Notes to Consolidated Financial Statements
for the Three Years in the Period Ended June 30, 1999

3. LOANS RECEIVABLE

The Bank originates both adjustable and fixed rate loans. The adjustable rate loans have interest rate adjustment limitations and are generally indexed to various indices. Adjustable residential mortgages are indexed to the one year Treasury constant maturity rate; adjustable consumer loans are generally indexed to the prime rate; adjustable commercial loans are generally indexed to either the prime rate or the one, three, or five year Treasury constant maturity rate. Future market factors may affect the correlation of the interest rates the Bank pays on the short-term deposits that have been primarily utilized to fund these loans.

The principal balance of loans on nonaccrual status totaled approximately $3.5 million and $4.0 million at June 30, 1999 and 1998, respectively. The Bank would have recorded interest income of $453,000 in 1999, $325,000 in 1998 and $274,000 in 1997, if loans on non-accrual status had been current in accordance with their original terms. Actual interest received was $233,000, $250,000 and $266,000 for fiscal years 1999, 1998 and 1997, respectively. The Bank agreed to modify the terms of certain loans to customers who were experiencing financial difficulties. Modifications included forgiveness of interest, reduced interest rates and/or extensions of the loan term. The principal balance at June 30, 1999 and 1998, on these restructured loans was immaterial each year.

The Bank's primary lending area is south-central Indiana. Virtually all of the Bank's loans originated and purchased are to borrowers located within the state of Indiana. The Bank originates and purchases commercial real estate loans, which totaled $107.9 million and $97.5 million at June 30, 1999 and 1998, respectively. These loans are considered by management to be of somewhat greater risk of uncollectibility due to the dependency on income production or future development of the real estate. Of the commercial real estate loans, $30.4 million and $14.5 million were collateralized by multi-family residential property at June 30, 1999 and 1998, respectively.

As a federally chartered savings bank, aggregate commercial real estate loans may not exceed 400% of capital as determined under the capital standards provisions of FIRREA. This limitation was approximately $281.2 million and $257.1 million at June 30, 1999 and 1998, respectively. Also, under FIRREA, the loans-to-one-borrower limitation is generally 15% of unimpaired capital and surplus, which, for the Bank, was approximately $10.9 million and $9.4 million at June 30, 1999 and 1998, respectively. As of June 30, 1999 and 1998, the Bank was in compliance with these limitations.

Aggregate loans to officers and directors included above were $6.4 million and $5.8 million as of June 30, 1999 and 1998, respectively. Such loans are made in the ordinary course of business and are made on substantially the same terms as those prevailing at the time for comparable transactions with other borrowers. For the year ended June 30, 1999, loans of $3.0 million were disbursed to officers and directors and repayments of $2.4 million were received from officers and directors.

An analysis of the allowance for loan losses is as follows: (in thousands)

The following is a summary of information pertaining to impaired loans: (in thousands)