by the Board of Directors.

(b) The term "Commencement Date" means January 1, 2000.

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(c) The term "Date of Termination" means the date upon which the Employee ceases to serve as an employee of the Bank.

(d) The term "Involuntarily Termination" means termination of the employment of Employee without the Employee's express written consent, and shall include a material diminution of or interference with the Employee's duties, responsibilities and benefits as Senior Vice President, Treasurer and Controller, including (without limitation) any of the following actions unless consented to in writing by the Employee: (1) a change in the principal workplace of the Employee to a location outside of a 30 mile radius from the Bank's headquarters office as of the date hereof; (2) a material demotion of the Employee; (3) a material reduction in the number or seniority of other Bank personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Employee, other than as part of a Bank- or Company-wide reduction in staff;
(4) a material adverse change in the Employee's salary, perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank or the Company; and (5) a material permanent increase in the required hours of work or the workload of the Employee. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary or permanent prohibition from participation in the conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA").

(e) The terms "Termination for Cause" and "Terminated For Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of the Bank at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.

2. Term. The term of this Agreement shall be a period of three years beginning on the Commencement Date, subject to earlier termination as provided herein.

3. Employment. The Employee is employed as Senior Vice President, Treasurer and Controller of the Bank as of the Commencement Date. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties of an officer of the Bank as the Board of Directors may prescribe from time to time.

2

4. Compensation.

(a) Salary. The Bank agrees to pay the Employee during the term of this Agreement, not less frequently than monthly, the salary established by the Board of Directors, which shall be at least $110,000 annually. The amount of the Employee's salary shall be reviewed by the Board of Directors, beginning not later than the first anniversary of the Commencement Date. Adjustments in salary or other compensation shall not limit or reduce any other obligation of the Bank under this Agreement. The Employee's salary in effect from time to time during the term of this Agreement shall not thereafter be reduced.

(b) Discretionary Bonuses. The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Bank in discretionary bonuses as authorized and declared by the Board of Directors to its executive employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such bonuses when and as declared by the Board of Directors.

(c) Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Bank, provided that the Employee accounts for such expenses as required under such policies and procedures.

5. Benefits.

(a) Participation in Retirement and Employee Benefit Plans. The Employee shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life and disability insurance, medical and dental coverage, education, cash bonuses, and other retirement or employee benefits or combinations thereof, in which the Bank's executive officers participate.

(b) Fringe Benefits. The Employee shall be eligible to participate in, and receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's executive officers.

6. Vacations; Leave. The Employee shall be entitled to annual paid vacation in accordance with the policies established by the Board of Directors for executive employees and to voluntary leave of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion.

7. Termination of Employment.

(a) Involuntary Termination. The Board of Directors may terminate the Employee's employment at any time, but, except in the case of Termination for Cause, termination of employment shall not prejudice the Employee's right to compensation or other benefits under this Agreement. In the event of Involuntary Termination other than in connection with or within twelve
(12) months after a Change in Control, (1) the Bank shall pay to the Employee during the remaining

3

term of this Agreement, the Employee's salary at the rate in effect immediately prior to the Date of Termination, payable in such manner and at such times as such salary would have been payable to the Employee under
Section 4 if the Employee had continued to be employed by the Bank, and (2) the Bank shall provide to the Employee during the remaining term of this Agreement substantially the same benefits as the Bank maintained for its executive officers immediately prior to the Date of Termination, including Bank-paid dependent medical and dental coverage.

(b) Termination for Cause. In the event of Termination for Cause, the Bank shall pay the Employee the Employee's salary through the Date of Termination, and the Bank shall have no further obligation to the Employee under this Agreement.

(c) Voluntary Termination. The Employee's employment may be voluntarily terminated by the Employee at any time upon 90 days written notice to the Bank or upon such shorter period as may be agreed upon between the Employee and the Board of. In the event of such voluntary termination, the Bank shall be obligated to continue to pay to the Employee the Employee's salary and benefits only through the Date of Termination, at the time such payments are due, and the Bank shall have no further obligation to the Employee under this Agreement.

(d) Change in Control. In the event of Involuntary Termination in connection with or within 12 months after a Change in Control which occurs at any time while the Employee is employed under this Agreement, the Bank shall, subject to Section 8 of this Agreement, (1) pay to the Employee in a lump sum in cash within 25 business days after the Date of Termination an amount equal to 299% of the Employee's "base amount" as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"); and (2) provide to the Employee during the remaining term of this Agreement substantially the same health benefits as the Bank maintained for its executive officers immediately prior to the Change in Control.

(e) Death; Disability. In the event of the death of the Employee while employed under this Agreement and prior to any termination of employment, the Employee's estate, or such person as the Employee may have previously designated in writing, shall be entitled to receive from the Bank the salary of the Employee through the last day of the calendar month in which the Employee died. If the Employee becomes disabled as defined in the Bank's then current disability plan, if any, or if the employee is otherwise unable to serve in his current capacity, this Agreement shall continue in full force and effect, except that the salary paid to the Employee shall be reduced by any disability insurance payments made to Employee on policies of insurance maintained by the Bank at its expense.

(f) Temporary Suspension or Prohibition. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate in whole or in part any of its obligations which were suspended.

(g) Permanent Suspension or Prohibition. If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

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(h) Default of the Bank. If the Bank is in default (as defined in
Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties.

(i) Termination by Regulators. All obligations of the Bank under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (1) by the Director of the Office of Thrift Supervision (the "Director") or his or her designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the Director or his or her designee, at the time the Director or his or her designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by any such action.

8. Certain Reduction of Payments by the Bank.

(a) Notwithstanding any other provision of this Agreement, if payments under this Agreement, together with any other payments received or to be received by the Employee in connection with a Change in Control would cause any amount to be nondeductible for federal income tax purposes pursuant to
Section 280G of the Code, then benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize payments to the Employee without causing any amount to become nondeductible. The Employee shall determine the allocation of such reduction among payments to the Employee.

(b) Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. ss. 1828(k) and any regulations promulgated thereunder.

9. No Mitigation. The Employee shall not be required to mitigate the amount of any salary or other payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits after the Date of Termination or otherwise.

10. Attorneys Fees. In the event the Bank exercises its right of Termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 17 that cause did not exist for such termination, or if in any event it is determined by any such court or arbitrator that the Bank has failed to make timely payment of any amounts owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs, including attorneys' fees, incurred in challenging such termination or collecting such amounts. Such reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under this Agreement.

11. No Assignments.

(a) This Agreement is personal to each of the parties hereto, and no party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of

5

the other party; provided, however, that the Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation from the Bank in the same amount and on the same terms as the compensation pursuant to
Section 7(d) hereof. For purposes of implementing the provisions of this
Section 11(a), the date on which any such succession becomes effective shall be deemed the Date of Termination.

(b) This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate.

12. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank at its home office, to the attention of the Board of Directors with a copy to the Secretary, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Bank.

13. Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.

14. Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

15. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

16. Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the State of Indiana.

17. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE

ENFORCED BY THE PARTIES.

Attest:                               MUTUAL FEDERAL SAVINGS BANK



-----------------------------         ------------------------------------
Secretary                             By: R. Donn Roberts
                                      Its: President and Chief Executive Officer

Employee


Timothy J. McArdle

7

FORM OF
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME AGREEMENT

This Restated Executive Supplemental Retirement Income Agreement (the "Agreement"), effective as of the _____ day of ______________ 1996, amends and restates the Executive Supplemental Retirement Income Agreement entered into on October 1, 1993 and formalizes the understanding by and between MUTUAL FEDERAL SAVINGS BANK (the "Bank"), a federally chartered savings institution, and _________________, hereinafter referred to as "Executive".

W I T N E S S E T H:

WHEREAS, the Executive is employed by the Bank; and

WHEREAS, the Bank recognizes the valuable services heretofore performed by the Executive and wishes to encourage continued employment; and

WHEREAS, the Executive wishes to be assured that he will be entitled to a certain amount of additional compensation for some definite period of time from and after retirement from active service with the Bank or other termination of employment and wishes to provide his beneficiary with benefits after his death; and

WHEREAS, the Bank and the Executive wish to provide the terms and conditions upon which the Bank shall pay such additional compensation to the Executive after retirement or other termination of employment and/or death benefits to his beneficiary after his death; and

WHEREAS, the Bank has adopted this Restated Executive Supplemental Retirement Income Agreement which controls all issues relating to benefits as described herein:

NOW, THEREFORE, in consideration of the premises and of the mutual promises herein contained, the Bank and the Executive agree as follows:

SECTION I DEFINITIONS

When used herein, the following words and phrases shall have the meanings below unless the context clearly indicates otherwise:

1.1 "Accrued Benefit Account" shall be represented by the bookkeeping entries required to record the Executive's (i) Phantom Contributions plus (ii) accrued interest, equal to the Interest Factor, earned to date on such amounts. However, neither the existence of such bookkeeping entries nor the Accrued Benefit Account itself shall be deemed to create either a trust of any kind, or a fiduciary relationship between the Bank and the Executive or any Beneficiary.

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1.2 "Act" means the Employee Retirement Income Security Act of 1974, as amended from time to time.

1.3 "Bank" means Mutual Federal Savings Bank and any successor thereto.

1.4 "Beneficiary" means the person or persons (and their heirs) designated as Beneficiary in Exhibit B of this Agreement to whom the deceased Executive's benefits are payable. If no Beneficiary is so designated, then the Executive's Spouse, if living, will be deemed the Beneficiary. If the Executive's Spouse is not living, then the Children of the Executive will be deemed the Beneficiaries and will take on a per stirpes basis. If there are no Children, then the Estate of the Executive will be deemed the Beneficiary.

1.5 "Benefit Age" means the later of: (i) the Executive's sixty-fifth (65th) birthday or (ii) the actual date the Executive's full-time service with the Bank terminates. The Board of Directors may, however, in its sole discretion, amend clause (i) of this Subsection to lower the Executive's Benefit Age in any instance in which the Executive's employment terminates prior to Retirement Age and the Board of Directors determines that such an amendment is advisable, based on the circumstances of such termination.

1.6 "Benefit Eligibility Date" means the date on which the Executive is entitled to receive any benefit(s) pursuant to Section(s) III or V of this Agreement. It shall be the first day of the month following the month in which the Executive attains his Benefit Age.

1.7 "Board of Directors" means the board of directors of the Bank.

1.8 "Cause" means personal dishonesty, willful misconduct, willful malfeasance, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses), or final cease-and-desist order, material breach of any provision of this Agreement, or gross negligence in matters of material importance to the Bank.

1.9 "Change in Control" shall mean and include the following with respect to the Bank:

(1) a Change in Control of a nature that would be required to be reported in response to Item I (a) of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or

(2) a change in control of the Bank within the meaning of 12 C.F.R. 574.4; or

(3) a Change in Control at such time as

(i) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,

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of securities of the Bank representing Twenty Five Percent (25.0%) or more of the combined voting power of the Bank's outstanding securities ordinarily having the right to vote at the election of directors, except for any stock purchased by the Bank's Employee Stock Ownership Plan and/or trust; or

(ii) individuals who constitute the board of directors on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Bank's stockholders was approved by the Bank's nominating committee which is comprised of members of the Incumbent Board, shall be, for purposes of this clause (ii), considered as though he were a member of the Incumbent Board; or

(iii) merger, consolidation, or sale of all or substantially all of the assets of the Bank occurs; or

(iv) a proxy statement is issued soliciting proxies from the stockholders of the Bank by someone other than the current management of the Bank, seeking stockholder approval of a plan of reorganization, merger, or consolidation of the Bank with one or more corporations as a result of which the outstanding shares of the class of the Bank's securities are exchanged for or converted into cash or property or securities not issued by the Bank.

The term "person" includes an individual, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities. The term "acquire" means obtaining ownership, control, power to vote or sole power of disposition of stock, directly or indirectly or through one or more transactions or subsidiaries, through purchase, assignment, transfer, exchange, succession or other means, including (1) an increase in percentage ownership resulting from a redemption, repurchase, reverse stock split or a similar transaction involving other securities of the same class; and
(2) the acquisition of stock by a group of persons and/or companies acting in concert which shall be deemed to occur upon the formation of such group, provided that an investment advisor shall not be deemed to acquire the voting stock of its advisee if the advisor (a) votes the stock only upon instruction from the beneficial owner and (b) does not provide the beneficial owner with advice concerning the voting of such stock. The term "security" includes nontransferable subscription rights issued pursuant to a plan of conversion, as well as a "security," as defined in 15 U.S.C. ss. 78c(2)(1`); and the term "acting in concert" means (1) knowing

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participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement, or (2) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. Further, acting in concert with any person or company shall also be deemed to be acting in concert with any person or company that is acting in concert with such other person or company.

Notwithstanding the above definitions, the Board, in its absolute discretion, may make a finding that a Change in Control of the Bank has taken place without the occurrence of any or all of the events enumerated above.

1.10 "Children" means all natural or adopted children of the Executive, and issue of any predeceased child or children.

1.11 "Code" means the Internal Revenue Code of 1986. as amended from time to time.

1.12 "Contributions" means those annual contributions which the Bank is required to make to the Retirement Income Trust Fund on behalf of the Executive in accordance with Subsection 2.1(a) and in the amounts set forth in Exhibit A of the Agreement.

1.13 (a) "Disability Benefit" means the benefit payable to the Executive following a determination, in accordance with Subsection 6.1(a), that he is no longer able, properly and satisfactorily, to perform his duties at the Bank.

(b) "Disability Benefit-Supplemental" (if applicable) means the benefit payable to the Executive's Beneficiary upon the Executive's death in accordance with Subsection 6.1(b).

1.14 "Effective Date" of this Agreement shall be _____________, 1996.

1.15 "Estate" means the estate of the Executive.

1.16 "Interest Factor" means monthly compounding, discounting or annuitizing, as applicable, at a rate set forth in Exhibit A.

1.17 "Payout Period" means the time frame during which certain benefits payable hereunder shall be distributed. Payments shall be made in monthly installments commencing on the first day of the month following the occurrence of the event which triggers distribution and continuing for a period of one hundred eighty
(180) months. Should the Executive make a Timely Election to receive a lump sum benefit payment, the Executive's Payout Period shall be deemed to be one (1) month.

1.18 "Phantom Contributions" means those annual Contributions which the Bank is no longer required

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to make on behalf of the Executive to the Retirement Income Trust Fund. Rather, once the Executive has exercised the withdrawal rights provided for in Subsection 2.2, the Bank shall be required to record the annual amounts set forth in Exhibit A of the Agreement in the Executive's Accrued Benefit Account, pursuant to Subsection 2.1.

1.19 "Plan Administrator" or "Administrator" shall mean Financial Institution Consulting Corporation, Memphis, Tennessee ("FICC") or its successor.

1.20 "Plan Year" shall mean _____________, 1996, through December 31, 1996, for the first Plan Year. Thereafter, the term shall mean the twelve (12) month period commencing January 1, 1997 and each consecutive twelve (12) month period thereafter.

1.21 "Retirement Age" means the Executive's sixty-fifth (65th) birthday provided, however, that the Executive's actual retirement from full-time employment may occur at any later date mutually agreed upon by the parties.

1.22 "Retirement Income Trust Fund" means the trust fund established by the Executive and into which annual Contributions will be made by the Bank on behalf of the Executive pursuant to Subsection 2.1. The contractual rights of the Bank and the Executive with respect to the Retirement Income Trust Fund shall be provided for in a separate writing to be known as the R. Donn Roberts Grantor Trust Agreement (the "Grantor Trust Agreement").

1.23 "Spouse" means the individual to whom the Executive is legally married at the time of the Executive's death.

1.24 "Supplemental Retirement Income Benefit" means an annual amount (before taking into account federal and state income taxes), payable in monthly installments throughout the Payout Period. Such benefit is projected pursuant to the Agreement for the purpose of determining the Contributions to be made to the Retirement Income Trust Fund (or Phantom Contributions to be recorded in the Accrued Benefit Account).

The annual Contributions and Phantom Contributions have been actuarially determined, using the assumptions set forth in Exhibit A, in order to fund for the projected Supplemental Retirement Income Benefit. The Supplemental Retirement Income Benefit for which Contributions (or Phantom Contributions) are being made (or recorded) is set forth in Exhibit A.

1.25 "Timely Election" means the Executive has made an election to change the form of his benefit payment(s) by filing with the Administrator a Notice of Election to Change Form of Payment (Exhibit C of this Agreement). In the case of benefits payable from the Accrued Benefit Account, such election shall have

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been made prior to the event which triggers distribution and at least two (2) years prior to the Executive's Benefit Eligibility Date. In the case of benefits payable from the Retirement Income Trust Fund, such election may be made at any time.

SECTION II BENEFITS - GENERALLY

2.1 (a) RETIREMENT INCOME TRUST FUND AND ACCRUED BENEFIT ACCOUNT. The Executive shall establish the R. Donn Roberts Grantor Trust (the "Grantor Trust") into which the Bank shall be required to make annual Contributions on the Executive's behalf, pursuant to Exhibit A and this Section II. A trustee shall be selected by the Executive. The trustee shall maintain a trust fund, which shall constitute the Retirement Income Trust Fund. The trustee shall be charged with the responsibility of investing all contributed funds. Distributions from the Grantor Trust may be made by the trustee to the Executive, for purposes of payment of any income or employment taxes due and owing on any Contributions by the Bank to the Retirement Income Trust Fund, and on any taxable earnings associated with such Contributions which the Executive shall be required to pay from year to year, under applicable law, prior to actual receipt of any benefit payments from the Retirement Income Trust Fund. If the Executive exercises his withdrawal rights pursuant to Subsection 2.2, the Bank's obligation to make Contributions to the Retirement Income Trust Fund shall cease and the Bank's obligation to record Phantom Contributions in the Accrued Benefit Account shall immediately commence pursuant to Exhibit A and this Section II. To the extent any provisions of this Agreement are inconsistent with the provisions of the Grantor Trust Agreement, this Agreement shall control.

The annual Contributions (or Phantom Contributions) required to be made by the Bank to the Retirement Income Trust Fund (or recorded by the Bank in the Accrued Benefit Account) have been actuarially determined and are set forth in Exhibit A which is attached hereto and incorporated herein by reference. Contributions shall be made by the Bank to the Retirement Income Trust Fund (i) within seventy-five (75) days of establishment of the Grantor Trust, and (ii) within the first thirty (30) days of the beginning of each subsequent Plan Year, unless this Section expressly provides otherwise. Phantom Contributions, if any, shall be recorded in the Accrued Benefit Account within the first thirty (30) days of the beginning of each applicable Plan Year, unless this Section expressly provides otherwise. Phantom Contributions shall accrue interest at a rate equal to the Interest Factor during the Payout Period until the balance of the Accrued Benefit Account has been fully distributed. Interest on any Phantom Contribution shall not commence until such Payout Period commences.

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The Administrator shall review the schedule of annual Contributions (or Phantom Contributions) provided for in Exhibit A (i) within thirty (30) days prior to the close of each Plan Year and (ii) if the Executive is employed by the Bank until attaining Retirement Age, on or immediately before attainment of such Retirement Age. Such review shall consist of an evaluation of the accuracy of all assumptions used to establish the schedule of Contributions (or Phantom Contributions). Provided that (i) the Executive has not exercised his withdrawal rights pursuant to Subsection 2.2 and (ii) the investments contained in the Retirement Income Trust Fund have been deemed reasonable by the Bank, the Administrator shall prospectively amend or supplement the schedule of Contributions provided for in Exhibit A should the Administrator determine during any such review that an increase in or supplement to the schedule of Contributions is necessary in order to adequately fund the Retirement Income Trust Fund so as to provide an annual benefit (or to provide the lump sum equivalent of such benefit, as applicable) equal to the Supplemental Retirement Income Benefit on an after-tax basis, commencing at Benefit Age and payable for the duration of the Payout Period.

(b) WITHDRAWAL RIGHTS NOT EXERCISED.

(1) CONTRIBUTIONS MADE ANNUALLY. If the Executive does not exercise any withdrawal rights pursuant to Subsection 2.2, the annual Contributions to the Retirement Income Trust Fund shall continue each year, unless this Subsection 2.1(b) specifically states otherwise, until the earlier of (i) the last Plan Year that Contributions are required pursuant to Exhibit A, or (ii) the Plan Year of the Executive's termination of employment.

(2) TERMINATION FOLLOWING A CHANGE IN CONTROL. If the Executive does not exercise his withdrawal rights pursuant to Subsection 2.2 and a Change in Control occurs at the Bank, followed within thirty-six (36) months by either (i) the Executive's involuntary termination of employment, or (ii) Executive's voluntary termination of employment after: (A) a material change in the Executive's function, duties, or responsibilities, which change would cause the Executive's position to become one of lesser responsibility, importance, or scope from the position the Executive held at the time of the Change in Control, (B) a relocation of the Executive's principal place of employment by more than thirty (30) miles from its location prior to the Change in Control, or (C) a material reduction in the benefits and perquisites to the Executive from those being provided at the time of the Change in Control, the Contribution set forth below shall be required of the Bank. The Bank shall be required to make a final

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Contribution to the Retirement Income Trust Fund within ten (10) days of the Executive's termination of employment. The amount of such final Contribution shall be equal to the present value (using the Interest Factor) of all remaining Contributions which would have been required to be made on behalf of the Executive if the Executive had remained in the employ of the Bank until Benefit Age.

(3) TERMINATION FOR CAUSE. If the Executive (i) does not exercise his withdrawal rights pursuant to Subsection 2.2, and (ii) is terminated for Cause pursuant to Subsection 5.2, no further Contributions to the Retirement Income Trust Fund shall be required of the Bank, and if not yet made, no Contribution shall be required for the Plan Year in which such termination for Cause occurs.

(4) VOLUNTARY TERMINATION OF EMPLOYMENT. If (i) the Executive does not exercise his withdrawal rights pursuant to Subsection 2.2, and (ii) the Executive's employment with the Bank is voluntarily terminated for any reason other than a termination related to disability, termination for Cause, or termination following a Change in Control, the Executive shall not be entitled to any Contributions to the Retirement Income Trust Fund attributable to any Plan Years which commence subsequent to the date of termination, provided, however, that, if necessary, an amount shall be contributed to the Retirement Income Trust Fund which is sufficient to provide the Executive with after tax benefits (assuming a constant tax rate equal to the rate in effect as of the date of the Executive's termination) beginning at his Benefit Age, equal in amount to that benefit which would have been payable to the Executive if no secular trust had been implemented and the benefit obligation had been accrued under APB Opinion No. 12, as amended by FAS 106.

(5) INVOLUNTARY TERMINATION OF EMPLOYMENT. If the Executive does not exercise his withdrawal rights pursuant to Subsection 2.2, and the Executive's employment with the Bank is involuntarily terminated for any reason, including a termination due to disability of the Executive but excluding termination for Cause, or termination following a Change in Control, within ten (10) days of such involuntary termination of employment, the Bank shall be required to make an immediate lump sum Contribution to the Executive's Retirement Income Trust Fund in an amount equal to: (i) the full Contribution required for the Plan Year in which such involuntary termination occurs, if not yet made, plus (ii) the present value (computed using a discount rate equal to the Interest Factor) of the lesser of (A) the next five (5) years Contributions to the Retirement Income Trust Fund or (B) all remaining Contributions to the Retirement Income Trust Fund.

(6) DEATH DURING EMPLOYMENT. If the Executive does not exercise any withdrawal

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rights pursuant to Subsection 2.2, and dies while employed by the Bank, and if, following the Executive's death, the assets of the Retirement Income Trust Fund are insufficient to provide the Supplemental Retirement Income Benefit to which the Executive is entitled, the Bank shall be required to make a Contribution to the Retirement Income Trust Fund equal to the sum of the remaining Contributions set forth on Exhibit A, reduced by any payments under any life insurance policies that may have been obtained on the Executive's life by the Retirement Income Trust Fund. Such final contribution shall be payable in a lump sum to the Retirement Income Trust Fund within ten (10) days of the Executive's death.

(c) WITHDRAWAL RIGHTS EXERCISED.

(1) PHANTOM CONTRIBUTIONS MADE ANNUALLY. If the Executive exercises his withdrawal rights pursuant to Subsection 2.2, no further Contributions to the Retirement Income Trust Fund shall be required of the Bank. Thereafter, Phantom Contributions shall be recorded annually in the Executive's Accrued Benefit Account within thirty (30) days of the beginning of each Plan Year, commencing with the first Plan Year following the Plan Year in which the Executive exercises his withdrawal rights. Such Phantom Contributions shall continue to be recorded annually, unless this Subsection 2.1(c) specifically states otherwise, until the earlier of (1) the last Plan Year that Phantom Contributions are required pursuant to Exhibit A, or (ii) the Plan Year of the Executive's termination of employment.

(2) TERMINATION FOLLOWING A CHANGE IN CONTROL. If the Executive exercises his withdrawal rights pursuant to Subsection 2.2, Phantom Contributions shall commence in the Plan Year following the Plan Year in which the Executive first exercises his withdrawal rights. If a Change in Control occurs at the Bank, and within thirty-six (36) months of such Change in Control, the Executive's employment is either (i) involuntarily terminated, or (ii) voluntarily terminated by the Executive after: (A) a material change in the Executive's function, duties, or responsibilities, which change would cause the Executive's position to become one of lesser responsibility, importance, or scope from the position the Executive held at the time of the Change in Control, (B) a relocation of the Executive's principal place of employment by more than thirty
(30) miles from its location prior to the Change in Control, or (C) a material reduction in the benefits and perquisites to the Executive from those being provided at the time of the Change in Control, the Phantom Contribution set forth below shall be required of the Bank. The Bank shall be required to record a lump sum Phantom Contribution in the Accrued Benefit Account

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within thirty (30) days of the Executive's termination of employment. The amount of such final Phantom Contribution shall be actuarially determined based on the Phantom Contribution required, at such time, in order to provide a benefit via this Agreement equivalent to the Supplemental Retirement Income Benefit, on an after tax basis, commencing on the Executive's Benefit Eligibility Date and continuing for the duration of the Payout Period. (Such actuarial determination shall reflect the fact that amounts shall be payable from both the Accrued Benefit Account as well as the Retirement Income Trust Fund and shall also reflect the amount and timing of any withdrawal(s) made by the Executive from the Retirement Income Trust Fund pursuant to Subsection 2.2.)

(3) TERMINATION FOR CAUSE. If the Executive is terminated for Cause pursuant to Subsection 5.2, the entire balance of the Executive's Accrued Benefit Account at the time of such termination, which shall include any Phantom Contributions which have been recorded plus interest accrued on such Phantom Contributions, shall be forfeited.

(4) VOLUNTARY TERMINATION OF EMPLOYMENT. If (i) the Executive exercises his withdrawal rights pursuant to Subsection 2.2, and (ii) the Executive's employment with the Bank is voluntarily terminated for any reason other than a termination related to disability, termination for Cause, or termination following a Change in Control, the Executive shall not be entitled to any Phantom Contributions to the Retirement Income Trust Fund attributable to any Plan Years which commence subsequent to the date of termination.

(5) INVOLUNTARY TERMINATION OF EMPLOYMENT. If the Executive exercises his withdrawal rights pursuant to Subsection 2.2, and the Executive's employment with the Bank is involuntarily terminated for any reason including termination due to disability of the Executive, but excluding termination for Cause, or termination following a Change in Control, within ten (10) days of such involuntary termination of employment, the Bank shall be required to record a final Phantom Contribution in an amount equal to: (i) the full Phantom Contribution required for the Plan Year in which such involuntary termination occurs, if not yet made, plus (ii) the present value (computed using a discount rate equal to the Interest Factor) of the lesser of (A) the next five (5) years Contributions to the Retirement Income Trust Fund or (B) all remaining Phantom Contributions.

(6) DEATH DURING EMPLOYMENT. If the Executive (i) exercises his withdrawal rights pursuant to Subsection 2.2, and (ii) dies while employed by the Bank, Phantom Contributions included on Exhibit A shall be required of the Bank. Such Phantom Contributions shall commence in the Plan

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Year following the Plan Year in which the Executive exercises his withdrawal rights and shall continue through the Plan Year in which the Executive dies. The Bank shall also be required to record a final Phantom Contribution within thirty
(30) days of the Executive's death. The amount of such final Phantom Contribution shall be actuarially determined based on the Phantom Contribution required at such time (if any), in order to provide a benefit via this Agreement equivalent to the Supplemental Retirement Income Benefit commencing within thirty (30) days of the date the Administrator receives notice of the Executive's death and continuing for the duration of the Payout Period. (Such actuarial determination shall reflect the fact that amounts shall be payable from the Accrued Benefit Account as well as the Retirement Income Trust Fund and shall also reflect the amount and timing of any withdrawal(s) made by the Executive pursuant to Subsection 2.2.)

2.2 WITHDRAWALS FROM RETIREMENT INCOME TRUST FUND. Exercise of withdrawal rights by the Executive pursuant to the Grantor Trust Agreement shall terminate the Bank's obligation to make any further Contributions to the Retirement Income Trust Fund, and the Bank's obligation to record Phantom Contributions pursuant to Subsection 2.1 (c) shall commence. For purposes of this Subsection 2.2, "exercise of withdrawal rights" shall mean those withdrawal rights to which the Executive is entitled under Section 3 of the Grantor Trust Agreement and shall exclude any distributions made by the trustee of the Grantor Fund to the Executive for purposes of payment of income taxes in accordance with Subsection 2.1 of this Agreement and the tax reimbursement provision contained in the Grantor Trust Agreement, or other trust expenses properly payable from the Grantor Trust pursuant to the provisions of the Grantor Trust Agreement.

2.3 BENEFITS PAYABLE FROM GRANTOR TRUST. Notwithstanding anything else to the contrary in this Agreement, in the event that the trustee of the Grantor Trust purchases a life insurance policy with the Contributions to and, if applicable, earnings of the Trust, and such life insurance policy is intended to continue in force beyond the Payout Period for the disability or retirement benefits payable from the Retirement Income Trust Fund pursuant to this Agreement, then the Trustee shall be directed by the Administrator in determining the portion of the cash value of such policy available for purposes of annuitizing the Retirement Income Trust Fund to provide the disability or retirement benefits payable under this Agreement, after taking into consideration the amounts reasonably believed to be required in order to maintain the cash value of such policy to continue such policy in effect until the death of the Executive and payment of death benefits thereunder.

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SECTION III RETIREMENT BENEFIT

3.1 (a) NORMAL FORM OF PAYMENT. If (i) the Executive is employed with the Bank until reaching his Retirement Age, and (ii) the Executive has not made a Timely Election to receive a lump sum benefit, this Subsection 3.1(a) shall be controlling with respect to retirement benefits.

The Retirement Income Trust Fund, measured as of the Executive's Benefit Age, shall be annuitized (using the Interest Factor) into monthly installments and shall be payable for the Payout Period. Such benefit payments shall commence on the Executive's Benefit Eligibility Date. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is less than the rate of return used to annuitize the Retirement Income Trust Fund, no additional contributions to the Retirement Income Trust Fund shall be required by the Bank in order to fund the final benefit payment(s) and make up for any shortage attributable to the less-than-expected rate of return. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is greater than the rate of return used to annuitize the Retirement Income Trust Fund, the final benefit payment to the Executive (or his Beneficiary) shall include the excess amounts attributable to the greater-than expected rate of return. In the event the Executive dies at any time after attaining his Benefit Age, but prior to commencement or completion of all the payments due and owing hereunder, (i) the trustee of the Grantor Trust shall pay to the Executive's Beneficiary the monthly installments (or a continuation of such monthly installments if they have already commenced) for the balance of months remaining in the Payout Period, or (ii) the Executive's Beneficiary may request to receive the unpaid balance of the Executive's Retirement Income Trust Fund in a lump sum payment. If a lump sum payment is requested by the Beneficiary, payment of the balance of the Retirement Income Trust Fund in such lump sum form shall be made only if the Executive's Beneficiary (i) obtains approval from the trustee of the Grantor Trust and (ii) notifies the Administrator in writing of such election within ninety (90) days of the Executive's death. Such lump sum payment, if approved by the trustee, shall be payable within thirty (30) days of such trustee approval.

The Executive's Accrued Benefit Account (if applicable), measured as of the Executive's Benefit Age, shall be annuitized (using the Interest Factor) into monthly installments and shall be payable for the Payout Period. Such benefit payments shall commence on the Executive's Benefit Eligibility Date. In the event the Executive dies at any time after attaining his Benefit Age, but prior to commencement or

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completion of all the payments due and owing hereunder, (i) the Bank shall pay to the Executive's Beneficiary the same monthly installments (or a continuation of such monthly installments if they have already commenced) for the balance of months remaining in the Payout Period, or (ii) the Executive's Beneficiary may request to receive the remainder of any unpaid benefit payments In a lump sum payment. If a lump sum payment is requested by the Beneficiary, the amount of such lump sum payment shall be equal to the unpaid balance of the Executive's Accrued Benefit Account. Payment in such lump sum form shall be made only if the Executive's Beneficiary (i) obtains Board of Director approval, and (ii) notifies the Administrator in writing of such election within ninety (90) days of the Executive's death. Such lump sum payment shall be made within thirty (30) days of approval by the Board of Directors.

(b) ALTERATIVE PAYOUT OPTION. If (i) the Executive is employed with the Bank until reaching his Retirement Age, and (ii) the Executive has made a Timely Election to receive a lump sum benefit, this Subsection 3.1 (b) shall be controlling with respect to retirement benefits. The balance of the Retirement Income Trust Fund, measured as of the Executive's Benefit Age, shall be paid to the Executive in a lump sum on his Benefit Eligibility Date. In the event the Executive dies after becoming eligible for such payment (upon attainment of his Benefit Age), but before the actual payment is made, his Beneficiary shall be entitled to receive the lump sum benefit in accordance with this Subsection 3.1(b) within thirty (30) days of the date the Administrator receives notice of the Executive's death.

The balance of the Executive's Accrued Benefit Account (if applicable), measured as of the Executive's Benefit Age, shall be paid to the Executive in a lump sum on his Benefit Eligibility Date. In the event the Executive dies after becoming eligible for such payment (upon attainment of his Benefit Age), but before the actual payment is made, his Beneficiary shall be entitled to receive the lump sum benefit in accordance with this Subsection 3. I (b) within thirty
(30) days of the date the Administrator receives notice of the Executive's death.

SECTION IV PRE-RETIREMENT DEATH BENEFIT

4.1 (a) NORMAL FORM OF PAYMENT. If (i) the Executive dies while employed by the Bank, and (ii) the Executive has not made a Timely Election to receive a lump sum benefit, this Subsection 4.1(a) shall be controlling with respect to pre-retirement death benefits.

The Executive's Retirement Income Trust Fund, measured as of the Executive's death, shall be annuitized (using the Interest Factor) into monthly installments and shall be payable to the Executive's

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Beneficiary for the Payout Period. Such benefit payments shall commence within thirty (30) days of the date the Administrator receives notice of the Executive's death. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is less than the rate of return used to annuitize the Retirement Income Trust Fund, no additional contributions to the Retirement Income Trust Fund shall be required by the Bank in order to fund the final benefit payment(s) and make up for any shortage attributable to the less-than-expected rate of return. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is greater than the rate of return used to annuitize the Retirement Income Trust Fund, the final benefit payment to the Executive's Beneficiary shall include the excess amounts attributable to the greater-thanexpected rate of return. The Executive's Beneficiary may request to receive the unpaid balance of the Executive's Retirement Income Trust Fund in a lump sum payment. If a lump sum payment is requested by the Beneficiary, payment of the balance of the Retirement Income Trust Fund in such lump sum form shall be made only if the Executive's Beneficiary (i) obtains approval from the trustee of the Grantor Trust and (ii) notifies the Administrator in writing of such election within ninety (90) days of the Executive's death. Such lump sum payment, if approved by the trustee, shall be made within thirty (30) days of such trustee approval.

The Executive's Accrued Benefit Account (if applicable), measured as of the later of (i) the Executive's death or (ii) the date any final lump sum Phantom Contribution is recorded in the Accrued Benefit Account pursuant to Subsection 2.1(c), shall be annuitized (using the Interest Factor) into monthly installments and shall be payable to the Executive's Beneficiary for the Payout Period. Such benefit payments shall commence within thirty (30) days of the date the Administrator receives notice of the Executive's death, or if later, within thirty (30) days after any final lump sum Phantom Contribution is recorded in the Accrued Benefit Account in accordance with Subsection 2.1(c). The Executive's Beneficiary may request to receive the remainder of any unpaid monthly benefit payments due from the Accrued Benefit Account in a lump sum payment. If a lump sum payment is requested by the Beneficiary, the amount of such lump sum payment shall be equal to the unpaid balance of the Executive's Accrued Benefit Account. Payment in such lump sum form shall be made only if the Executive's Beneficiary (i) obtains Board of Director approval, and (ii) notifies the Administrator in writing of such election within ninety (90) days of the Executive's death. Such lump sum payment, if approved by the Board of Directors, shall be payable within thirty (30) days of such Board approval.

(b) ALTERATIVE PAYOUT OPTION. If (i) the Executive dies while employed by the Bank, and

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(ii) the Executive has made a Timely Election to receive a lump sum benefit, this Subsection 4.1(b) shall be controlling with respect to pre-retirement death benefits.

The balance of the Executive's Retirement Income Trust Fund, measured as of the later of (i) the Executive's death, or (ii) the date any final lump sum Contribution is made pursuant to Subsection 2.1(b), shall be paid to the Executive's Beneficiary in a lump sum within thirty (30) days of the date the Administrator receives notice of the Executive's death.

The balance of the Executive's Accrued Benefit Account (if applicable), measured as of the later of (i) the Executive's death, or (ii) the date any final Phantom Contribution is recorded pursuant to Subsection 2.1(c), shall be paid to the Executive's Beneficiary in a lump sum within thirty (30) days of the date the Administrator receives notice of the Executive's death.

SECTION V BENEFIT(S) IN THE EVENT OF TERMINATION OF SERVICE
PRIOR TO RETIREMENT AGE

5.1 VOLUNTARY OR INVOLUNTARY TERMINATION OF SERVICE OTHER THAN FOR CAUSE. In the event the Executive's service with the Bank is voluntarily or involuntarily terminated prior to Retirement Age for any reason, including a Change in Control, but excluding (1) any disability related termination for which the Board of Directors has approved early payment of benefits pursuant to Subsection
6. 1, (ii) the Executive's pre-retirement death, which is provided for in
Section IV, or (iii) termination for Cause, which is provided for in Subsection 5.2, the Executive (or his Beneficiary) shall be entitled to receive benefits in accordance with this Subsection 5.1. Payments of benefits pursuant to this Subsection 5.1 shall be made in accordance with Subsection 5.1 (a) or 5.1 (b) below, as applicable.

(a) NORMAL FORM OF PAYMENT.

(1) Executive Lives Until Benefit Age. If (i) after such termination, the Executive lives until attaining his Benefit Age, and (ii) the Executive has not made a Timely Election to receive a lump sum benefit. This Subsection 5.1 (a)(1) shall be controlling with respect to retirement benefits.

The Retirement Income Trust Fund, measured as of the Executive's Benefit Age, shall be annuitized (using the Interest Factor) into monthly installments and shall be payable for the Payout Period. Such payments shall commence on the Executive's Benefit Eligibility Date. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is less than the rate of return used to annuitize the Retirement Income Trust Fund, no additional contributions to the Retirement Income Trust Fund shall be required by the Bank in order to fund the final benefit payment(s) and make up

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for any shortage attributable to the less-than-expected rate of return. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is greater than the rate of return used to annuitize the Retirement Income Trust Fund, the final benefit payment to the Executive (or his Beneficiary) shall include the excess amounts attributable to the greater-than expected rate of return. In the event the Executive dies at any time after attaining his Benefit Age, but prior to commencement or completion of all the payments due and owing hereunder, (i) the trustee of the Grantor Trust shall pay to the Executive's Beneficiary the monthly installments
(or a continuation of the monthly installments if they have already commenced)
for the remaining months in the Payout Period, or (ii) the Executive's Beneficiary may request to receive the unpaid balance of the Executive's Retirement Income Trust Fund in a lump sum payment. If a lump sum payment is requested by the Beneficiary, payment of the balance of the Retirement Income Trust Fund in such lump sum form shall be made only if the Executive's Beneficiary (i) obtains approval from the trustee of the Grantor Trust and (ii) notifies the Administrator in writing of such election within ninety (90) days of the Executive's death. Such lump sum payment, if approved by the trustee, shall be made within thirty (30) days of such trustee approval.

The Executive's Accrued Benefit Account (if applicable), measured as of the Executive's Benefit Age, shall be annuitized (using the Interest Factor) into monthly installments and shall be payable for the Payout Period. Such benefit payments shall commence on the Executive's Benefit Eligibility Date. In the event the Executive dies at any time after attaining his Benefit Age, but prior to commencement or completion of all the payments due and owing hereunder, (i) the Bank shall pay to the Executive's Beneficiary the same monthly installments
(or a continuation of such monthly installments if they have already commenced)
for the balance of months remaining in the Payout Period, or (ii) the Executive's Beneficiary may request to receive the remainder of any unpaid benefit payments in a lump sum payment. If a lump sum payment is requested by the Beneficiary, the amount of such lump sum payment shall be equal to the unpaid balance of the Executive's Accrued Benefit Account. Payment in such lump sum shall be made only if the Executive's Beneficiary (i) obtains Board of Director approval, and (ii) notifies the Administrator in writing of such election within ninety (90) days of the Executive's death. Such lump sum payment, if approved by the Board of Directors, shall be made within thirty (30) days of such Board of Director approval.

(2) EXECUTIVE DIES PRIOR TO BENEFIT AGE. If (i) after such termination, the Executive dies prior to attaining his Benefit Age, and (ii) the Executive has not made a Timely Election to receive a lump sum benefit, this Subsection 5.1(a)(2) shall be controlling with respect to retirement benefits.

The Retirement Income Trust Fund, measured as of the date of the Executive's death, shall be

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annuitized (using the Interest Factor) into monthly installments and shall be payable for the Payout Period. Such benefit payments shall commence within thirty (30) days of the date the Administrator receives notice of the Executive's death. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is less than the rate of return used to annuitize the Retirement Income Trust Fund, no additional contributions to the Retirement Income Trust Fund shall be required by the Bank in order to fund the final benefit payment(s) and make up for any shortage attributable to the less-than-expected rate of return. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is greater than the rate of return used to annuitize the Retirement Income Trust Fund as of the date of the Executive's death, the final benefit payment to the Executive's Beneficiary shall include the excess amounts attributable to the greater-than-expected rate of return. The Executive's Beneficiary may request to receive the unpaid balance of the Executive's Retirement Income Trust Fund in the form of a lump sum payment. If a lump sum payment is requested by the Beneficiary, payment of the balance of the Retirement Income Trust Fund in such lump sum form shall be made only if the Executive's Beneficiary (i) obtains approval from the trustee of the Grantor Trust and (ii) notifies the Administrator in writing of such election within ninety (90) days of the Executive's death. Such lump sum payment, if approved by the trustee, shall be made within thirty (30) days of such trustee approval.

The Executive's Accrued Benefit Account (if applicable), measured as of the Executive's Benefit Age, shall be annuitized (using the Interest Factor) into monthly installments and shall be payable for the Payout Period. Such benefit payments shall commence on the Executive's Benefit Eligibility Date. In the event the Executive dies at any time after attaining his Benefit Age, but prior to commencement or completion of all the payments due and owing hereunder, (i) the Bank shall pay to the Executive's Beneficiary the same monthly installments
(or a continuation of such monthly installments if they have already commenced)
for the balance of months remaining in the Payout Period, or (ii) the Executive's Beneficiary may request to receive the remainder of any unpaid benefit payments in a lump sum payment. If a lump sum payment is requested by the Beneficiary, the amount of such lump sum payment shall be equal to the unpaid balance of the Executive's Accrued Benefit Account. Payment in such lump sum fund shall be made only if the Executive's Beneficiary (i) obtains Board of Director approval, and (ii) notifies the Administrator in writing of such election within ninety (90) days of the Executive's death. Such lump sum payment, if approved by the Board of Directors, shall be made within thirty (30) days of such Board of Director approval.

(b) ALTERNATIVE PAYOUT OPTION.

(1) EXECUTIVE LIVES UNTIL BENEFIT AGE. If (i) after such termination, the Executive lives until

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attaining his Benefit Age, and (ii) the Executive has made a Timely Election to receive a lump sum benefit, this Subsection 5.1(b)(1) shall be controlling with respect to retirement benefits.

The balance of the Retirement Income Trust Fund, measured as of the Executive's Benefit Age, shall be paid to the Executive in a lump sum on his Benefit Eligibility Date. In the event the Executive dies after becoming eligible for such payment (upon attainment of his Benefit Age), but before the actual payment is made, his Beneficiary shall be entitled to receive the lump sum benefit in accordance with this Subsection 5.1(b)(1) within thirty (30) days of the date the Administrator receives notice of the Executive's death.

The balance of the Executive's Accrued Benefit Account (if applicable), measured as of the Executive's Benefit Age, shall be paid to the Executive in a lump sum on his Benefit Eligibility Date. In the event the Executive dies after becoming eligible for such payment (upon attainment of his Benefit Age), but before the actual payment is made, his Beneficiary shall be entitled to receive the lump sum benefit in accordance with this Subsection 5.1(b)(1) within thirty
(30) days of the date the Administrator receives notice of the Executive's death.

(2) EXECUTIVE DIES PRIOR TO BENEFIT AGE. If (i) after such termination, the Executive dies prior to attaining his Benefit Age, and (ii) the Executive has made a Timely Election to receive a lump sum benefit, this Subsection 5.1(b)(2) shall be controlling with respect to retirement benefits.

The balance of the Retirement Income Trust Fund, measured as of the date of the Executive's death, shall be paid to the Executive's Beneficiary within thirty (30) days of the date the Administrator receives notice of the Executive's death.

The balance of the Executive's Accrued Benefit Account (if applicable), measured as of the date of the Executive's death, shall be paid to the Executive's Beneficiary within thirty (30) days of the date the Administrator receives notice of the Executive's death. 5.2 Termination For Cause. If the Executive is terminated for Cause, all benefits under this Agreement, other than those which can be paid from previous Contributions to the Retirement Income Trust Fund (and earnings on such Contributions), shall be forfeited. Furthermore, no further Contributions (or Phantom Contributions, as applicable) shall be required of the Bank for the year in which such termination for Cause occurs (if not yet made). The Executive shall be entitled to receive a benefit in accordance with this Subsection 5.2.

The balance of the Executive's Retirement Income Trust Fund shall be paid to the Executive in a lump sum on his Benefit Eligibility Date. In the event the Executive dies prior to his Benefit Eligibility Date, his Beneficiary shall be entitled to receive the balance of the Executive's Retirement Income Trust Fund in a

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lump sum within thirty (30) days of the date the Administrator receives notice of the Executive's death.

SECTION VI OTHER BENEFITS

6.1 (a) DISABILITY BENEFIT. If the Executive's service is terminated prior to Retirement Age due to a disability which meets the criteria set forth below, the Executive may request to receive the Disability Benefit in lieu of the retirement benefit(s) available pursuant to Section 5.1 (which is (are) not available prior to the Executive's Benefit Eligibility Date).

In any instance in which: (i) it is determined by a duly licensed, independent physician selected by the Bank, that the Executive is no longer able, properly and satisfactorily, to perform his regular duties as an officer, because of ill health, accident, disability or general inability due to age,
(ii) the Executive requests payment under this Subsection in lieu of Subsection 5.1, and (iii) Board of Director approval is obtained to allow payment under this Subsection, in lieu of Subsection 5.1, the Executive shall be entitled to the following lump sum benefits: (i) the balance of the Retirement Income Trust Fund, plus (ii) the balance of the Accrued Benefit Account (if applicable). The benefits shall be paid within thirty (30) days following the date of the Executive's request for such benefit is approved by the Board of Directors. In the event the Executive dies after becoming eligible for such payments but before the actual payments are made, his Beneficiary shall be entitled to receive the benefits provided for in this Subsection 6.1 (a) within thirty (30) days of the date the Administrator receives notice of the Executive's death.

(b) DISABILITY BENEFIT - SUPPLEMENTAL. Furthermore, if Board of Director approval is obtained within thirty (30) days of the Executive's death, the Bank shall make a direct, lump sum payment to the Executive's Beneficiary in an amount equal to the sum of all remaining Contributions (or Phantom Contributions) set forth in Exhibit A, but not required pursuant to Subsection
2.1(b) (or-2.1(c)) due to the Executive's disability-related termination. Such lump sum payment, if approved by the Board of Directors, shall be payable to the Executive's Beneficiary within thirty (30) days of such Board of Director approval.

6.2 Additional Death Benefit - Funeral Expense. Upon the Executive's death, the Executive's Beneficiary shall also be entitled to receive a one-time lump sum death benefit in the amount of Thirty Thousand Dollars ($30,000.00). This benefit shall be paid directly from the Bank to the Beneficiary and shall be provided specifically for the purpose of providing payment for funeral expenses of the Executive. Such death benefit shall be payable within thirty
(30) days from the date the Administrator receives notice of the Executive's

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death. The Executive's Beneficiary shall not be entitled to such benefit if the Executive is terminated for Cause prior to death.

SECTION VII NON-COMPETITION

7.1 NON-COMPETITION. In consideration of the agreements of the Bank contained herein and of the payments to be made by the Bank pursuant hereto, the Executive hereby agrees that, for as long as he remains employed by the Bank, he will devote substantially all of his time, skill, diligence and attention to the business of the Bank, and will not actively engage, either directly or indirectly, in any business or other activity which is, or may be deemed to be, in any way competitive with or adverse to the best interests of the business of the Bank. The Executive further agrees that following his employment with the Bank and continuing through the Payout Period he will not actively engage, either directly or indirectly, in any business or other activity which is, or may be deemed to be, in any way competitive with or adverse to the best interests of the Bank, unless the Executive has the prior express written consent of the Board of Directors of the Bank.

7.2 BREACH OF NON-COMPETITION CLAUSE.

(a) During Employment. In the event the Executive breaches Subsection 7.1 while employed at the Bank, all further Contributions to the Retirement Income Trust Fund (or Phantom Contributions to the Accrued Benefit Account) shall immediately cease, and all benefits under this Agreement, other than those which can be paid from previous Contributions to the Retirement Income Trust Fund (and earnings on such Contributions), shall be forfeited. If, following such breach, the Executive lives until attaining his Benefit Age, he shall be entitled to receive a benefit from the Retirement Income Trust Fund equal to the balance of the Retirement Income Trust Fund, payable in a lump sum on his Benefit Eligibility Date. In the event the Executive dies after attaining his Benefit Age but before actual payment is made, his Beneficiary shall be entitled to receive the lump sum benefit payable within thirty (30) days of the date of the Bank receives notice of the Executive's death. If, following such breach, the Executive dies prior to attaining his Benefit Age, his Beneficiary shall be entitled to receive a benefit from the Retirement Income Trust Fund equal to the balance of the Retirement Income Trust Fund, payable in a lump sum within thirty
(30) days of the date the Bank receives notice of the Executive's death.

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In the event (i) any breach by the Executive of the agreements and covenants described in Subsection 7.1 occurs while the Executive is employed at the Bank, and (ii) the Executive's employment with the Bank is terminated due to such breach, such termination shall be deemed to be for Cause and the benefits payable to the Executive shall be paid in accordance with Subsection 5.2 of this Agreement.

(b) BREACH FOLLOWING TERMINATION OF EMPLOYMENT. In the event the Executive breaches Subsection 7.1 following the Executive's termination of employment with the Bank, all benefits under this Agreement, other than those which can be paid from previous Contributions to the Retirement Income Trust Fund shall be forfeited, regardless of whether the Executive is receiving benefits at such time. If the Executive has attained his Benefit Age and is receiving a benefit at the time of such breach, his remaining balance in the Retirement Income Trust Fund shall be paid to him in a lump sum within thirty (30) days of the date the Bank has received notice of such breach (or in the event of the Executive's death after attainment of his Benefit Age but before actual payment of such lump sum, payment shall be made to the Executive's Beneficiary within thirty (30) days of the date the Bank has received notice of the Executive's death). If the Executive has not attained his Benefit Age at the time of the breach, and following such breach, the Executive lives until attaining his Benefit Age, he shall be entitled to receive a benefit from the Grantor Trust equal to the balance of the Retirement Income Trust Fund, payable in a lump sum on his Benefit Eligibility Date. In the event the Executive dies after attaining his Benefit Age but before actual payment is made, his Beneficiary shall be entitled to receive the lump sum benefit payable within thirty (30) days of the date of the Bank receives notice of the Executive's death. If the Executive has not attained his Benefit Age at the time of the breach, and following such breach, the Executive dies prior to attaining his Benefit Age, his Beneficiary shall be entitled to receive a benefit from the Retirement Income Trust Fund equal to the balance of the Retirement Income Trust Fund, payable in a lump sum within thirty
(30) days of the date the Bank receives notice of the Executive's death.

In the event of a termination related to a Change in Control as described in Subsection 2.1 (b)(2) (or 2.1 (c)(2)), Subsection 7.1 shall cease to be a condition to the performance by the Bank of its obligations under this Agreement.

SECTION VIII BENEFICIARY DESIGNATION

The Executive shall make an initial designation of primary and secondary Beneficiaries upon

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execution of this Agreement and shall have the right to change such designation, at any subsequent time, by submitting to (i) the Administrator, and (ii) the trustee of the Retirement Income Trust Fund, in substantially the form attached as Exhibit B to this Agreement, a written designation of primary and secondary Beneficiaries. Any Beneficiary designation made subsequent to execution of this Agreement shall become effective only when receipt thereof is acknowledged in writing by the Administrator.

SECTION IX EXECUTIVE'S RIGHT TO ASSETS

The rights of the Executive, any Beneficiary, or any other person claiming through the Executive under this Agreement, shall be solely those of an unsecured general creditor of the Bank. The Executive, the Beneficiary, or any other person claiming through the Executive, shall only have the right to receive from the Bank those payments or amounts so specified under this Agreement. The Executive agrees that he, his Beneficiary, or any other person claiming through him shall have no rights or interests whatsoever in any asset of the Bank, including any insurance policies or contracts which the Bank may possess or obtain to informally fund this Agreement. Any asset used or acquired by the Bank in connection with the liabilities it has assumed under this Agreement shall not be deemed to be held under any trust for the benefit of the Executive or his Beneficiaries, unless such asset is contained in the rabbi trust described in Section XII of this Agreement. Any such asset shall be and remain, a general, unpledged asset of the Bank in the event of the Bank's insolvency.

SECTION X RESTRICTIONS UPON FUNDING

The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement, other than those Contributions required to be made to the Retirement Income Trust Fund. The Executive, his Beneficiaries or any successor in interest to him shall be and remain simply a general unsecured creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. The Bank reserves the absolute right in its sole discretion to either purchase assets to meet its obligations undertaken by this Agreement or to refrain from the same and to determine the extent, nature, and method of such asset purchases. Should the Bank decide to purchase assets such as life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to replace such assets from time to time or to terminate its investment in such assets at any time, in whole or in part. At no time shall the Executive be deemed to have any lien, right, title or interest in or to any specific investment or to any assets of the Bank. If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical examination and by supplying such additional information necessary to obtain such insurance or annuities.

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SECTION XI ACT PROVISIONS

11.1 NAMED FIDUCIARY AND ADMINISTRATOR. The Bank shall be the Named Fiduciary and FICC shall be the Administrator of this Agreement. The Administrator shall be responsible for the interpretation and administration of the Agreement as established herein. The Bank may delegate to others certain aspects of the management and operational responsibilities of the Agreement, including the employment of advisors and the delegation of ministerial duties to qualified individuals. 11.2 Claims Procedure-and Arbitration. In the event that benefits under this Agreement are not paid to the Executive (or to his Beneficiary in the case of the Executive's death) and such claimant feels he is entitled to receive such benefits, then a written claim must be made to the Administrator within sixty (60) days from the date payments are refused. The Administrator shall review the written claim and, if the claim is denied, in whole or in part, it shall provide in writing, within ninety (90) days of receipt of such claim, its specific reasons for such denial, reference to the provisions of this Agreement upon which the denial is based, and any additional material or information necessary to perfect the claim. Such writing by the Administrator shall further indicate the additional steps which must be undertaken by claimant if an additional review of the claim denial is desired.

If claimant desires a second review, they shall notify the Administrator in writing within sixty (60) days of the first claim denial. Claimant may review this Agreement or any documents relating thereto and submit any issues and comments, in writing, he may feel appropriate. In its sole discretion, the Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall state the specific reasons for the decision and shall include reference to specific provisions of this Agreement upon which the decision is based.

If claimant continues to dispute the benefit denial based upon completed performance of this Agreement or the meaning and effect of the terms and conditions thereof, then claimant may submit the dispute to an arbitration panel for settlement. The arbitration panel shall consist of three members: one member selected by the claimant, one member selected by the Bank, and the third member selected by the first two members. The arbitration panel shall conduct the arbitration in accordance with the applicable rules of the American Arbitration Association. The arbitral award may grant any relief deemed by the arbitrators to be just and equitable and shall state the reasons for the award and the relief granted. The parties hereto agree that they, their heirs, personal representatives, successors and assigns shall be bound by the decision of the arbitration panel with respect to any controversy properly submitted

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to it for determination. Any award rendered may be confirmed, judgment upon any award rendered may be entered, and such award of the judgment thereon may be enforced in any court of any state or country having jurisdiction over the parties.

SECTION XII MISCELLANEOUS

12.1 NO EFFECT ON EMPLOYMENT RIGHTS. Nothing contained herein will confer upon the Executive the right to be retained in the service of the Bank nor limit the right of the Bank to discharge or otherwise deal with the Executive without regard to the existence of the Agreement. Pursuant to 12 C.F.R. ss. 563.39(b), the following conditions shall apply to this Agreement:

(1) The Bank's Board of Directors may terminate the Executive at any time, but any termination by the Bank's Board of Directors other than termination for Cause shall not prejudice the Executive's vested right to compensation or other benefits under the Agreement. As provided in Subsection 5.2, the Executive shall have no right to receive additional compensation or other benefits, other than those provided for in Subsection 5.2, after termination for Cause.

(2) If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)) the Bank's obligations under the Agreement shall be suspended (except vested rights) as of the date of termination of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Executive all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

(3) If the Executive is terminated and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(4) or (g)(1)), all non-vested obligations of the Bank under the Agreement shall terminate as of the effective date of the order.

(4) If the Bank is in default (as defined in Section 3(x)(1) of the Federal Deposit Insurance Act), all non-vested obligations under the Agreement shall terminate as of the date of default.

(5) All non-vested obligations under the Agreement shall be terminated, except to the extent determined that continuation of the Agreement is necessary for the continued operation of the Bank:

(i) by the Director [of the Federal Deposit Insurance Corporation] or his designee at

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the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in ss. 13(c) of the Federal Deposit Insurance Act; or

(ii) by the Director [of the Federal Deposit Insurance Corporation] or his designee, at the time the Director or his designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition.

Any rights of the parties that have already vested, (i.e., the balance of the Executive's Retirement Income Trust Fund and the balance of the Executive's Accrued Benefit Account, if applicable), however, shall not be affected by such action.

12.2 STATE LAW. The Agreement is established under, and will be construed according to, the laws of the state of Indiana, to the extent such laws are not preempted by the Act and valid regulations published thereunder.

12.3 SEVERABILITY. In the event that any of the provisions of this Agreement or portion thereof, are held to be inoperative or invalid by any court of competent jurisdiction, then: (1) insofar as is reasonable, effect will be given to the intent manifested in the provisions held invalid or inoperative, and (2) the validity and enforceability of the remaining provisions will not be affected thereby.

12.4 INCAPACITY OF RECIPIENT. In the event the Executive is declared incompetent and a conservator or other person legally charged with the care of his person or Estate is appointed, any benefits under the Agreement to which such Executive is entitled shall be paid to such conservator or other person legally charged with the care of his person or Estate.

12.5 UNCLAIMED BENEFIT. The Executive shall keep the Bank informed of his current address and the current address of his Beneficiaries. The Bank shall not be obligated to search for the whereabouts of any person. If the location of the Executive is not made known to the Bank as of the date upon which any payment of any benefits from the Accrued Benefit Account may first be made, the Bank shall delay payment of the Executive's benefit payment(s) until the location of the Executive is made known to the Bank; however, the Bank shall only be obligated to hold such benefit payment(s) for the Executive until the expiration of thirty-six (36) months. Upon expiration of the thirty-six (36) month period, the Bank may discharge its obligation by payment to the Executive's Beneficiary. If the location of the Executive's Beneficiary is not made known to the Bank by the end of an additional two (2) month period following expiration of the thirty-six
(36) month period, the Bank may discharge its obligation by payment to the Executive's Estate. If there is no Estate in existence at such time or if such fact cannot be determined by

25

the Bank, the Executive and his Beneficiary(ies) shall thereupon forfeit any rights to the balance, if any, of the Executive's Accrued Benefit Account provided for such Executive and/or Beneficiary under this Agreement.

12.6 LIMITATIONS ON LIABILITY. Notwithstanding any of the preceding provisions of the Agreement, no individual acting as an employee or agent of the Bank, or as a member of the Board of Directors shall be personally liable to the Executive or any other person for any claim. loss. liability or expense incurred in connection with the Agreement.

12.7 GENDER AND NUMBER. Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. Similarly, words in the plural shall be construed in the singular and vice versa, whenever applicable.

12.8 EFFECT ON OTHER CORPORATE BENEFIT AGREEMENTS. Nothing contained in this Agreement shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit sharing, group, bonus or other supplemental compensation plan or fringe benefit agreement constituting a part of the Bank's existing or future compensation structure.

12.9 SUICIDE. Notwithstanding anything to the contrary in this Agreement, if the Executive's death results from suicide, whether sane or insane, within twenty-six (26) months after execution of this Agreement, all further Contributions to the Retirement Income Trust Fund (or Phantom Contributions recorded in the Accrued Benefit Account) shall thereupon cease, and no Contribution (or Phantom Contribution) shall be made by the Bank to the Retirement Income Trust Fund (or recorded in the Accrued Benefit Account) in the year such death resulting from suicide occurs (if not yet made). All benefits other than those available from previous Contributions to the Retirement Income Trust Fund under this Agreement shall be forfeited, and this Agreement shall become null and void. The balance of the Retirement Income Trust Fund, measured as of the Executive's date of death, shall be paid to the Beneficiary within thirty (30) days of the date the Administrator receives notice of the Executive's death.

12.10 INUREMENT. This Agreement shall be binding upon and shall inure to the benefit of the Bank, its successors and assigns, and the Executive, his successors, heirs, executors, administrators, and Beneficiaries.

12.11 HEADINGS. Headings and sub-headings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

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12.12 ESTABLISHMENT OF A RABBI TRUST. The Bank shall establish a rabbi trust into which the Bank shall contribute assets which shall be held therein, subject to the claims of the Bank's creditors in the event of the Bank's "Insolvency" (as defined in such rabbi trust agreement), until the contributed assets are paid to the Executive and/or his Beneficiary in such manner and at such times as specified in this Agreement. It is the intention of the Bank that the contribution or contributions to the rabbi trust shall provide the Bank with a source of funds to assist it in meeting the liabilities of this Agreement.

SECTION XIII AMENDMENT/PLAN TERMINATION

13.1 AMENDMENT OR PLAN TERMINATION. The Bank intends this Agreement to be permanent, but reserves the right to amend or terminate the Agreement when, in the sole opinion of the Bank, such amendment or termination is advisable. However, any termination of the Agreement which is done in anticipation of or pursuant to a "Change in Control", as defined in Subsection 1.9, shall be deemed to trigger Subsection 2.1(b)(2) (or 2.1(c)(2), as applicable) of the Agreement notwithstanding the Executive's continued employment, and benefit(s) shall be paid from the Retirement Income Trust Fund (and Accrued Benefit Account, if applicable) in accordance with Subsection 13.2 below and with Subsections
2.1(b)(2) (or 2.1(c)(2), as applicable). Any amendment or termination of the Agreement shall be made pursuant to a resolution of the Board of Directors of the Bank and shall be effective as of the date of such resolution. No amendment or termination of the Agreement shall directly or indirectly deprive the Executive of all or any portion of the Executive's Retirement Income Trust Fund (and Accrued Benefit Account, if applicable) as of the effective date of the resolution amending or terminating the Agreement.

13.2 EXECUTIVE'S RIGHT TO PAYMENT FOLLOWING PLAN TERMINATION. In the event of a termination of the Agreement, the Executive shall be entitled to the balance, if any, of his Retirement Income Trust Fund and Accrued Benefit Account, if applicable. However, if such termination is done in anticipation of or pursuant to a "Change in Control," such balances shall include the final Contribution (or final Phantom Contribution) made (or recorded) pursuant to Subsection 2.1(b)(2) (or 2.1(c)(2)). Payment of the balances of the Executive's Retirement Income Trust Fund and Accrued Benefit Account, if applicable, shall not be dependent upon his continuation of employment with the Bank following the termination date of the Agreement. Payment of the balances of the Executive's Retirement Income Trust Fund and Accrued Benefit Account, if applicable, shall be made in a lump sum within thirty (30) days of the date of termination of the Agreement.

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SECTION XIV EXECUTION

14.1 This Agreement and the Grantor Trust Agreement set forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby, and any previous agreements or understandings between the parties hereto regarding the subject matter hereof are merged into and superseded by this Agreement and the Grantor Trust Agreement.

14.2 This Agreement shall be executed in triplicate, each copy of which, when so executed and delivered, shall be an original, but all three copies shall together constitute one and the same instrument.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the Bank and the Executive have caused this Agreement to be executed on the day and date first above written.

ATTEST:                                  MUTUAL FEDERAL SAVINGS BANK
                                         (Bank)

                                         By:
                                            --------------------------------


------------------------                 -----------------------------------
Secretary                                         (Title)

WITNESS: EXECUTIVE:


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CONDITIONS, ASSUMPTIONS,
AND
SCHEDULE OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS

1. Interest Factor - for purposes of:

a. the Accrued Benefit Account - shall be Eight percent (8%) per annum, compounded monthly.

b. the Retirement Income Trust Fund - for purposes of annuitizing the balance of the Retirement Income Trust Fund over the Payout Period, the trustee of the Grantor Trust shall exercise discretion in selecting the appropriate rate given the nature of the investments contained in the Retirement Income Trust Fund and the expected return associated with the investments.

2. The amount of the annual Contributions (or Phantom Contributions) to the Retirement Income Trust Fund (or Accrued Benefit Account) has been based on the annual incremental accounting accruals which would be required of the Bank through the earlier of the Executive's death or Retirement Age, (i) pursuant to APB Opinion No. 12, as amended by FAS 106 and (ii) assuming a discount rate equal to Eight percent (8%) per annum, in order to provide the unfunded, non-qualified Supplemental Retirement Income Benefit.

3. Supplemental Retirement Income Benefit means an actuarially determined annual amount equal to _________________________ ($_________).

The Supplemental Retirement Income Benefit:

o the definition of Supplemental Retirement Income Benefit has been incorporated into the Agreement for the sole purpose of actuarially establishing the amount of annual Contributions (or Phantom Contributions) to the Retirement Income Trust Fund (or Accrued Benefit Account). The amount of any actual retirement, pre-retirement or disability benefit payable pursuant to the Agreement will be a function of (i) the amount and timing of Contributions (or Phantom Contributions) to the Retirement Income Trust Fund (or Accrued Benefit Account) and (ii) the actual investment experience of such Contributions (or the monthly compounding rate of Phantom Contributions).

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4. Schedule of Annual Gross Contributions/Phantom Contributions

Plan Year                              Amount
---------                              ------

1996                                   $
1997                                   $
1998                                   $
1999                                   $
2000                                   $
2001                                   $
2002                                   $
2003                                   $

Exhibit A

31

RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
BENEFICIARY DESIGNATION

The Executive, under the terms of the Restated Executive Supplemental Retirement Income Agreement executed by the Bank, dated the ______ day of __________________, 19__, hereby designates the following Beneficiary to receive any guaranteed payments or death benefits under such Agreement, following his death:

PRIMARY BENEFICIARY:        _________________________________

SECONDARY BENEFICIARY:      _________________________________

         This  Beneficiary  Designation  hereby  revokes  any prior  Beneficiary

Designation which may have been in effect.


This Beneficiary Designation is revocable.

DATE:___________________ , 19___

------------------------------------        ------------------------------------
(WITNESS)                                               EXECUTIVE










                                    Exhibit B

32

RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT

NOTICE OF ELECTION TO CHANGE FORM OF PAYMENT

TO: Bank

Attention:

I hereby give notice of my election to change the form of payment of my Supplemental Retirement Income Benefit, as specified below. I UNDERSTAND THAT SUCH NOTICE, IN ORDER TO BE EFFECTIVE, MUST BE SUBMITTED IN ACCORDANCE WITH THE TIME REQUIREMENTS DESCRIBED IN MY RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT.

|_|         I hereby elect to change the form of payment of my benefits
            from monthly installments throughout my Payout Period to a
            lump sum benefit payment.


|_|         I hereby elect to change the form of payment of my benefits
            from a lump sum benefit payment to monthly installments
            throughout my Payout Period. Such election hereby revokes my
            previous notice of election to receive a lump sum form of
            benefit payments.


Executive


Date

Acknowledged
By:

Title:


Date

Exhibit C

33

MUTUAL FEDERAL SAVINGS BANK
RABBI TRUST FOR THE

EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT(S)


This Agreement is made this 15th day of November, 1996 by and between MUTUAL FEDERAL SAVINGS BANK, a federally chartered savings institution, having its principal place of business in Munice, Indiana, (the "Bank"), and Indiana Federal Bank for Savings, a banking organization organized under the laws of the state of Indiana (the "Trustee").

WHEREAS, the Bank has adopted Restated Executive Supplement Retirement Income Agreement(s)(the "Plan"), effective as of the 15th day of November, 1996, which constitutes a non-qualified deferred compensation plan, a copy of which is attached hereto as Appendix A.

WHEREAS, Bank has incurred or expects to incur liability under the terms of the Plan with respect to the individual(s) participating in the Plan;

WHEREAS, Bank wishes to establish a trust (the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of Bank's creditors in the event of Bank's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan;

WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan, maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended;

WHEREAS, it is the intention of Bank to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan;

NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:

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1. ESTABLISHMENT OF TRUST.

(a) Bank hereby deposits with Trustee in trust assets which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement.

(b) The Trust hereby established shall be irrevocable.

(c) The Trust is intended to be a grantor trust, of which Bank is grantor, within the meaning of subpart E. part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.

(d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of Bank and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against Bank. Any assets held by the Trust will be subject to the claims of Bank's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein.

(e) Within seventy-five (75) days following the end of each calender year, Bank shall be required to irrevocably deposit additional cash or other property to the Trust in an amount sufficient to pay each Plan participant or beneficiary the benefits payable pursuant to the terms of the Plan as of the close of the calendar year.

(f) Upon (i) a Change in Control (as defined herein) or (ii) the death of a participant during service but prior to "Benefit Age" (as such term is defined in the Plan), Bank shall as soon a possible, but in no event longer than seventy-five (75) days following such event, make an additional irrevocable contribution to the Trust in

2

an amount that is sufficient to pay each Plan participant or beneficiary the benefits to which Plan participants or their beneficiaries would be entitled pursuant to the terms of the Plan as of the date such event occurred.

2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.

(a) Bank shall deliver to Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state, or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by Bank.

(b) The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by Bank or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan.

(c) Bank may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. Bank shall notify Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, Bank shall make

3

the balance of each such payment as it falls due. Trustee shall notify Bank where principal and earnings are not sufficient.

3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN BANK IS INSOLVENT.

(a) Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Bank is Insolvent. Bank shall be considered "Insolvent" for purposes of this Trust Agreement if (i) Bank is unable to pay its debts as they become due, (ii) Bank is subject to a pending proceeding as a debtor under the United States Bankruptcy Code, or
(iii) Bank is determined to be insolvent by the Director of the Federal Deposit Insurance Corporation or the Resolution Trust Corporation.

(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of Bank under federal and state law as set forth below.

(1) The Board of Directors and the Chief Executive Officer of Bank shall have the duty to inform Trustee in writing of Bank's Insolvency. If a person claiming to be a creditor of Bank alleges in writing to Trustee that Bank has become Insolvent, Trustee shall determine whether Bank is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries.

(2) Unless Trustee has actual knowledge of Bank's Insolvency, or has received notice from Bank or person claiming to be a creditor alleging that Bank is Insolvent, Trustee shall have no duty to inquire whether Bank is Insolvent. Trustee may in all events rely on such evidence concerning Bank's solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Bank's solvency.

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(3) If at any time Trustee has determined that Bank is Insolvent, Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of Bank's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of Bank with respect to benefits due under the Plan or otherwise.

(4) Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after Trustee has determined that Bank is not Insolvent (or is no longer Insolvent).

(c) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by Bank in lieu of the payments provided for hereunder during any such period of discontinuance.

4. PAYMENTS TO BANK.

Except as provided in Sections 3 or 12 hereof, after the Trust has become irrevocable, Bank shall have no right or power to direct Trustee to return to Bank or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan.

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5. INVESTMENT AUTHORITY.

Trustee shall maintain all investments deposited upon establishment of the trust (and listed on Exhibit A), until such time as the investments reach maturity. Liquidation of such investments prior to maturity shall only be allowable by the Trustee if (i) there is insufficient cash in the trust at the time a benefit payment is due under the Plan and (ii) with knowledge of such insufficiency, the Bank affirmatively chooses not to pay any or all of the benefit payment due from Bank assets held outside the trust itself. As the investments listed on Exhibit A mature, the Trustee's investment authority, with respect to the proceeds from such investments, shall be subject to the following:

(a) In no event may Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by Bank, other than a de minimis amount held in common investment vehicles in which Trustee invests, except where such de minimis investment is prohibited by applicable banking regulations. All rights associated with assets of the Trust shall be exercised by Trustee or the person designated by Trustee, and shall in no event be exercisable by or rest with Plan participants.

(b) Trustee shall have the following powers and authority in the administration of the assets of Trust, in addition to those vested in it elsewhere in this Trust or by law:

(i) To invest and reinvest the assets of Trust, without distinction between principal and income, in any kind of property, real, personal or mixed, tangible or intangible, and in any kind of investment, security or obligation suitable for the investment of Trust assets, including federal, state and municipal tax-free obligations and other tax-free investment vehicles, insurance policies and annuity contracts, and any common trust fund, group trust, pooled fund, or other commingled investment fund maintained by the Trustee or any other bank or entity for trust investment purposes;

(ii) To purchase, and maintain as owner, life insurance policies with respect to participants;

6

(iii) To sell for cash or on credit, to grant options, convert, redeem, exchange for other securities or other property, or otherwise to dispose of, any security or other property at any time held;

(iv) To settle, compromise or submit to arbitration, any claims, debts or damages, due or owing to or from the Trust, to commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings;

(v) To exercise any conversion privilege and/or subscription right available in connection with securities or other property at any time held, to oppose or to consent to the reorganization, consolidation, merger or readjustment of the finances of any corporation, Bank or association or to the sale, mortgage, pledge or lease of the property of an corporation, Bank or association any of the securities of which may at any time be held and to do any act with reference thereto, including the exercise of options, the making of agreement or subscription, which may be deemed necessary or advisable in connection therewith, and to hold and retain any securities or other properties so acquired;

(vi) To hold cash uninvested for a reasonable period of time (not in excess of ten (10) days) under the circumstances without liability for interest, pending investment thereof or the payment of expenses or making distributions therewith;

(vii) To form corporations and to create trusts to hold title to any securities or other property, all upon such terms and conditions as may be deemed advisable;

(viii) To register any securities held hereunder in the name of the Trustee or in the name of a nominee with or without the addition of words indicating that such securities are held in a fiduciary capacity and to hold any securities in bearer form;

7

(ix) To make, execute and deliver, as Trustee, any and all conveyances, contracts, waivers, releases or other instruments in writing necessary or proper for the accomplishment of any of the foregoing powers;

(x) To employ suitable agents and counsel and to pay their reasonable expenses and compensation; and

(xi) To have any and all other power of authority, under the laws of the state in which the Trustee's principal executive offices are located, relevant to performance in the capacity as Trustee.

6. DISPOSITION OF INCOME.

During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested.

7. ACCOUNTING BY TRUSTEE.

Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Bank and Trustee. Within ninety (90) days following the close of each calendar year and within sixty (60) days after the removal or resignation of Trustee, Trustee shall deliver to Bank a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be.

8

8. RESPONSIBILITY OF TRUSTEE.

(a) Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Bank which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by Bank. In the event of a dispute between Bank and a party, Trustee may apply to a court of competent jurisdiction to resolve the dispute.

(b) If Trustee undertakes or defends any litigation arising in connection with this Trust, except litigation arising out of the Trustee's negligence or breach of fiduciary duty, Bank agrees to indemnify Trustee against Trustee's costs, expenses and liabilities (including, without limitation, attorney's fees and expenses) relating thereto and to be primarily liable for such payments. If Bank does not pay such costs, expenses and liabilities in a reasonable manner, Trustee may obtain payment from the Trust.

(c) Trustee may consult with legal counsel (who may also be counsel for Bank generally) with respect to any of its duties or obligations hereunder.

(d) Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder.

(e) Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy.

9

(f) Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code.

9. FEES AND EXPENSES OF TRUSTEE.

Bank shall pay all administrative and Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust.

10. RESIGNATION AND REMOVAL OF TRUSTEE.

(a) Trustee may resign at any time by written notice to Bank, which shall be effective sixty (60) days after receipt of such notice unless Bank and Trustee agree otherwise.

(b) Trustee may be removed by Bank on sixty (60) days prior written notice or upon shorter notice accepted by Trustee.

(c) Upon a Change of Control, as defined herein, Trustee may not be removed by Bank for two (2) years following the date of such Change in Control, nor may such Trustee be removed by Bank in anticipation of a Change of Control.

(d) If Trustee resigns at any time following a Change in Control, or if Trustee is removed by Bank at any time following the expiration of the two (2) year period (as described in Subpart (c) above) following a Change in Control, Trustee shall select a successor Trustee in accordance with the provisions of 11(a) hereof prior to the effective date of Trustee's resignation or removal. In all other instances of resignation or removal, Bank shall select a successor Trustee in accordance with the provisions of 11(a) hereof prior to the effective date of Trustee's resignation or removal.

10

(e) Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within fifteen (15) days after receipt of notice of resignation, removal or transfer, unless Bank extends the time limit.

(f) If Trustee resigns or is removed under paragraph (a), (b), or (d) of this Section 10, a successor shall be appointed in accordance with Section 11 hereof, by the effective date of resignation or removal. If no such appointment has been made, Trustee or Bank (as specified above) may apply to a court of competent jurisdiction for appointment of a successor or for instructions. Should the Trustee be required to apply to a court of competent jurisdiction for such purpose, all expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.

11. APPOINTMENT OF SUCCESSOR.

(a) If Trustee resigns or is removed pursuant to the provisions of
Section 10 hereof, Bank or Trustee (as specified above) may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment of a successor Trustee shall be effective when accepted in writing by the new Trustee. The new Trustee shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the successor Trustee to evidence the transfer.

(b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and Bank shall indemnify and defend the successor Trustee from any claim or liability resulting

11

from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee.

12. AMENDMENT OR TERMINATION.

(a) This Trust Agreement may be amended by a written instrument executed by Trustee and Bank. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable after it has become irrevocable in accordance with Section 1(b) hereof.

(b) The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in the Trust shall be returned to Bank.

(c) Upon written approval of participants or beneficiaries entitled to payment of benefits pursuant to the terms of the Plan, Bank may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be returned to Bank.

(d) Sections 1(one), 2 (two), 6 (six), 10 (ten) and 12 (twelve) of this Trust Agreement may not be amended by Bank (i) in anticipation of or (ii) for two (2) years following a Change of Control, as defined herein.

13. MISCELLANEOUS.

(a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.

(b) Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated,

12

pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.

(c) This Trust Agreement shall be governed by and construed in accordance with the laws of the state in which the Trustee's principal executive offices are located.

(d) For purposes of this Trust, Change of Control shall mean;

(1) a change of control of a nature that would be required to be reported in response to Item 1 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (hereinafter the "Exchange Act"); or

(2) a change of control of the Bank within the meaning of 12 C.F.R. 4\574.4; or

(3) a Change of Control at such time as

(i) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank representing Twenty Percent (20%) or more of the combined voting power of the Bank's outstanding securities ordinarily having the right to vote at the elections of Directors except for (i) any stock of the Bank purchased by the Holding Company in connection with the conversion of the Bank to stock form, and (ii) any stock purchased by any Employee Stock Ownership Plan and/or trust sponsored by the Bank; or

(ii) individuals who constitute the Board of Directors on the date hereof (hereinafter the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a Director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the Directors comprising the Incumbent Board, or whose nomination for election

13

by the Bank's members (or stockholders) was approved by the Bank's Nominating Committee which is comprised of members of the Incumbent Board, shall be, for purposes of this clause (ii), considered as though he were a member of the Incumbent Board; or

(iii) merger, consolidation, or sale of all or substantially all the assets of the Bank occurs; or

(iv) a proxy statement is issued soliciting proxies from the members (or stockholders) of the Bank by someone other than the current management of the Bank, seeking member (or stockholder) approval of a plan of reorganization, merger, or consolidation of the Bank with one or more corporations as a result of which the outstanding shares of the class of the Bank's securities are exchanged for or converted into cash or property or securities not issued by the Bank.

For these purposes, the terms "stockholders(s)" and "member(s)" shall be considered one and the same. The term "Holding Company" shall mean the holding company (including any successor thereto) organized to acquire the capital stock of the Bank upon the Bank's conversion from mutual to stock form.

14. EFFECTIVE DATE.

The effective date of this Trust Agreement shall be the 15th day of November, 1996.

14

IN WITNESS WHEREOF, this instrument has been executed as of the day and year first written above.

MUTUAL FEDERAL SAVINGS BANK
(Bank)

Attest:                            By:
                                       ----------------------------------------

---------------------------        --------------------------------------------
                                   (Title)


                                   --------------------------------------------
                                   (Trustee)

Attest:                            By:
                                       ----------------------------------------

---------------------------        --------------------------------------------
                                   (Title)

15

FIRST
AMENDMENT
TO THE
MUTUAL FEDERAL SAVINGS BANK
RABBI TRUST FOR THE
RESTATED
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT(S)


This Agreement is made this 19th day of October, 1999 by and between MUTUAL FEDERAL SAVINGS BANK, a federally chartered savings institution, having its principal place of business in Munice, Indiana, (the "Bank"), and SECURITY FEDERAL SAVINGS BANK, a federally chartered savings institution, with its principal place of business in the state of Indiana, (the "Trustee").

WHEREAS, the Bank has adopted a restated Executive Supplemental Retirement Income Agreement, effective as of the 15th day of November, 1996, which constitutes a non-qualified deferred compensation plan;

WHEREAS, the Bank has adopted an Executive Deferred Compensation Master Agreement, effective as of the 15th day of November, 1996, which constitutes a non-qualified deferred compensation plan;

WHEREAS, the Bank has adopted a Director Deferred Compensation Master Agreement (the "Plans"), effective as of the 15th day of November, 1996, which constitutes a non-qualified deferred compensation plan;

WHEREAS, it is the parties intention to merge and consolidate all of the assets of the Mutual Federal Savings Bank Rabbi Trust for the Restated Executive Supplemental Retirement Income Agreement(s) ("the Trust"), the Mutual Federal Savings Bank Rabbi Trust for the Executive Deferred Compensation Master Agreement, and the Mutual Federal Savings Bank Rabbi Trust for the Director Deferred Compensation Master Agreement;

NOW, THEREFORE, the parties do hereby amend and rename the Trust the "Mutual Federal Savings Bank Rabbi Trust for the Restated Executive Supplemental Retirement Income Agreement(s), the Director Deferred Compensation Master Agreement, and the Executive Deferred Compensation Master Agreement."

1

IN WITNESS WHEREOF, this instrument has been executed as of the day and year first written above.

MUTUAL FEDERAL SAVINGS BANK
(Bank)

Attest:                            By:
                                       ----------------------------------------

---------------------------        --------------------------------------------
                                   (Title)


                                   SECURITY FEDERAL SAVINGS BANK
                                   (Trustee)

Attest:                            By:
                                       ----------------------------------------

---------------------------        --------------------------------------------
                                   (Title)

2

FORM OF
GRANTOR TRUST AGREEMENT

This Trust Agreement is made this 15th day of November, 1996, by and among _______________ (the "Grantor"), MUTUAL FEDERAL SAVINGS BANK, a state chartered mutual savings bank having its principal place of business in MUNCIE, INDIANA, (the "Bank"), and Indiana Federal Bank for Savings (the "Trustee").

RECITALS:

WHEREAS, the Bank has entered into a certain Restated Executive Supplemental Retirement Income Agreement, effective as of the 15th day of November, 1996, (the "Agreement") with Grantor, a copy of which is attached hereto as Exhibit A; and

WHEREAS, the Agreement provides for certain payments of benefits to be paid to the Grantor or his designated Beneficiary in accordance with the terms and provisions of the Agreement, (the "Benefits"); and

WHEREAS, Grantor and the Bank desire to establish an irrevocable trust fund for the purpose of accumulating funds to provide the Benefits under the Agreement; and

WHEREAS, Grantor and the Bank desire the Trustee to hold all funds contributed by the Bank, and the Trustee is willing to hold and administer such funds in trust, pursuant to the terms of the Agreement and this Trust.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, Grantor, Bank and Trustee do hereby covenant and agree as follows:

1. ESTABLISHMENT OF TRUST.

Grantor hereby establishes the Trust and does hereby transfer, assign, convey and grant to the Trustee, the property listed on Exhibit B attached hereto and made a part hereof for Grantor's benefit and the benefit of any Beneficiary named hereunder. The Trustee agrees to hold said property and such additional property as may be hereafter acquired by Trustee under the provisions of this Trust. The Trust established by this Trust Agreement is intended to be a "Grantor Trust", treated as established by the Grantor, with the result that the principal and income of the Trust are

1

treated for tax purposes as assets and income of the Grantor pursuant to Sections 671 through 679 of the Internal Revenue Code of 1986, as amended. Any capitalized terms set forth in this Trust that are not specifically defined herein shall have the same meaning as set forth in the Agreement.

2. ACCEPTANCE OF TRUST.

The Trustee hereby accepts this Trust as evidenced by the Trustee's execution of this Trust Agreement. The Bank hereby represents and warrants that is has the full power, authority, and capacity to execute this Trust and perform its obligation hereunder. This Trust constitutes a legal, valid and binding obligation of the Bank, and is enforceable against the Bank in accordance with its terms.

3. TRUST FUND PROVISIONS.

The Trustee shall receive any property from the Grantor and Contributions paid to it in cash, or in other property acceptable to it, which shall from time to time be transferred to the Trust by the Bank. The Trustee shall be accountable for all property and Contributions received, but the Trustee shall have no duty to see that the Contributions received are sufficient to provide the Benefits, nor shall the Trustee be obligated or have any right to enforce or collect any Contributions from the Bank. All property and Contributions so received together with the income therefrom and any other increment thereon shall be held, managed and administered by the Trustee pursuant to the terms of the Agreement and this Trust.

The Trustee shall establish and maintain a separate Trust Fund for the benefit of the Grantor to which shall be credited all Contributions by the Bank, and other property conveyed to the Trust, and all earnings and profits thereon, and from which shall be deducted all distributions of Benefits and charges authorized herein.

The Bank shall make Contributions to the Trust each year at the time and in the manner and amount specified in the Agreement. As of the end of each calendar year the Trustee shall determine the fair market value of the Trust Fund, after adding any Contributions made to the Trust and deducting distributions and any expenses of administration paid out of the Trust during such year. All income of the Trust earned during each calendar year shall be added to principal as of the end of such year.

2

The Bank shall notify Grantor, as soon as reasonably practicable, after each Contribution to the Trustee on behalf of the Grantor. The form of such notice shall be by mutual agreement between the Grantor and Bank.

Any and all Contributions, as well as earnings thereon, made on behalf of Grantor shall be deemed to be the sole and exclusive property of the Grantor. The Grantor may withdraw, either in whole or in part, any and all amounts contributed on behalf of the Grantor by Bank, including earnings thereon, at any time and from time to time within thirty (30) days after the date of such Contribution to the Trust, as determined in the sole and exclusive discretion of the Grantor. Withdrawal instructions shall be given to the Trustee in writing, and signed by the Grantor. Such withdrawal instructions must be delivered to the Trustee on or before midnight of the thirtieth (30th) day after the date of each Contribution. All withdrawals shall be deducted from Contributions on a first in first out basis in the event of more than one Contribution within a thirty (30) day period. The lapse of or failure to properly execute the withdrawal right for each separate Contribution shall be final and conclusive with respect to that particular withdrawal right and such withdrawal right or rights shall not be cumulative and shall not be carried forward from year to year. No further claim or right of withdrawal exists in favor of Grantor or any person, except those claims as set forth and specified by the terms of the Agreement and this Trust relating to Benefits.

Exercise of such withdrawal rights shall terminate Bank's obligation to make future Contributions to the Trust.

To the extent the Grantor does not exercise his withdrawal rights with respect to the Contributions, the Contributions shall be used by the Trustee:

(i) to provide retirement benefits or disability benefits payable to the Grantor pursuant to the Agreement;

(ii) to provide the pre-retirement death benefit payable to the Beneficiary pursuant to the Agreement;

(iii) to provide the Grantor with sufficient funds to pay any income taxes owed by Grantor as the result of Grantor's interest in the Trust, to the extent such taxes have not been withheld and paid by the Bank; and

(iv) for the reasonable compensation of, and reasonable expenses incurred by, the Trustee in connection with the administration of the Trust, to the extent such compensation and expenses are not paid directly by the Bank.

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The assets of the Trust Fund shall at no time be subject to the rights or claims of any creditors of the Bank, Grantor or Beneficiary.

Grantor shall have the right to direct the Trustee as to the investment of the Trust Fund. Such investment direction and instruction shall be delivered to the Trustee in writing by the Grantor. In the absence of specific instruction, the Trustee shall invest and reinvest the Trust Fund pursuant to the terms hereof.

All amounts contributed by the Bank on behalf of the Grantor are intended to be taxable compensation to Grantor. All earnings on the Contributions, to the extent Contributions are invested in taxable investments, are intended to be taxable to the Grantor in accordance with the grantor trust rules under Sections 671 through 679 of the Internal Revenue Code of 1986. No part of the Trust Fund shall at any time or under any circumstances revert to the Bank.

The Grantor may direct the Trustee in writing to make distributions from the Trust to the Grantor in an amount sufficient to satisfy the Grantor's federal and state income tax liability attributable to amounts contributed to the Trust and to earnings on the Trust's assets. The Grantor shall provide the Trustee such information as the Trustee may require to determine the amount needed for such purpose.

4. PAYMENTS FROM THE TRUST FUND.

The Trustee shall make distributions from the Trust Fund to pay the Benefits at the time and in the manner provided for in the Agreement. The Bank or its duly authorized representative, shall deliver instructions to the Trustee as to the amounts payable, the form in which such amounts are to be paid, and the time payment is to commence. Other payments authorized under Section 3 to be made by Trustee shall also be made from the Trust Fund as appropriate.

Nothing in this Trust Agreement shall relieve the Bank of its obligation to pay the Benefits provided to Grantor or Beneficiary under the Agreement except to the extent such obligation is met by the application of the Trust Fund or by any direct payments expressly required by the Agreement. In all instances, if the language in the Agreement conflicts with the language in this Trust, the Agreement shall be controlling.

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5. NON-ALIENATION.

Except to the extent otherwise specifically required by law, (i) no amount payable at any time under the Trust shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any such amount, whether presently or thereafter payable, shall be void; and (ii) the Trust Fund shall in no manner be liable for or subject to the debts or liabilities of or claims against the Bank, Grantor or Beneficiary.

6. TRUSTEE'S POWERS.

The Trustee shall have the following powers and authority in the administration of the Trust Fund, in addition to those vested in it elsewhere in this Trust Agreement or by law:

(a) Subject to the Grantor's right to direct the investment of the Trust Fund, as provided in Section 3, to invest and reinvest the Trust Fund, without distinction between principal and income, in any kind of property, real, personal or mixed, tangible or intangible, and in any kind of investment, security or obligation suitable for the investment of trust funds, including federal, state and municipal tax-free obligations and other tax-free investment vehicles, insurance policies and annuity contracts, and any common trust fund, group trust, pooled fund, or other commingled investment fund maintained by the Trustee or any other bank or entity for trust investment purposes; provided, however, that it is the desire of the Grantor, which shall be precatory and not binding, that the Trustee invest the Trust Fund, in the absence of specific investment direction from the Grantor, to the extent possible, in tax- deferred investment vehicles, such as life insurance or annuity products.

(b) To purchase, and maintain as owner, a life insurance policy on the life of Grantor;

(c) To sell for cash or on credit, to grant options, convert, redeem, exchange for other securities or other property, or otherwise to dispose of, any security or other property at any time held;

(d) To settle, compromise or submit to arbitration, any claims, debts or damages, due or owing to or from the Trust, to commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings;

(e) To exercise any conversion privilege and/or subscription right available in connection with securities or other property at any time held, to oppose or to consent

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to the reorganization, consolidation, merger or readjustment of the finances of any corporation, company or association or to the sale, mortgage, pledge or lease of the property of any corporation, company or association any of the securities of which may at any time be held in the Trust Fund and to do any act with reference thereto, including the exercise of options, the making of agreements or subscriptions, which may be deemed necessary or advisable in connection therewith, and to hold and retain any securities or other properties so acquired;

(f) To hold cash uninvested for a reasonable period of time (not in excess of ten (10) days without the express written consent of the Grantor) without liability for interest, pending investment thereof or the payment of expenses or making distributions therewith;

(g) To form corporations and to create trusts to hold title to any securities or other property, all upon such terms and conditions as may be deemed advisable;

(h) To employ suitable agents and counsel and to pay their reasonable expenses and compensation;

(i) To register any securities held hereunder in the name of the Trustee or in the name of a nominee with or without the addition of words indicating that such securities are held in a fiduciary capacity and to hold any securities in bearer form;

(j) To make, execute and deliver, as Trustee, any and all conveyances, contracts, waivers, releases or other instruments in writing necessary or proper for the accomplishment of any of the foregoing powers; and

(k) To have any and all other powers or authority, under the laws of the state in which the Trustee's principal executive offices are located, relevant to performance in the capacity as Trustee.

7. FEES AND EXPENSES OF TRUSTEE.

The Trustee shall be paid such reasonable compensation as shall from time to time be agreed upon by the Bank and the Trustee. Such compensation and all reasonable costs, charges and expenses incurred by the Trustee in connection with the administration of the Trust, including

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counsel fees, shall be withdrawn by the Trustee out of the Trust Fund unless paid or advanced by the Bank.

8. ACCOUNTING BY TRUSTEE.

The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements and other transactions with respect to the Trust. The Trustee shall make available such records for inspection by the Bank or Grantor or Beneficiary. Within thirty (30) days following the close of each calendar year and within thirty (30) days after the removal or resignation of Trustee, Trustee shall deliver to Grantor (or in the event of Grantor's death, the Beneficiary) and to Bank a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, and disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be.

9. PROTECTION OF THE TRUSTEE.

The Trustee shall be fully protected in relying upon a certification of an authorized representative of the Bank with respect to any instruction, direction or approval of the Bank required or permitted hereunder, and protected also in relying upon the certification until a subsequent certification is filed with the Trustee.

The Trustee shall be fully protected in acting upon any instrument, certificate, or paper believed by it to be genuine and to be signed or presented by the proper person or persons, and the Trustee shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing, but may accept the same as conclusive evidence of the trust and accuracy contained therein.

The Trustee shall not be liable for following any direction or instruction of the Bank or its duly authorized representative, or for the proper application of any part of the Trust Fund if distributions are made in accordance with the directions of the Bank or its duly authorized representative. The Trustee shall not be liable hereunder for any loss or diminution of the Trust Fund resulting from any reasonable action taken or omitted.

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The Trustee's obligations hereunder shall be determined solely by the terms of this Trust Agreement and the directions of the Bank or its duly authorized representative given to it pursuant to the terms of this Trust.

10. RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE.

The Trustee may resign at any time by giving at least sixty (60) days written notice to the Grantor and the Bank. The Grantor and the Bank may remove the Trustee at any time by giving at least sixty (60) days prior written notice to the Trustee or upon shorter notice accepted by Trustee. The Grantor and the Bank shall appoint a successor trustee to fill any vacancy in the office of Trustee, howsoever caused, which successor trustee shall be a bank or trust company (with a combined capital and surplus in excess of one hundred million dollars) located in the continental United States and independent of and not providing services to the Grantor or Bank.

Each successor trustee shall succeed to the title to the Trust Fund vested in its predecessor, without the signing or filing of any further instrument, but any resigning or removed trustee shall execute all documents and do any acts necessary to vest such title of record in any successor trustee. Each successor trustee shall have and enjoy all powers, both discretionary and ministerial, of its predecessor. No successor trustee shall be liable for any act or failure to act of any predecessor trustee; and, with the approval of the Grantor and Bank, a successor trustee may accept the account rendered and the property delivered to it by its predecessor trustee as a full and complete discharge of the predecessor trustee without incurring any liability or responsibility for so doing.

11. IRREVOCABILITY.

This Trust is irrevocable. This Trust Agreement may only be amended with the unanimous consent of the Trustee, the Bank, and Grantor (or if applicable, the Beneficiary).

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12. TERMINATION OF TRUST.

The Trust shall continue throughout the life of the Grantor until all retirement or disability benefits payable from the Trust Fund are paid, and if necessary, the Trust shall continue throughout the life of Beneficiary until any remaining retirement or disability benefits are paid or until any pre-retirement death benefits payable from the Trust Fund are paid. The Trust shall terminate only upon:

(i) the complete satisfaction of all Benefit obligations of the Bank to Grantor or Beneficiary payable from the Trust Fund pursuant to the Agreement, or

(ii) the complete distribution of all of the assets of the Trust Fund pursuant to the terms of the Agreement.

Upon termination of the Trust, any assets remaining in the Trust shall be distributed to the Grantor or Beneficiary.

13. FIDUCIARY RESPONSIBILITY AND LIABILITY.

In carrying out its responsibilities under the Trust, the Trustee and any other fiduciary hereunder shall act solely in the interest of the Grantor and Beneficiary and with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

The Bank shall, to the extent permitted by law, indemnify the Trustee and hold it harmless from and against any claims or liabilities, losses, costs or expenses (including reasonable attorney's fees) of whatsoever kind and nature that may be asserted against or incurred by the Trustee by reason

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of its taking or refraining from taking action hereunder, except to the extent due to the Trustee's gross negligence or willful misconduct.

14. NOTICE.

Every direction, revocation or notice authorized or required hereunder shall be deemed delivered to the Bank or the Trustee as the case may be:

(i) on the date it is personally delivered to the Bank or the Trustee at its respective principal executive offices, or

(ii) three business days after it is sent by registered or certified mail, postage prepaid, addressed to the Bank or the Trustee at such principal executive offices.

Every direction, revocation or notice authorized or required hereunder shall be deemed delivered to the Grantor or Beneficiary as the case may be:

(i) on the date it is personally delivered to him, or

(ii) three business days after it is sent by registered or certified mail, postage prepaid, addressed to him at the last address shown on the records of the Bank.

Grantor shall keep the Bank and the Trustee informed of his current address and the current address of the Beneficiary. Neither the Bank nor the Trustee shall be obligated to search for the whereabouts of any person. If the location of Grantor is not made known to the Bank or the Trustee within one (1) year after the date on which distribution of retirement benefits from the Account is to first be made per the Agreement, distribution may be made as though Grantor had died at the end of the one (1) year period.

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15. MISCELLANEOUS.

(a) This Trust Agreement and the Trust created herein shall be construed and administered under the laws of the state in which the Trustee's principal executive offices are located.

(b) Any notice required hereunder may be waived by the person entitled thereto.

(c) Where the context permits, words in the masculine gender shall include the feminine and neuter genders, the singular shall include the plural, and the plural shall include the singular.

(d) The headings of Sections of this Trust Agreement are for convenience of reference only and shall have no substantive effect on the provisions of this Trust Agreement.

(e) In the event any provision of this Trust Agreement shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Trust Agreement, and the Trust Agreement shall be construed and enforced as if such illegal or invalid provision had never been contained herein.

(f) In the event of the merger or consolidation of the Bank with or into any other corporation, or in the event substantially all of the assets of the Bank shall be transferred to another corporation, the successor corporation resulting from the merger or consolidation, or the transferee of such assets, as the case may be, shall, as a condition to the consummation of the merger, consolidation or sale, assume the obligations of the Bank hereunder and shall be substituted for the Bank hereunder.

(g) This Trust Agreement shall extend to and be binding upon the successors of the parties hereto.

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IN WITNESS WHEREOF, this Trust Agreement has been executed as of the day and year first above written.

Attest: By:

Grantor


(Trustee)

Attest:                         By:
                                   ----------------------------------

                                Title:
                                      -------------------------------

MUTUAL FEDERAL SAVINGS BANK
(Bank)

Attest:                          By:
                                    ---------------------------------

                                 Title:
                                       ------------------------------


EXECUTIVE DEFERRED
COMPENSATION AGREEMENTS

Mutual Federal Savings Bank
Muncie, Indiana

Financial Institution Consulting Corporation 700 Colonial Road, Suite 260 Memphis, Tennessee 38117 WATS: 1-800-873-0089 FAX: (901) 684-7414 (901) 684-7400


EXECUTIVE DEFERRED COMPENSATION MASTER AGREEMENT

This Executive Deferred Compensation Master Agreement (the "Agreement"), effective as of the lst day of October, 1993, by and between MUTUAL FEDERAL SAVINGS BANK (the "Bank"), a federally chartered mutual association, and certain key employees, hereinafter referred to as "Executive", who shall be approved by the Bank to participate and who shall elect to become a party to this Executive Deferred Compensation Master Agreement by execution of an Executive Deferred Compensation Joinder Agreement ("Joinder Agreement") in a form provided by the Bank.

W I T N E S S E T H:

WHEREAS, the Executives are employed by the Bank; and

WHEREAS, the Bank recognizes the valuable services heretofore performed for it by such Executives and wishes to encourage continued employment; and

WHEREAS, the Executives wish to be assured that they will be entitled to a certain amount of additional compensation for some definite period of time from and after retirement from active service with the Bank or other termination of employment and wish to provide their beneficiaries with benefits from and after death; and

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WHEREAS, the Bank and the Executives wish to provide the terms and conditions upon which the Bank shall pay such additional compensation to the Executives after retirement or other termination of employment and/or death benefits to their beneficiaries after death; and

WHEREAS, the Bank and the Executives intend this Agreement to be considered an unfunded arrangement, maintained primarily to provide retirement income for such Executives, members of a select group of management or highly compensated employees of the Bank, for purposes of the Employee Retirement Income Security Act of 1974, as amended; and

WHEREAS, the Bank has adopted this Executive Deferred Compensation Master Agreement which controls all issues relating to Deferred Compensation Benefits as described herein;

NOW, THEREFORE, in consideration of the premises and of the mutual promises herein contained, the Bank and the Executive agree as follows:

SECTION I DEFINITIONS

When used herein, the following words and phrases shall have the meanings below unless the context clearly indicates otherwise:

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1.1 "Act" means the Employee Retirement Income Security Act of 1974, as amended from time to time.

1.2 "Bank" means Mutual Federal Savings Bank and any successor thereto.

1.3 "Beneficiary" means the person or persons (and their heirs) designated as Beneficiary in the Executive's Joinder Agreement to whom the deceased Executive's benefits are payable. If no Beneficiary is so designated, then the Executive's Spouse, if living, will be deemed the Beneficiary. If the Executive's Spouse is not living, then the Children of the Executive will be deemed the Beneficiaries and will take on a per stirpes basis. If there are no living Children, then the Estate of the Executive will be deemed the Beneficiary.

1.4 "Benefit Age" shall be the birthday on which the Executive becomes eligible to receive benefits under the Plan. Such birthday shall be designated in the Executive's Joinder Agreement.

1.5 "Benefit Eligibility Date" shall be the date on which a Executive is entitled to receive his Deferred Compensation Benefit. It shall be the 1st day of the month coincident with or next following the month in which the Executive attains the Benefit Age designated in his Joinder Agreement.

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1.6 "Cause" means personal dishonesty, willful misconduct, willful malfeasance, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses), or final cease-and-desist order, material breach of any provision of this Agreement, or gross negligence in matters of material importance to the Bank.

1.7 "Children" means the Executive's children, both natural and adopted, then living at the time payments are due the Children under this Agreement.

1.8 "Deferral Period" means the period of months designated in the Executive's Joinder Agreement during which the Executive shall defer current compensation. The Deferral Period shall commence on the date designated in the Executive's Joinder Agreement.

1.9 "Deferred Compensation Benefit" means the annuitized value of the Executive's Elective Contribution and Matching Contribution Accounts, measured as of the Executive's Benefit Age, payable in monthly installments throughout the Payout Period and commencing on the Executive's Benefit Eligibility Date.

1.10 "Disability Benefit" means the benefit annuity payable to the Executive following a determination, in accordance with Subsection 5.2, that he is no longer able, properly and satisfactorily, to perform his duties as Executive.

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1.11 "Effective Date" of this Agreement shall be October 1, 1993.

1.12 "Elective Contribution" shall refer to any bookkeeping entry required to record an Executive's monthly pre-tax deferral of a percentage of his base compensation which shall be made in accordance with the Executive's Joinder Agreement.

1.13 "Elective Contribution Account" shall be represented by the bookkeeping entries required to record (i) an Executive's Elective Contributions plus
(ii) accrued interest, equal to the Interest Factor, earned to date on such amounts. However, neither the existence of such bookkeeping entries nor the Elective Contribution Account itself shall be deemed to create either a trust of any kind, or a fiduciary relationship between the Bank and the Executive or any Beneficiary.

1.14 "Estate" means the estate of the Executive.

1.15 "Interest Factor" means monthly compounding at Ten (10%) Percent per annum.

1.16 "Matching Contribution" shall refer to all amounts credited on the Executive's behalf, by the Bank, computed in accordance with the Matching Formula designated in the Joinder Agreement and based on the amount of the Executive's Elective Contributions. There shall be bookkeeping entries to record all such amounts.

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1.17 "Matching Contribution Account" shall be represented by the bookkeeping entries required to record (i) Matching Contributions plus (ii) accrued interest, equal to the Interest Factor, earned to date on such amounts. However, neither the existence of such bookkeeping entries nor the Matching Contribution Account itself shall be deemed to create either a trust of any kind, or a fiduciary relationship between the Bank and the Executive or any Beneficiary.

1.18 "Matching Formula" shall be the computation required to determine the amount of the Bank's Matching Contribution. The Matching Formula shall be designated in the Joinder Agreement.

1.19 "Payout Period" means the time frame during which certain benefits payable hereunder shall be distributed. Payments shall be made in equal monthly installments commencing on the first day of the month coincident with or next following the occurrence of the event which triggers distribution and continuing for a period of months, as designated in the Executive's Joinder Agreement.

1.20 "'Projected Deferral" is an estimate, determined upon execution of a Joinder Agreement, of the total amount to be deferred by the Executive during his Deferral Period, and so designated in the Executive's Joinder Agreement.

1.21 "Spouse" means the individual to whom the Executive is legally married at the time of the Executive's death.

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1.22 "Survivor's Benefit" means an annuity stream payable to the Beneficiary in monthly installments throughout the Payout Period, equal to the amount designated in the Joinder Agreement, and subject to Subsection 6.1.

1.23 "Vested' means the non-forfeitable portion of Matching Contributions to which the Executive is entitled. The Executive shall Vest in Matching Contributions plus accrued interest earned or to be earned on such amounts, in accordance with the Vesting schedule in his Joinder Agreement. The Executive shall always be 100% Vested in all Elective Contributions.

1.24 "Year of Service" shall be earned upon completing twelve (12) months of continuous service (including authorized leaves of absence), beginning from the later of (i) the Effective Date of this Agreement or (ii) the execution date of the Executive's Joinder Agreement.

SECTION II DEFERRED COMPENSATION

Commencing on the Effective Date, and continuing through the end of the Deferral Period, the Executive and the Bank agree that the Executive shall defer into his Elective Contribution Account between one (1%) and fifteen (15%) percent of monthly base compensation that the Executive would otherwise be entitled to receive from the Bank for each month of the Deferral Period, with the total deferral during the term of the Deferral Period not to exceed the Executive's Projected Deferral. The specific amount of the Executive's monthly deferred compensation shall be

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designated in the Executive's Joinder Agreement and shall apply only to compensation attributable to services not yet performed.

SECTION III SUPPLEMENTAL COMPENSATION

Commencing on the Effective Date, and continuing through the end of the Deferral Period, the Executive and the Bank agree that the Bank shall make Matching Contributions, based on (i) the amount of compensation deferred by the Executive as an Elective Contribution and (ii) the Matching Formula included in the Executive's Joinder Agreement. The Executive will Vest in Matching Contributions in accordance with the Vesting schedule in the Executive's Joinder Agreement.

SECTION IV ADJUSTMENT OF DEFERRAL AMOUNT

Deferral of the specific amount of compensation designated in the Executive's Joinder Agreement shall continue in effect pursuant to the terms of this Agreement unless and until the Executive amends his Joinder Agreement by filing with the Bank and the Administrator a Notice of Adjustment of Deferral Amount (Exhibit B of the Joinder Agreement). A Notice of Adjustment of Deferral Amount shall be effective if filed with the Bank and the Administrator, at least thirty (30) days prior to any January lst during the Executive's Deferral Period. Such Notice of Adjustment of

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Deferral Amount shall be effective commencing with the January lst following its filing and shall be applicable only to compensation attributable to services not yet performed by the Executive.

SECTION V RETIREMENT BENEFIT

5.1 Retirement Benefit. Subject to Subsection 6.1, the Executive shall be entitled to receive, upon his Benefit Eligibility Date, a monthly Deferred Compensation Benefit determined by annuitizing the value of the Executive's Elective Contribution Account plus the value of the Vested portion of the Matching Contribution Account, both measured as of the Executive's Benefit Age. Such annuity payments will be made over the term of the Payout Period. In the event of the Executive's death after commencement of the Deferred Compensation Benefit, but prior to completion of all such payments due and owing hereunder, the Bank shall pay to the Executive's Beneficiary a continuation of the annuity for the remainder of the Payout Period.

5.2 Disability Benefit. Notwithstanding any other provision hereof, if requested by the Executive and approved by the Board, the Executive shall be entitled to receive the Disability Benefit hereunder, in any case in which it is determined by a duly licensed physician selected by the Bank, that the Executive is no longer able, properly and satisfactorily, to perform his regular duties as an Executive, because of ill health, accident, disability or general inability due to age. If the Executive's service is terminated pursuant to this paragraph and Board

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approval is obtained, the Executive may elect to begin receiving the Disability Benefit annuity in lieu of any Deferred Compensation Benefit, which is not available prior to the Executive's Benefit Eligibility Date. The annuity shall not begin more than thirty (30) days following the above-mentioned disability determination. The amount of the monthly benefit shall be the annuitized value of the Executive's Elective Contribution Account plus the value of the Vested portion of the Matching Contribution Account, both measured as of the date of such determination. The Elective Contribution Account and the Vested portion of the Matching Contribution Account shall be annuitized using the Interest Factor and shall be payable over the Payout Period. The Executive shall be deemed to be 100% Vested in all Matching Contributions for purposes of the annuitizing the Matching Contribution Account. In the event the Executive dies while receiving payments pursuant to this Subsection, or after becoming eligible for such payments but before the actual commencement of such payments, his Beneficiary shall be entitled to receive those benefits provided for in Subsection 6.1(a) and the Disability Benefits provided for in this Subsection shall terminate upon the Executive's death.

5.3 Termination For Cause. In the event the Executive is terminated for Cause at anytime prior to reaching his Benefit Age, he shall be entitled to receive the balance of his Elective Contribution Account, measured as of the date of termination. Such amount shall be paid in a lump sum within thirty (30) days of the Executive's date of termination. He shall not be entitled to any portion of his Matching Contribution Account. All other benefits provided

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for the Executive or his Beneficiary under this Agreement shall be forfeited and the Agreement shall become null and void.

SECTION VI DEATH BENEFITS

6.1 Death Benefit Prior to Commencement of Deferred Compensation Benefit. In the event of the Executive's death prior to commencement of the Deferred Compensation Benefit, the Bank shall pay the Executive's Beneficiary a monthly amount for the Payout Period, commencing within thirty (30) days of the Executive's death. The amount of such benefit payments shall be determined as follows:

(a) In the event death occurs (i) while the Executive is receiving the Disability Benefit provided for in Subsection 5.2 or (ii) after the Executive has become eligible for such Disability Benefit payments but before such payments have commenced, the Executive's Beneficiary shall be entitled to receive a continuation of the Disability Benefit annuity (computed in accordance with Subsection 5.2), reduced by the number of months Disability Benefit payments were made to the Executive.

(b) In the event death occurs (i) while the Executive is in the service of the Bank, or (ii) following any voluntary or involuntary termination, other than for Cause, the

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Executive's Beneficiary shall be paid the monthly benefit which can be provided by annuitizing the balance of the Executive's Elective Contribution Account and the Vested portion of the Executive's Matching Contribution account, using the Interest Factor, and payable over the Payout Period.

SECTION VII BENEFICIARY DESIGNATION

The Executive shall make an initial designation of primary and secondary Beneficiaries upon execution of his Joinder Agreement and shall have the right to change such designation, at any subsequent time, by submitting to the Administrator in substantially the form attached as Exhibit A to the Joinder Agreement, a written designation of primary and secondary Beneficiaries. Any Beneficiary designation made subsequent to execution of the Joinder Agreement shall become effective only when receipt thereof is acknowledged in writing by the Administrator.

SECTION VIII EXECUTIVE'S RIGHT TO ASSETS

The rights of the Executive, any Beneficiary, or any other person claiming through the Executive under this Agreement, shall be solely those of an unsecured general creditor of the Bank. The Executive, the Beneficiary, or any other person claiming through the Executive, shall only have the right to receive from the Bank those payments so specified under this Agreement. The Executive

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agrees that he, his Beneficiary, or any other person claiming through him shall have no rights or interests whatsoever in any asset of the Bank, including any insurance policies or contracts which the Bank may possess or obtain to informally fund this Agreement. Any asset used or acquired by the Bank in connection with the liabilities it has assumed under this Agreement, unless expressly provided herein, shall not be deemed to be held under any trust for the benefit of the Executive or his Beneficiaries, nor shall any asset be considered security for the performance of the obligations of the Bank. Any such asset shall be and remain, a general, unpledged, and unrestricted asset of the Bank.

SECTION IX RESTRICTIONS UPON FUNDING

The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement. The Executive, his Beneficiaries or any successor in interest to him shall be and remain simply a general unsecured creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. The Bank reserves the absolute right in its sole discretion to either purchase assets to meet its obligations undertaken by this Agreement or to refrain from the same and to determine the extent, nature, and method of such asset purchases. Should the Bank decide to purchase assets such as life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such assets at any time, in whole or in part. At no time shall the Executive be deemed to have any lien, right, title or interest in or to any specific investment or to any assets of

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the Bank. If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical examination and by supplying such additional information necessary to obtain such insurance or annuities.

SECTION X ALIENABILITY AND ASSIGNMENT PROHIBITION

Neither the Executive nor any Beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder, nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or his Beneficiary, nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any Beneficiary attempts assignment, communication, hypothecation, transfer or disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease and terminate.

SECTION XI ACT PROVISIONS

11.1 Named Fiduciary and Administrator. Financial Institution Consulting Corporation, a Tennessee Corporation ("FICC") shall be the Named Fiduciary and Administrator (the

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"Administrator") of this Agreement. As Administrator, FICC shall be responsible for the management, control and administration of the Agreement as established herein. The Administrator may delegate to others certain aspects of the management and operational responsibilities of the Agreement, including the employment of advisors and the delegation of ministerial duties to qualified individuals.

11.2 Claims Procedure and Arbitration. In the event that benefits under this Agreement are not paid to the Executive (or to his Beneficiary in the case of the Executive's death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Administrator within sixty (60) days from the date payments are refused. The Bank and its Board shall review the written claim and, if the claim is denied, in whole or in part, they shall provide in writing, within ninety
(90) days of receipt of such claim, their specific reasons for such denial, reference to the provisions of this Agreement or the Joinder Agreement upon which the denial is based, and any additional material or information necessary to perfect the claim. Such writing by the Bank and its Board shall further indicate the additional steps which must be undertaken by claimants if an additional review of the claim denial is desired.

If claimants desire a second review, they shall notify the Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Agreement, the Joinder Agreement or any documents relating thereto and submit any issues and comments, in writing, they may feel appropriate. In its sole discretion, the Administrator shall then review

16

the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall state the specific reasons for the decision and shall include reference to specific provisions of this Agreement or the Joinder Agreement upon which the decision is based.

If claimants continue to dispute the benefit denial based upon completed performance of this Agreement and the Joinder Agreement or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to a Board of Arbitration for final arbitration. Said Board shall consist of one member selected by the claimant, one member selected by the Bank, and the third member selected by the first two members. The Board shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they, their heirs, personal representatives, successors and assigns shall be bound by the decision of such Board with respect to any controversy properly submitted to it for determination.

SECTION XII MISCELLANEOUS

12.1 No Effect on Employment Rights. Nothing contained herein will confer upon the Executive the right to be retained in the service of the Bank nor limit the right of the Bank to discharge or otherwise deal with the Executive without regard to the existence of the Agreement. Pursuant to 12 C.F.R. ss. 563.39(b), the following conditions shall apply to this Agreement:

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(1) The Bank's Board of Directors may terminate the Executive at any time, but any termination by the Bank's Board of Directors other than termination for Cause shall not prejudice the Executive's vested right to compensation or other benefits under the contract. As provided in
Section 5.3, the Executive shall be paid the balance of his Elective Contribution Account in a lump sum within thirty (30) days of his termination in the event he is terminated for Cause. He shall have no right to receive additional compensation or other benefits for any period after termination for Cause.

(2) If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)) the Bank's obligations under the contract shall be suspended (except vested rights) as of the date of termination of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Executive all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

(3) If the Executive is terminated and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(4) or (g)(1)), all non-vested obligations of the Bank under the contract shall terminate as of the effective date of the order, but vested rights of the Executive shall not be affected.

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(4) If the Bank is in default (as defined in Section 3(x)(1) of the Federal Deposit Insurance Act), all non-vested obligations under the contract shall terminate as of the date of default.

(5) All non-vested obligations under the contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the Bank:

(i) by the Executive or his designee at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in ss. 13(c) of the Federal Deposit Insurance Act; or

(ii) by the Executive or his designee, at the time the Executive or his designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Executive to be in an unsafe or unsound condition.

Any rights of the parties that have already vested, (i.e., the balance of his Elective Contribution Account and the Vested portion of his Matching Contribution Account), however, shall not be affected by such action.

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12.2 State Law. The Agreement is established under, and will be construed according to, the laws of the State of Indiana, to the extent such laws are not preempted by the Act and valid regulations published thereunder.

12.3 Severability. In the event that any of the provisions of this Agreement or portion thereof, are held to be inoperative or invalid by any court of competent jurisdiction, then: (1) insofar as is reasonable, effect will be given to the intent manifested in the provisions held invalid or inoperative, and (2) the validity and enforceability of the remaining provisions will not be affected thereby.

12.4 Incapacity of Recipient. In the event the Executive is declared incompetent and a conservator or other person legally charged with the care of his person or Estate is appointed, any benefits under the Agreement to which such Executive is entitled shall be paid to such conservator or other person legally charged with the care of his person or Estate. Except as provided above in this paragraph, when the Bank's Board of Directors, in its sole discretion, determines that the Executive is unable to manage his financial affairs, the Board may direct the Bank to make distributions to any person for the benefit of the Executive.

12.5 Recovery of Estate Taxes. If the Executive's gross estate for federal estate tax purposes includes any amount determined by reference to and on account of this Agreement, and if the Beneficiary is other than the Executive's estate, then the Executive's estate shall be entitled to recover from the Beneficiary receiving such benefit under the terms of the

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Agreement, an amount by which the total estate tax due by Executive's estate, exceeds the total estate tax which would have been payable if the value of such benefit had not been included in the Executive's gross estate. If there is more than one person receiving such benefit, the right of recovery shall be against each such person. In the event the Beneficiary has a liability hereunder, the Beneficiary may petition the Bank for a lump sum payment in an amount not to exceed the Beneficiary's liability hereunder.

12.6 Unclaimed Benefit. The Executive shall keep the Bank informed of his current address and the current address of his Beneficiaries. If the location of the Executive is not made known to the Bank within three (3) years after the date on which any payment of the Deferred Compensation Benefit may first be made, payment may be made as though the Executive had died at the end of the three (3) year period. If, within one (1) additional year after such three (3) year period has elapsed, or, within three (3) years after the actual death of the Executive, whichever occurs first, the Bank is unable to locate any Beneficiary of the Executive, the Bank may fully discharge its obligation by payment to the Estate.

12.7 Limitations on Liability. Notwithstanding any of the preceding provisions of the Agreement, neither the Bank, nor any individual acting as an employee or agent of the Bank, or as a member of the Board of Directors shall be liable to the Executive or any other person for any claim, loss, liability or expense incurred in connection with the Agreement.

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12.8 Gender. Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

12.9 Affect on Other Corporate Benefit Agreements. Nothing contained in this Agreement shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit sharing, group, bonus or other supplemental compensation or fringe benefit agreement constituting a part of the Bank's existing or future compensation structure.

12.10 Suicide. Notwithstanding anything to the contrary in this Agreement, the benefits otherwise provided herein shall not be payable if the Executive's death results from suicide, whether sane or insane, within twenty-six (26) months after the execution of this Agreement. If the Executive dies during this twenty-six (26) month period due to suicide, the balance of his Elective Contribution Account will be paid to the Executive's Beneficiary in a single payment. Payment is to be made within thirty (30) days after the Executive's death is declared a suicide by competent legal authority. Credit shall be given to the Bank for payments made prior to determination of suicide.

12.11 Headings. Headings and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

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SECTION XIII AMENDMENT/REVOCATION

This Agreement shall not be amended, modified or revoked at any time, in whole or part, without the mutual written consent of the Executive and Bank, and such mutual consent shall be required even if the Executive is no longer employed by the Bank.

SECTION XIV EXECUTION

14.1 This Agreement sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby, and any previous agreements or understandings between the parties hereto regarding the subject matter hereof are merged into and superseded by this Agreement.

14.2 This Agreement shall be executed in triplicate, each copy of which, when so executed and delivered, shall be an original, but all three copies shall together constitute one and the same instrument.

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IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed on this __ day of ____________, 19__.

Mutual Federal Savings Bank:

By:


(Title)

24

FIRST AMENDMENT
TO THE
EXECUTIVE DEFERRED COMPENSATION MASTER AGREEMENT
OF
MUTUAL FEDERAL SAVINGS BANK
MUNCIE, INDIANA

This First Amendment ("Amendment"), dated the 15th day of November, 1996, hereby amends the Executive Deferred Compensation Master Agreement ("Agreement") of Mutual Federal Savings Bank ("Bank"), dated the 1st day of October, 1993, as follows:

THE FOLLOWING LANGUAGE SHALL REPLACE SUBSECTION 1.9 OF THE AGREEMENT:

1.9 "Deferred Compensation Benefit" means the annuitized value (using the Interest Factor) of the Executive's Elective Contribution and Matching Contribution Accounts, measured as of the Executive's Benefit Age, payable in monthly installments throughout the Payout Period, and commencing on the Executive's Benefit Eligibility Date.

THE FOLLOWING LANGUAGE SHALL REPLACE SUBSECTION 6.1 OF THE AGREEMENT:

6.1 DEATH BENEFIT PRIOR TO COMMENCEMENT OF DEFERRED COMPENSATION BENEFIT. In the event of the Executive's death prior to commencement of the Deferred Compensation Benefit, the Bank shall pay the Executive's Beneficiary a monthly amount for the Payout Period, commencing within thirty (30) days of the Executive's death. The amount of such benefit payment shall be determined as follows:

(a) In the event death occurs (i) while the Executive is receiving the Disability Benefit provided for in Subsection 4.2, or (ii) after the Executive has become eligible for such Disability Benefit payments but before such payments have commenced, the Executive's Beneficiary shall be entitled to receive a continuation of the Disability Benefit annuity (computed in accordance with Subsection 4.2), reduced by the number of months Disability Benefit payments were made to the Executive.

(b) In the event death occurs while the Executive is (i) in the service of the Bank, (ii) deferring compensation pursuant to Section II and (iii) PRIOR to any reduction or discontinuance, via an effective filing of a Notice of Adjustment of Deferral Amount, in the level of deferrals reflected in the Executive's initial Joinder Agreement, for any period during the Deferral Period, the Executive's Beneficiary shall be paid the greater of: (i) the Survivor's Benefit, or (ii) the annuitized value (using the Interest Factor) of the Executive's Elective Contribution and Matching Contribution Accounts, measured as of the date of the Executive's death.

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(c) In the event death occurs while the Executive is (i) in the service of the Bank, (ii) deferring compensation pursuant to Section II and (iii) AFTER any reduction or discontinuance, via an effective filing of a Notice of Adjustment of Deferral Amount, in the level of deferrals reflected in the Executive's initial Joinder Agreement, for any period during the Deferral Period, the Executive's Beneficiary shall be paid the greater of: (i) a reduced Survivor's Benefit, such amount being determined by multiplying the monthly payment available as a Survivor's Benefit by a fraction, the numerator of which is equal to the total compensation actually deferred by the Executive plus Matching Contributions made on his behalf as of his death and the denominator of which is equal to the amount of compensation that would have been deferred as of his death and Matching Contributions made on his behalf if no reduction or discontinuance in the level of deferrals had occurred at any time following execution of the Joinder Agreement and during the Deferral Period, or (ii) the annuitized value (using the Interest Factor) of the Executive's Elective Contribution and Matching Contribution Accounts, measured as of the date of the Executive's death.

(d) In the event the Executive completes less than one hundred percent (100%) of his Projected Deferrals due to any voluntary or involuntary termination other than removal for Cause, the Executive's Beneficiary shall be paid the greater of: (i) a reduced Survivor's Benefit, such amount being determined by multiplying the monthly payment available as a Survivor's Benefit by a fraction, the numerator of which is equal to the total compensation actually deferred by the Executive plus Matching Contributions made on his behalf and the denominator of which is equal to the Executive's Projected Deferral, or (ii) the annuitized value (using the Interest Factor) of the Executive's Elective Contribution and Matching Contribution Accounts, measured as of the date of termination of the Executive's service.

THE FOLLOWING SECTION XV IS ADDED TO THE AGREEMENT:

SECTION XV ESTABLISHMENT OF RABBI TRUST

The bank shall establish a rabbi trust into which the Bank shall contribute assets which shall be held, managed and invested, pursuant to the agreement which establishes such rabbi trust (the "rabbi trust agreement"). The Bank intends to make a contribution or contributions to the rabbi trust to provide the Bank with a source of funds to assist it in meeting obligations under this Agreement. The trust assets shall be subject to the claims of the Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi trust agreement, until the trust assets are paid to the Executive and his Beneficiary in such manner and at such times as specified in this Agreement. Contribution(s) to the rabbi trust shall be made in accordance with the rabbi trust agreement.

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IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed in triplicate, the day and year written here below:

MUTUAL FEDERAL SAVINGS BANK

                               By:
--------------------------         ------------------------------------

                                   ------------------------------------
                                   Title

In accordance with Section XIII of the Agreement, the following Executives hereby give their written consent to such Amendment:

--------------------------         ------------------------------------

--------------------------         ------------------------------------

--------------------------         ------------------------------------

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FORM OF
RESTATED AND AMENDED
EXECUTIVE DEFERRED COMPENSATION JOINDER AGREEMENT

I, _____________________, and MUTUAL FEDERAL SAVINGS BANK, (the "Bank") hereby agree for good and valuable consideration, the value of which is hereby acknowledged, that I shall participate in the Executive Deferred Compensation Master Agreement ("Master Agreement") established on October 1, 1993 and subsequently amended, by the Bank, as said Master Agreement may now exist or hereafter be amended or modified, and do further agree to the terms and conditions thereof.

I understand that I must execute this Executive Deferred Compensation Joinder Agreement ("Joinder Agreement") as well as notify the Administrator of such execution, in order to participate in the plan. This Joinder Agreement amends and restates my previous Joinder Agreement dated October 1, 1993. I understand that my election to defer hereunder shall apply only with respect to services not yet performed.

I hereby elect to irrevocably reduce my compensation, monthly, by _________%. Such deferrals shall commence on , 1996 and shall continue for a period of (36 to 120) months known as the "DEFERRAL PERIOD", and will result in a "PROJECTED DEFERRAL" in the amount of $_________.

I understand that my election to defer shall continue in accordance with this Joinder Agreement until such time as I submit a "NOTICE OF ADJUSTMENT OF DEFERRAL AMOUNT" (Exhibit B, hereto) to the Administrator, at least thirty (30) days prior to any January 1st of my Deferral Period. A Notice of Adjustment of Deferral Amount can be used to adjust the percentage of compensation to be deferred or to discontinue deferrals altogether.

I hereby elect a "BENEFIT AGE" of ________ and a "PAYOUT PERIOD" of (120 or 180) months.

IN GENERAL, I understand that my designated Beneficiary shall be entitled to a "SURVIVOR'S BENEFIT" monthly payment in the amount of $_________, pursuant to Subsection 6.1 of the Master Agreement and subject to all relevant Subsections of the Master Agreement.

I understand that the Bank will make "MATCHING CONTRIBUTIONS" computed in accordance with the following "MATCHING FORMULA":

for every dollar of base compensation I defer as an Elective Contribution, the Bank will make a Matching Contribution of _____________(enter 25, 50, 75, or 100) cents for up to ______________ (enter % or $ amount) of base compensation.

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I understand that I will Vest in Matching Contributions, as well as in the accrued interest earned or to be earned on such amounts, in accordance with the following Vesting schedule:

                                                     Vesting in
Year(s) of Service                          Matching Contributions

         1                                            20%
         2                                            40%
         3                                            60%
         4                                            80%
         5                                           100%

Interpolation shall be made for partial years. For example, 3.5 Years of Service would result in Vesting of 70%. No Vesting shall occur, however, until one (1) full Year of Service has been completed.

I hereby designate the following as my "BENEFICIARY." I am aware that I can subsequently change this designation by submitting to the Administrator, at any subsequent time and in substantially the form attached hereto as Exhibit A, a written designation of the primary and secondary Beneficiaries to whom payment under the Master Agreement shall be made in the event of my death prior to complete distribution of the benefits due and payable under the Master Agreement. I understand that any Beneficiary designation made subsequent to execution of the Joinder Agreement shall become effective only when receipt thereof is acknowledged in writing by the Administrator.

PRIMARY BENEFICIARY --------------------------------------

SECONDARY BENEFICIARY --------------------------------------

I understand that my deferral of compensation is intended to satisfy the elective deferral requirements existing under federal income tax laws. A private letter ruling has not been obtained from the Internal Revenue Service. In the event that any portion of my deferral is subject to an adverse determination regarding the deferral of such compensation as well as the deferral of the corresponding tax liability by the Internal Revenue Service, such portion of my compensation shall be excepted from the Plan and returned to me at my request.

I further understand that I am entitled to review or obtain a copy of the Master Agreement, at any time, and may do so by contacting either the Bank or the Administrator.

This Joinder Agreement shall become effective upon execution (below) by both the Executive and a duly authorized officer of the Bank.

     Dated this          day of                                 , 19    .
                --------        --------------------------------    ----


                              MUTUAL FEDERAL SAVINGS BANK


                              By:
----------------------------     ----------------------------------
(Executive)

                              -------------------------------------
                              (Title)

2

EXECUTIVE DEFERRED COMPENSATION JOINDER AGREEMENT
BENEFICIARY DESIGNATION

Under the terms of the Executive Deferred Compensation Master Agreement executed by the Bank, dated , 1996, I hereby designate the following Beneficiary to receive any death benefits under said Agreement:

PRIMARY BENEFICIARY --------------------------------------

SECONDARY BENEFICIARY --------------------------------------

This Beneficiary Designation hereby revokes any prior Beneficiary Designation which may have been in effect.

DATE:                          19  .
      -----------------------,   --


                                  --------------------------------------

EXECUTIVE

ACKNOWLEDGED
BY:

TITLE:

Exhibit A

EXECUTIVE DEFERRED COMPENSATION JOINDER AGREEMENT
NOTICE OF ADJUSTMENT OF DEFERRAL AMOUNT

TO: Bank
Attention:

I hereby give notice of my election to adjust the amount of my compensation deferral in accordance with my Executive Deferred Compensation Joinder Agreement, dated the ____ day of __________, 19__. This notice is submitted at least thirty (30) days prior to January 1st, and shall become effective January 1st, as specified below.

Adjust deferral as of:         January 1st, 19__


Previous Deferral Amount                ____________ per month
New Deferral Amount                     ____________ per month
                                        (to discontinue deferral, enter 0%)


EXECUTIVE


DATE

ACKNOWLEDGED

BY:

TITLE:


DATE

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MUTUAL FEDERAL SAVINGS BANK
RABBI TRUST FOR THE

EXECUTIVE DEFERRED COMPENSATION MASTER AGREEMENT

This Agreement is made this 15th day of November, 1996 by and between MUTUAL FEDERAL SAVINGS BANK, a federally chartered savings bank, having its principal place of business in Muncie, Indiana, (the "Bank"), and INDIANA FEDERAL BANK FOR SAVINGS, a banking organization organized under the laws of the state of Indiana, (the "Trustee").

WHEREAS, the Bank has adopted the Executive Deferred Compensation Master Agreement (the "Plan"), effective as of the 15th day of November, 1996, which constitutes a non-qualified deferred compensation plan, a copy of which is attached hereto as Appendix A.

WHEREAS, Bank has incurred or expects to incur liability under the terms of the Plan with respect to the individual(s) participating in the Plan;

WHEREAS, Bank wishes to establish a trust (the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of Bank's creditors in the event of Bank's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan;

WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan, maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended;

WHEREAS, it is the intention of Bank to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan;

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NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:

1. ESTABLISHMENT OF TRUST.

(a) Bank hereby deposits with Trustee in trust assets which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement.

(b) The Trust hereby established shall be irrevocable.

(c) The Trust is intended to be a grantor trust, of which Bank is grantor, within the meaning of subpart E. part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.

(d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of Bank and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against Bank. Any assets held by the Trust will be subject to the claims of Bank's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein.

(e) Within seventy-five (75) days following the end of each calender year, Bank shall be required to irrevocably deposit additional cash or other property to the Trust in an amount sufficient to pay each Plan participant or beneficiary the benefits payable pursuant to the terms of the Plan as of the close of the calendar year.

(f) Upon (i) a Change in Control (as defined herein) or (ii) the death of a participant during service but prior to "Benefit Age" (as such term is defined in the Plan), Bank shall as soon a possible, but in no event longer than seventy-five (75) days following such event, make an additional irrevocable contribution to the Trust in

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an amount that is sufficient to pay each Plan participant or beneficiary the benefits to which Plan participants or their beneficiaries would be entitled pursuant to the terms of the Plan as of the date such event occurred.

2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.

(a) Bank shall deliver to Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state, or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by Bank.

(b) The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by Bank or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan.

(c) Bank may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. Bank shall notify Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, Bank shall make

3

the balance of each such payment as it falls due. Trustee shall notify Bank where principal and earnings are not sufficient.

3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN BANK IS INSOLVENT.

(a) Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Bank is Insolvent. Bank shall be considered "Insolvent" for purposes of this Trust Agreement if (i) Bank is unable to pay its debts as they become due, (ii) Bank is subject to a pending proceeding as a debtor under the United States Bankruptcy Code, or
(iii) Bank is determined to be insolvent by the Director of the Federal Deposit Insurance Corporation or the Resolution Trust Corporation.

(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of Bank under federal and state law as set forth below.

(1) The Board of Directors and the Chief Executive Officer of Bank shall have the duty to inform Trustee in writing of Bank's Insolvency. If a person claiming to be a creditor of Bank alleges in writing to Trustee that Bank has become Insolvent, Trustee shall determine whether Bank is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries.

(2) Unless Trustee has actual knowledge of Bank's Insolvency, or has received notice from Bank or person claiming to be a creditor alleging that Bank is Insolvent, Trustee shall have no duty to inquire whether Bank is Insolvent. Trustee may in all events rely on such evidence concerning Bank's solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Bank's solvency.

(3) If at any time Trustee has determined that Bank is Insolvent, Trustee shall discontinue payments to Plan participants or their beneficiaries and shall

4

hold the assets of the Trust for the benefit of Bank's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of Bank with respect to benefits due under the Plan or otherwise.

(4) Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after Trustee has determined that Bank is not Insolvent (or is no longer Insolvent).

(c) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by Bank in lieu of the payments provided for hereunder during any such period of discontinuance.

4. PAYMENTS TO BANK.

Except as provided in Sections 3 or 12 hereof, after the Trust has become irrevocable, Bank shall have no right or power to direct Trustee to return to Bank or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan.

5. INVESTMENT AUTHORITY.

Trustee shall maintain all investments deposited upon establishment of the trust (and listed on Exhibit A), until such time as the investments reach maturity. Liquidation of such investments prior to maturity shall only be allowable by the Trustee if (i) there is insufficient

5

cash in the trust at the time a benefit payment is due under the Plan and (ii) with knowledge of such insufficiency, the Bank affirmatively chooses not to pay any or all of the benefit payment due from Bank assets held outside the trust itself. As the investments listed on Exhibit A mature, the Trustee's investment authority, with respect to the proceeds from such investments, shall be subject to the following:

(a) In no event may Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by Bank, other than a de minimis amount held in common investment vehicles in which Trustee invests, except where such de minimis investment is prohibited by applicable banking regulations. All rights associated with assets of the Trust shall be exercised by Trustee or the person designated by Trustee, and shall in no event be exercisable by or rest with Plan participants.

(b) Trustee shall have the following powers and authority in the administration of the assets of Trust, in addition to those vested in it elsewhere in this Trust or by law:

(i) To invest and reinvest the assets of Trust, without distinction between principal and income, in any kind of property, real, personal or mixed, tangible or intangible, and in any kind of investment, security or obligation suitable for the investment of Trust assets, including federal, state and municipal tax-free obligations and other tax-free investment vehicles, insurance policies and annuity contracts, and any common trust fund, group trust, pooled fund, or other commingled investment fund maintained by the Trustee or any other bank or entity for trust investment purposes;

(ii) To purchase, and maintain as owner, life insurance policies with respect to participants;

(iii) To sell for cash or on credit, to grant options, convert, redeem, exchange for other securities or other property, or otherwise to dispose of, any security or other property at any time held;

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(iv) To settle, compromise or submit to arbitration, any claims, debts or damages, due or owing to or from the Trust, to commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings;

(v) To exercise any conversion privilege and/or subscription right available in connection with securities or other property at any time held, to oppose or to consent to the reorganization, consolidation, merger or readjustment of the finances of any corporation, Bank or association or to the sale, mortgage, pledge or lease of the property of an corporation, Bank or association any of the securities of which may at any time be held and to do any act with reference thereto, including the exercise of options, the making of agreement or subscription, which may be deemed necessary or advisable in connection therewith, and to hold and retain any securities or other properties so acquired;

(vi) To hold cash uninvested for a reasonable period of time (not in excess of ten (10) days) under the circumstances without liability for interest, pending investment thereof or the payment of expenses or making distributions therewith;

(vii) To form corporations and to create trusts to hold title to any securities or other property, all upon such terms and conditions as may be deemed advisable;

(viii) To register any securities held hereunder in the name of the Trustee or in the name of a nominee with or without the addition of words indicating that such securities are held in a fiduciary capacity and to hold any securities in bearer form;

(ix) To make, execute and deliver, as Trustee, any and all conveyances, contracts, waivers, releases or other instruments in writing necessary or proper for the accomplishment of any of the foregoing powers;

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(x) To employ suitable agents and counsel and to pay their reasonable expenses and compensation; and

(xi) To have any and all other power of authority, under the laws of the state in which the Trustee's principal executive offices are located, relevant to performance in the capacity as Trustee.

6. DISPOSITION OF INCOME.

During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested.

7. ACCOUNTING BY TRUSTEE.

Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Bank and Trustee. Within ninety (90) days following the close of each calendar year and within sixty (60) days after the removal or resignation of Trustee, Trustee shall deliver to Bank a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be.

8. RESPONSIBILITY OF TRUSTEE.

(a) Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like

8

character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Bank which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by Bank. In the event of a dispute between Bank and a party, Trustee may apply to a court of competent jurisdiction to resolve the dispute.

(b) If Trustee undertakes or defends any litigation arising in connection with this Trust, except litigation arising out of the Trustee's negligence or breach of fiduciary duty, Bank agrees to indemnify Trustee against Trustee's costs, expenses and liabilities (including, without limitation, attorney's fees and expenses) relating thereto and to be primarily liable for such payments. If Bank does not pay such costs, expenses and liabilities in a reasonable manner, Trustee may obtain payment from the Trust.

(c) Trustee may consult with legal counsel (who may also be counsel for Bank generally) with respect to any of its duties or obligations hereunder.

(d) Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder.

(e) Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy.

(f) Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within

9

the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code.

9. FEES AND EXPENSES OF TRUSTEE.

Bank shall pay all administrative and Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust.

10. RESIGNATION AND REMOVAL OF TRUSTEE.

(a) Trustee may resign at any time by written notice to Bank, which shall be effective sixty (60) days after receipt of such notice unless Bank and Trustee agree otherwise.

(b) Trustee may be removed by Bank on sixty (60) days prior written notice or upon shorter notice accepted by Trustee.

(c) Upon a Change of Control, as defined herein, Trustee may not be removed by Bank for two (2) years following the date of such Change in Control, nor may such Trustee be removed by Bank in anticipation of a Change of Control.

(d) If Trustee resigns at any time following a Change in Control, or if Trustee is removed by Bank at any time following the expiration of the two (2) year period (as described in Subpart (c) above) following a Change in Control, Trustee shall select a successor Trustee in accordance with the provisions of 11(a) hereof prior to the effective date of Trustee's resignation or removal. In all other instances of resignation or removal, Bank shall select a successor Trustee in accordance with the provisions of 11(a) hereof prior to the effective date of Trustee's resignation or removal.

(e) Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer

10

shall be completed within fifteen (15) days after receipt of notice of resignation, removal or transfer, unless Bank extends the time limit.

(f) If Trustee resigns or is removed under paragraph (a), (b), or (d) of this Section 10, a successor shall be appointed in accordance with
Section 11 hereof, by the effective date of resignation or removal. If no such appointment has been made, Trustee or Bank (as specified above) may apply to a court of competent jurisdiction for appointment of a successor or for instructions. Should the Trustee be required to apply to a court of competent jurisdiction for such purpose, all expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.

11. APPOINTMENT OF SUCCESSOR.

(a) If Trustee resigns or is removed pursuant to the provisions of Section 10 hereof, Bank or Trustee (as specified above) may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment of a successor Trustee shall be effective when accepted in writing by the new Trustee. The new Trustee shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the successor Trustee to evidence the transfer.

(b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and Bank shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee.

11

12. AMENDMENT OR TERMINATION.

(a) This Trust Agreement may be amended by a written instrument executed by Trustee and Bank. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable after it has become irrevocable in accordance with Section 1(b) hereof.

(b) The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in the Trust shall be returned to Bank.

(c) Upon written approval of participants or beneficiaries entitled to payment of benefits pursuant to the terms of the Plan, Bank may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be returned to Bank.

(d) Sections 1(one), 2 (two), 6 (six), 10 (ten) and 12 (twelve) of this Trust Agreement may not be amended by Bank (i) in anticipation of or
(ii) for two (2) years following a Change of Control, as defined herein.

13. MISCELLANEOUS.

(a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.

(b) Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.

(c) This Trust Agreement shall be governed by and construed in accordance with the laws of the state in which the Trustee's principal executive offices are located.

(d) For purposes of this Trust, Change of Control shall mean;

12

(1) a change of control of a nature that would be required to be reported in response to Item 1 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (hereinafter the "Exchange Act"); or

(2) a change of control of the Bank within the meaning of 12 C.F.R.ss.303. 4; or

(3) a Change of Control at such time as

(i) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank representing Twenty Percent (20%) or more of the combined voting power of the Bank's outstanding securities ordinarily having the right to vote at the elections of Directors except for (i) any stock of the Bank purchased by the Holding Company in connection with the conversion of the Bank to stock form, and (ii) any stock purchased by any Employee Stock Ownership Plan and/or trust sponsored by the Bank; or

(ii) individuals who constitute the Board of Directors on the date hereof (hereinafter the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a Director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the Directors comprising the Incumbent Board, or whose nomination for election by the Bank's members (or stockholders) was approved by the Bank's Nominating Committee which is comprised of members of the Incumbent Board, shall be, for purposes of this clause (ii), considered as though he were a member of the Incumbent Board; or

(iii) merger, consolidation, or sale of all or substantially all the assets of the Bank occurs; or

13

(iv) a proxy statement is issued soliciting proxies from the members (or stockholders) of the Bank by someone other than the current management of the Bank, seeking member (or stockholder) approval of a plan of reorganization, merger, or consolidation of the Bank with one or more corporations as a result of which the outstanding shares of the class of the Bank's securities are exchanged for or converted into cash or property or securities not issued by the Bank.

For these purposes, the terms "stockholders(s)" and "member(s)" shall be considered one and the same. The term "Holding Company" shall mean the holding company (including any successor thereto) organized to acquire the capital stock of the Bank upon the Bank's conversion from mutual to stock form.

14. EFFECTIVE DATE.

The effective date of this Trust Agreement shall be the 15th day of November, 1996.

IN WITNESS WHEREOF, this instrument has been executed as of the day and year first written above.

MUTUAL FEDERAL SAVINGS BANK
(Bank)

Attest:                            By:
                                       ----------------------------------------

---------------------------        --------------------------------------------
                                   (Title)


                                   INDIANA FEDERAL BANK FOR SAVINGS
                                   (Trustee)

Attest:                            By:
                                       ----------------------------------------

---------------------------        --------------------------------------------
                                   (Title)

14

FIRST AMENDMENT TO THE
MUTUAL FEDERAL SAVINGS BANK RABBI TRUST
FOR THE EXECUTIVE DEFERRED COMPENSATION MASTER AGREEMENT

This First Amendment to the Mutual Federal Savings Bank Rabbi Trust For the Executive Deferred Compensation Master Agreement is for the purpose of amending the Agreement as follows:

The second paragraph of page one (1) of the Rabbi Trust for the Executive Deferred Compensation Master Agreement is hereby deleted and replaced with the following provision:

WHEREAS, the Bank has adopted the Restated Executive Supplemental Retirement Income Agreement(s) (the "Plan"), effective as of the 1st day of October, 1993, which constitutes a non-qualified deferred compensation plan, a copy of which is attached hereto as Appendix A.

The Trustee, formerly doing business as Indiana Federal Bank for Savings, has merged into Pinnacle Bank. The Mutual Federal Savings Bank Rabbi Trust for the Executive Deferred Master Agreement and Amendments thereo shall be binding upon Pinnacle Bank of St. Joseph, Michigan, and its successors or assigns.

Remainder of page intentionally left blank.

Page 1 of 2

IN WITNESS WHEREOF, the Bank has caused this First Amendment to be executed on this 13th day of May, 1998.

MUTUAL FEDERAL SAVINGS BANK
(Bank)

Attest:                            By:
                                       ----------------------------------------

---------------------------        --------------------------------------------
                                   (Title)

PINNACLE BANK
(Trustee)

Attest:                            By:
                                       ----------------------------------------

---------------------------        --------------------------------------------
                                   (Title)

Page 2 of 2

SECOND
AMENDMENT
TO THE
MUTUAL FEDERAL SAVINGS BANK
RABBI TRUST FOR THE

EXECUTIVE DEFERRED COMPENSATION MASTER AGREEMENT

This Agreement is made this 19th day of October, 1999 by and between MUTUAL FEDERAL SAVINGS BANK, a federally chartered savings bank, having its principal place of business in Muncie, Indiana, (the "Bank"), and SECURITY FEDERAL SAVINGS BANK, a federally chartered savings institution organized under the laws of the state of Indiana, (the "Trustee").

WHEREAS, the Bank has adopted the Executive Deferred Compensation Master Agreement (the "Plan"), effective as of the 15th day of November, 1996, which constitutes a non-qualified deferred compensation plan;

WHEREAS, the Bank established the Mutual Federal Rabbi Trust for the Executive Deferred Compensation Master Agreement (the "Trust") to hold the assets of the Plan;

WHEREAS, Bank now intends to transfer all assets of the Trust to the Mutual Federal Savings Bank Rabbi Trust for the Restated Executive Supplemental Retirement Income Agreement(s), the Director Deferred Compensation Master Agreement, and the Executive Deferred Compensation Master Agreement.

NOW, THEREFORE, the parties do hereby merge the Trust and agree that all assets of the Trust shall be held in the Mutual Federal Savings Bank Rabbi Trust for the Restated Executive Supplemental Retirement Income Agreement(s), the Director Deferred Compensation Master Agreement, and the Executive Deferred Compensation Master Agreement.

1

IN WITNESS WHEREOF, this instrument has been executed as of the day and year first written above.

MUTUAL FEDERAL SAVINGS BANK
(Bank)

Attest:                            By:
                                       ----------------------------------------

---------------------------        --------------------------------------------
                                   (Title)


                                   SECURITY FEDERAL SAVINGS BANK
                                  (Trustee)

Attest:                            By:
                                       ----------------------------------------

---------------------------        --------------------------------------------
                                   (Title)

2

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following information is only a summary and you should read it in conjunction with our financial statements and notes contained in this Annual Report.

                                                       At or For the Year Ended December 31,
                                        ---------------------------------------------------------------------

                                               1999         1998          1997         1996          1995
                                        ---------------------------------------------------------------------
                                                                   (In Thousands)
Selected Financial Condition Data:
Total assets............................    $  544,523     $469,515      $458,695     $434,389      $402,708
Loans receivable, net...................       442,787      398,146       399,290      378,290       345,738
Investment securities:
  Available-for-sale, at market value...        29,599       14,208        12,370       11,765        12,509
  Held-to-maturity......................        12,449       11,004        10,167        8,997        13,470
Total deposits..........................       364,604      365,999       344,860      330,235       312,218
Total borrowings........................        74,898       52,462        66,255       61,109        50,783
Total stockholders' equity..............        96,712       43,846        39,660       35,479        32,864

Selected Operations Data:
Total interest income...................    $   34,811     $ 34,474      $ 34,085     $ 32,427      $ 29,915
Total interest expense..................        19,242       19,690        19,082       17,851        16,429
                                            ----------     --------      --------     --------      --------

   Net interest income..................        15,569       14,784        15,003       14,576        13,486
Provision for loan losses...............           760        1,265           700          570           650
                                            ----------     --------      --------     --------      --------
Net interest income after provision for
 loan losses............................        14,809       13,519        14,303       14,006        12,836
                                            ----------     --------      --------     --------      --------
Fees and service charges................         1,728        1,544         1,316        1,132           933
Gain (loss) on sales of loans,
 mortgage-backed securities and
 investment securities..................            32          807           188           12            23
Other non-interest income...............         1,091        1,077           579          763           875
                                            ----------     --------      --------     --------      --------
Total non-interest income...............         2,851        3,428         2,083        1,907         1,831
Salaries and benefits...................         7,236        6,115         5,548        5,258         5,238
Charitable contributions................         4,570           97            69           63            52
Other expenses..........................         4,870        4,547         4,474        6,626         4,407
                                            ----------     --------      --------     --------      --------
Total non-interest expense..............        16,676       10,759        10,091       11,947         9,697
                                            ----------     --------      --------     --------      --------
Income before taxes.....................           984        6,188         6,295        3,966         4,970
Income tax provision....................           138        2,049         2,160        1,266         1,545
                                            ----------     --------      --------     --------      --------
Net income..............................    $      846     $  4,139      $  4,135     $  2,700      $  3,425
                                            ==========     ========      ========     ========      ========

1

                                                                  At or For the Year Ended December 31,
                                                    ------------------------------------------------------------
                                                     1999         1998          1997         1996          1995
                                                     ----         ----          ----         ----          ----
Selected Financial Ratios and Other
Data:
Performance Ratios:
  Return on average assets (ratio of net
    income to average total assets)(1)..             0.17%        0.89%         0.93%        0.64%         0.87%
  Return on average equity (ratio of
     net income to average equity)(1)....            1.83         9.83         11.36         7.79         10.92
  Interest rate spread (average during
   period)..............................             3.24         3.21          3.34         3.42          3.39
  Net interest margin(2)................             3.41         3.42          3.58         3.66          3.63
  Ratio of operating expense to average
    total assets(1).....................             3.35         2.31          2.28         2.84          2.46
  Ratio of average interest-earning
    assets to average interest-bearing
    liabilities.........................           104.05       104.56        105.18       105.48        105.87
  Efficiency ratio(1)(3)................            90.53        59.08         59.06        72.48         63.31

Asset Quality Ratios:
  Non-performing assets to total assets
   at end of period.....................             0.30         0.29          0.62         0.49          0.59
  Non-performing loans to total
    loans...............................             0.17         0.28          0.19         0.40          0.60
  Allowance for loan losses to non-
   performing loans.....................           467.61       307.36        406.71       193.65        129.60
  Allowance for loan losses to loans
   receivable, net......................             0.82         0.85          0.77         0.78          0.79

Capital Ratios:
  Equity to total assets at end of
    period..............................            17.76         9.34          8.65         8.17          8.16
  Average equity to average assets......             9.29         9.06          8.22         8.24          7.95

Other Data:
  Number of full-service offices........            13           12            12           11            11
---------------------

(1)  Excluding the effect of the $4.5 million contribution to the charitable
     foundation, return on average assets would have been .76%, return on
     average equity would have been 8.23%, operating expenses to average assets
     would have been 2.45% and the efficiency ratio would have been 66.23%.
(2)  Net interest income divided by average interest earning assets.
(3)  Total non-interest expense divided by net interest income plus total
     non-interest income.

2

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

INTRODUCTION

MFS Financial, Inc., a Maryland corporation, is a savings and loan holding company which has as its wholly-owned subsidiary Mutual Federal Savings Bank. MFS Financial was formed in September 1999 to become the holding company of Mutual Federal in connection with Mutual Federal's conversion from mutual to stock form of organization on December 29, 1999. The words "we," "our" and "us" refer to MFS Financial and Mutual Federal on a consolidated basis, except that references to us prior to December 29, 1999 refer only to Mutual Federal.

Our principal business consists of attracting retail deposits from the general public and investing those funds primarily in permanent loans secured by first mortgages on owner-occupied, one- to four-family residences and in a variety of consumer loans. We also originate loans secured by commercial and multi-family real estate, commercial business loans and construction loans secured primarily by residential real estate. We are headquartered in Muncie, Indiana and have 13 retail offices primarily serving Delaware, Randolph and Kosciusko counties in Indiana. We also originate mortgage loans in contiguous counties and we originate indirect consumer loans throughout Indiana and western Ohio.

The following discussion is intended to assist your understanding of our financial condition and results of operations. The information contained in this section should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements.

Our results of operations depend primarily on our net interest income, which is the difference between interest income on interest-earning assets, which principally consist of loans and mortgage-backed and investment securities, and interest expense on interest-bearing liabilities, which principally consist of deposits and borrowings. Our results of operations also are affected by the level of our noninterest income and expenses and income tax expense.

FORWARD-LOOKING STATEMENTS

This discussion contains various forward-looking statements which are based on assumptions and describe our future plans and strategies and our expectations. These forward-looking statements are generally identified by words such as "believe," "expect," "intend," "anticipate," "estimate," "project," or similar words. Our ability to predict results or the actual effect of future plans or strategies is uncertain. Factors which could cause actual results to differ materially from those estimated include, but are not limited to, changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of our loan and investment portfolios, demand for our loan products, deposit flows, our operating expenses, competition, demand for financial services in our market areas and accounting principles and

3

guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and you should not rely too much on these statements.

MANAGEMENT STRATEGY

Our strategy is to operate as an independent, retail oriented financial institution dedicated to serving customers in our market areas. Our commitment is to provide a broad range of products and services to meet the needs of our customers. As part of this commitment, we are looking to increase our emphasis on commercial business products and services. We are also in the process of creating a fully interactive transactional website. In addition, we are continually looking at cost-effective ways to expand our market area.

Financial highlights of our strategy include:

o CONTINUING AS A DIVERSIFIED LENDER. We have been successful in diversifying our loan portfolio to reduce our reliance on any one type of loan. Since 1994, approximately 32% of our loan portfolio has consisted of consumer, multi-family and commercial real estate and commercial business loans.

o CONTINUING AS A LEADING ONE- TO FOUR-FAMILY LENDER. We are one of the largest originators of one- to four-family residential loans in our three county market area. During 1999, we originated $71.3 million of one- to four-family residential loans.

o CONTINUING OUR STRONG ASSET QUALITY. Since 1994, our ratio of non-performing assets to total assets has not exceeded .62% and at December 31, 1999 this ratio was .30%.

o CONTINUING OUR STRONG CAPITAL POSITION. As a result of our conservative risk management and consistent profitability, we have historically maintained a strong capital position. At December 31, 1999, our ratio of stockholders' equity to total assets was 17.8%.

ASSET AND LIABILITY MANAGEMENT AND MARKET RISK

OUR RISK WHEN INTEREST RATES CHANGE. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

HOW WE MEASURE OUR RISK OF INTEREST RATE CHANGES. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk. In monitoring interest rate risk, we continually analyze and manage assets and

4

liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates.

In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we adopted asset and liability management policies to better match the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities. Mutual Federal's board of directors sets and recommends our asset and liability policies which are implemented by the asset and liability management committee. The asset and liability management committee is chaired by the chief financial officer and is comprised of members of our senior management. The purpose of the asset and liability management committee is to communicate, coordinate and control asset/liability management consistent with our business plan and board approved policies. The asset and liability management committee establishes and monitors the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources consistent with liquidity, capital adequacy, growth, risk and profitability goals. The asset and liability management committee generally meets monthly to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to net present value of portfolio equity analysis and income simulations. At each meeting, the asset and liability management committee recommends appropriate strategy changes based on this review. The chief financial officer or his designee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the board of directors, at least quarterly.

In order to manage our assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, we have sought to:

o originate and purchase adjustable rate mortgage loans and commercial business loans,

o originate shorter-term consumer loans,

o manage our deposits to establish stable deposit relationships,

o acquire longer-term borrowings at fixed interest rates, when appropriate, to offset the negative impact of longer-term fixed rate loans in our loan portfolio, and

o limit the percentage of fixed-rate loans in our portfolio.

Depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the asset and liability management committee may increase our interest rate risk position somewhat in order to maintain our net interest margin. We intend to increase our emphasis on the origination of relatively short-term and/or adjustable rate loans. In addition, in an effort to maintain our limit on the percentage of fixed-rate

5

loans, in 1998, we sold $35.1 million of fixed-rate, one- to four-family mortgage loans in the secondary market.

The asset and liability management committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution's existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest income and market value of portfolio equity that are authorized by our board of directors.

The Office of Thrift Supervision provides Mutual Federal with the information presented in the following tables. The tables present the change in our net portfolio value at December 31, 1999 and 1998 that would occur upon an immediate change in interest rates based on Office of Thrift Supervision assumptions, but without effect to any steps that management might take to counteract that change.

                                              December 31, 1999
------------------------------------------------------------------------------------------------------
     Change in
 Interest Rates in                                                              Net Portfolio Value
Basis Points ("bp")                     Net Portfolio Value                    as % of PV of Assets
   (Rate Shock           -------------------------------------------------  --------------------------
   in Rates)(1)             $ Amount         $ Change         % Change      NPV Ratio         Change
-----------------        ---------------  ---------------  ---------------  ---------       ----------
      +300 bp                41,797          (29,979)             (42)          8.40           (498)
      +200 bp                52,208          (19,568)             (27)         10.23           (316)
      +100 bp                62,435           (9,341)             (13)         11.92           (147)
         0 bp                71,776              ---              ---          13.39            ---
      -100 bp                79,142            7,366               10          14.48            109
      -200 bp                84,484           12,709               18          15.21            182
      -300 bp                88,638           16,862               23          15.74            236

                                              December 31, 1998
------------------------------------------------------------------------------------------------------
     Change in
 Interest Rates in                                                              Net Portfolio Value
Basis Points ("bp")                     Net Portfolio Value                    as % of PV of Assets
   (Rate Shock           -------------------------------------------------  --------------------------
   in Rates)(1)             $ Amount         $ Change         % Change      NPV Ratio         Change
-----------------        ---------------  ---------------  ---------------  ---------       ----------


      +300 bp                31,509          (15,656)             (33)           7.04         (292)
      +200 bp                37,901           (9,264)             (20)           8.29         (167)
      +100 bp                43,368           (3,797)              (8)           9.30          (66)
        0 bp                 47,165              ---              ---            9.96          ---
      -100 bp                48,863            1,698                4           10.20           24
      -200 bp                49,910            2,745                6           10.31           35
      -300 bp                52,273            5,109               11           10.65           69

-----------
(1)  Assumes an instantaneous uniform change in interest rates at all
     maturities.

6

The Office of Thrift Supervision uses certain assumptions in assessing the interest rate risk of savings associations. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing tables. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate mortgage loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the tables.

FINANCIAL CONDITION AT DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998

GENERAL. Our total assets increased by $75 million, or 16%, to $544.5 million at December 31, 1999 from $469.5 million at December 31, 1998. The increase was mainly due to an increase in net loans of $44.6 million, or 11.2%, an increase in investment securities of $16.8 million, or 66.8%, and an increase in cash for Y2K preparation of $7.8 million, or 69%. These increases were funded primarily by an increase of $22.4 million in borrowed funds and the net proceeds of $49.9 million from our stock offering as part of the Bank's mutual-to-stock conversion.

LOANS. Our net loan portfolio increased from $398.1 million at December 31, 1998 to $442.8 million at December 31, 1999. The increase in the loan portfolio over this time period was due to continued strong loan demand caused by a combination of a strong economy and low interest rates. The loan portfolio increased most in the one- to four-family category, from $264.5 million at December 31, 1998 to $286.6 million at December 31, 1999 and in the RV/Boat loan category from $42.7 million at December 31, 1998 to $58.0 million at December 31, 1999.

SECURITIES. Investment securities amounted to $25.2 million at December 31, 1998 and $42.0 million at December 31, 1999. The increase of $16.8 million, or 66.7%, was primarily due to the investment of a portion of the conversion proceeds.

LIABILITIES. Our total liabilities increased $22.1 million, or 5.2%, to $447.8 million at December 31, 1999 from $425.7 million at December 31, 1998. This increase was due primarily to an increase in borrowed funds of $22.4 million.

STOCKHOLDERS' EQUITY. Stockholders' equity increased $52.9 million from $43.8 million at December 31, 1998 to $96.7 million at December 31, 1999. The increase was primarily due to net proceeds from our stock offering of $49.9 million, stock contributed to the charitable foundation of $2.2 million and net income for 1999 of $846,000. These increases were partially offset by a decrease in the unrealized gains (losses) on securities available for sale of $328,000.

7

FINANCIAL CONDITION AT DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997

GENERAL. Our total assets increased by $10.8 million, or 2.4%, to $469.5 million at December 31, 1998 from $458.7 million at December 31, 1997, despite the sale of $35.1 million of loans during 1998 and the use of a portion of the proceeds from this sale to pay down Federal Home Loan Bank advances.

LOANS. Our net loan portfolio decreased from $399.3 million at December 31, 1997 to $398.1 million at December 31, 1998. The decrease in the loan portfolio over this time period was due to the sale of $35.1 million of one- to four-family fixed-rate long term loans during the year for asset/liability management purposes. Loan origination volume for 1998 exceeded volume for 1997 by $47.3 million.

SECURITIES. Investment securities amounted to $22.5 million at December 31, 1997, and $25.2 million at December 31, 1998. The increase of $2.7 million, or 11.9%, was primarily a result of the reinvestment of some of the proceeds from the loan sales discussed above.

LIABILITIES. Our total liabilities increased $6.7 million, or 1.6%, to $425.7 million at December 31, 1998 from $419.0 million at December 31, 1997. This increase was due primarily to an increase in deposits of $21.1 million, partially due to aggressively marketing our money market accounts. In November 1997, we acquired $14.1 million in deposits and an insignificant amount of loans and other assets as part of an acquisition of a branch facility of another bank in Albany, Indiana. This increase was partially offset by a $13.8 million decrease in borrowed funds, which were paid off through the proceeds from the loan sales.

EQUITY. Total equity amounted to $43.8 million, or 9.3% of total assets, at December 31, 1998 and $39.7 million, or 8.7% of total assets, at December 31, 1997. This increase in equity was due to continued profitable operations.

8

AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID

The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made. All average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.

                                                                                Year Ended December 31,
                                                      ----------------------------------------------------------------------

                                                                     1999                                1998
                                                      ----------------------------------------------------------------------
                                                         Average    Interest   Average      Average    Interest    Average
                                                       Outstanding   Earned/   Yield/     Outstanding   Earned/    Yield/
                                                         Balance      Paid      Rate        Balance      Paid       Rate
                                                       -----------  --------   -------    -----------   -------    -------
 Interest-Earning Assets:
  Interest-bearing deposits..........................  $   3,664    $   161     4.39%       $  7,330    $   358     4.88%
  Trading account securities.........................      1,134         67     5.91             337         20     5.93
  Mortgage-backed securities:
     Available-for-sale..............................      5,006        323     6.45           4,575        329     7.19
  Investment securities
     Available-for-sale..............................      8,294        470     5.67           7,001        416     5.94
     Held-to-maturity................................     12,365        733     5.93           9,642        584     6.06
  Loans receivable...................................    422,611     32,739     7.75         399,982     32,488     8.12
  Stock in FHLB of Indianapolis......................      3,926        318     8.10           3,612        279     7.72
                                                       ---------    -------                 --------    -------
  Total interest-earning assets(1)...................    457,000     34,811     7.62         432,479     34,474     7.97
                                                                    -------                             -------
Non-interest earning assets, net of allowance for
 loan losses and unrealized gain/loss................     40,162                              32,362
                                                       ---------                            --------
  Total assets.......................................  $ 497,162                            $464,841
                                                       =========                            ========
Interest-Bearing Liabilities:
 Demand and NOW accounts.............................  $  54,122        553     1.02        $ 49,646        745     1.50
 Savings deposits....................................     42,709        853     2.00          41,332      1,038     2.51
 Money market accounts...............................     29,299      1,056     3.60          16,442        560     3.41
 Certificate accounts................................    252,452     13,392     5.30         250,953     14,100     5.62
                                                       ---------    -------                 --------    -------
 Total deposits......................................    378,582     15,854     4.19         358,373     16,443     4.59
 Borrowings..........................................     60,620      3,388     5.59          55,234      3,247     5.88
                                                       ---------    -------                 --------    -------
  Total interest-bearing liabilities.................    439,202     19,242     4.38         413,607     19,690     4.76
                                                                    -------                             -------
 Other liabilities...................................     11,767                               9,115
                                                       ---------                            --------
  Total liabilities..................................    450,969                             422,722
 Stockholders' equity................................     46,193                              42,119
                                                       ---------                            --------
   Total liabilities and stockholders' equity........  $ 497,162                            $464,841
                                                       =========                            ========

Net earning assets...................................  $  17,798                            $ 18,872
                                                       =========                            ========
Net interest income..................................               $15,569                             $14,784
                                                                    =======                             =======
Net interest rate spread.............................                           3.24%                               3.21%
                                                                               ======                              =====
Net yield on average interest-earning assets.........                           3.41%                               3.42%
                                                                               ======                              =====
Average interest-earning assets to
 average interest-bearing liabilities................    104.05%                             104.56%
                                                        =======                             =======


                                                           Year Ended December 31, 1997
                                                         ---------------------------------
                                                           Average    Interest     Average
                                                         Outstanding   Earned/     Yield/
                                                           Balance      Paid        Rate
                                                         -----------  --------     -------
  Interest-Earning Assets:
  Interest-bearing deposits..........................      $  3,908    $   217      5.55%
  Trading account securities.........................           603         39      6.47
  Mortgage-backed securities:
     Available-for-sale..............................         4,498        334      7.43
  Investment securities
     Available-for-sale..............................         8,164        486      5.95
     Held-to-maturity................................         8,995        478      5.31
  Loans receivable...................................       389,731     32,242      8.27
  Stock in FHLB of Indianapolis......................         3,470        289      8.33
                                                           --------    -------
  Total interest-earning assets(1)...................       419,369     34,085      8.13
                                                                       -------
Non-interest earning assets, net of allowance for
 loan losses and unrealized gain/loss................        23,849
                                                           --------
  Total assets.......................................      $443,218
                                                           ========
Interest-Bearing Liabilities:
 Demand and NOW accounts.............................      $ 44,803        719      1.60
 Savings deposits....................................        40,224      1,114      2.77
 Money market accounts...............................        12,888        391      3.03
 Certificate accounts................................       239,311     13,179      5.51
                                                           --------    -------
 Total deposits......................................       337,226     15,403      4.57
 Borrowings..........................................        61,491      3,679      5.98
                                                           --------    -------
  Total interest-bearing liabilities.................       398,717     19,082      4.79
                                                                       -------
 Other liabilities...................................         8,086
                                                           --------
  Total liabilities..................................       406,803
 Stockholders' equity................................        36,415
                                                           --------
   Total liabilities and stockholders' equity........      $443,218
                                                           ========

Net earning assets...................................      $ 20,652
                                                           ========
Net interest income..................................                  $15,003
                                                                       =======
Net interest rate spread.............................                               3.34%
                                                                                   =====
Net yield on average interest-earning assets.........                               3.58%
                                                                                   =====
Average interest-earning assets to
 average interest-bearing liabilities................       105.18%
                                                           =======

----------------
     (1) Calculated net of deferred loan fees, loan discounts,  loans in process
and loss reserves.

9

RATE/VOLUME ANALYSIS

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to
(1) changes in volume, which are changes in volume multiplied by the old rate, and (2) changes in rate, which are changes in rate multiplied by the old volume. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

                                                                      Year Ended December 31,
                                              ------------------------------------------------------------------------
                                                         1999 vs. 1998                       1998 vs. 1997
                                              ------------------------------------  ----------------------------------
                                                    Increase                              Increase
                                                   (Decrease)                            (Decrease)
                                                     Due to              Total             Due to            Total
                                              --------------------     Increase     -------------------    Increase
                                               Volume       Rate      (Decrease)    Volume       Rate     (Decrease)
                                              --------     ------     ----------    ------       ----     ----------
Interest-earning assets:
 Interest-bearing deposits..................   $ (164)    $   (33)       $(197)      $ 170       $ (29)     $  141
 Trading accounting securities..............       47         ---           47         (16)         (3)        (19)
 Mortgage-backed securities.................       29         (35)          (6)          6         (11)         (5)
 Investment securities:
   Available-for-sale......................        74         (20)          54         (69)         (1)        (70)
   Held-to-maturity.........................      162         (13)         149          36          70         106
 Loans receivable...........................    1,791      (1,540)         251         839        (593)        246
 Stock in FHLB of Indianapolis..............       25          15           40          12         (22)        (10)
                                               ------     -------        -----       -----       -----      ------

   Total interest-earning assets............   $1,964     $(1,626)         338       $ 978       $(589)        389
                                               ======     =======        -----       =====       =====      ------

Interest-bearing liabilities:
 Demand and NOW accounts....................   $   62     $  (254)        (192)      $  75       $ (49)         26
 Savings deposits...........................       36        (309)        (273)         30        (106)        (76)
 Money market accounts......................      462          34          496         117          52         169
 Certificate accounts.......................       83        (703)        (620)        650         271         921
 Borrowings.................................      306        (165)         141        (369)        (63)       (432)
                                               ------     --------       -----       -----       -----     -------

   Total interest-bearing liabilities.......   $  949     $(1,397)        (448)      $ 503       $ 105         608
                                               ======     =======        -----       =====       =====     -------

Net interest income.........................                             $ 786                                (219)
                                                                         =====                              ======

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
1998

GENERAL. Net income for year ended December 31, 1999 decreased $3.3 million to $846,000 compared to $4.1 million for the year ended December 31, 1998. The decline in net income was primarily due to a one-time nonrecurring $4.5 million contribution to the Mutual Federal Savings Bank Charitable Foundation, Inc. made in connection with the stock conversion.

10

NET INTEREST INCOME. Net interest income increased $786,000, or 5.3%, to $15.6 million for 1999 from $14.8 million for 1998 reflecting a $448,000 or 2.3% decrease in interest expense and a $338,000 or 1% increase in interest income. Our interest rate spread increased to 3.24% for 1999 from 3.21% for 1998. In addition, the ratio of average interest earning assets to average interest bearing liabilities decreased to 104.05% for 1999 from 104.56% for 1998.

INTEREST INCOME. The increase in interest income during the year ended December 31, 1999 was due to an increase in the average balance of interest earning assets partially offset by a lower yield. The average balance of the loan portfolio increased $22.6 million or 5.7% to $422.6 million for 1999 from $400 million for 1998 due to continued strong loan demand. The average yield on our loan portfolio decreased from 8.12% in 1998 to 7.75% in 1999 primarily due to continued refinancing activity resulting from lower market rates of interest.

INTEREST EXPENSE. The decrease in interest expense during the year ended December 31, 1999 was primarily due to a reduction in the average rate paid on deposits and borrowed funds from 4.76% in 1998 to 4.38% in 1999. This was partially offset by an increase in the average balances of borrowings and deposits from $413.6 million in 1998 to $439.2 million in 1999.

PROVISION FOR LOAN LOSSES. For the year ended December 31, 1999, the provision for loan losses amounted to $760,000 compared to a provision for loan losses in 1998 of $1.3 million. The decrease was primarily due to a $500,000 provision for loans in litigation in 1998 with no corresponding provision in 1999.

OTHER INCOME. Other income amounted to $2.9 million and $3.4 million for the years ended December 31, 1999 and 1998, respectively. For the year 1999, service charges and fee income was $1.7 million compared to $1.5 million for 1998 representing an increase of $200,000 or 13.3%. This increase was primarily due to higher fees collected as a result of increased volumes in checking account activity. Net gains on loan sales in 1998 were $806,000; there were no loan sales in 1999.

OTHER EXPENSES. Exclusive of the $4.5 million contribution to the foundation, total operating expenses increased to $12.2 million for 1999 compared to $10.8 million for year 1998 representing an increase of $1.4 million or 13%. This increase was primarily attributed to a $1.1 million increase in salaries and employee benefits due to a full year of expense for the employee stock ownership plan in the fourth quarter, an increased bank-wide incentive bonus, increased retirement benefit cost and staff expansion in branches and business banking activity. Additionally, equipment expenses increased to $829,000 for 1999 from $613,000 for 1998 primarily due to a change in the estimated useful life of certain data processing equipment.

INCOME TAX EXPENSE. Income tax expense decreased $1.9 million, or 93.3%, from 1998 to 1999. This variation in income tax expense is directly related to taxable income and the low income housing income tax credits earned during those years. The effective tax rate was 14% and 33.1% for 1999 and 1998, respectively. The effective rate declined in 1999 as compared to 1998 because the low-income housing income tax credits remained relatively constant while the level of income declined. The effective tax rate is expected to increase in future periods.

11

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1997

GENERAL. We reported net income of $4.1 million for the years ended December 31, 1998 and 1997.

NET INTEREST INCOME. Net interest income decreased $219,000, or 1.5%, to $14.8 million for 1998 from $15.0 million for 1997, reflecting a $608,000, or 3.2%, increase in interest expense, partially offset by a $389,000, or 1.1%, increase in interest income. Our interest rate spread decreased to 3.21% for 1998 from 3.34% for 1997. In addition, the ratio of average interest-earning assets to average interest-bearing liabilities decreased to 104.6% for 1998 from 105.2% for 1997.

INTEREST INCOME. The increase in interest income during the year ended December 31, 1998 was primarily due to an increase in the average balance of interest-earning assets offset by a lower yield. The average balance of the loan portfolio increased $10.3 million, or 2.6%, to $400.0 million for 1998 from $389.7 for 1997, due to increased loan demand. The average yield earned on our loan portfolio decreased from 8.27% in 1997 to 8.12% in 1998, primarily due to refinancing activity resulting from a general decrease in market rates of interest.

INTEREST EXPENSE. The increase in interest expense during the year ended December 31, 1998 was primarily due to the increase of $21.1 million, or 6.3%, in the average balance of deposits, primarily due to the acquisition of $14.0 million in deposits at the end of 1997. This was partially offset by a decrease in the average balance of borrowings. The average rate paid on deposits increased slightly from 4.57% in 1997 to 4.59% in 1998, due to an increase in the average rate paid on certificate accounts. The average rate paid on borrowings decreased from 5.98% in 1997 to 5.88% in 1998.

PROVISION FOR LOAN LOSSES. For the year ended December 31, 1998, the provision for loan losses amounted to $1.3 million compared to a provision for loan losses in 1997 of $700,000. The increase was primarily due to a $500,000 provision for loans in litigation.

OTHER INCOME. Other income amounted to $3.4 million and $2.1 million for the years ended December 31, 1998 and 1997, respectively. The increase consisted primarily of a $806,000 gain from the sale of mortgage loans in 1998 compared to a $184,000 gain in 1997, as well as a growth in transaction accounts.

OTHER EXPENSES. Other expenses increased $668,000, or 6.6%, to $10.8 million for the year ended December 31, 1998 compared to the year ended December 31, 1997. This increase was primarily due to a $567,000 or 10.2% increase in personnel expenses and a $27,000 or 4.5% increase in occupancy costs resulting from the purchase of a full service branch office late in 1997.

LIQUIDITY AND COMMITMENTS

Mutual Federal is required to maintain minimum levels of investments that qualify as liquid assets under Office of Thrift Supervision regulations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on

12

loans. Historically, we have maintained liquid assets at levels above the minimum requirements imposed by Office of Thrift Supervision regulations and above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to ensure that adequate liquidity is maintained. At December 31, 1999, our regulatory liquidity ratio, which is our liquid assets as a percentage of net withdrawable savings deposits with a maturity of one year or less and current borrowings, was 9.93%.

Our liquidity, represented by cash and cash equivalents, is a product of our operating, investing and financing activities. Our primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements. We also generate cash through borrowings. We utilize Federal Home Loan Bank advances to leverage our capital base and provide funds for our lending and investment activities, and to enhance our interest rate risk management.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits or U.S. Agency securities. We use our sources of funds primarily to meet our ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, to fund loan commitments and to maintain our portfolio of mortgage-backed securities and investment securities. At December 31, 1999, the total approved loan origination commitments outstanding amounted to $11.0 million. At the same date, the unadvanced portion of construction loans was $4.7 million. At December 31, 1999, unused home equity lines of credit totaled $26.0 million and outstanding letters of credit totaled $3.6 million. As of December 31, 1999, certificates of deposit scheduled to mature in one year or less totaled $158.5 million, and investment and mortgage-backed securities scheduled to mature in one year or less totaled $2.1 million. Based on historical experience, management believes that a significant portion of maturing deposits will remain with us. We anticipate that we will continue to have sufficient funds, through deposits and borrowings, to meet our current commitments.

CAPITAL

Consistent with our goals to operate a sound and profitable financial organization, Mutual Federal actively seeks to remain a "well capitalized" institution in accordance with regulatory standards. Total stockholders' equity of MFS Financial, Inc. was $96.7 million at December 31, 1999, or 17.76% of total assets on that date. As of December 31, 1999, Mutual Federal exceeded all capital requirements of the Office of Thrift Supervision. Mutual Federal's regulatory capital ratios at December 31, 1999 were as follows: core capital 13.6%; Tier I risk-based capital, 20.7%; and total risk-based capital, 21.7%. The regulatory capital requirements to be considered well capitalized are 5.0%, 6.0% and 10.0%, respectively.

13

IMPACT OF ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and hedging activities. The Statement requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Statement is effective for our financial statements for all fiscal quarters for the fiscal year ending December 31, 2001. The adoption of this Statement is not expected to have a material impact on our consolidated financial statements.

IMPACT OF INFLATION

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

Our primary assets and liabilities are monetary in nature. As a result, interest rates affect our performance more than general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturity structure of our assets and liabilities are critical to the maintenance of acceptable performance levels.

The principal effect of inflation, as distinct from levels of interest rates, on earnings is in the area of noninterest expense. Expense items such as employee compensation, employee benefits and occupancy and equipment costs may increases because of inflation. Inflation also may increase the dollar value of the collateral securing loans that we have made. We are unable to determine the extent to which properties securing our loans have appreciated in dollar value due to inflation.

14

SELECTED QUARTERLY FINANCIAL INFORMATION

The following table sets forth certain quarterly results for the years ended December 31, 1999 and 1998. Earninga per share information for the periods before Mutual Federal's conversion to a stock savings bank on December 29, 1999 is not meaningful and is therefore not provided in the table below.

                                        Interest         Interest        Net Interest    Provision for
           Quarter Ended                 Income          Expense            Income        Loan-Losses        Net Income
------------------------------------------------------------------------------------------------------------------------
               1999
March                                    $ 8,247          $ 4,604           $ 3,643          $   190           $   967
June                                       8,499            4,647             3,852              190               956
September                                  8,570            4,837             3,733              190               951
December                                   9,495            5,154             4,341              190            (2,028)
                                         -------          -------           -------          -------           -------
         Total                           $34,811          $19,242           $15,569          $   760           $   846
                                         =======          =======           =======          =======           =======

               1998
March                                    $ 8,715          $ 4,960           $ 3,755          $   191           $ 1,096
June                                       8,825            5,013             3,812              192             1,135
September                                  8,459            4,883             3,576              391             1,057
December                                   9,475            4,834             3,641              491               851
                                         -------          -------           -------          -------           -------
         Total                           $34,474          $19,690           $14,784          $ 1,265           $ 4,139
                                         =======          =======           =======          =======           =======

15

MFS FINANCIAL, INC.
AND SUBSIDIARY

Consolidated Financial Statements
December 31, 1999, 1998 and 1997


MFS Financial, Inc. and Subsidiary Table of Contents

Page

Independent Auditor's Report                                                   1


Financial Statements

     Consolidated balance sheet                                                2

     Consolidated statement of income                                          3

     Consolidated statement of stockholders' equity                            4

     Consolidated statement of cash flows                                      5

     Notes to consolidated financial statements                                6


Independent Auditor's Report

Board of Directors
MFS Financial, Inc. and Subsidiary
Muncie, Indiana

We have audited the accompanying consolidated balance sheet of MFS Financial, Inc. and subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements described above present fairly, in all material respects, the consolidated financial position of MFS Financial, Inc. and subsidiary as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles.

Olive LLP

Indianapolis, Indiana
February 4, 2000


                                      MFS Financial, Inc. and Subsidiary
                                          Consolidated Balance Sheet



December 31                                                                                 1999             1998
---------------------------------------------------------------------------------------------------------------------------

Assets
     Cash and due from banks                                                            $  19,217,186     $  11,368,571
     Interest-bearing demand deposits                                                         765,945         1,569,531
                                                                                        -----------------------------------
            Cash and cash equivalents                                                      19,983,131        12,938,102
     Trading assets, at fair value                                                          1,234,884
     Investment securities
       Available for sale                                                                  29,598,800        14,207,620
       Held to maturity (fair value of $12,016,000 and $11,021,000)                        12,449,013        11,003,674
                                                                                        -----------------------------------
            Total investment securities                                                    42,047,813        25,211,294
     Loans, net of allowance for loan losses of $3,652,073 and $3,423,650                 442,786,919       398,146,043
     Premises and equipment                                                                 7,800,460         7,728,569
     Federal Home Loan Bank stock                                                           5,338,500         3,612,400
     Investment in limited partnerships                                                     5,274,840         5,265,796
     Cash surrender value of life insurance                                                10,806,957         9,350,000
     Foreclosed assets                                                                        728,737            45,911
     Interest receivable                                                                    2,652,959         2,186,552
     Core deposit intangibles and goodwill                                                  1,466,928         1,702,465
     Deferred income tax benefit                                                            2,670,886         1,024,450
     Other assets                                                                           1,730,426         2,303,843
                                                                                        -----------------------------------
            Total assets                                                                 $544,523,440      $469,515,425
                                                                                        ===================================

Liabilities
     Deposits
       Noninterest bearing                                                              $  14,360,929     $  14,884,904
       Interest bearing                                                                   350,243,469       351,114,505
                                                                                        -----------------------------------
            Total deposits                                                                364,604,398       365,999,409
   Securities sold under repurchase agreements                                                840,000
   Federal Home Loan Bank advances                                                         72,289,384        50,632,307
   Note payable                                                                             1,768,354         1,829,711
   Advances by borrowers for taxes and insurance                                            1,289,179         1,260,298
     Interest payable                                                                       2,153,475         2,327,966
     Other liabilities                                                                      4,866,330         3,619,938
                                                                                        -----------------------------------
            Total liabilities                                                             447,811,120       425,669,629
                                                                                        -----------------------------------

Commitments and Contingencies

Stockholders' Equity
     Preferred stock, $.01 par value
       Authorized and unissued--5,000,000 shares
     Common stock, $.01 par value
       Authorized--20,000,000 shares
       Issued and outstanding--5,819,611 shares                                                58,196
     Additional paid-in capital                                                            56,740,190
     Retained earnings                                                                     44,647,767        43,801,385
     Accumulated other comprehensive income (loss)                                           (284,047)           44,411
     Unearned employee stock ownership plan (ESOP) shares                                  (4,449,786)
                                                                                        -----------------------------------
            Total stockholders' equity                                                     96,712,320        43,845,796
                                                                                        -----------------------------------

            Total liabilities and stockholders' equity                                   $544,523,440      $469,515,425
                                                                                        ===================================

See notes to consolidated financial statements.

(2)

                                            MFS Financial, Inc. and Subsidiary
                                             Consolidated Statement of Income



Year Ended December 31                                                         1999            1998           1997
---------------------------------------------------------------------------------------------------------------------------

Interest and Dividend Income
     Loans receivable                                                       $32,739,166      $32,488,310    $32,241,792
     Trading account securities, at fair value                                   66,535           19,983         39,203
   Investment securities
       Mortgage-backed securities                                               323,266          329,093        334,605
       Federal Home Loan Bank stock                                             317,938          277,765        288,838
       Other investment securities                                            1,203,727          999,945        964,289
     Deposits with financial institutions                                       160,812          358,346        216,646
                                                                            -----------------------------------------------
            Total interest and dividend income                               34,811,444       34,473,442     34,085,373
                                                                            -----------------------------------------------

Interest Expense
     Deposits                                                                15,854,093       16,442,842     15,403,164
     Federal Home Loan Bank advances                                          3,350,567        3,223,168      3,647,970
     Other interest expense                                                      37,598           23,685         31,421
                                                                            -----------------------------------------------
            Total interest expense                                           19,242,258       19,689,695     19,082,555
                                                                            -----------------------------------------------

Net Interest Income                                                          15,569,186       14,783,747     15,002,818
     Provision for loan losses                                                  760,000        1,265,000        700,000
                                                                            -----------------------------------------------
   Net Interest Income After Provision for Loan Losses                       14,809,186       13,518,747     14,302,818
                                                                            -----------------------------------------------

Other Income
     Service fee income                                                       1,728,487        1,544,398      1,315,902
     Net realized gains on sales of available-for-sale securities                32,326            1,000          3,000
     Net trading assets profit (loss)                                          (189,741)          24,922         31,173
     Equity in losses of limited partnerships                                   (11,702)         (14,435)      (311,874)
     Commissions                                                                486,706          420,414        504,193
     Net gains on loan sales                                                                     805,676        184,828
     Increase in cash surrender value of life insurance                         490,957          383,856        240,000
     Other income                                                               314,817          262,302        115,701
                                                                            -----------------------------------------------
            Total other income                                                2,851,850        3,428,133      2,082,923
                                                                            -----------------------------------------------

Other Expenses
     Salaries and employee benefits                                           7,235,933        6,115,471      5,548,356
     Net occupancy expenses                                                     655,494          636,396        609,199
     Equipment expenses                                                         829,058          613,329        680,395
     Data processing fees                                                       472,621          479,001        477,643
     Advertising and promotion                                                  412,604          462,632        401,419
     Charitable contributions                                                 4,569,937           97,116         68,743
     Other expenses                                                           2,501,003        2,354,715      2,305,010
                                                                            -----------------------------------------------
            Total other expenses                                             16,676,650       10,758,660     10,090,765
                                                                            -----------------------------------------------

Income Before Income Tax                                                        984,386        6,188,220      6,294,976
     Income tax expense                                                         138,004        2,049,000      2,160,000
                                                                            -----------------------------------------------
   Net Income                                                               $   846,382     $  4,139,220   $  4,134,976
                                                                            ===============================================

See notes to consolidated financial statements.

(3)

                                                MFS Financial, Inc. and Subsidiary
                                          Consolidated Statement of Stockholders' Equity


                                     Common Stock                                               Accumulated
                                -----------------------                                           Other
                                                        Additional                             Comprehensive Unearned
                                   Shares                Paid-in    Comprehensive   Retained     Income        ESOP
                                 Outstanding   Amount    Capital       Income       Earnings     (Loss)       Shares     Total
----------------------------------------------------------------------------------------------------------------------------------

   Balances, January 1, 1997                                                      $35,527,189  $ (47,800)              $35,479,389

     Comprehensive income
       Net income                                                    $4,134,976     4,134,976                            4,134,976
       Other comprehensive
        income, net of tax
         Unrealized gains on
          securities, net of
          reclassification
          adjustment                                                     45,295                   45,295                    45,295
                                                                   ------------
     Comprehensive income                                            $4,180,271
                                -----------------------------------============---------------------------------------------------

   Balances, December 31, 1997                                                     39,662,165     (2,505)               39,659,660

     Comprehensive income
       Net income                                                    $4,139,220     4,139,220                            4,139,220
       Other comprehensive
        income, net of tax
         Unrealized gains on
          securities, net of
          reclassification
          adjustment                                                     46,916        46,916                               46,916
                                                                   ------------
     Comprehensive income                                            $4,186,136
                                -----------------------------------============---------------------------------------------------

   Balances, December 31, 1998                                                     43,801,385     44,411                43,845,796

     Comprehensive income
       Net income                                                      $846,382       846,382                              846,382
       Other comprehensive
        loss, net of tax
         Unrealized losses on
          securities, net of
          reclassification
          adjustment                                                   (328,458)                (328,458)                 (328,458)
                                                                   ------------
     Comprehensive income                                              $517,924
                                                                   ============
     Stock issued in
      conversion, net of
      costs                     5,595,780    $55,958   $54,510,552                                                      54,566,510
     Stock contributed to
      charitable foundation       223,831      2,238     2,236,072                                                       2,238,310
     Contribution of
      unearned ESOP shares                                                                                 $(4,655,680) (4,655,680)
     ESOP shares earned                                     (6,434)                                            205,894     199,460
                                -----------------------------------               ------------------------------------------------

   Balances, December 31, 1999  5,819,611    $58,196   $56,740,190                $44,647,767 $(284,047)   $(4,449,786$96,712,320
                                ===================================               ================================================

See notes to consolidated financial statements.

(4)

                                              MFS Financial, Inc. and Subsidiary
                                             Consolidated Statement of Cash Flows


Year Ended December 31                                                                 1999          1998           1997
------------------------------------------------------------------------------------------------------------------------------
Operating Activities
     Net income                                                                   $    846,382  $ 4,139,220   $  4,134,976
     Adjustments to reconcile net income to net cash
      provided by operating activities
       Provision for loan losses                                                       760,000    1,265,000        700,000
       Common stock contributed to charitable foundation                             2,238,310
       Securities gains                                                                (32,326)      (1,000)        (3,000)
       Net loss on disposal of premise and equipment                                    19,301
       Net loss on sale of real estate owned                                            58,676      137,112
       Securities amortization (accretion), net                                        (15,813)     (26,390)            90
       ESOP shares earned                                                              199,460
       Equity in losses of limited partnerships                                         11,702       14,435        311,874
       Amortization of net loan origination costs                                    1,371,722      842,251        840,125
       Amortization of core deposit intangibles and goodwill                           235,537      246,194         33,078
       Depreciation and amortization                                                   802,486      570,184        616,787
       Deferred income tax                                                          (1,418,864)     282,942       (269,454)
       Loans originated for sale                                                                (16,295,533)    (5,706,313)
       Proceeds from sales on loans held for sale                                                35,447,044      5,743,831
       Gains on sales of loans held for sale                                                       (548,491)       (37,518)
       Change in
         Trading account securities                                                 (1,234,884)                    454,732
         Interest receivable                                                          (466,407)     192,210        (47,054)
         Other assets                                                                  573,417     (847,971)       106,847
         Interest payable                                                             (174,491)    (141,538)        33,975
         Other liabilities                                                           1,246,392     (542,445)       405,047
         Increase in cash surrender value of life insurance                           (490,957)     (383,856)     (240,000)
       Other adjustments                                                                               6,646       258,439
                                                                                  --------------------------------------------
            Net cash provided by operating activities                                4,510,342    24,375,315     7,336,462
                                                                                  --------------------------------------------
Investing Activities
     Purchases of securities available for sale                                    (25,866,267)   (7,016,986)  (10,828,305)
     Proceeds from maturities and paydowns of securities available for sale          1,711,883     2,150,076       894,391
     Proceeds from sales of securities available for sale                            8,252,785     4,115,510     9,415,998
     Purchases of securities held to maturity                                       (8,463,897)  (11,793,604)   (5,684,297)
     Proceeds from maturities and paydowns of securities held to maturity            7,021,088    10,973,718     4,505,500
     Net change in loans                                                           (47,744,581)  (20,685,925)  (24,212,540)
     Purchases of premises and equipment                                              (874,377)   (1,461,965)     (903,571)
     Proceeds from real estate owned sales                                             266,798     1,565,489        52,425
     Purchase of FHLB of Indianapolis stock                                         (1,726,100)                   (241,700)
     Purchase of interest in limited partnership                                                  (2,085,000)
     Distribution from (to) limited partnership                                        (20,746)       55,074       137,098
     Purchases of insurance contracts                                                 (966,000)   (3,000,000)     (300,000)
     Cash received on branch acquisition                                                             309,413    11,903,914
     Other investing activities                                                        (36,319)      (22,778)      118,676
                                                                                  --------------------------------------------
            Net cash used by investing activities                                  (68,445,733)  (26,896,978)  (15,142,411)
                                                                                  --------------------------------------------
Financing Activities
     Net change in
       Noninterest-bearing, interest-bearing demand and savings deposits             1,275,554    23,571,794    (9,259,396)
       Certificates of deposits                                                     (2,670,565)   (2,784,446)    9,811,301
       Securities sold under repurchase agreements                                     840,000                  (1,400,000)
     Repayment of note payable                                                         (61,357)      (25,566)
     Proceeds from FHLB advances                                                   157,000,000    53,700,000   113,195,000
     Repayment of FHLB advances                                                   (135,342,923)  (69,322,214) (106,649,421)
     Net change in advances by borrowers for taxes and insurance                        28,881       (28,351)      (83,756)
     Proceeds from sale of common stock, net of costs                               49,910,830
                                                                                  --------------------------------------------
            Net cash provided by financing activities                               70,980,420     5,111,217     5,613,728
                                                                                  --------------------------------------------

Net Change in Cash and Cash Equivalents                                              7,045,029     2,589,554    (2,192,221)

Cash and Cash Equivalents, Beginning of Year                                        12,938,102    10,348,548    12,540,769
                                                                                  --------------------------------------------
Cash and Cash Equivalents, End of Year                                             $19,983,131   $12,938,102   $10,348,548
                                                                                  ============================================
Additional Cash Flows Information
     Interest paid                                                                 $19,416,749   $19,831,233   $19,048,580
     Income tax paid                                                                 1,716,402     2,524,700     2,449,536
     Transfers from loans to foreclosed real estate                                    971,983       128,288     1,873,356
     Note payable issued for investment in limited partnership                                     1,855,277
     Loans transferred to loans held for sale                                                     18,603,020
     Mortgage servicing rights capitalized                                                           257,185       146,828
     Common stock issued to ESOP leveraged with an employee loan                     4,655,680

See notes to consolidated financial statements.

(5)

MFS Financial, Inc. and Subsidiary

Notes to Consolidated Financial Statements


(Table Dollar Amounts in Thousands)

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

The accounting and reporting policies of MFS Financial, Inc. (Company) and its wholly owned subsidiary, Mutual Federal Savings Bank (Bank) and the Bank's wholly owned subsidiaries, First MFSB Corporation and Third MFSB Corporation, conform to generally accepted accounting principles and reporting practices followed by the thrift industry. The more significant of the policies are described below.

During 1998, Kosciusko Service Corporation, a formerly wholly owned subsidiary of the Bank, was merged into the Bank.

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

The Company is a thrift holding company whose principal activity is the ownership of the Bank. The Bank operates under a federal thrift charter and provides full banking services. As a federally chartered thrift, the Bank is subject to regulation by the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation.

The Bank generates mortgage, consumer and commercial loans and receives deposits from customers located primarily in Delaware, Kosciusko, Randolph and surrounding counties. The Bank's loans are generally secured by specific items of collateral including real property, consumer assets and business assets. First MFSB sells various insurance products. Third MFSB offers tax deferred annuities and long-term health care and life insurance products.

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

Investment Securities--Debt securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Securities held to maturity are carried at amortized cost. Debt securities not classified as held to maturity, or included in the trading account and marketable equity securities not classified as trading, are classified as available for sale. Securities available for sale are carried at fair value with unrealized gains and losses reported separately in accumulated other comprehensive income, net of tax. Trading account securities are held for resale in anticipation of short-term market movements and are valued at fair value. Gains and losses, both realized and unrealized, are included in other income.

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

(6)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Loans are carried at the principal amount outstanding. A loan is impaired when, based on current information or events, it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Payments with insignificant delays not exceeding 90 days outstanding are not considered impaired. Certain nonaccrual and substantially delinquent loans may be considered to be impaired. The Company considers its investmen in one-to-four family residential loans and consumer loans to be homogeneous and therefore excluded from separate identification for evaluation of impairment. Interest income is accrued on the principal balances of loans. The accrual of interest on impaired and nonaccrual loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed when considered uncollectible. Interest income is subsequently recognized only to the extent cash payments are received. Certain loan fees and direct costs are being deferred and amortized as an adjustment of yield on the loans over the contractual maturity of the loans.

Allowance for loan losses is maintained to absorb loan losses based on management's continuing review and evaluation of the loan portfolio and its judgment as to the impact of economic conditions on the portfolio. The evaluation by management includes consideration of past loss experience, changes in the composition of the portfolio, the current condition and amount of loans outstanding, and the probability of collecting all amounts due. Impaired loans are measured by the present value of expected future cash flows, or the fair value of the collateral of the loan, if collateral dependent.

The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. Management believes that as of December 31, 1999, the allowance for loan losses is adequate based on information currently available. A worsening or protracted economic decline in the area within which the Company operates would increase the likelihood of additional losses due to credit and market risks and could create the need for additional loss reserves.

Premises and equipment are carried at cost net of accumulated depreciation. Depreciation is computed using the straight-line method based principally on the estimated useful lives of the assets which range from 3 to 50 years. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations.

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

Investment in limited partnerships is recorded using the equity method of accounting. Losses due to impairment are recorded when it is determined that the investment no longer has the ability to recover its carrying amount. The benefits of low income housing tax credits associated with the investment are accrued when earned.

Foreclosed assets are carried at the lower of cost or fair value less estimated selling costs. When foreclosed assets are acquired, any required adjustment is charged to the allowance for loan losses. All subsequent activity is included in current operations.

(7)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Intangible assets are being amortized primarily on a straight-line and accelerated basis over a period of 15 years. Such assets are periodically evaluated as to the recoverability of their carrying value.

Mortgage servicing rights on originated loans are capitalized by allocating the total cost of the mortgage loans between the mortgage servicing rights and the loans based on their relative fair values. Capitalized servicing rights are amortized in proportion to and over the period of estimated servicing revenues.

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

Earnings per share will be computed based upon the weighted average common and potential common shares outstanding during the period subsequent to the Bank's conversion to a stock savings bank on December 29, 1999. Net income per share for the periods prior to the conversion is not meaningful.

Reclassifications of certain amounts in the 1998 and 1997 consolidated financial statements have been made to conform to the 1999 presentation.

Note 2 -- Conversion

On December 29, 1999, the Bank completed the conversion from a federally chartered mutual institution to a federally chartered stock savings bank and the formation of the Company as the holding company of the Bank. As part of the conversion, the Company issued 5,595,780 shares of common stock at $10 per share. Net proceeds of the Company's stock issuance, after costs of $1,391,000 and excluding the shares issued for the ESOP, were $49,911,000, of which $27,284,000 was used to acquire 100% of th stock and ownership of the Bank. The transaction was accounted for at historical cost in a manner similar to that utilized in a pooling of interests. In connection with the Conversion, the Company contributed 223,831 shares of common stock and cash of $2,238,000 to Mutual Federal Savings Bank Charitable Foundation, Inc. (the Foundation), a charitable foundation dedicated to community development activities in the Company's market areas. This resulted in the recognition of an additional $4,477,000 charitable contribution expense for the year ended December 31, 1999.

Note 3 -- Restriction on Cash

The Bank is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank. The reserve required at December 31, 1999, was $2,925,000.

(8)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Note 4 -- Investment Securities

                                                                                             1999
                                                          -----------------------------------------------------------------
                                                                                 Gross          Gross
                                                               Amortized       Unrealized     Unrealized         Fair
December 31                                                      Cost           Gains           Losses          Value
---------------------------------------------------------------------------------------------------------------------------

         Available for sale
              Mortgage-backed securities                       $  9,517           $25           $(155)          $  9,387
              Collateralized mortgage obligations                 4,584                           (48)             4,536
              Federal agencies                                    2,416                           (34)             2,382
              Corporate obligations                               7,781                           (74)             7,707
              Marketable equity securities                        5,781                          (194)             5,587
                                                          -----------------------------------------------------------------
                Total available for sale                         30,079            25            (505)            29,599
                                                          -----------------------------------------------------------------
         Held to maturity
              Federal agencies                                   10,200                          (413)             9,787
              Corporate obligations                               2,099                           (20)             2,079
              Municipal obligation                                  150                                              150
                                                          -----------------------------------------------------------------
                Total held to maturity                           12,449                          (433)            12,016
                                                          -----------------------------------------------------------------
                Total investment securities                     $42,528           $25           $(938)           $41,615
                                                          =================================================================

                                                                                             1998
                                                          -----------------------------------------------------------------
                                                                                 Gross          Grosss
                                                               Amortized       Unrealized     Unrealized         Fair
December 31                                                      Cost           Gains           Losses          Value
---------------------------------------------------------------------------------------------------------------------------
         Available for sale
              Mortgage-backed securities                       $  5,129          $171           $  (3)          $  5,297
              Federal agencies                                    1,244            42                              1,286
              Marketable equity securities                        7,761                          (136)             7,625
                                                          -----------------------------------------------------------------
                Total available for sale                         14,134           213            (139)            14,208
                                                          -----------------------------------------------------------------

         Held to maturity
              Federal agencies                                    6,220            13             (13)             6,220
              Corporate obligations                               4,634            22              (5)             4,651
              Municipal                                             150                                              150
                                                          -----------------------------------------------------------------
                Total held to maturity                           11,004            35             (18)            11,021
                                                          -----------------------------------------------------------------

                Total investment securities                     $25,138          $248           $(157)           $25,229
                                                          =================================================================

Marketable equity securities consist of shares in mutual funds which invest in government obligations and mortgage-backed securities.

(9)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

The amortized cost and fair value of securities held to maturity and available for sale at December 31, 1999, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

                                                                                            1999
                                                        -------------------------------------------------------------------
                                                                    Available for Sale                 Held to Maturity
                                                        -------------------------------------------------------------------
                                                             Amortized          Fair           Amortized           Fair
December 31                                                    Cost             Value            Cost              Value
---------------------------------------------------------------------------------------------------------------------------
       Within one year                                                                         $  1,862          $  1,854
       One to five years                                     $  8,283         $  8,197            5,944             5,778
       Five to ten years                                          970              956            3,493             3,336
       After ten years                                            501              500            1,150             1,048
                                                        -------------------------------------------------------------------
                                                                9,754            9,653           12,449            12,016
       Mortgage-backed securities                               9,517            9,387
       Collateralized mortgage obligations                      4,584            4,536
       Small Business Administration                              443              436
       Marketable equity securities                             5,781            5,587
                                                        -------------------------------------------------------------------

                Totals                                        $30,079          $29,599          $12,449           $12,016
                                                        ===================================================================

Securities with a carrying value of $30,159,000 and $12,803,000 were pledged at December 31, 1999 and 1998 to secure FHLB advances.

Proceeds from sales of securities available for sale during the years ended December 31, 1999, 1998 and 1997 were $8,253,000, $4,116,000 and $9,416,000. Gross gains of $79,000, $1,000 and $3,000 were realized on those sales in 1999, 1998 and 1997. Gross losses of $47,000 were recognized on those sales in 1999.

Trading account securities at December 31, 1999 consisted of U. S. Government bonds with a fair value of $1,235,000. Unrealized holding losses of $212,000 were included in earnings for the year ended December 31, 1999 and there were no unrealized holding gains or losses on trading securities included in earnings in 1998 and 1997. Trading account securities with a carrying value of $823,000 were pledged at December 31, 1999 to secure repurchase agreements.

(10)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Note 5 -- Loans and Allowance

December 31                                                    1999             1998
-----------------------------------------------------------------------------------------
       Loans
         Real estate loans
           One-to-four family                                 $286,578          $264,461
           Multi family                                          5,544             6,282
           Commercial                                           14,559            10,293
           Construction and development                         12,470            11,805
                                                       ----------------------------------
                                                               319,151           292,841
                                                       ----------------------------------
         Consumer loans
           Auto                                                 19,887            17,820
           Home equity                                          10,585            10,253
           Home improvement                                     14,588            12,108
           Mobile home                                          12,305            15,466
           Recreational vehicles                                25,629            19,100
           Boats                                                32,374            23,608
           Credit cards                                          2,180             2,281
           Other                                                 2,374             3,472
                                                       ----------------------------------
                                                               119,922           104,108
         Commercial business loans                              10,764             7,285
                                                       ----------------------------------
                                                               449,837           404,234

         Undisbursed portion of loans                           (4,844)           (3,353)
         Deferred loan fees, and costs, net                      1,446               689
         Allowance for loan losses                              (3,652)           (3,424)
                                                       ----------------------------------
                Total loans                                   $442,787          $398,146
                                                       ==================================

(11)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Year Ended December 31                                                       1999          1998          1997
---------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses
       Balances, January 1                                                    $3,424        $3,091         $2,990
       Provision for losses                                                      760         1,265            700
       Recoveries on loans                                                       119           106             91
       Loans charged off                                                        (651)       (1,038)          (690)
                                                                       ---------------------------------------------
       Balances, December 31                                                  $3,652        $3,424         $3,091
                                                                       =============================================

Information on impaired loans is summarized below.

December 31                                                                                               1998
---------------------------------------------------------------------------------------------------------------------------
Impaired loans with an allowance                                                                            $504
                                                                                                     ===============
Allowance for impaired loans included in the Company's allowance for loan losses                            $100
                                                                                                     ===============

Year Ended December 31                                                           1999         1998         1997
---------------------------------------------------------------------------------------------------------------------------
Average balance of impaired loans                                                 $429         $517         $949
Interest income recognized on impaired loans                                         9           56
Cash-basis interest included above                                                   9           56

There were no impaired loans at December 31, 1999 and 1997.

Note 6 -- Premises and Equipment

December 31                                                                                  1999            1998
---------------------------------------------------------------------------------------------------------------------------
Cost
       Land                                                                                  $1,691         $1,557
       Buildings and land improvements                                                        8,269          8,213
       Equipment                                                                              5,236          4,635
                                                                                      ------------------------------
         Total cost                                                                          15,196         14,405
Accumulated depreciation                                                                     (7,396)        (6,676)
                                                                                      ------------------------------

         Net                                                                                 $7,800         $7,729
                                                                                      ==============================

(12)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Note 7 -- Investment In Limited Partnerships

December 31                                                                                     1999           1998
---------------------------------------------------------------------------------------------------------------------------

Pedcor Investments 1988-V (98.97 percent ownership, equity method of accounting)             $  522         $   523
Pedcor Investments 1990-XIII (99.00 percent ownership, equity method of accounting)             683             696
Pedcor Investments 1990-XI (19.79 percent ownership, at amortized cost)                          96             107
Pedcor Investments 1997-XXVlll (99.00 percent ownership, equity method of accounting)         3,974           3,940
                                                                                            -------------------------------
                                                                                             $5,275          $5,266
                                                                                            ===============================

The limited partnerships build, own and operate apartment complexes. The Company records its equity in the net income or loss of the Pedcor Investments 1988-V, 1990-XIII, and 1997-XXVIII based on the Company's interest in the partnerships. The Company has recorded its investment in Pedcor Investments 1990-XI, which represents less than a 20 percent ownership, at amortized cost and records income when distributions are received. In addition, the Company has recorded the benefit of low income housing credits of $262,000 for 1999, 1998 and 1997. Condensed financial statements for Pedcor Investments 1988-V, 1990-XIII, and 1997-XXVIII recorded under the equity method of accounting are as follows:

 December 31                                                       1999            1998
--------------------------------------------------------------------------------------------
Condensed statement of financial condition
  Assets
   Cash                                                          $     313       $     198
   Land and property                                                22,401          18,664
   Other assets                                                      1,694           6,303
                                                             -------------------------------

        Total assets                                               $24,408         $25,165
                                                             ===============================

  Liabilities
   Notes payable                                                   $22,656         $23,021
   Other liabilities                                                   820           1,020
                                                             -------------------------------
        Total liabilities                                           23,476          24,041
                                                             -------------------------------
  Partners' equity (deficit)
   General partners                                                 (2,423)         (2,194)
   Limited partners                                                  3,355           3,318
                                                             -------------------------------
        Total partners' equity                                         932           1,124
                                                             -------------------------------

        Total liabilities and partners' equity                     $24,408         $25,165
                                                             ===============================

(13)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Year Ended December 31                                                            1999         1998          1997
---------------------------------------------------------------------------------------------------------------------------
Condensed statement of operations
        Total revenue                                                           $2,497        $2,389        $2,418
        Total expenses                                                           2,499         2,377         2,418
                                                                            -----------------------------------------
          Net income                                                          $     (2)     $     12      $      0
                                                                            =========================================

Note 8 -- Deposits

December 31                                                                               1999              1998
---------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand                                                             $  14,361         $  14,885
Interest-bearing demand                                                                   38,199            42,354
Regular passbook                                                                          37,601            39,418
90-day passbook                                                                            2,191             2,824
Money market savings                                                                      42,091            33,686
Certificates and other time deposits of $100,000 or more                                  44,804            36,148
  Other certificates                                                                     185,357           196,684
                                                                                 -----------------------------------

         Total deposits                                                                 $364,604          $365,999
                                                                                 ===================================

Certificates including other time deposits of $100,000 or more maturing in years ending December 31:

2000                                                           $158,502
2001                                                             55,516
2002                                                              7,848
2003                                                              4,535
2004                                                              3,760
                                                         ----------------

                                                               $230,161
                                                         ================

Note 9 -- Securities Sold Under Repurchase Agreements

Securities sold under repurchase agreements consist of obligations of the Company to other parties. The obligations are secured by U. S. Treasury bonds and such collateral is held in trust at a financial services company.

There was one outstanding agreement of $840,000 at December 31, 1999 maturing January 13, 2000 and none at the end of 1998 nor were there any outstanding agreements at any month-end during 1998. The maximum amount of outstanding agreements at any month-end during 1999 and 1997 totaled $895,000 and $875,000 respectively. The monthly average of such agreements totaled $400,000, $2,000 and $20,000 for the years ended December 31, 1999, 1998 and 1997.

(14)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Note 10 -- Federal Home Loan Bank Advances

                                                   Weighted
                                                   Average
Maturities Year Ending December 31                   Rate            Amount
------------------------------------------------------------------------------
         2000                                       5.89%           $45,205
         2001                                       5.23              1,000
         2002                                       5.91              2,000
         2003                                       5.09              8,131
         2004
         Thereafter                                 5.43             15,953
                                                                ----------------

                                                    5.69%           $72,289
                                                                ================

The terms of a security agreement with the FHLB require the Bank to pledge as collateral for advances and outstanding letters of credit both qualifying first mortgage loans and investment securities in an amount equal to at least 170 percent of these advances and letters of credit. Advances are subject to restrictions or penalties in the event of prepayment.

Note 11 -- Note Payable

The Bank has a noninterest-bearing, unsecured term note payable to Pedcor Investments 1997-XXVIII, L.P. of $1,768,000 at December 31, 1999 and $1,830,000 at December 31, 1998 payable in semiannual installments through January 1, 2010. At December 31, 1999 and 1998, the Bank was obligated under an irrevocable direct pay letter of credit for the benefit of a third party in the amount of $1,254,000 relating to this note and the financing for an apartment project by Pedcor Investments 1997-XXVIII L.P. (see Note 7).

                                                                     Note
                                                                    Payable
Maturities Year Ending December 31                                  Pedcor
--------------------------------------------------------------------------------

2000                                                               $     61
2001                                                                     61
2002                                                                     61
2003                                                                     61
2004                                                                     61
Thereafter                                                            1,463
                                                                 ---------------

                                                                     $1,768
                                                                 ===============

(15)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Note 12 -- Loan Servicing

Loans serviced for others are not included in the accompanying consolidated balance sheet. The unpaid principal balances of these loans consist of the following:

December 31                                       1999            1998            1997
-----------------------------------------------------------------------------------------------
Mortgage loan portfolio serviced for
       Freddie Mac                               $22,128         $26,906          $16,785
       Fannie Mae                                  9,977          14,520              908
       Other investors                               311             882              904
                                             --------------- ---------------- --------------

                                                 $32,416         $42,308          $18,597
                                             =============== ================ ==============

The aggregate fair value of capitalized mortgage servicing rights at December 31, 1999, 1998 and 1997 is based on comparable market values and expected cash flows, with impairment assessed based on portfolio characteristics including product type, investor type, and interest rates.

No valuation allowance was necessary at December 31, 1999, 1998 and 1997.

Year Ended December 31                            1999             1998             1997
--------------------------------------------------------------------------------------------------
Mortgage Servicing Rights
       Balances, January 1                      $339,904          $128,298
       Servicing rights capitalized                                257,185         $146,828
       Amortization of servicing rights          (60,735)          (45,579)         (18,530)
                                            ----------------- ---------------  ----------------

       Balances, December 31                    $279,169          $339,904         $128,298
                                            ================= ===============  ================

(16)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Note 13 -- Income Tax

Year Ended December 31                                                        1999          1998           1997
---------------------------------------------------------------------------------------------------------------------------
Income tax expense
  Currently payable
    Federal                                                                  $1,088        $1,308         $1,837
    State                                                                       469           458            592
  Deferred
    Federal                                                                  (1,408)          216           (212)
    State                                                                       (11)           67            (57)
                                                                      ----------------------------------------------

         Total income tax expense                                            $  138        $2,049         $2,160
                                                                      ==============================================

Reconciliation of federal statutory to actual tax expense
    Federal statutory income tax at 34%                                      $  335        $2,104         $2,140
    Effect of state income taxes                                                302           347            353
    Low income housing credits                                                 (262)         (262)          (262)
    Tax exempt income--increase in cash surrender value                        (167)         (131)           (81)
    Other                                                                       (70)           (9)            10
                                                                      ----------------------------------------------
         Actual tax expense                                                  $  138        $2,049         $2,160
                                                                      ==============================================

Effective tax rate                                                          14.0%          33.1%         34.3%
                                                                      ==============================================

(17)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

The components of the deferred asset are as follows:

December 31                                                                                   1999           1998
---------------------------------------------------------------------------------------------------------------------------
Assets
  Allowance for loan losses                                                             $1,485         $1,342
  Deferred compensation                                                                  1,205          1,075
  Charitable contribution carryover                                                      1,390
  Unrealized loss on securities available for sale                                         198
  Other                                                                                    193            110
                                                                                 ------------------------------
    Total assets                                                                         4,471          2,527
                                                                                 ------------------------------

Liabilities
  FHLB stock                                                                              (165)          (165)
  Depreciation                                                                            (116)           (84)
  State income tax                                                                         (92)           (88)
  Loan fees                                                                             (1,125)          (811)
  Increase in tax bad debt reserve over base year                                          (92)          (115)
  Unrealized gain on securities available for sale                                                        (30)
  Mortgage servicing rights                                                               (119)          (144)
  Investments in limited partnership                                                       (91)           (66)
                                                                                 ------------------------------
    Total liabilities                                                                   (1,800)        (1,503)
                                                                                 ------------------------------

                                                                                        $2,671         $1,024
                                                                                 ==============================

The Company has a charitable contribution carryover of $4,570,000 that expires in the year ending December 31, 2005.

Income tax expense attributable to securities gains was $12,800, $400 and $1,200 for the years ended December 31, 1999 and 1998 and 1997.

Retained earnings include approximately $6,443,000 for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions as of December 31, 1987 for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which income would be subject to the then-current corporate income tax rate. The unrecorded deferred income tax liability on the above amounts was approximately $2,552,000.

(18)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Note 14 -- Other Comprehensive Income

                                                                                                     1999
                                                                          -------------------------------------------------
                                                                                                Tax
                                                                             Before-Tax      (Expense)       Net-of-Tax
Year Ended December 31                                                         Amount         Benefit          Amount
---------------------------------------------------------------------------------------------------------------------------
Unrealized losses on securities
     Unrealized holding losses arising during the year                           $515          $206            $(309)
     Less: reclassification adjustment for gains realized in net income            32           (13)              19
                                                                          -------------------------------------------------

     Net unrealized losses                                                      $(547)         $219            $(328)
                                                                          =================================================

                                                                                                     1998
                                                                          -------------------------------------------------
                                                                                                Tax
                                                                             Before-Tax      (Expense)       Net-of-Tax
Year Ended December 31                                                         Amount         Benefit          Amount
---------------------------------------------------------------------------------------------------------------------------
Unrealized gains on securities
     Unrealized holding gains arising during the year                             $79            $(31)             $48
     Less: reclassification adjustment for gains realized in net income             1                                1
                                                                          -------------------------------------------------

     Net unrealized gains                                                         $78            $(31)             $47
                                                                          =================================================

                                                                                                     1997
                                                                          -------------------------------------------------
                                                                                                Tax
                                                                             Before-Tax      (Expense)       Net-of-Tax
Year Ended December 31                                                         Amount         Benefit          Amount
---------------------------------------------------------------------------------------------------------------------------
Unrealized gains on securities
     Unrealized holding gains arising during the year                             $78            $(31)             $47
     Less: reclassification adjustment for gains realized in net income             3              (1)               2
                                                                          -------------------------------------------------

     Net unrealized gains                                                         $75            $(30)             $45
                                                                          =================================================

Note 15 -- Commitments and Contingent Liabilities

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

(19)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

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

December 31                                       1999           1998
-------------------------------------------------------------------------------
Loan commitments                                $41,700        $33,530
Loans sold with recourse                             93            165
Standby letters of credit                         3,617          2,500

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

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.

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

Note 16 -- Dividend and Capital Restrictions

The Company is not subject to any regulatory restrictions on the payment of dividends to its stockholders.

Without prior approval, current regulations allow the Bank to pay dividends to the Company not exceeding retained net income for the current calendar year plus those for the previous two calendar years. The Bank normally restricts dividends to a lesser amount because of the need to maintain an adequate capital structure.

At the time of conversion, a liquidation account was established in an amount equal to the Banks' net worth as reflected in the latest statement of condition used in its final conversion offering circular. The liquidation account is maintained for the benefit of eligible deposit account holders who maintain their deposit account in the Bank after conversion. In the event of a complete liquidation, and only in such event, each eligible deposit account holder will be entitled to receive a liquidation distribution from the liquidation account in the amount of the then current adjusted subaccount balance for deposit accounts then held, before any liquidation distribution may be made to stockholders. Except for the repurchase of stock and payment of dividends, the existence of the liquidation account will not restrict the use or application of net worth. The initial balance of the liquidation account was $45,619,000.

At December 31, 1999, the stockholder's equity of the Bank was $74,628,000, of which approximately $7,966,000 was available for the payment of dividends to the Company.

(20)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Note 17 -- Regulatory Capital

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

There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized. Classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank's operations. At December 31, 1999 and 1998, the Bank is categorized as well capitalized and met all subject capital adequacy requirements. There are no conditions or events since December 31, 1999 that management believes have changed the Bank's classification.

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

                                                                                    Required for             To Be Well
                                                                Actual            Adequate Capital(1)        Capitalized(1)
                                                        ----------------------------------------------------------------------
                                                          Amount      Ratio      Amount       Ratio      Amount       Ratio
------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1999

Total risk-based capital 1 (to risk-weighted assets)      $76,994     21.7%       $28,357     8.0%        $35,446     10.00%

Tier 1 risk-based capital 1 (to risk-weighted assets)      73,445     20.7%        14,179     4.0%         21,268      6.00%

Core capital 1 (to adjusted total assets)                  73,445     13.6%        16,252     3.0%         27,086      5.00%

Core capital 1 (to adjusted tangible assets)               73,445     13.6%        10,835     2.0%             NA        NA

Tangible capital 1 (to adjusted total assets)              73,445     13.6%         8,126     1.5%             NA        NA

As of December 31, 1998

Total risk-based capital 1 (to risk-weighted assets)      $45,243     15.27%      $23,710     8.0%        $29,637     10.0%

Tier 1 risk-based capital 1 (to risk-weighted assets)      42,100     14.21%       11,855     4.0%         17,782      6.0%

Core capital 1 (to adjusted total assets)                  42,100      9.03%       13,992     3.0%         23,320      5.0%

Core capital 1 (to adjusted tangible assets)               42,100      9.03%        9,328     2.0%             NA       NA

Tangible capital 1 (to adjusted total assets)              42,100      9.03%        6,996     1.5%             NA       NA

(1) As defined by regulatory agencies

(21)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Note 18 -- Employee Benefits

The Company has a retirement savings 401(k) plan in which substantially all employees may participate. The contributions are discretionary and determined annually. For the years ended December 31, 1999, 1998 and 1997, the Company matched employees' contributions at the rate of 50% for the first $600 participant contributions to the 401(k) and made a contribution to the profit sharing plan of 7% of qualified compensation. The Company's expense for the plan was $286,000, $284,000 and $252,500 fo the years ended December 31, 1999, 1998 and 1997.

The Company has a supplemental retirement plan and deferred compensation arrangements for the benefit of certain officers. These arrangements are funded by life insurance contracts which have been purchased by the Company. The Company's expense for the plan was $214,000, $188,000 and $164,000 for the years ended December 31, 1999, 1998 and 1997.

The Company has deferred compensation arrangements with certain directors whereby, in lieu of currently receiving fees, the directors or their beneficiaries will be paid benefits for an established period following the director's retirement or death. These arrangements are funded by life insurance contracts which have been purchased by the Company. The Company's expense for the plan was $106,000, $117,000 and $105,000 for the years ended December 31, 1999, 1998 and 1997.

As part of the conversion in 1999, the Company established an ESOP covering substantially all its employees. The ESOP acquired 465,568 shares of the Company common stock at $10 per share in the conversion with funds provided by a loan from the Company. Accordingly, the $4,655,680 of common stock acquired by the ESOP is shown as a reduction of stockholders' equity. At December 31, 1999, the Company had 444,979 unearned ESOP shares with a fair value of $4,339,000. Shares are released to participants proportionately as the loan is repaid. Dividends on allocated shares are recorded as dividends and charged to retained earnings. Dividends on unallocated shares, which may be distributed to participants, or used to repay the loan are treated as compensation expense. Compensation expense is recorded equal to the fair market value of the stock when contributions, which are determined annually by the Board of Directors of the Company and Bank, are made to the ESOP. Expense under the ESOP for the year ended December 31, 1999 was $199,000. At December 31, 1999, the ESOP had no allocated shares, 444,979 suspense shares and 20,589 committed-to-be released shares.

In connection with the conversion, the Board of Directors approved a Stock Option Plan and a Recognition and Award Plan (RAP). The Plans are subject to stockholders' approval. Under the stock option plan, stock options covering shares representing an aggregate of up to 10% of the common stock issued in the conversion may be granted to directors and executive officers. Restricted stock awards covering up to 4% of the common stock issued in the conversion may be awarded to directors and executiv officers under the RAP.

(22)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Note 19 -- Fair Values of Financial Instruments

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

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

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

Loans--The fair value for loans are estimated using discounted cash flow analyses using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

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

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

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

Securities Sold Under Repurchase Agreements--Securities sold under repurchase agreements are short-term borrowing arrangements. The rates at December 31, 1999, approximate market rates, thus the fair value approximates carrying value.

Federal Home Loan Bank Advances--The fair value of these borrowings are estimated using a discounted cash flow calculation, based on current rates for similar debt for periods comparable to the remaining terms to maturity of these advances.

Note Payable to Pedcor--The fair value of this note is estimated using a
discount calculation based on current rates.

Advances by Borrowers for Taxes and Insurance--The fair value approximates carrying value.

Off-Balance Sheet Commitments--Commitments include commitments to purchase and originate mortgage loans, commitments to sell mortgage loans, and standby letters of credit and are generally of a short-term nature. The fair values of such commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The carrying amount of these investments are reasonable estimates of the fair value of these financial statements.

(23)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

The estimated fair values of the Company's financial instruments are as follows:

                                                                   1999                           1998
                                                       ----------------------------------------------------------
                                                        Carrying        Fair           Carrying        Fair
December 31                                              Amount         Value           Amount          Value
-----------------------------------------------------------------------------------------------------------------
Assets
  Cash and cash equivalents                             $19,983        $19,983          $12,938       $12,938
  Trading account securities                              1,235          1,235
  Securities available for sale                          29,599         29,599           14,208        14,208
  Securities held to maturity                            12,449         12,016           11,004        11,021
  Loans                                                 442,787        433,630          398,146       402,455
  Stock in FHLB                                           5,339          5,339            3,612         3,612
  Interest receivable                                     2,653          2,653            2,187         2,187

Liabilities
  Deposits                                              364,604        365,566          365,999       366,377
  Securities sold under repurchase agreements               840            840
  FHLB Advances                                          72,289         72,304           50,632        50,988
  Note payable--Pedcor                                    1,768            986            1,830           919
  Interest payable                                        2,153          2,153            2,328         2,328
  Advances by borrowers for taxes and insurance           1,289          1,289            1,260         1,260

Note 20 -- Condensed Financial Information (Parent Company Only)

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

                             Condensed Balance Sheet

December 31                                                             1999
--------------------------------------------------------------------------------

Assets
  Short-term noninterest-bearing deposit with subsidiary               $20,470
  Investment in common stock of subsidiary                              74,628
  Deferred income tax                                                    1,393
  Other assets                                                             343
                                                                      ----------

         Total assets                                                  $96,834
                                                                      ==========

Liabilities--other                                                     $   122

Stockholders' Equity                                                    96,712
                                                                      ----------

         Total liabilities and stockholders' equity                    $96,834
                                                                      ==========

(24)

MFS Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)

Condensed Statement of Income

Year Ended December 31                                                                  1999           1998          1997
---------------------------------------------------------------------------------------------------------------------------
Expenses
  Interest expense                                                                    $   40
  Charitable contribution                                                              4,477
                                                                                    ---------------------------------------

Loss before income tax benefit and equity in undistributed income of subsidiary
                                                                                       4,517

Income tax benefit                                                                     1,536
                                                                                    ---------------------------------------

Loss before equity in undistributed income of subsidiary                              (2,981)

Equity in undistributed income of subsidiary                                           3,827          $4,139        $4,135
                                                                                    ---------------------------------------

Net Income                                                                            $  846          $4,139        $4,135
                                                                                    =======================================

Condensed Statement of Cash Flows

Year Ended December 31                                                                  1999           1998          1997
---------------------------------------------------------------------------------------------------------------------------
Operating Activities
  Net income                                                                          $  846          $4,139        $4,135
  Adjustments to reconcile net income to net cash used by operating activities
    Earned ESOP shares                                                                   199
    Charitable contribution of Company's common stock                                  2,238
    Deferred income tax benefit                                                       (1,393)
    Undistributed income of subsidiary                                                (3,827)
    Other                                                                               (221)         (4,139)      (4,135)
                                                                                    ---------------------------------------
         Net cash used by operating activities                                        (2,158)

Investing Activity--capital contribution to subsidiary                               (27,283)

Financing Activity--proceeds from sale of common stock, net of costs                  49,911
                                                                                    ---------------------------------------

Short-Term Interest-Bearing Deposit with Subsidiary at End of Year                   $20,470          $    0       $    0
                                                                                    =======================================

Additional Cash Flow and Supplementary Information
  Common stock issued to ESOP leveraged with an employee loan                        $ 4,656

(25)

                                                                                                 State of
                                                                               Percentage      Incorporation
                                                                                   of               or
             Parent                                Subsidiary                   Ownership      Organization
-----------------------------            ----------------------------          ----------     --------------

MFS Financial, Inc.                      Mutual Federal Savings Bank              100%        United States
Mutual Federal Savings Bank              First M.F.S.B. Corporation               100%           Indiana
Mutual Federal Savings Bank              Third M.F.S.B. Corporation               100%           Indiana


ARTICLE 9
This schedule contains summary financial information extracted from the Consolidated Balance Sheet and the Consolidated Statement of Income filed as part of the annual report on Form 10-K and is qualified in its entirety by reference to such annual report on Form 10-K.
MULTIPLIER: 1,000


PERIOD TYPE 12 MOS
FISCAL YEAR END DEC 31 1999
PERIOD END DEC 31 1999
CASH 19,217
INT BEARING DEPOSITS 766
FED FUNDS SOLD 0
TRADING ASSETS 1,235
INVESTMENTS HELD FOR SALE 29,599
INVESTMENTS CARRYING 12,449
INVESTMENTS MARKET 12,016
LOANS 446,439
ALLOWANCE 3,652
TOTAL ASSETS 544,523
DEPOSITS 364,604
SHORT TERM 840
LIABILITIES OTHER 8,308
LONG TERM 74,057
PREFERRED MANDATORY 0
PREFERRED 0
COMMON 5
OTHER SE 96,654
TOTAL LIABILITIES AND EQUITY 544,523
INTEREST LOAN 32,739
INTEREST INVEST 1,845
INTEREST OTHER 227
INTEREST TOTAL 34,811
INTEREST DEPOSIT 15,854
INTEREST EXPENSE 19,242
INTEREST INCOME NET 15,569
LOAN LOSSES 760
SECURITIES GAINS 32
EXPENSE OTHER 16,677
INCOME PRETAX 984
INCOME PRE EXTRAORDINARY 846
EXTRAORDINARY 0
CHANGES 0
NET INCOME 846
EPS BASIC 0
EPS DILUTED 0
YIELD ACTUAL 3.41
LOANS NON 753
LOANS PAST 28
LOANS TROUBLED 0
LOANS PROBLEM 1,300
ALLOWANCE OPEN 3,424
CHARGE OFFS 651
RECOVERIES 119
ALLOWANCE CLOSE 3,652
ALLOWANCE DOMESTIC 3,652
ALLOWANCE FOREIGN 0
ALLOWANCE UNALLOCATED 335