[FRONT COVER]








                                  HOME FEDERAL
                                    BANCORP
                               1996 Annual Report
                                 [Company Logo]
                             Building Relationships


<PAGE>

                                  HOME FEDERAL
                                    BANCORP
                                 [Company Logo]




"Out  mission is to develop and  strengthen  mutually  profitable  consumer  and
commercial   customer   relatinships   through   a   motivated,   knowledgeable,
service-oriented  staff  sensitive to the changing  needs to the  customers  and
markets we serve.

"We will meet customer needs by selling quality financial  products and services
delivered in a highly  convenient and efficient  manner,  serve as a resourceful
corporate  citizen,  and operate in a fiscally  prudent  manner by  providing an
equitable return to our employees and shareholders."









<PAGE>

Financial Highlights

Net Interest Margin
[Bar Graph omitted]

Net interest  income as a percentage of average  earning  assets.  We are please
with the  increase  depicted on the graph and feel that it reflects the on-going
diversification of Home Federal's loan portfolio.

                              FY92      3.03%
                              FY94      3.39%
                              FY94      3.36%
                              FY95      3.52%
                              FY96      3.58%

Stock Price
[Bar Graph omitted]

Price for one share of Home Federal Bancorp stock at close on June 30, 1996.

                              FY92      $ 9.889
                              FY94      $19.667
                              FY94      $19.500
                              FY95      $23.500
                              FY96      $26.000

Net Interest Income after Provision for Loan Losses
[Bar Graph omitted]

Net  interest  income as adjusted for changes in the Bank's  provision  for loan
losses. The fiscal 1995 figure reflects a $721,000 loan los recovery credited to
the 1995 provision.  The insurance recovery responsible for the credit was a one
time event.

                              FY92      $13,278
                              FY94      $15,918
                              FY94      $16,245
                              FY95      $19,038
                              FY96      $19,267


Letter to Shareholders......................................................  2

Selected Consolidated Financial Data........................................  5

Quarterly Results of Operations.............................................  6

Management's Discussion and Analysis of Results 
     of Operations and Financial Condition..................................  7

Consolidated Balance Sheets................................................. 14

Consolidated Statements of Income........................................... 15

Consolidated Statements of Stockholders' Equity............................. 16

Consolidated Statements of Cash Flows....................................... 17

Notes to Consolidated Financial Statements.................................. 18

Independent Auditors' Report................................................ 32

Board of Directors of Home Federal Bancorp and
     Executive Officers of Home Federal Savings Bank........................ 33

<PAGE>
  
To Our Shareholders

     Throughout its 1996 fiscal year, Home Federal  maintained a leadership role
in assisting in the development of the economy of south-central  Indiana.  As in
each of its 86 preceding years of service to the region,  it was another year in
which Home Federal enhanced its longstanding  reputation for progressive product
development and outstanding customer service.

     As we depict in these pages, our  institution's  long record of achievement
has been made possible by the strength of the  relationships we have established
with   generation   after   generation   of  Home   Federal's   stakeholders-its
shareholders,  its customers and its  employees.  During the past twelve months,
our efforts to broaden and  strengthen  those  relationships  were rewarded with
another year of strong  financial  performance.  For the 1996 fiscal year,  Home
Federal  reported net income of  $7,352,000  or $3.22 per share,  an increase of
12.5 percent from fiscal year 199S. Our record  earnings  contributed to a 15.14
percent return on equity which exceeds industry averages.

     Real estate lending, our core business,  was bolstered by a strong regional
economy and low local unemployment rates.  Although rising interest rates slowed
mortgage origina- tion rates this spring,  nonperforming loans and delinquencies
remained level, reflecting the strength of the economy. A committed sales staff,
offering a diverse  product  mix,  helped  produce a 34 percent  increase in new
purchase  and  construction  loans  as well as  ongoing  growth  in  refinancing
activities.  Throughout  the year,  Home Federal  maintained a strong 25 percent
share of the real estate market in its eight-county service area.

     We also increased  interest income through  commercial and consumer lending
programs.  Commercial and commer- cial real estate originations  increased by 36
percent  during the year,  and we believe our  activities in this market segment
will  continue to attract new  customers  who can benefit from a variety of Home
Federal products and services.

     During fiscal 1996 we also  generated  non-interest  in come through Linsco
Private Ledger,  our brokerage  ivision,  which posted a 147 percent increase in
annuity and brokerage  conunissions.  Total fee income for all services produced
growth in  non-interest  income of 57.2 percent over the previous fiscal year, a
strong indication of our success in attracting new customers to Home Federal for
non-traditional financial products and services. 

[Photo of Lawrence E. Welker omitted Left Column with heading above: BUILDING]

LAWRENCE E. WELKER
Executive Vice President, Chief Financial Officer
Treasurer & Secretary

[CONTINUING DOWN LEFT COLUMN]  Inverstor  Relationships As in previous years, we
dedicated  ourselves in fiscal 1996 to maintaining  developing our relationships
with Home Federal's investors.  We continue to be sensitive to the importance of
enhancing  shareholder value. Our tow objective were -- and still are -- growing
earnings  and  continuing  our efforts to increase  the  investment  community's
awareness of the success Home Federal has enjoyed in recent years.

<PAGE>
[box in upper left hand corner of page:  Building  Customer Relationships]

[Photos of C.Scott Ballard,  Mary D. Dystrad,  David A. Coffey,  Kim L.Misamore,
Christopher Ertel, Ruth M. Moeller,  William J. Kalb, Patricia J. Hampton, Terry
L. Darlage,  Mary Sue Thompson,  Albert L.  Thormyer,  Jennifer A. Morgan and J.
Andrew Applewhite at top margin and right margin.]

     We anticipate  another strong year in 1997 for both mortgage and commercial
lending,  and-through timely adjustments to our product mix--continued growth in
our balance sheet.  We will continue to utilize Federal Home Loan Bank resources
to help fund Home Federal's  growth.  We also plan to develop  additional retail
deposit  products,  such as our  recently-introduced  Easy Advantage  Money Fund
account, to help fund future growth.

     As in past years,  we will continue to enhance our  products,  services and
facilities to meet the ever-changing  needs of our customers.  Early in the 1997
fiscal  year,  for example,  we will open an  attractive  new banking  center in
Salem,  Indiana,  which-in  addition  to  being  larger  than  the  facility  it
replaces-will  also introduce  additional Home Federal  products and services in
that important market.

     Ours  is  a  business  of  many  variables-new  and  traditional  products,
fluctuating interest rates, rising or failing employment statistics, a strong or
weak housing market.  However,  no matter how  encouraging or  discouraging  the
economic  news may be during a given  year,  our  responsibility  is to help our
shareholders,  our  customers  and our  employees  continually  find  value  and
financial rewards through the products and services we offer.

     Over the years,  Home  Federal's  success,  in both good times and bad, has
been  inseparably   linked  to  its  ability  to  develop  and  maintain  strong
relationships  with all stakeholders,  including our employees,  customers,  and
shareholders.  Today, our success remains dependent on our ability to understand
their evolving needs and their concerns for the future.

     Throughout  fiscal 1996, we worked diligently to strengffien each of ffiose
relationships. Our efforts to increase shareholder value are detailed throughout
the pages of this  annual  report.  Our recent  focus on internal  training  and
ongoing  investments  in new  technology  symbolize our  commitment to providing
rewarding  employment  opportunities  within a  progressive  organization.  And,
through a comprehensive mix of products and services designed to meet both

<PAGE>

long- and  short-term  financial  goals,  we strive to maintain  the  unexcelled
reputation for customer service that has characterized Home Federal's operations
for many  years.  We salute  all Home  Federal  employees  for their  invaluable
contributions to what we've come to call "relationship banking.'

     What form will Home Federal's  relationship  banking take in the months and
years ahead? just as new electronic technology revolutionized banking operations
over the  past  two  decades,  the  evolution  of  today's  technology  may make
once-unimaginable  banking  relationships-including  services completely removed
from a traditional banking center--commonplace in the near future.

[photo of keith El Luken and a  informational  box  titled:  Building  Community
Relationships:  Playing an integral role in the communities in which we live and
work is an honor we feel  fortunate  to accept.  My fellow  employees  and I are
closely involved in our communities through both the professional  relationships
we develop and the countless volunteer activities all of us at Home Federal take
part in every day. Through our diverse interests and efforts, we all play a part
in the distribution of the Bank's finanacial, and human resources.]

     But,  no matter  what  form Home  Federal's  stakeholder  relationhips  may
assume, we know they will share two common characteristics: the most progressive
products and services available in the modem-day financial services marketplace,
balanced with an equal measure of  old-fashioned  customer service that promises
never to go out of style.

     We look forward to watching those future relationships  develop, just as we
have enjoyed watching Home Federal's past  relationships  create sound financial
futures  for our  customers  and a stronger  economy  for the  region  they- and
we-call home.



Sincerely,




/s/ John K. Keach, Sr.                 /s/ John K. Keach, Jr.
John K. Keach, Sr.                     John K. Keach, Jr.
Chairman of the Board                  President and
                                       Chief Executive Officer

<PAGE>

                Summary of Selected Consolidated Financial Data
                      (in thousands except per share data)


<TABLE>
<CAPTION>
                                                              At or For the Year Ended June 30,
                                                 -----------------------------------------------------------
                                                    1996        1995         1994        1993         1992
                                                 -----------------------------------------------------------
Selected Balance Sheet Data:
<S>                                              <C>         <C>          <C>         <C>          <C>      
Total assets                                     $ 630,015   $ 588,543    $ 545,228   $ 534,390    $ 505,136
Securities available for sale                    $  44,651   $  34,221    $  38,986   $   7,489    $   6,600
Securities held to maturity                      $   6,990   $  17,451    $  17,225   $  76,727    $  72,682
Loans receivable, net                            $ 520,097   $ 469,883    $ 445,903   $ 399,980    $ 363,959
Deposits                                         $ 489,573   $ 467,086    $ 445,987   $ 445,478    $ 432,659
Total borrowings                                 $  84,137   $  72,900    $  57,418   $  52,900    $  43,047
Shareholders' equity                             $  51,517   $  45,279    $  38,589   $  32,523    $  26,504

Selected Operations Data:
Total interest income                            $  47,156   $  43,013    $  38,059   $  40,174    $  44,610
Total interest expense                              27,251      24,289       21,323      23,842       30,286
------------------------------------------------------------------------------------------------------------
Net interest income                                 19,905      18,724       16,736      16,332       14,324
Provision (credit) for loan losses                     638        (314)         491         414        1,046
------------------------------------------------------------------------------------------------------------
Net interest income after provision
     for loan losses                                19,267      19,038       16,245      15,918       13,278
Gain on sale of loans                                1,321         667        2,072       2,152        1,110
Gain (loss) on sale of securities                        1        (437)         905         387          350
Other income                                         6,126       4,508        4,371       4,055        3,522
Other expense                                       14,431      13,483       12,534      12,078       11,219
------------------------------------------------------------------------------------------------------------
Income before income taxes,
     extraordinary item and cumulative effect
     of change in accounting principle              12,284      10,293       11,059      10,434        7,041
Income tax provision                                 4,932       3,757        4,069       3,691        3,006
------------------------------------------------------------------------------------------------------------
Income before extraordinary item and
     cumulative effect of change in
     accounting principle                            7,352       6,536        6,990       6,743        4,035
Extraordinary item (1)                                  --          --           --      (1,222)          --
Cumulative effect of change in
     accounting principle (2)                           --          --           --         849           --
------------------------------------------------------------------------------------------------------------
Net income                                       $   7,352   $   6,536    $   6,990   $   6,370    $   4,035
============================================================================================================
Net income per common and
 equivalent share                                $    3.22   $     2.9    $    3.14   $    2.88    $     1.9
Cash dividends per share                         $    0.45   $   0.375    $     0.3   $    0.25    $     0.2

Selected Financial and Statistical Data:
Return on average assets                              1.23%       1.15%        1.31%       1.23%        0.79%
Return on average shareholders' equity               15.14%      15.66%       19.29%      21.03%       16.39%
Interest rate spread during the period                3.53%       3.39%        3.29%       3.36%        3.07%
Net interest margin on average earning assets         3.58%       3.52%        3.36%       3.39%        3.03%
Average shareholders' equity to average assets        8.12%       7.37%        6.78%       5.86%        4.85%
Nonperforming assets to total assets                  0.48%       0.45%        0.50%       0.82%        1.19%
Loss allowance to nonperforming loans               103.38%     107.35%      112.91%      68.04%       48.27%
Loss allowance to total loans                         0.58%       0.58%        0.57%       0.55%        0.57%
Dividend payout ratio                                13.59%      12.64%        9.27%       5.55%        7.00%
Loan servicing portfolio                         $ 266,814   $ 224,690    $ 196,522   $ 163,319    $ 139,282
Allowance for loan losses                        $   3,061   $   2,806    $   2,580   $   2,257    $   2,123
Number of full service offices                          15          15           13          13           13
</TABLE>

------------------
(1)  Prepayment penalty for extinguishment of debt.
(2)  Change in accounting for income taxes.

<PAGE>

                        Quarterly Results of Operations

The following table presents certain selected unaudited data relating to results
of operations for the three month periods ending on the dates indicated.

<TABLE>
<CAPTION>

                                                                     Three Months Ended
                                              --------------------------------------------------------------
                                              September 30,     December 31       March 31,        June 30,
Fiscal Year 1996                                 1995             1995              1996             1996
                                              --------------------------------------------------------------
<S>                                            <C>              <C>              <C>               <C>     
Total interest income                          $ 11,624         $ 11,781         $ 11,814          $ 11,937
Total interest expense                            6,890            6,877            6,718             6,766
------------------------------------------------------------------------------------------------------------
Net interest income                               4,734            4,904            5,096             5,171
Provision for loan losses                            67              182              154               235
------------------------------------------------------------------------------------------------------------
Net interest income after                                                                        
  provision for loan losses                       4,667            4,722            4,942             4,936
Gain on sale of loans                               422              345              401               153
Other income                                      1,455            1,400            1,391             1,881
Other expense                                     3,595            3,329            3,610             3,897
------------------------------------------------------------------------------------------------------------
Income before income taxes                        2,949            3,138            3,124             3,073
Income tax provision                              1,156            1,234            1,244             1,298
------------------------------------------------------------------------------------------------------------
Net Income                                     $  1,793         $  1,904         $  1,880          $  1,775
============================================================================================================
Earnings per common and                                                                          
 equivalent share                              $   0.79         $   0.83         $   0.82          $   0.78
============================================================================================================
Dividends per share                            $    0.1         $    0.1         $   0.125         $  0.125
Stock sales price range:  High (1)             $     25         $  27.25         $   27.00         $  27.25
                          Low                  $  22.25         $   23.5         $   24.5          $   24.5

</TABLE>

                                     
<TABLE>
<CAPTION>
                                                                                                 
                                                                     Three Months Ended   
                                              --------------------------------------------------------------
                                              September 30,    December 31        March 31,         June 30,
Fiscal Year 1995                                   1994            1994             1995              1995
                                              --------------------------------------------------------------
<S>                                              <C>            <C>              <C>               <C>     
Total interest income                            $10214         $ 10,633         $ 10,977          $ 11,189
Total interest expense                            5,587            5,977            6,241             6,484
------------------------------------------------------------------------------------------------------------
Net interest income                               4,627            4,656            4,736             4,705
Provision (credit) for loan losses                   69              107             (599)              109
------------------------------------------------------------------------------------------------------------
Net interest income after                                                                        
  provision for loan losses                       4,558            4,549            5,335             4,596
Gain on sale of loans                               155              183               96               233
Other income                                      1,032            1,085              542             1,412
Other expense                                     3,166            2,978            3,464             3,875
------------------------------------------------------------------------------------------------------------
Income before income taxes                        2,579            2,839            2,509             2,366
Income tax provision                                984            1,003              898               872
------------------------------------------------------------------------------------------------------------
Net Income                                     $  1,595         $  1,836         $  1,611          $  1,494
============================================================================================================
Earnings per common and                                                                          
 equivalent share                              $   0.71         $   0.81         $   0.72          $   0.66
============================================================================================================
Dividends per share                            $  0.075         $    0.10         $    0.10          $ 0.10
Stock sales price range:  High (1)             $  29.00         $   27.00         $   25.50          $23.50
                          Low                  $  18.75         $   21.00         $   21.50          $20.00
</TABLE>
                                                       
-----------------                                            
(1)    The  Company's  common  stock trades on the NASDAQ stock market under the
       symbol  "HOMF".  As of August 30 , 1996,  the  Company had 595 holders of
       record of its shares.

<PAGE>

          Management's Discussion and Analysis of Financial Condition
                            and Results of Operations


The following  financial  review presents an analysis of the asset and liability
structure of Home Federal  Bancorp and a discussion of the results of operations
for each of the periods  presented in the annual  report as well as a discussion
of Home Federal Bancorp's sources of liquidity and capital resources.

Holding Company Business

Home Federal  Bancorp (the "Company") is organized as a unitary savings and loan
holding  company  and owns all the  outstanding  capital  stock of Home  Federal
Savings Bank (the "Bank"). The business of the Bank and therefore,  the Company,
is providing  consumer and business  banking  services to certain markets in the
south-central  portions of the State of Indiana.  The Bank does business through
15 full service banking branches and one loan production office.


General

The Bank's  earnings in recent years reflect the  fundamental  changes that have
occurred in the  regulatory,  economic,  and  competitive  environment  in which
savings  institutions  operate. The Bank's earnings are primarily dependent upon
its net interest  income.  Interest income is a function of the average balances
of loans and  investments  outstanding  during a given  period  and the  average
yields earned on such loans and  investments.  Interest expense is a function of
the average amount of deposits and borrowings outstanding during the same period
and the average rates paid on such deposits and borrowings.  Net interest income
is the difference between interest income and interest expense.

The  Bank  is  subject   to   interest   rate  risk  to  the  degree   that  its
interest-bearing liabilities,  primarily deposits and borrowings with short- and
medium-term maturities, mature or reprice more rapidly, or on a different basis,
than its  interest-earning  assets.  While  having  liabilities  that  mature or
reprice more  frequently  on average than assets will be  beneficial in times of
declining interest rates, such an asset/liability structure will result in lower
net income or net losses during periods of rising interest rates,  unless offset
by other  factors  such as  non-interest  income.  The Bank's net income is also
affected by such factors as fee income and gains or losses on sales of loans.

The Bank's net interest income after provision for loan losses has  consistently
improved from $13.3 million in fiscal 1992 to $19.3 million in fiscal 1996.  The
significant  increase  in net  interest  income is  primarily  the result of the
generally lower interest rate  environment  and an increase of  interest-earning
assets over interest-bearing liabilities.

<PAGE>

Asset/Liability Management

The Bank follows a program  designed to decrease its  vulnerability  to material
and prolonged  increases in interest  rates.  This strategy  includes 1) selling
certain  longer term,  fixed-rate  loans from its  portfolio;  2) increasing the
origination of  adjustable-rate  mortgage  loans; 3) improving its interest rate
gap by increasing the interest rate sensitivity and shortening the maturities of
its interest-earning assets and extending the maturities of its interest-bearing
liabilities; and 4) increasing its non-interest income.

A significant  part of the Bank's program of asset and liability  management has
been  the  increased  emphasis  on the  origination  of  adjustable-rate  and/or
short-term  loans,  which  include  adjustable-rate  residential  mortgages  and
construction  loans,  commercial  loans,  and  consumer-related  loans. The Bank
continues to offer fixed-rate  residential  mortgage loans. The Bank retains the
servicing  function  on  most  of the  30-year  loans  sold  thereby  increasing
non-interest  income.  The  proceeds of these loan sales are used to reinvest in
other interest-sensitive assets or used to repay short-term debt.


Liability Related Activities

The Bank has  taken  several  steps to  stabilize  interest  costs and match the
maturities of liabilities to assets.  In an effort to lengthen the maturities of
its savings deposits,  the Bank has, in the past,  aggressively  priced deposits
with  maturities  of three  years or greater in order to lengthen  the  weighted
average maturity of the entire savings portfolio.  However, when rates rise, the
Bank becomes less  aggressive in locking in higher rate  instruments  for longer
terms. When deposit funds have become unavailable due to increased  competition,
the Bank employs  Federal Home Loan Bank of  Indianapolis  ("FHLB")  advances to
maintain the necessary liquidity to fund lending operations.

The Bank has  endeavored to spread its  maturities of FHLB advances over a seven
year period so that only a limited  amount of advances come due each year.  This
avoids a  concentration  of maturities in any one year and thus reduces the risk
of having to renew all advances when rates may not be favorable.

The Bank  applies  early  withdrawal  penalties to protect the maturity and cost
structure of its deposits and utilizes  longer term  fixed-rate  borrowings when
the cost and availability  permit the proceeds of such borrowings to be invested
profitably.

As a result of its asset restructuring  efforts, the Bank has foregone, and will
likely forego in the future,  certain  opportunities  for improving  income on a
short-term  basis in exchange for a reduction in long-term  interest  rate risk.
For   instance,   the  Bank's   increased   emphasis  on  the   origination   of
adjustable-rate  mortgages may cause it to sacrifice the initially  higher rates
of  interest  available  to  lenders  on  fixed-rate  loans.  Similarly,  market
conditions  usually have dictated that financial  institutions pay substantially
higher interest rates on long-term deposits than on short-term  deposits.  Also,
the Bank has elected to keep its liquidity in excess of regulatory  requirements
in order to  maintain a  short-term  portfolio  better able to react to interest
rate volatility.


<PAGE>


The  following   table  sets  forth  the   repricing   dates  of  the  Company's
interest-earning  assets and interest-bearing  liabilities at June 30, 1996. The
interest-sensitivity  "gap"  is  defined  as the  amount  by  which  liabilities
repricing  within the  respective  period  exceed assets  repricing  within such
period.  The annual prepayment  assumptions used in this table range from 20% to
25% for fixed-rate mortgage loans and mortgage-backed  securities; 7% to 27% for
adjustable-rate mortgage loans; and 0% to 60% for commercial and consumer loans,
depending on their maturity and yield. For deposit accounts, it has been assumed
that fixed  maturity  deposits are not  withdrawn  prior to maturity,  and other
deposits will suffer attrition at rates shown as follows:

<TABLE>
<CAPTION>
                                          6 Months    6-12        1-3       3-5      Over 5
                                          or Less    Months     Years      Years     Years
                                         --------------------------------------------------
<S>                                       <C>          <C>        <C>       <C>        <C> 
Passbook, Money Market accounts           100.00%      0.00%      0.00%     0.00%      0.00%
Public Fund Money Market accounts          54.18%     24.82%     11.00%     5.24%      4.76%
NOW accounts                               20.61%     16.37%     33.87%     9.06%     20.09%
Non-interest bearing NOW accounts          44.55%     19.47%     17.61%     9.15%      9.22%
</TABLE>


The prepayment and attrition  rates are selected after  considering  the current
interest rate  environment,  industry asset and liability price tables developed
by the OTS and the Company's historical  experience.  All other interest-earning
assets and  interest-bearing  liabilities  are shown based on their  contractual
maturity or repricing date.

<TABLE>
<CAPTION>

                                                     Maturity or Repricing as of June 30, 1996
                                   --------------------------------------------------------------------------
                                    6 Months      6-12          1-3          3-5         Over 5
                                    or Less       Months        Years        Years       Years         Total
                                   --------------------------------------------------------------------------
Interest-earning assets:
Loans:
<S>                                <C>          <C>          <C>          <C>          <C>          <C>      
  Adjustable rate                  $ 120,268    $  21,746    $  24,590    $  25,986    $   3,845    $ 196,435
  Fixed rate                          15,293       15,112       36,480       19,111       17,439      103,435
  Commercial real estate              34,983       13,872       20,350        8,135        2,884       80,224
  Non-mortgage                        89,242       16,353       27,494        6,935        5,843      145,867
Securities and other                  16,170        9,834       14,661       10,905       11,726       63,296
--------------------------------------------------------------------------------------------------------------
   Total                             275,956       76,917      123,575       71,072       41,737      58,9257
--------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Fixed maturity deposits              148,033       74,586       75,142       22,260       14,521      334,542
Other deposits                       105,447       12,634       19,467        6,279       11,204      155,031
FHLB Advances                         19,500        6,500       31,400       10,700        2,600       70,700
Other borrowings                       4,987          650         7800           --           --        13437
--------------------------------------------------------------------------------------------------------------
   Total                             277,967       94,370      133,809       39,239       28,325      573,710
--------------------------------------------------------------------------------------------------------------

Interest-earning assets less
 interest-bearing liabilities$        (2,011)   $(17,453)    $ (10,234)   $  31,833    $  13,412
================================================================================================
Cumulative interest-rate
 sensitivity gap                   $  (2,011)   $ (19,464)   $ (29,698)   $   2,135    $  15,547
================================================================================================
Cumulative interest-rate gap
 as a percentage of total assets       -0.32%       -3.09%       -4.71%        0.34%        2.47%
================================================================================================
</TABLE>

<PAGE>

Interest Rate Spread

The   following   table   sets   forth   information   concerning   the   Bank's
interest-earning  assets,  interest-bearing  liabilities,  net interest  income,
interest-rate  spreads and net yield on average  interest-earning  assets during
the  periods  indicated  (including  fees which are  considered  adjustments  of
yields). Average balance calculations were based on daily and monthly balances.

<TABLE>
<CAPTION>


                                                                       Years Ended June 30,
                               ----------------------------------------------------------------------------------------------------
                                         1996                                 1995                              1994        
                               ----------------------------------  -----------------------------  ---------------------------------
                                 Average               Average      Average           Average     Average                 Average
                                 Balance    Interest   Yield/Rate   Balance Interest  Yield/Rate  Balance     Interest   Yield/Rate
                               ----------------------------------------------------------------------------------------------------
Interest-earning assets:                                                                         
<S>                             <C>         <C>         <C>        <C>       <C>         <C>      <C>         <C>           <C>  
 Mortgage loans                 $404,268    $345,210    8.54%      $390,986  $31,682     8.10%    $365,563    $ 28,229      7.72%
 Commercial loans                 32,044      29,990    9.63%        24,489    2,382     9.73%      18,072       1,565      8.66%
 Consumer loans                   60,224      57,790    9.60%        53,293    5,167     9.70%      41,006       4,121      0.05%
 Securities                       51,332      32,720    6.37%        53,502    3,443     6.44%      65,043       3,900      6.00%
 Interest-bearing deposits        11,786       5,850    4.96%         7,365      339     4.60%       8,546         244      2.86%
-----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning                                                                           
  assets (1)                    $559,654    $471,560    8.43%      $529,635  $43,013     8.12%    $498,230    $ 38,059      7.64%
-----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:                                                                    
-----------------------------------------------------------------------------------------------------------------------------------
 Deposits -                                                                                      
   Transaction accounts         $148,065    $  3,393    2.29%      $145,420  $ 3,345     2.30%    $134,092    $  3,069      2.29%
   Certificate accounts           322,38     619,103    5.93%       310,212   16,722     5.39%     308,498      14,754      4.78%
 FHLB Advances                    60,188      38,550    6.40%        51,263    3,211     6.26%      35,345       2,334      6.60%
 Other borrowings                 11,625         900    7.74%        11,223    1,011     9.01%      12,540       1,166      9.30%
-----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing                                                                           
  liabilities                   $542,264    $ 27,251    5.03%      $518,118  $24,289     4.69%    $490,475    $ 21,323      4.35%
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                 
Net interest income                         $ 19,905                        $ 18,724                          $ 16,736
-----------------------------------------------------------------------------------------------------------------------------------
Net interest rate spread                                3.40                             3.43%                              3.29%
-----------------------------------------------------------------------------------------------------------------------------------
Net earning assets              $ 17,390                           $ 11,517                                   $  7,755
-----------------------------------------------------------------------------------------------------------------------------------
Net interest margin (2)                                 3.56%                            3.54%                               3.36%
Average interest-earning                                                                         
 assets to average interest-                                                                     
 bearing liabilities              103.21%                            102.22%                        101.58%
====================================================================================================================================
</TABLE>
                                          
(1)  Average  balances are net of  non-performing  loans,  and  interest  income
     includes loan fee  amortization of $217,000,  $100,000 and $296,000 for the
     years ended June 30, 1996, 1995 and 1994, respectively.

(2)  Net  interest  income  divided by the average  balance of  interest-earning
     assets.


Rate/Volume Analysis
The  following  table sets forth the changes in the Bank's  interest  income and
interest  expense  resulting  from changes in interest  rates and changes in the
volume of interest-earning assets and interest-bearing liabilities.  Changes not
solely  attributable to volume or rate changes have been allocated in proportion
to the changes due to volume or rate.

<TABLE>
<CAPTION>


                                                                 Years Ended June 30,
                                        ------------------------------------------------------------------
                                              1996 vs. 1995                          1995 vs. 1994
                                             Increase/Decrease                     Increase/Decrease
                                        -----------------------------         ----------------------------
                                         Due to    Due to       Total          Due to   Due to      Total
                                         Rate       Volume     Change           Rate    Volume      Change
                                        ------------------------------------------------------------------
Interest income on                                                          
<S>                                      <C>        <C>        <C>              <C>       <C>        <C>  
interest-earning assets:                 
 Mortgage loans                          1,740      1,099      2,839            1,439     2,020      3,453  
 Commercial loans                          (86)       703        617              211       606        817
 Consumer loans                            (52)       664        612             (139)    1,185      1,046
Securities                                 (33)      (138)      (171)             322      (779)      (457)
 Interest-bearing deposits                  29        217        246              123       (28)        95
-----------------------------------------------------------------------------------------------------------                   
         Total                           1,598      2,545      4,143            1,950     3,004      4,954
-----------------------------------------------------------------------------------------------------------     
Interest expense on
interest-bearing liabilities:
     Deposits - Transaction accounts        (13)       61         48               15       261        276
     Certificate accounts                1,706        675      2,381            1,886        82      1,968
 FHLB Advances                              73        571        644             (113)      990        877
 Other borrowings                         (149)        38       (111)             (35)     (155)
-----------------------------------------------------------------------------------------------------------      
         Total                           1,617      1,345      2,962            1,753     1,213      2,966
-----------------------------------------------------------------------------------------------------------
Net change in net interest income      $   (19)   $ 1,200    $ 1,181          $   197   $ 1,791    $ 1,988
===========================================================================================================
</TABLE>                                                              

RESULTS OF OPERATIONS

Comparison of Year Ended June 30, 1996 and Year Ended June 30, 1995:
General The Company  reported net income of $7.4 million for the year ended June
30, 1996, compared to $6.5 million for the year ended June 30, 1995, an increase
of  $816,000,  or 12.5%.  The  increase  was due to a $2.7  million  increase in
non-interest  income and a $229,000  increase in net interest  income after loan
loss provision which was partially offset by a $948,000 increase in non-interest
expense and a $1.2 million increase in income taxes.

Net  Interest  Income Net  interest  income  before  provision  for loan  losses
increased  $1.2 million,  or 6.3% for the year ended June 30, 1996,  compared to
the prior year. This increase was the result of assets growing $41.5 million, or
7.0%, while interest margins remained  comparable to a year ago. This growth, as
well as a gain in interest-sensitive assets to liabilities,  caused net interest
income to increase over the prior year.

Net interest  income after provision for loan losses  increased by $229,000,  or
1.2% over that of the prior  year,  to $19.3  million  even though the loan loss
provision in fiscal 1996 was $952,000  higher than the provision in fiscal 1995.
The increase in the loan loss  provision in 1996  compared to 1995 was primarily
attributed to a $721,000 loan loss recovery credited to the 1995 provision.  The
Company received  insurance  payments of $821,000 from insurance  policies which
had been  assigned  to the Company  for loans  written off in prior  periods and
accordingly  were treated as loan loss  recoveries.  After  consideration of the
insurance  proceeds,  the Company  credited  the  provision  for loan losses for
$721,000.  The  insurance  recovery  was a one time event that will not recur in
future periods.  In each period, the provision and allowance for loan losses are
based on a analysis of individual  credits,  prior and current loss  experience,
overall growth in the portfolio and current economic conditions.  The balance of
the allowance for loan losses was $3.1 million at June 30, 1996.

Interest  Income The Company's total interest income for the year ended June 30,
1996  increased  $4.1  million,  or 9.6%, as compared to the year ended June 30,
1995.  Interest  income  increased  primarily due to growth in  commercial  real
estate loans,  second  mortgages,  home equity loans and commercial  loans. This
growth was  attributed  to a  relatively  strong  local  economy  and  increased
emphasis on the part of the Company to expand its market  share of  non-mortgage
loan products.

Interest  Expense  Total  interest  expense  for the year  ended  June 30,  1996
increased $3.0 million,  or 12.2%,  as compared to the year ended June 30, 1995.
Increased  deposit  and  borrowing  balances  as well as higher  interest  rates
accounted for the increase in total interest expense.

Other Income Total other income  increased $2.7 million,  or 57.2%, for the year
ended June 30, 1996 as compared to the year ended June 30, 1995.  This  increase
was due in part to  increases  in gains on loan sales over the prior fiscal year
due to increased loan activity earlier in the current year compared to the prior
year.  In  addition,  the  increases  in gains  on  security  sales  were due to
restructuring  losses  taken in fiscal year 1995 and no gains or losses taken in
fiscal 1996. Joint venture income,  fee income,  and miscellaneous  other income
all showed  improvement  in fiscal  1996.  Included in the  miscellaneous  other
income was a $387,000 interest payment due the Company from The Internal Revenue
Service for amended tax returns for prior periods.  The after-tax  impact of the
amended tax returns to net income was $0.06 per share.  Fee income increased due
to increased  activity in the Linsco  Private  Ledger  brokerage area as well as
growth in checking account income.

<PAGE>

Other Expenses Total other expenses  increased  $948,000,  or 7.0%, for the year
ended June 30, 1996 as compared  to the year ended June,  30 1995.  Compensation
and employee  benefits  increased $1.1 million,  or 16.4%,  due to normal salary
increases as well as higher commission  payments due to the improved activity in
the loan and brokerage  areas.  Health insurance costs increased by $190,000 due
to higher  experience  costs.  Increases in occupancy and equipment  expense and
service  bureau  expense  were due to the  opening of a new branch in  Columbus,
Indiana.  The data communication  system of the Company and its check processing
system were replaced  with upgraded  systems in the third quarter of fiscal year
1995. The higher costs resulted in an increase in occupancy and equipment in the
year ended June 30, 1996.

Comparison of Year Ended June 30, 1995 and Year Ended June 30, 1994:

General The Company  reported net income of $6.5 million for the year ended June
30, 1995,  compared to $7.0 million for the year ended June 30, 1994, a decrease
of $454,000,  or 6.5%. The decrease was due to a $2.6 million  decrease in other
income and a $949,000 increase in other expenses which was partially offset by a
$2.8 million increase in net interest income after provision for loan losses and
a $312,000 decrease in income taxes.

Net  Interest  Income 

Net  interest  income  before  provision  for loan  losses
increased $2.0 million,  or 11.9% for the year ended June 30, 1995,  compared to
fiscal 1994.  This increase was the result of assets growing $43.3  million,  or
7.9%, while interest margins remained comparable to fiscal 1994. This growth, as
well as a gain in interest sensitive assets to liabilities,  caused net interest
income to increase over fiscal 1994.


<PAGE>

Net interest income after  provision for loan losses  increased by $2.8 million,
or 17.2% over that of fiscal 1994,  to $19.0  million.  The loan loss  provision
decreased by $805,000.  The Company received insurance payments of $821,000 from
insurance  policies which had been assigned to the Company for loans written off
in prior periods and  accordingly  were treated as loan loss  recoveries.  After
consideration of the insurance proceeds,  the Company credited the provision for
loan losses for $721,000.  The insurance recovery was a one time event that will
not recur in future  periods.  In each period,  the  provision and allowance for
loan losses are based on an analysis of  individual  credits,  prior and current
loss   experience,   overall  growth  in  the  portfolio  and  current  economic
conditions.  The balance of the  allowance  for loan losses was $2.8  million at
June 30, 1995.

Interest  

Income The  Company's  total  interest  income for the year ended June 30,  1995
increased $5.0 million,  or 13.0%,  as compared to the year ended June 30, 1994.
Rising  rates,   reduced  refinancing   activity  and  net  increases  in  loans
outstanding caused the interest income to increase.

Interest  Expense  

Total interest  expense for the year ended June 30, 1995 increased $3.0 million,
or  13.9%,  as  compared  to the year  ended  June 30,  1994.  Rising  rates and
increased  deposit  balances and borrowings  accounted for the increase in total
interest expense.

Other Income 

Total other income decreased $2.6 million, or 35.5%, for the year ended June 30,
1995 as  compared  to the  year  ended  June  30,  1994.  Gain on sale of  loans
decreased  by $1.4  million  due to rising  rates  which  greatly  reduced  loan
refinancing activity as well as purchase activity. In addition,  fewer borrowers
elected to  originate  fixed rate loans that the Company  normally  sells to the
secondary  market,  instead  opting  for lower  rate  adjustable  loans that are
normally held in the portfolio.

Gain on sale of securities  decreased $1.3 million  primarily  because the prior
period  included a profit of $848,000 on the sale of CMO  collateral  previously
held by Fidelity Federal Savings & Loan which was acquired by the Bank in April,
1990. In addition,  the Company sold securities in fiscal year 1995 at a loss of
$498,000.  These  securities were CMO's held in the available for sale portfolio
of the Company that were not performing in a manner satisfactory to the Company.
The proceeds of these sales were  reinvested  in higher  yielding,  shorter term
securities  that more  closely  meet the interest  rate risk  objectives  of the
Company.

<PAGE>


Insurance,  late charges, and other fees increased $326,000,  or 25.9%. The bulk
of this increase came from servicing fees of $157,000 on loans sold;  $72,000 of
credit card income; and $83,000 of brokerage income.

Other Expenses Total other expenses  increased  $949,000,  or 7.6%, for the year
ended June 30, 1995 as compared  to the year ended June 30,  1994.  Compensation
and  employee  benefits  increased  $310,000,  or  4.9%,  due to  normal  salary
increases and benefit cost increases.


FINANCIAL CONDITION

The Company's total assets increased $41.5 million to $630.0 million at June 30,
1996, from $588.5 million at June 30, 1995. Cash,  interest bearing deposits and
securities decreased $1.4 million.  Loans held for sale and net loans receivable
increased   $42.0  million.   Mortgage  loans   increased  $32.0  million  while
non-mortgage loans increased $10.0 million.

The Company's total liabilities increased $35.2 million with deposits increasing
$22.5  million,  Federal Home Loan Bank  advances  increasing  $10.7 million and
senior debt decreasing $1.3 million.

Shareholders'  equity  increased  $6.2 million,  primarily due to an increase in
retained earnings of $6.4 million. Retained earnings increased $7.4 million from
net income and decreased $999,000 as a result of dividends paid to shareholders.
Common stock increased  $71,000;  $63,000 from options exercised and $8,000 from
the related tax benefit of non-qualified  dispositions of such options. Finally,
an increase in unrealized losses on securities  classified as available for sale
pursuant to SFAS 115 decreased shareholders' equity by $186,000.


ASSET QUALITY

In accordance  with the Company's  classification  of assets policy,  management
evaluates the loan and investment  portfolio each month to identify  substandard
assets  that may  contain  the  potential  for  loss.  In  addition,  management
evaluates the adequacy of its allowance for possible loan losses.

<PAGE>


Nonperforming  Assets - The following  table sets forth  information  concerning
non-performing  assets of the Bank. Real estate owned includes property acquired
in  settlement  of  foreclosed  loans  which are carried at the lower of cost or
estimated fair value less estimated cost to sell.

                                                 At June 30,
                               ----------------------------------------------
                                 1996      1995     1994      1993      1992
                               ----------------------------------------------
Non-accruing loans:
  Mortgage                     $2,153    $1,904    $1,837    $1,491    $3,040
  Commercial                      307       197       205       326       794
  Consumer                        411       330       188       170       200
-----------------------------------------------------------------------------
       Total                    2,871     2,431     2,230     1,987     4,034
-----------------------------------------------------------------------------
Accruing loans:
  Mortgage                         88        69        77     1,292       755
  Commercial                       --        --        --        --        --
  Consumer                          1        12        38        --        --
-----------------------------------------------------------------------------
       Total                       89        81       115     1,292       755
-----------------------------------------------------------------------------
Troubled debt restructured          1       102       283       597     1,006
Total non-performing loans      2,961     2,614     2,628     3,876     5,795
Real estate owned                  48        41        98       491       236
-----------------------------------------------------------------------------
Total non-performing assets    $3,009    $2,655    $2,726    $4,367    $6,031
=============================================================================
Non-performing assets to
  total assets                   0.48%     0.45%      0.5%     0.82%     1.19%
=============================================================================
Non-performing loans to
  total loans                    0.56%     0.55%     0.59%     0.96%     1.58%
=============================================================================
Allowance for loan losses to
  non-performing loans         103.38%   107.35%    98.17%    58.23%    36.64%
=============================================================================

In addition,  at June 30, 1996, there were $560,000 in current  performing loans
that were  classified  as special  mention or  substandard  for which  potential
weaknesses  exist which may result in the future  inclusion of such items in the
non-performing category.

Allowance  for Loan Losses - The  following  table sets forth an analysis of the
allowance for possible  loan losses.  See Note 1 to the  Consolidated  Financial
Statements  for a  discussion  of the  Company's  policy  for  establishing  the
allowance for loan losses.

                                               Years Ended June 30,
                                ---------------------------------------------
                                 1996      1995      1994      1993      1992
                                ------    ------    ------    ------    -----
Balance at beginning of year    2,806     2,580     2,257     2,123     1,683
Provision for loan losses         638      (314)      491       414     1,046
Loan charge-offs:
  Mortgage                        (10)       (6)      (47)      (82)      (64)
  Commercial                       (9)       --        --       (51)     (176)
  Consumer                       (434)     (369)     (262)     (302)     (490)
--------------------------------------------------------------------------------
    Total charge-offs            (453)     (375)     (309)     (435)     (730)
--------------------------------------------------------------------------------
Recoveries:
  Mortgage                         16         2        15        49        24
  Commercial                        0       822        34        --        --
  Consumer                         54        91        92       106       100
--------------------------------------------------------------------------------
     Total recoveries              70       915       141       155       124
--------------------------------------------------------------------------------
Net loan charge-offs             (383)      540      (168)     (280)     (606)
--------------------------------------------------------------------------------
Balance                         3,061     2,806     2,580     2,257     2,123
--------------------------------------------------------------------------------
Net charge-offs
     to average loans            0.08     (0.12)     0.04      0.07      0.15
--------------------------------------------------------------------------------
Allowance balance
     to total loans              0.58      0.58      0.57      0.55      0.57
--------------------------------------------------------------------------------


<PAGE>
Liquidity and Capital Resources

The standard  measure of liquidity for the thrift  industry is the ratio of cash
and eligible investments to a certain percentage of net withdrawable savings and
borrowings due within one year.  The minimum  required level is currently set by
OTS regulation at 5%. At June 30, 1996, the Bank's liquidity ratio was 10.05%.

Historically,  the Bank has  maintained  its liquid  assets  which  qualify  for
purposes of the OTS liquidity regulations above the minimum requirements imposed
by such  regulations  and at a level believed  adequate to meet  requirements of
normal  daily  activities,  repayment  of maturing  debt and  potential  deposit
outflows.  Cash flow  projections  are regularly  reviewed and updated to assure
that  adequate  liquidity is  maintained.  Cash for these  purposes is generated
through the sale or maturity of securities and loan  prepayments and repayments,
and may be generated through increases in deposits or borrowings.  Loan payments
are a relatively  stable source of funds,  while  deposit  flows are  influenced
significantly   by  the  level  of  interest  rates  and  general  money  market
conditions.

Borrowings  may be used to compensate  for  reductions in other sources of funds
such as deposits.  As a member of the FHLB System,  the Bank may borrow from the
FHLB of Indianapolis. At June 30, 1996, the Bank had $70.7 million in borrowings
from the FHLB of Indianapolis. As of that date, the Bank had commitments to fund
loan  originations and purchases of approximately  $27.6 million and commitments
to sell  loans of $9.8  million.  In the  opinion  of  management,  the Bank has
sufficient  cash flow and  borrowing  capacity to meet  current and  anticipated
funding commitments.

The Bank's liquidity,  represented by cash and cash equivalents,  is a result of
its operating,  investing and financing  activities.  During the year ended June
30, 1996, there was a net decrease of $1.4 million in cash and cash equivalents.
The major  uses of cash  during  the year were net loan  originations  of $152.3
million; purchase of investment and mortgage-backed securities of $14.0 million;
repayment of FHLB  advances of $17.5  million;  and  repayment of senior debt of
$1.3 million. Partially offsetting these uses of cash, the major sources of cash
provided  during  the year  included  $107.5  million  from  selling  fixed rate
mortgage loans to FNMA and FHLMC;  maturities and sales of investment securities
of $13.6 million; and proceeds from FHLB advances of $28.2 million.

Impact of Inflation

The  consolidated  financial  statements and related data presented  herein have
been prepared in accordance with generally accepted accounting principles. These
principles  require the measurement of financial  position and operating results
in terms of  historical  dollars,  without  considering  changes in the relative
purchasing  power of money over time due to  inflation.  The primary  assets and
liabilities  of thrifts  such as the Bank are  monetary in nature.  As a result,
interest rates have a more significant impact on the Bank's performance than the
effects of general levels of inflation.  Interest rates do not necessarily  move
in the same  direction  or with the same  magnitude  as the  price of goods  and
services.  In  the  current  interest  rate  environment,   liquidity,  maturity
structure and quality of the Bank's assets and  liabilities  are critical to the
maintenance of acceptable performance levels.

Recent Accounting Pronouncements

The Financial Accounting Standards Board has issued Statement Nos. 121, 122, 123
and 125 that the Company will be required to adopt in future periods. See Note 1
to the  consolidated  financial  statements  for  further  discussion  of  these
pronouncements.
<PAGE>


CONSOLIDATED BALANCE SHEETS
(in thousands except share data)

<TABLE>
<CAPTION>
                                                                                   June 30,
                                                                           ----------------------
                                                                              1996         1995
                                                                           ----------------------
ASSETS:
<S>                                                                        <C>          <C>      
Cash                                                                       $  19,327    $  19,418
Interest-bearing deposits                                                      6,301        7,590
-------------------------------------------------------------------------------------------------
  Total cash and cash equivalents                                             25,628       27,008
-------------------------------------------------------------------------------------------------
Securities available for sale at fair value (amortized cost $45,075
    and $34,334) (Note 2)                                                     44,651       34,221
Securities held to maturity (fair value $6,753 and $17,179 ) (Note 2)          6,990       17,451
Loans held for sale (fair value $4,666 and $12,949) (Note 4)                   4,623       12,788
Loans receivable, net of allowance for loan losses of $3,061
   and $2,806 (Notes 3, 9)                                                   520,097      469,883
Investments in joint ventures (Note 5)                                         2,855        2,418
Federal Home Loan Bank stock (Note 9)                                          3,798        3,419
Accrued interest receivable, net (Note 6)                                      3,893        3,445
Premises and equipment, net (Note 7)                                           8,090        8,446
Real estate owned                                                                 48           41
Prepaid expenses and other assets                                              2,440        2,658
Cash surrender value of  life insurance                                        5,004        4,766
Goodwill                                                                       1,898        1,999
-------------------------------------------------------------------------------------------------
   TOTAL ASSETS                                                            $ 630,015    $ 588,543
=================================================================================================


LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits (Note 8)                                                          $ 489,573    $ 467,086
Advances from Federal Home Loan Bank (Note 9)                                 70,700       60,000
Senior debt (Note 10)                                                          9,100       10,400
Other borrowings (Note 10)                                                     4,337        2,500
Advance payments by borrowers for taxes and insurance                            621          733
Accrued expenses and other liabilities                                         4,167        2,545
-------------------------------------------------------------------------------------------------
   Total liabilities                                                         578,498      543,264
-------------------------------------------------------------------------------------------------

Shareholders' equity (Notes 10, 12, 14):
 No par common stock; Authorized:  5,000,000 shares
  Issued and outstanding:                                                      6,819        6,748
     2,226,282 shares at June 30, 1996
     2,216,407 shares at June 30, 1995
 Retained earnings, restricted                                                44,953       38,600
 Unrealized loss on securities available for sale, net of deferred taxes        (255)         (69)
-------------------------------------------------------------------------------------------------
   Total shareholders' equity                                                 51,517       45,279
-------------------------------------------------------------------------------------------------
   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                              $ 630,015    $ 588,543
=================================================================================================

</TABLE>

See notes to consolidated financial statements



<PAGE>




CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
<TABLE>
<CAPTION>

                                                              Years Ended June 30
                                                       -------------------------------
Interest income:                                          1996       1995        1994
                                                       -------------------------------
<S>                                                  <C>         <C>         <C>     
 Loans receivable (Note 3)                            $  4,299    $ 39,231    $ 33,915
 Securities available for sale and held to maturity      3,272       3,443       3,900
 Other interest income                                     585         339         244
--------------------------------------------------------------------------------------
Total interest income                                   47,156      43,013      38,059
--------------------------------------------------------------------------------------
Interest expense:
 Deposits (Note 8)                                      22,496      20,067      17,823
 Advances from Federal Home Loan Bank (Note 9)           3,855       3,211       2,334
 Borrowings - long term (Note 10)                          900       1,011       1,166
--------------------------------------------------------------------------------------
Total interest expense                                  27,251      24,289      21,323
--------------------------------------------------------------------------------------
Net interest income                                     19,905      18,724      16,736
Provision (credit) for loan losses                         638        (314)        491
--------------------------------------------------------------------------------------
Net interest income after provision for loan losses     19,267      19,038      16,245
--------------------------------------------------------------------------------------
Other income:
 Gain on sale of loans                                    1321         667       2,072
 Gain (loss) on sale of securities                           1        (437)        905
 Income from joint ventures (Note 5)                       530         252         247
 Insurance, late charges, other fees                     1,406         778         620
 Service fees on NOW accounts                            1,635       1,494       1,504
 Net gain (loss) on real estate owned                      (18)        161         111
 Loan servicing income                                     945         805         637
 Miscellaneous                                           1,628       1,018       1,252
--------------------------------------------------------------------------------------
Total other income                                       7,448       4,738       7,348
--------------------------------------------------------------------------------------
Other expenses:
 Compensation and employee benefits (Note 13)            7,662       6,581       6,271
 Occupancy and equipment                                 1,929       1,659       1,497
 Service bureau expense                                    777         694         607
 Federal insurance premium                               1,065       1,029       1,014
 Marketing                                                 498         549         549
 Goodwill amortization                                     101         101         101
 Miscellaneous                                           2,399       2,870       2,495
Total other expenses                                    14,431      13,483      12,534
--------------------------------------------------------------------------------------
Income before income taxes                              12,284      10,293      11,059
Income tax provision (Note 11)                           4,932       3,757       4,069

Net Income                                            $  7,352    $  6,536    $  6,990

Earnings per common and common share
       equivalent                                     $   3.22    $    2.9    $   3.14
</TABLE>



See notes to consolidated financial statements



<PAGE>



CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands except shares outstanding)

<TABLE>
<CAPTION>
                                                                                Unrealized
                                                                                 Loss net       Total
                                       Shares         Common       Retained    of Deferred   Shareholders'
                                     Outstanding      Stock        Earnings       Taxes         Equity
                                     ----------------------------------------------------------------------
<S>                                  <C>          <C>           <C>           <C>           <C>       
Balance at July 1, 1993               1,415,474    $    5,975    $   26,548    $       --    $   32,523

Stock split 3 for 2;
   fractional shares                    712,800            (6)                                        (6)
Stock options exercised                  38,200           198                                        198
Tax benefit related to exercise
    of non-qualified stock options                        145                                        145
Cash dividends ($.30 per share)                                       (648)                         (648)
Net income                                                           6,990                         6,990
Effect of change in accounting for
  securities available for sale            (613)         (613)

Balance at June 30, 1994              2,166,474         6,312        32,890           (613)       38,589

Stock options exercised                  49,933           360                                        360
Tax benefit related to exercise
    of non-qualified stock options                         76                                         76
Cash dividends ($.38 per share)                                        (826)                        (826)
Net income                                6,536         6,536
Change in unrealized loss on
  securities available for sale                                                        544           544

Balance at June 30, 1995                2216407         6,748         3,600            (69)       45,279

Stock options exercised                                               9,875             63            63
Tax benefit related to exercise
    of non-qualified stock options                                        8                            8
Cash dividends ($.45 per share)            (999)         (999)
Net income                                                                           7,352         7,352
Change in unrealized loss on
  securities available for sale                                                       (186)         (186)

Balance at June 30, 1996              2,226,282    $    6,819    $    44,953    $     (255)   $   51,517
========================================================================================================
</TABLE>


See notes to consolidated financial statements

<PAGE>

<TABLE>
<CAPTION>
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
                                                                      Years Ended June 30,
                                                             -----------------------------------
                                                                 1996         1995        1994
                                                             -----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                          <C>          <C>          <C>      
Net income                                                   $   7,352    $   6,536    $   6,990
Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
   Accretion of discounts, amortization and depreciation         1,234        1,044          773
   Provision (credit) for loan losses                              638         (314)         491
   Net gain from sale of loans                                  (1,321)        (667)      (2,072)
   Net (gain) loss from sale of securities                          (1)         437         (905
   Net gain from joint ventures; real estate owned                (504)        (396)        (353
   Net loan fees deferred (recognized)                            (106)        (149)          30
   Proceeds from sale of loans held for sale                   107,500       57,155      111,656
   Origination of loans held for sale                          (98,014)     (67,219)    (103,067)
   Decrease  in accrued interest and other assets                6,339        1,058        1,290
   Increase (decrease) in other liabilities                      1,510          206         (255)
------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities             24,627       (2,309)      14,578
------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net principal disbursed on loans                               (54,248)     (26,948)     (46,336)
Proceeds from:
   Maturities/Repayments of:
       Securities held to maturity                               3,580        2,761       13,765
       Securities available for sale                             4,513        3,193       17,068
   Sales of:
       Securities available for sale                             5,507        9,932       18,021
       Real estate owned and other asset sales                     436          962        1,328
       Federal Home Loan Bank stock                                 --           --          879
Purchases of:
   Loans                                                        (3,365)          --         (894)
   Securities available for sale                               (13,955)      (7,970)     (20,003)
   Securities held to maturity                                      --       (2,985)      (1,000)
   Federal Home Loan Bank stock                                   (379)        (301)          --
Increase in cash surrender value of life insurance                (238)        (170)        (267)
Acquisition of property and equipment, net                        (654)      (2,329)      (1,163)
------------------------------------------------------------------------------------------------
Net cash used in investing activities                          (58,803)     (23,855)     (18,602)
------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net                                       22,487       21,099          509
Proceeds from advances from Federal Home Loan Bank              28,200       63,500       24,400
Repayment of advances from Federal Home Loan Bank              (17,500)     (47,500)     (18,500)
Repayment of senior debt                                        (1,300)      (1,300)      (1,300)
Net proceeds from (repayment of) overnight borrowings            1,837          782          (82)
Common stock options exercised                                      71          436          337
Payment of dividends on common stock                              (999)        (826)        (648
------------------------------------------------------------------------------------------------
Net cash provided by financing activities                       32,796       36,191         4716
------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents            (1,380)      10,027          692
Cash and cash equivalents, beginning of year                    27,008       16,981        16289
------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                       $  25,628    $  27,008    $  16,981
================================================================================================
Supplemental information:
Cash paid for interest                                       $  27,050    $  24,197    $  21,237
Cash paid for income taxes                                   $   4,450    $   3,394    $   3,341
Assets acquired through foreclosure                          $     133    $      44    $     424
Reclassification of securities available and held for sale          $-           $-    $  41,735
</TABLE>

      Noncash activities occurred  consisting of the  reclassification of $6,939
      from the held to maturity  securities  portfolio to the available for sale
      securities portfolio in 1996.

      See notes to consolidated financial statements


<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The  accounting  policies of Home Federal  Bancorp (the  "Company"),  conform to
generally  accepted  accounting  principles and prevailing  practices within the
banking  and  thrift  industry.  A summary  of the more  significant  accounting
policies follows:  Basis of Presentation - The consolidated financial statements
include  the  accounts  of the Company  and its  wholly-owned  subsidiary,  Home
Federal  Savings  Bank  (the  "Bank")  and its  wholly-owned  subsidiaries.  All
significant intercompany balances and transactions have been eliminated.

Description  of  Business - The Company is a unitary  savings  and loan  holding
company.  The Bank provides financial services to south-central  Indiana through
its  main  office  in  Seymour,  14 other  full  service  branches  and one loan
production office.

Use of Estimates - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.  Estimates
most  susceptible  to change in the near term  include  the  allowance  for loan
losses and the fair value of securities.

Cash and Cash  Equivalents  - All highly  liquid  investments  with an  original
maturity of three months or less are considered to be cash equivalents.

Securities - Statement of Financial  Accounting  Standards No. 115 ("SFAS 115"),
"Accounting  for Certain  Investments in Debt and Equity  Securities,"  requires
securities to be classified as held to maturity,  available for sale or trading.
Only those  securities  classified as held to maturity are reported at amortized
cost,  with those  available  for sale and  trading  reported at fair value with
unrealized  gains  and  losses  included  in  shareholders'  equity  or  income,
respectively. The Company adopted this statement effective July 1, 1993. Gain or
loss on sale of securities is based on the specific identification method.

In November 1995, the Financial  Accounting  Standards  Board allowed a one time
reclassification of all securities.  In December 1995, the Company  reclassified
$6,919,000 held to maturity securities to available for sale securities.


<PAGE>

Loans Held for Sale - Loans held for sale consist of fixed rate  mortgage  loans
conforming to established  guidelines and held for sale to the secondary market.
Mortgage  loans  held for sale are  carried  at the lower of cost or fair  value
determined on an aggregate basis. Gains and losses on the sale of these mortgage
loans are included in other income.

Loans - Interest on real estate,  commercial  and  installment  loans is accrued
over the term of the loans on a level yield basis.  The  recognition of interest
income is discontinued when, in management's judgement, the interest will not be
collectible in the normal course of business.

The Company adopted Statement of Financial  Accounting  Standards No.114 and 118
("SFAS 114 and 118"),  "Accounting  by Creditors  for  Impairment  of a Loan and
Income  Recognition and Disclosures," as amended,  effective July 1, 1995. These
statements require that impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's  effective  interest rate or
the fair value of the underlying  collateral,  and specifies alternative methods
for  recognizing  interest  income on loans that are impaired or for which there
are credit concerns. For purposes of applying this standard, impaired loans have
been  identified  as all  nonaccrual  loans  that  have  not  been  collectively
evaluated  for  impairment.  The  adoption  of SFAS 114 and 118 did not have any
effect on the total reserve for credit losses or related provision.

Loan  Origination Fees - Nonrefundable  origination  fees, net of certain direct
origination  costs,  are deferred and recognized as a yield  adjustment over the
life of the underlying  loan. Any unamortized fees on loans sold are credited to
gain on sale of loans at time of sale.

Unearned  Discounts - Unearned discounts on mobile home loans are amortized over
the terms of the loans.  Amortization  is computed by methods which  approximate
the interest method.

Uncollected  Interest - An  allowance  for the loss of  uncollected  interest is
provided  on loans  which  are more  than 90 days past  due.  The  allowance  is
established  by a charge to interest  income  equal to all  interest  previously
accrued,  and income is  subsequently  recognized  only to the extent  that cash
payments are received until, in management's judgment, the borrower's ability to
make periodic  interest and principal  payments returns to normal, in which case
the loan is returned to accrual status.

Provision for Losses - A provision for estimated losses on loans and real estate
owned is  charged  to  operations  based  upon  management's  evaluation  of the
potential losses.  Such an evaluation,  which includes a review of all loans for
which full collectibility may not be reasonably assured,  considers, among other
matters,  the estimated net realizable  value of the underlying  collateral,  as
applicable,  economic  conditions,  historical  loan loss  experience  and other
factors  that are  particularly  susceptible  to changes  that could result in a
material adjustment in the near term. While management endeavors to use the best
information  available in making its evaluations,  future allowance  adjustments
may  be  necessary  if  economic   conditions  change   substantially  from  the
assumptions used in making the evaluations.


<PAGE>

Real Estate Owned - Real estate owned  represents real estate  acquired  through
foreclosure, deed in lieu of foreclosure and is recorded at the lower of cost or
fair market value less estimated cost to sell. When property is acquired,  it is
recorded  at  the  lower  of  cost  or  estimated  fair  value  at the  date  of
acquisition,  with any resulting  write-down  charged  against the allowance for
loan losses. Any subsequent deterioration of the property is charged directly to
real estate owned expense.  Costs relating to the development and improvement of
real  estate  owned are  capitalized,  whereas  costs  relating  to holding  and
maintaining the property are charged to expense.

Premises  and  Equipment  -  Premises  and  equipment  are  carried at cost less
accumulated  depreciation.  Depreciation is computed on the straight-line method
over estimated useful lives that range from three to thirty-two years.

Derivatives - The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company entered into
an  interest  rate swap  agreement  as a means of  managing  the  interest  rate
exposure of its senior debt obligation.  The interest rate swap is accounted for
under the accrual  method.  Under this method,  the  differential  to be paid or
received on the interest rate swap agreement is recognized  over the life of the
agreement in interest  expense.  Changes in market value of interest  rate swaps
accounted  for under the accrual  method are not  reflected in the  accompanying
financial  statements.  Realized  gains and losses on  terminated  interest rate
swaps are deferred as an  adjustment  to the carrying  amount of the  designated
instruments and amortized over the remaining original life of the agreements. If
the designated  instruments are disposed of, the fair value of the interest rate
swap or unamortized  deferred gains or losses are included in the  determination
of the gain or loss on the disposition of such instruments.  To qualify for such
accounting,  the interest rate swap is designated to the senior debt  obligation
and alters its interest rate characteristics.

Goodwill  - The  excess  of cost  over the  fair  value of  assets  acquired  in
connection with the purchase of another  savings  institution is being amortized
using the straight  line method over 25 years.  Amortization  expense for fiscal
years 1996, 1995 and 1994 was $101,000 per year.

Income Taxes - The Company and its  wholly-owned  subsidiary  file  consolidated
income tax  returns.  Deferred  income tax assets and  liabilities  reflect  the
impact of temporary  differences  between  amounts of assets and liabilities for
financial  reporting  purposes  and  basis of such  assets  and  liabilities  as
measured by tax laws and regulations.

Earnings  per Common  Share - Earnings per share of common stock is based on the
weighted   average  number  of  common  shares  and  common  share   equivalents
outstanding  during the year.  The adjusted  weighted  average  number of common
shares  and  common  share  equivalents  outstanding  was  2,279,939  for  1996,
2,252,663 for 1995, and 2,228,282 for 1994.

Changes in Presentation - Certain amounts and items appearing in the fiscal 1995
and 1994 financial  statements have been reclassified to conform with the fiscal
1996 presentation.

New Accounting  Pronouncements - Statement of Financial Accounting Standards No.
121 ("SFAS 121"),  "Accounting  for the Impairment of Long-Lived  Assets and for
Long-Lived  Assets to be Disposed Of," is effective  for fiscal years  beginning
after December 15, 1995. This statement establishes accounting standards for the
impairment of long-lived assets,  certain  liabilities,  certain intangibles and
goodwill. Management does not believe the adoption of this statement will have a
material  effect on the  financial  position  or  results of  operations  of the
Company.

Statement of Financial  Accounting  Standards No. 122 ("SFAS 122"),  "Accounting
for  Mortgage  Servicing  Rights - an Amendment  of FASB  Statement  No. 65," is
effective for fiscal years  beginning  after  December 15, 1995.  This statement
specifies  conditions under which mortgage  servicing rights should be accounted
for  separately  from the  underlying  mortgage  loans.  Management  has not yet
quantified  the  effect  of this  new  standard  on the  consolidated  financial
statements.

Statement of Financial  Accounting  Standards No. 123 ("SFAS 123"),  "Accounting
for Stock-Based  Compensation,"  was issued in October 1995 and is effective for
fiscal years beginning  after December 15, 1995.  Companies can either elect the
new method of accounting or disclose in a note to the financial  statements  the
pro forma effect of adopting the standard. The Company has not yet determined if
it will  elect to change to the fair value  method,  nor has it  determined  the
effect the new standard will have on net income and earnings per share should it
elect to make such a change. Adoption of the new standard will have no effect on
the Company's cash flows.

Statement of Financial  Accounting  Standards No. 125 ("SFAS 125"),  "Accounting
for  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
Liabilities,"  was issued in June 1996 and  provides  accounting  and  reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. SFAS 125 applies to transactions occurring after December 31, 1996.
Management  has not yet  quantified  the  effect  of this  new  standard  on the
consolidated financial statements.

<PAGE>

2.  INVESTMENT SECURITIES

Securities are summarized as follows (in thousands):

<TABLE>
<CAPTION>

                                        June 30, 1996                            June 30, 1995
                            -----------------------------------      ------------------------------------
                           Amortized    Gross  Unrealized   Fair      Amortized    Gross Unrealized   Fair
                             Cost       Gains    Losses    Value       Cost       Gains     Losses    Value
Held to maturity:                                                   
<S>                            <C>   <C>       <C>       <C>          <C>       <C>       <C>       <C>    
U.S. Obligations               $--   $    --   $    --   $    --      $ 2,956   $    --   $     6   $ 2,950
Collateralized mortgage                                             
        obligations          6,588        --       225     6,363       13,174         6       285    12,895
Pass-thru certificates         402        --        12       390        1,321        22         9     1,334
-----------------------------------------------------------------------------------------------------------
Total held to maturity     $ 6,990        $-   $   237   $ 6,753      $17,451   $    28   $   300   $17,179
===========================================================================================================
Available for sale:                                                 
U.S. Obligations           $15,910   $    29   $   117   $15,822      $14,523   $    62   $    97   $14,488
Collateralized mortgage                                             
        obligations         11,542         8       250    11,300        3,947         4        94     3,857
Pass-thru certificates       9,804        24       143     9,685        8,180        66        39     8,207
Corporate debt               4,043        28         4     4,067        4,110        32        63     4,079
Mutual funds                 3,701         2         1     3,702        3,493        16        --     3,509
Equity securities               75        --        --        75           81        --        --        81
-----------------------------------------------------------------------------------------------------------
Total available for sale   $45,075   $    91   $   515   $44,651      $34,334   $   180   $   293   $34,221
===========================================================================================================
</TABLE>

                                                                 

Certain  securities,  with both amortized cost and fair value of $3.1 million at
June 30, 1996, were pledged as collateral for the Bank's treasury,  tax and loan
account at the Federal Reserve and for certain IRA and KEOGH accounts.

The one time  reclassification  under SFAS 115  occurred  in  December  1995 and
reclassified  securities with amortized cost of $6,919,000 from held to maturity
to  available  for sale.  The  unrealized  gain at the time of the  transfer was
$20,000.

The  amortized  costs  and  fair  values  of  securities  at June 30,  1996,  by
contractual maturity are summarized as follows (in thousands):

<TABLE>
<CAPTION>

                                                     Held to Maturity                     Available for Sale
                                           ----------------------------------     -------------------------------------
                                              Amortized      Fair      Market      Amortized       Fair         Market
                                              Cost          Value      Yield        Cost          Value         Yield

<S>                                          <C>            <C>         <C>        <C>            <C>           <C> 
U.S. Obligations:
   Due in one year or less                 $    --        $    --       --        $ 7,002        $ 7,020        6.06
   Due after 1 year though 5 years              --             --       --          7,994          7,885        6.24
   Due after 10 years                           --             --       --            914            917        6.07
Collateralized mortgage obligations          6,588          6,363       6.02       11,542         11,300        6.15
Pass-thru certificates                         402            390       6.09        9,804          9,685        6.64
Corporate debt:                                                                                
   Due in one year or less                      --             --       --          3,043          3,047        5.92
   Due after 1 year though 5 years              --             --       --          1,000          1,020        7.78
Mutual funds                                    --             --       --          3,701          3,702        0.58
Equity securities                               --             --       --             75             75       --
--------------------------------------------------------------------------------------------------------------------
Total                                      $ 6,990        $ 6,753        6.03     $45,075        $44,651        6.22
====================================================================================================================
</TABLE>

Activities  related to the sales of  securities  are  summarized  as follows (in
thousands):

                                       Years Ended June 30,

                                        1996      1995      1994
                                     ----------------------------
Proceeds from sales                  $ 5,507   $ 9,932   $  1,021
Gross gains on sales                 $    1    $   61    $    952
Gross losses on sales                $  -      $  498    $     47

<PAGE>


3.  LOANS RECEIVABLE
Loans receivable are summarized as follows (in thousands):

                                                    June 30,
                                           ----------------------
                                             1996           1995
                                           ----------------------
First mortgage loans:
     Residential single family             $ 278,118    $ 268,509
     Commercial and multi-family              73,853       63,215
     Property under construction              40,407       23,982
     Unimproved land                           3,252        2,554
Home equity                                   28,073       23,222
Second mortgage                               22,299       17,314
Commercial                                    40,609       28,881
Mobile home                                   18,833       20,258
Automobile                                    20,883       21,506
Consumer                                      11,952       11,392
Savings account                                4,199        4,407
                                           ---------    ---------
     Gross loans receivable                  542,478      485,240

Allowance for loan losses                     (3,061)      (2,806)
Deferred loan fees                              (963)      (1,069)
Undisbursed loan proceeds                    (18,249)     (11,291)
Unearned interest and unearned discounts         (19)         (53)
Purchase discount                                (89)        (138)
                                           ---------    ---------

Loans receivable, net                      $ 520,097    $ 469,883
                                           =========    =========

The Bank originates  both  adjustable and fixed rate loans.  The adjustable rate
loans have interest rate adjustment limitations and are generally indexed to the
one 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
in nonaccrual status totaled approximately $2.9 million and $2.5 million at June
30, 1996 and 1995, respectively. The Bank would have recorded interest income of
$274,000 in 1996 and  $189,000 in 1995 if loans in  non-accrual  status had been
current in accordance  with their original terms.  Actual interest  received was
$155,000 and $237,000 for fiscal years ending 1996 and 1995, 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, 1996 and 1995 on these  restructured loans totaled
$1,000 and $102,000, respectively.

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  $73.9  million  and  $63.2  million  at June 30,  1996 and 1995,
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,  $20.4
million  and  $20.0  million  are  collateralized  by  multi-family  residential
property at June 30, 1996 and 1995, 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  $207.4  million and
$193.0 million at June 30, 1996 and 1995, respectively.  Also, under FIRREA, the
loans-to-one-borrower  limitation  is generally  15% of  unimpaired  capital and
surplus which, for the Bank, was approximately  $7.8 million and $7.2 million at
June 30, 1996 and 1995, respectively. As of June 30, 1996 and 1995, the Bank was
in compliance with these limitations.

<PAGE>

Aggregate  loans to officers and directors  included above were $5.4 million and
$3.4 million as of June 30, 1996 and 1995, 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,  1996,  loans of $3.1  million  were  disbursed  to
officers  and  directors  and  repayments  of $1.1 million  were  received  from
officers and directors.

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

                                          Years Ended June 30,
                                    ------------------------------
                                       1996       1995       1994
------------------------------------------------------------------
Beginning balance                    $ 2,806    $ 2,580    $ 2,257
Provision (credit) for loan losses       638       (314)       491
Charge-offs                             (453)      (375)      (309)
Recoveries                                70        915        141
------------------------------------------------------------------
Ending balance                       $ 3,061    $ 2,806    $ 2,580
===================================================================

The  recorded  investment  in loans  considered  impaired  at June 30,  1996 was
$307,000 of which $100,000 related to loans with a specific valuation reserve of
$100,000 and $207,000 related to loans with no valuation  reserve.  For the year
ended June 30,  1996,  the average  recorded  investment  in impaired  loans was
approximately $286,000.

4.  MORTGAGE BANKING ACTIVITIES

The Bank  originates  mortgage  loans for  portfolio  investment  or sale in the
secondary  market.  During  the  period  of  origination,   mortgage  loans  are
designated as held either for sale or investment  purposes.  Mortgage loans held
for sale  are  carried  at the  lower of cost or fair  value,  determined  on an
aggregate basis.

At June 30,  1996,  1995 and  1994,  the Bank was  servicing  loans  for  others
amounting to $266.8 million,  $224.7 million and $196.5  million,  respectively.
Servicing loans for others generally  consists of collecting  mortgage payments,
maintaining  escrow accounts,  disbursing  payments to investors and foreclosure
processing.  Loan servicing  income  includes  servicing fees from investors and
certain charges collected from borrowers, such as late payment fees.

The Bank is  obligated  to  repurchase  certain  loans sold to and  serviced for
others which become delinquent as defined by the various agreements. At June 30,
1996 and 1995,  these  obligations  were limited to  approximately  $559,000 and
$958,000, respectively.

5.  INVESTMENTS IN JOINT VENTURES

The Bank has invested in joint  ventures  through its  subsidiary,  Home Savings
Corporation ("HSC"). The investments,  including loans, are accounted for by the
equity  method.  The Bank's  interest  in these  investments  is as follows  (in
thousands):
                         Equity         June 30,
                        Interest    1996     1995
                                  ------   ------
Family Financial Life       19%   $  605   $  605
Heritage Woods              33%      132      132
Home-Breeden                50%    1,990    1,224
Coventry Associates         65%       25      156
Admiral's Woods             50%      103      301
-------------------------------------------------
Total investment                  $2,855   $2,418
=================================================





<PAGE>
Summarized condensed unaudited financial statements for these joint ventures are
as follows (in thousands):                                                      
                                   June 30,                             
                            -------------------
                               1996       1995 
                            -------------------
Balance Sheets:
Cash                          $  552   $  358
Investments                    3,384    3,413
Property and equipment, net      782      819
Inventory of developed lots    2,603    1,864
Other assets                     948      816
                              ---------------
  Total assets                $8,269   $7,270
                              ===============


Notes payable                 $2,183   $1,843
Insurance liabilities          1,453    1,332
Other liabilities                141      235
                              ---------------
  Total liabilities            3,777    3,410
                              ---------------
Shareholders' equity           4,492    3,860
                              ---------------
Total liabilities and

    shareholders' equity      $8,269   $7,270
                              ===============

The notes payable include  $1,747,000 and $1,444,000 due to HSC and $145,000 and
$146,000  due to the Bank at June 30, 1996 and 1995,  respectively.  At June 30,
1996,  open  commitments  to these  joint  ventures  included  letters of credit
totaling $1,131,000.


                                         Years Ended June 30,
                               -------------------------------------------
                                     1996            1995            1994
                               -------------------------------------------
Income Statements:
  Income:
    Insurance premiums
      and commissions            $3,569             $3,372           $3,477
     Investment income                                             
                                                                   
    Net lot sales                   989                127              238
    Other income                    107                106               94
---------------------------------------------------------------------------
     Total income                 4,937              3,878            4,088
---------------------------------------------------------------------------
   Expenses:                                                       
   Commissions                    1,807              1,732            1,876
Insurance benefits                  613                563              658
---------------------------------------------------------------------------
  Interest expense                   52                 55               63
---------------------------------------------------------------------------
 Other expense                    1,612              1,340            1,209
 ---------------------------------------------------------------------------
    Total expense                 4,084              3,690            3,806
---------------------------------------------------------------------------
        Net income               $  853             $  188           $  282
===========================================================================
                                                            

6.  ACCRUED INTEREST RECEIVABLE                                                 
Accrued interest receivable consists of the following (in  thousands):  
   
                                                       June 30
                                        ----------------------------------------
                                              1996                1995          
                                        ----------------------------------------
                                                                                
Loans, less reserve of $202 and $193         $3,497               $3,016
Securities                                      393                  412
Interest-bearing deposits                         3                   17
--------------------------------------------------------------------------------
Total accrued interest receivable            $3,893               $3,445
================================================================================


7.  PREMISES AND EQUIPMENT
       Premises and equipment consists of the following (in thousands)

                                    June 30,
                             --------------------
                               1996        1995
                             --------    --------

Land                         $  1,386    $  1,386
Buildings and improvements      7,861       7,736
Furniture and equipment         5,559       5,095
                             --------    --------
       Total                   14,806      14,217
                                         ========
Accumulated depreciat          (6,716)     (5,771)
                                         --------
Total premises and eq$          8,090    $  8,446
                                         ========

Depreciation  expense  included in operations for the years ended June 30, 1996,
1995 and 1994 totaled $1,010,000, $813,000 and $695,000, respectively.

<PAGE>

8. DEPOSITS
Deposits are summarized as follows (in thousands):

                                                         June 30,
                                               1996                1995
                                     ----------------------- -------------------
                                                    Weighted          Weighted
                                                    Average            Average
                                       Amount       Rate     Amount    Rate
--------------------------------------------------------------------------------
Non-interest bearing                  $ 21,978               $19,182
NOW accounts                            48,878      2.09%     48,028    2.20%
Passbook savings                        58,988      3.00%     55,997    3.00%
Money market savings                    25,188      3.05%     22,866    3.25%
--------------------------------------------------------------------------------
     Total transaction accounts        155,032      2.30%    146,073    2.38%
--------------------------------------------------------------------------------
Certificates of deposit:                                     
  Less than one year                    83,830      5.32%     59,540    5.51%
  12-23 months                          94,482      5.81%    107,785    5.95%
  24-35 months                          71,232      5.99%     64,630    5.68%
  36-59 months                          26,908      5.54%     27,620    5.44%
  60-120 months                         58,089      6.24%     61,438    6.73%
--------------------------------------------------------------------------------
     Total certificate accounts        334,541      5.78%    321,013    5.92%
--------------------------------------------------------------------------------
Total deposits                        $489,573      4.68%$   467,086    4.81%
================================================================================


At June 30, 1996, certificates of deposit in amounts of $100,000 or more totaled
$58 million.

A summary of certificate accounts by scheduled maturities at June 30, 1996 is as
follows (in thousands):

<PAGE>
<TABLE>
<CAPTION>

                     1997        1998        1999         2000        2001       Thereafter     Total
----------------------------------------------------------------------------------------------------------
<C>                <C>          <C>          <C>            <C>           <C>          <C>        <C>  
3.00% or less  $       580           --  $        --  $        --  $        --  $        --  $        580
3.01% - 5.00%       36,777          252            2           --           --           --        37,031
5.01% - 7.00%      181,497       56,405       14,888       11,962        9,372       14,895       289,019
7.01% - 9.00%        3,793        2,281        1,284          527           10           16         7,911
               -------------------------------------------------------------------------------------------
               $   222,647  $    58,938  $    16,174  $    12,489  $     9,382  $    14,911  $    334,541
               ============ ============ ============ ===========  ============ ===========  =============
</TABLE>

A summary of interest  expense for the past three fiscal years is as follows (in
thousands):
                                Years Ended June 30,
                             1996      1995      1994
                          ---------------------------
NOW accounts              $ 1,004   $ 1,104   $   931
Passbook savings            1,657     1,654     1,425
Money market savings          729       587       713
Certificates of deposit    19,106    16,722    14,754
------------------------------------------------------
Total interest expense    $22,496   $20,067   $17,823
=====================================================

9.  FEDERAL HOME LOAN BANK ADVANCES

The Bank may  receive  advances  from the FHLB up to $159.9  million at June 30,
1996, which  represents 50% of the Bank's eligible assets.  The Bank has pledged
qualifying  mortgage loans and Federal Home Loan Bank stock as collateral on the
following advances from the Federal Home Loan Bank (in thousands):

                            June 30, 1996        June 30, 1995
                     --------------------------------------------
                                  Weighted              Weighted
   Fiscal Year                    Average               Average
     Maturity         Amount       Rate     Amount       Rate
    1996              $    --              $15,500       6.84%
    1997               26,000      6.15%     9,000       6.53%
    1998               16,900      6.30%    13,300       6.42%
    1999               14,500      6.67%    12,500       6.46%
    2000                3,300      5.95%     2,300       5.83%
    2001                7,400      5.55%     7,400       5.57%
       Thereafter       2,600      6.00%        --
                     --------------------------------------------
Total FHLB advances   $70,700      6.22%   $60,000       6.43%
                      ===========================================  
10.  OTHER BORROWINGS

Senior Debt On June 30,  1993,  the Company  borrowed  $13 million  from LaSalle
National  Bank.  The note bears  interest at a variable  rate of prime plus .75%
(9.00% at June 30, 1996). Of the net proceeds,  the Company injected $10 million
to the Bank's  Tier 1 capital.  The note is  collateralized  by the  outstanding
common  shares  of the  Bank  and  its  subsidiaries.  Under  the  terms  of the
agreement,  the Company is bound by certain  restrictive debt covenants relating
to earnings,  net worth and various  financial  ratios. As of June 30, 1996, the
Company was in  compliance  with the debt  covenants.  Maturities of senior debt
based on minimum scheduled payments as of June 30, 1996 are: 1997 - $1,300; 1998
- $7,800.

Effective July 1, 1993, the Company entered into an interest rate swap agreement
with LaSalle  National  Bank to make fixed rate payments at 7.24% and to receive
variable  rate  payments at the LaSalle  National Bank prime rate (8.25% at June
30, 1996) on a notional  amount of $13 million with  quarterly  amortization  of
$325,000.  The  maturity  date of the swap  agreement  is  October 1, 1997 which
coincides  with the due date of related  senior  debt.  The  interest  rate swap
agreement is  accounted  for on a  settlement  basis.  The Company is exposed to
credit loss in the event of  nonperformance by LaSalle National Bank for the net
interest rate  differential  when floating  rates exceed the fixed maximum rate.
However, the Company does not anticipate nonperformance by the counterparty.

Other  Borrowings  In  addition  to the  other  borrowings  scheduled  below (in
thousands),  the Bank also has a $5 million  overdraft  line of credit  with the
Federal Home Loan Bank, none of which was used as of June 30, 1996 or 1995.

                                          June 30,
                                       1996     1995
Official check overnight remittance   $4,280   $2,476
Wrap mortgage liability                   --       12
FHLB overnight remittance                 57       12
                                      ------   ------
Total other borrowings                $4,337   $2,500
                                      ======   ======

11.  INCOME TAXES
An analysis of the income tax provision is as follows (in thousands):



                                              Years Ended June 30,
                              1996                   1995                1994
                          ---------------------------------------------------
Current:
    Federal               $   3,256              $   2,400           $   3,376
    State                     1,063                    648                 904
Deferred                        613                    709                (211)
                          ----------------------------------------------------
   Income tax provision   $   4,932              $   3,757           $   4,069
                          =====================================================

The difference between the financial statement provision and amounts computed by
using the statutory rate of 34% is reconciled as follows (in thousands):

<TABLE>
<CAPTION>


                                                            Years Ended June 30,
                                                     ------------------------------
                                                        1996       1995       1994
                                                     ------------------------------
<S>                                                  <C>        <C>        <C>    
Income tax provision at federal statutory rate       $ 4,177    $ 3,500    $ 3,760
State tax, net of federal tax benefit                    701        582        597
Increase in cash surrender value of life insurance       (81)       (58)       (91)
Other                                                    135       (267)      (197)
                                                                           -------
Income tax provision                                 $ 4,932    $ 3,757    $ 4,069
==================================================================================
</TABLE>


The  Company  is  allowed to deduct an  addition  to a reserve  for bad debts in
determining  taxable income.  This addition  differs from the provision for loan
losses for financial reporting purposes. No deferred taxes have been provided on
the income tax bad debt reserves prior to 1988, which total $6 million. This tax
reserve for bad debts is  included in taxable  income of later years only if the
bad debt reserves are  subsequently  used for purposes  other than to absorb bad
debt  losses.  Because  the  Company  does not  intend to use the  reserves  for
purposes other than to absorb losses, deferred income taxes of $2.4 million were
not provided.  Pursuant to SFAS 109, the Company has recognized the deferred tax
consequences  of  differences  between the  financial  statement  and income tax
treatment of allowances for loan losses arising after June 30, 1987.

On August 20, 1996,  the "Small  Business Job Protection Act of 1996" was passed
into law. One provision of this act repeals the special bad debt reserve  method
for thrift  institutions  currently  provided for in Section 593 of the IRC. The
provision requires thrifts to recapture any reserves  accumulated after 1987 but
forgives taxes owed on reserves  accumulated prior to 1988. Thrift  institutions
will be given six years to account for the recaptured excess reserves, beginning
with the first  taxable  year after  1995,  and will be  permitted  to delay the
timing of this  recapture  for one or two years  subject  to  whether  they meet
certain  residential  loan test  requirements.  Management does not believe that
this   legislation  will  have  a  material  adverse  effect  on  the  Company's
consolidated financial position.

The  Company's  deferred  income tax assets and  liabilities  are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                     June 30,
                                                               1996             1995
                                                          --------------------------
 Deferred tax assets:
<S>                                                       <C>              <C>           
 Bad debt reserves                                        $         195    $          510
 Unrealized losses on securities available for sale                 170                46
 Deferred compensation                                              556               443
 Deferred fees                                                      106               233
 Other                                                              123               116
                                                          -------------------------------
     Total deferred tax assets                                    1,150             1,348
                                                          -------------------------------
 Deferred tax liabilities:
 Difference in basis of fixed assets                                639               196
 FHLB dividend                                                      207               207
 Other                                                              196               224
                                                          -------------------------------
     Total deferred tax liabilities                               1,042               627
                                                          -------------------------------
 Net deferred tax asset                                   $         108    $          721
                                                          ===============================
</TABLE>


12.  REGULATORY MATTERS

Effective December 7, 1989, the Office of Thrift  Supervision  ("OTS") set forth
capital  standards  applicable to all thrifts.  These  standards  include a core
capital  requirement,  a tangible capital  requirement and a risk-based  capital
requirement.  The Bank exceeds all of the  requirements  at June 30,  1996.  The
Bank's capital (in thousands) and capital ratios are as follows:
<TABLE>
<CAPTION>


                                                                                  June 30, 
                                               -------------------------------------------------------------------------------
                                                                        1996                                  1995
                                                            ------------------------------   ---------------------------------
                                               Required                Capital as                         Capital
                                                Capital       Actual     a % of   Required    Actual      a % of       Required
                                                 Ratio       Capital(1) Assets(1)  Capital  Capital(1)    Assets(1)     Capital
                                               -------------------------------------------------------------------------------
<S>                                                <C>        <C>           <C>  <C>           <C>          <C>        <C>     
Total consolidated shareholders' equity                     $ 51,517                         $ 45,279
Holding company capital infusion                               4,299                            5,978
-------------------------------------------------------------------------------------------------------------------------------
Total Bank consolidated capital                               55,816                           51,257
Adjustments for tangible, core
    and risk-based capital:
  Goodwill                                                    (1,898)                          (1,999)
  Investments in non-includable subsidiaries                  (1,791)                          (1,051)
  Purchased mortgage loan servicing rights                       (13)                             (16)
  Unrealized loss on available-
    for-sale securities                                         (255)                              68
-------------------------------------------------------------------------------------------------------------------------------
Total Bank tangible capital                        1.50%      51,859        8.28%$  9,396      48,259       8.25%      $  8,774
-------------------------------------------------------------------------------------------------------------------------------
Total Bank core capital                            3.00%      51,859        8.28%  18,791      48,259       8.25%        17,548
-------------------------------------------------------------------------------------------------------------------------------
General loan loss allowances                      2,916        2,660
Assets required to be deducted                     (262)        (286)
-------------------------------------------------------------------------------------------------------------------------------
Total Bank risk-based capital                      8.00%    $ 54,513       12.35%$ 35,320    $ 50,633      12.91%      $ 35,320
================================================================================================================================
</TABLE>

(1)  Tangible and core capital are  computed as a percentage  of adjusted  total
     assets of $626.4  million  and $584.9  million,  at June 30, 1996 and 1995,
     respectively.  Risk-based  capital is computed as a percentage  of adjusted
     risk-weighted  assets of $441.5 million and $392.3 million at June 30, 1996
     and 1995, respectively.

The various federal banking agencies adopted the final Prompt  Corrective Action
regulations  that  are  required  by  the  Federal  Deposit   Insurance  Company
Improvement  Act  of  1991  ("FDICIA").   Such   regulations   require  specific
supervisory  actions as capital levels  decrease.  As of June 30, 1996, the most
recent notification from the OTS categorized the Bank as well-capitalized  under
the regulatory  framework for prompt corrective action.  There are no conditions
or events since that  notification  that  management  believes  have changed the
institution's  category.  The specifications of the capital categories are shown
below (in thousands):

<TABLE>
<CAPTION>

                                                          Total        Tier 1      Tier 1
                                                      Risk-Based   Risk-Based      Leverage
                                                          Ratio       Ratio (1)    Ratio
                                                       ------------------------------------
Capital Category:
<S>                                                          <C>         <C>        <C>
     Well capitalized                                        10%         6%         5%
     Adequately capitalized                                   8%         4%         4%
     Under capitalized                                        8%         4%         4%
     Significantly under capitalized                          6%         3%         3%
     Critically under capitalized                           n/a        n/a        n/a

Bank capital as of June 30, 1996                        $54,513    $51,859    $51,859
Bank capital as of June 30, 1995                        $50,633    $48,259    $48,259

Bank capital as a percentage of risk-weighted assets:
     As of June 30, 1996                                  12.35%     11.75%      8.28%
     As of June 30, 1995                                  12.91%     12.30%      8.25%
</TABLE>


(1)  The Tier 1  Risk-based  ratio is  defined  as total  core  capital  (Tier 1
     capital) divided by risk-weighted assets.

The OTS also has an  interest-rate  risk  component  of the  risk-based  capital
requirement,  for any  institution  carrying  "abovenormal"  interest rate risk.
"Above normal" interest rate risk would be determined based on the change in the
net market value of the institution's assets,  liabilities and off-balance sheet
items under specific  interest rate scenarios.  Interest rate risk determined to
be "above normal" would likely require additional  risk-based capital.  Based on
the Bank's risk-based and interest-rate  risk profiles and the level of interest
rates at June 30, 1996, as well as the Bank's level of risk-based  capital,  the
Bank is not  required to maintain  additional  capital for  compliance  with the
interest-rate risk component.

<PAGE>


Dividend Restrictions - The principal source of income and funds for the Company
are dividends from the Bank. The Bank is subject to certain  restrictions on the
amount of dividends that it may declare without prior  regulatory  approval.  At
June 30, 1996,  approximately  $12.2 million of retained earnings were available
for dividend declaration without prior regulatory approval.

Recapitalization of SAIF and Related Legislative Proposals - The deposits of the
Bank are currently insured by the Savings Association Insurance Fund ("SAIF") of
the FDIC. Both the SAIF and the Bank Insurance Fund ("BIF"), the federal deposit
insurance  fund that covers  commercial  bank  deposits,  are required by law to
attain and thereafter maintain a reserve ratio of 1.25% of insured deposits. The
BIF has achieved a fully funded  status in contrast to the SAIF and,  therefore,
as discussed below, the FDIC recently  substantially reduced the average deposit
insurance  premium paid by commercial banks to a level  approximately  75% below
the average premium paid by savings institutions.

On November 14, 1995, the FDIC approved a final rule regarding deposit insurance
premiums.  The final rule  reduced  deposit  insurance  premiums  for BIF member
institutions to zero basis points (subject to a $2,000 minimum) for institutions
in the lowest risk category,  while holding deposit insurance  premiums for SAIF
members at their current levels (23 basis points for  institutions in the lowest
risk  category).  The  reduction was  effective  with respect to the  semiannual
premium  assessment  beginning January 1, 1996.  Accordingly,  in the absence of
further  legislative action, SAIF members such as the Bank will be competitively
disadvantaged  as  compared  to  commercial  banks  by  the  resulting   premium
differential.


<PAGE>

The  U.S.  House  of  Representatives   and  Senate  have  actively   considered
legislation  which  would  have  eliminated  the  premium  differential  between
SAIF-insured  institutions and BIF-insured  institutions by  recapitalizing  the
SAIF's  reserves to the  required  ratio.  The proposed  legislation  would have
provided that all SAIF member  institutions pay a special one-time assessment to
recapitalize  the SAIF,  which in the  aggregate  would have been  sufficient to
bring the reserve ratio in the SAIF to 1.25% of insured  deposits.  Based on the
current level of reserves  maintained by the SAIF, it was  anticipated  that the
amount of the special  assessment  required to recapitalize  the SAIF would have
been approximately 80 to 85 basis points of the SAIF-assessable deposits. It was
anticipated  that  after  the  recapitalization  of the SAIF,  premiums  paid by
SAIF-insured  institutions  would be  reduced  to match  those  currently  being
assessed  BIF-insured  commercial  banks.  The legislation also provided for the
merger of the BIF and the SAIF,  with such  merger  being  conditioned  upon the
prior elimination of the thrift charter.

The legislation  discussed above had been, for some time,  included as part of a
fiscal 1996 federal  budget  bill,  but was  eliminated  prior to the bill being
enacted on April 26, 1996. If legislation were to be enacted in the future which
would assess a one-time  special  assessment of 85 basis points,  the Bank would
(based upon the Bank's SAIF  deposits  as of March 31,  1996) pay  approximately
$2,418,000,  net of related tax  benefits.  In addition,  the  enactment of such
legislation  may  have  the  effect  of  immediately  reducing  the  capital  of
SAIF-member institutions by the amount of the special assessment.  Nevertheless,
management  does not believe that this one-time charge to the Bank, if incurred,
will have a material  adverse  effect on the  Company's  consolidated  financial
condition.

In  light of the  different  proposals  currently  under  consideration  and the
uncertainty of the  legislative  process  generally,  management  cannot predict
whether  legislation  reducing SAIF premiums and/or imposing a special  one-time
assessment will be adopted,  or, if adopted,  the amount of the  assessment,  if
any, that would be imposed on the Company.

13.  EMPLOYEE BENEFIT PLANS

Multi-employer   Pension  Plan  The  Bank   participates  in  a  noncontributory
multi-employer  pension  plan  covering  all  qualified  employees.  The plan is
administered  by the trustees of the  Financial  Institutions  Retirement  Fund.
There is no separate  valuation  of the plan  benefits nor  segregation  of plan
assets  specifically for the Bank because the plan is a multi-employer  plan and
separate  actuarial  valuations  are not made  with  respect  to each  employer.
However,  as of June 30, 1995, the latest  actuarial  valuation,  the total plan
assets exceeded the actuarially determined value of accrued benefits.

Supplemental   Retirement   Program  The  Bank  has  entered  into  supplemental
retirement  agreements for certain officers and directors.  Benefits under these
agreements  are generally  paid over a 15 year period.  The present value of the
benefit to be paid is accrued over the active period of employment of individual
participants. The amount of benefit expense for fiscal years 1996, 1995 and 1994
was $281,000, $243,000 and $170,000, respectively.

401(k) Plan The Bank has an employee thrift plan  established for  substantially
all full-time  employees.  Effective  January 1, 1991,  the Bank elected to make
matching  contributions  equal  to  50% of the  employee  contributions  up to a
maximum of 1.5% of an individual's  total eligible salary.  The Bank contributed
$71,000,   $61,000  and  $60,000  during  fiscal  years  1996,  1995  and  1994,
respectively.

14.  STOCK OPTIONS
The Company  has a stock  option  plan for the  benefit of  officers,  other key
employees and directors.  The plan is authorized to grant options to purchase an
additional 242,632 shares of the Company's common stock. The option price is not
to be less than the fair market value of the common stock on the date the option
is granted and the stock options are  exercisable at any time within the maximum
term  of  10  years  and  one  day  from  the  grant   date.   The  options  are
nontransferable and are forfeited upon termination of employment.

The  following is an analysis of the stock option plan  activity for each of the
years in the  three  year  period  ended  June 30,  1996 and the  stock  options
outstanding at the end of the respective periods:

                                                                 Weighted
                                                                 Average
                  Options                   Shares                 Price
--------------------------------------------------------------------------------
Outstanding July 1, 1993                    127,348             $    6.46
Granted                                     119,625             $   21.24
Exercised                                   (43,450)            $    4.54
--------------------------------------------------------------------------------
Outstanding June 30, 1994                   203,523             $   15.56
Granted                                      48,930             $   23.83
Expired                                         501             $   21.88
Exercised                                   (39,058)            $    7.49
--------------------------------------------------------------------------------
Outstanding June 30, 1995                   212,894             $   18.93
Granted                                       3,180             $   25.13
Expired                                      (7,250)            $   21.89
Exercised                                    (9,875)            $    6.39
--------------------------------------------------------------------------------
Outstanding June 30, 1996                   198,949             $   19.54
================================================================================

15. COMMITMENTS

Financial  Instruments  with  Off-Balance  Sheet Risk - In the normal  course of
business,  the Bank makes  various  commitments  to extend  credit which are not
reflected in the accompanying  consolidated  financial  statements.  At June 30,
1996 and 1995,  the Bank had loan  commitments  approximating  $27.6 million and
$17.2 million, respectively, excluding undisbursed portions of loans in process.
Loan  commitments at June 30, 1996 include  commitments to originate  fixed-rate
loans with interest  rates ranging from 8.41% to 9.00% totaling $3.6 million and
adjustable-rate loan commitments with interest rates ranging from 7.63% to 9.25%
totaling  $19.5  million.  Commitments,  which are disbursed  subject to certain
limitations,  extend over various periods of time. Generally, unused commitments
are  canceled  upon  expiration  of the  commitment  term  as  outlined  in each
individual contract.

Outstanding  letters of credit were $3.0  million and $2.3  million for 1996 and
1995,  respectively.  Additionally,  the Bank had approximately  $3.8 million in
commitments to sell fixed-rate residential loans and $6.0 million in commitments
to sell adjustable rate commercial loans at June 30, 1996.

The Bank's exposure to credit loss in the event of  nonperformance  by the other
parties  to the  financial  instruments  for  commitments  to  extend  credit is
represented by the contract amount of those instruments.  The Bank uses the same
credit policies and collateral requirements in making commitments as it does for
on-balance sheet instruments.

Employment  Agreements - The Company has entered into employment agreements with
certain  executive  officers.   Under  certain  circumstances  provided  in  the
agreements,  the Company may be obligated to continue the officer's salary for a
period of three years.





<PAGE>



16.  FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
(in thousands):

<TABLE>
<CAPTION>
                                                            June 30, 
                                             ----------------------------------------
                                                     1996                 1995
                                             -----------------   --------------------
                                             Carrying   Fair     Carrying     Fair
                                              Value     Value     Value      Value
                                              -----     -----     -----      -----

Assets:
   Cash                                     $ 19,327   $ 19,327   $ 19,418   $ 19,418
<S>                                            <C>        <C>        <C>        <C>  
   Interest-bearing deposits                   6,301      6,301      7,590      7,590
   Securities available for sale              44,651     44,651     34,221     34,221
   Securities held to maturity                 6,990      6,753     17,451     17,179
   Loans held for sale                         4,623      4,666     12,788     12,949
   Loans, net                                520,097    519,002    469,893    473,168
   Accrued interest receivable                 3,893      3,893      3,445      3,445
   Federal Home Loan Bank stock                3,798      3,798      3,419      3,419
   Cash surrender value of life insurance      5,004      5,004      4,766      4,766

Liabilities:
    Deposits                                 489,573    488,649    467,086    468,572
    Federal Home Loan Bank advances           70,700     70,397     60,000     60,732
    Senior debt                                9,100      9,100     10,400     10,400
    Other borrowings                           4,337      4,337      2,500      2,500
    Advance payments by borrowers
       for taxes and insurance                   621        621        733        733

Unrecognized financial instruments:
    Interest rate swap                            --        175         --        290
</TABLE>


The estimated fair (market) values of financial instruments have been determined
by the Company,  using available  market  information and appropriate  valuation
methodologies.  Considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily  indicative of the amounts that the Company could realize in
a current  market  exchange.  The use of  different  market  assumptions  and/or
estimation  methodologies may have a material effect on the estimated fair value
amounts.

Cash,  Interest-bearing  Deposits,  Accrued Interest Receivable,  Cash Surrender
Value of Life Insurance,  Advance  Payments by Borrowers for Taxes and Insurance
and Other  Borrowings  - The  carrying  amount as reported  in the  Consolidated
Balance Sheets is a reasonable estimate of fair value.

Securities  Held to Maturity and  Available  for Sale - Fair values are based on
quoted market prices and dealer quotes.

Loans Held for Sale and Loans,  net - The fair value is estimated by discounting
the future cash flows using the current  rates for loans of similar  credit risk
and maturities.

Federal  Home Loan Bank Stock - The fair value is  estimated  to be the carrying
value which is par.

Deposits - The fair value of demand deposits,  savings accounts and money market
deposit accounts is the amount payable on demand at the reporting date. The fair
value of  fixed-maturity  certificates  of  deposit  is  estimated  using  rates
currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank  Advances - The fair value is  estimated  by  discounting
future cash flows using rates currently available to the Company for advances of
similar maturities.

Senior Debt - Rates  currently  available  to the Company for debt with  similar
terms and remaining maturities are used to estimate fair value of existing debt.

Interest Rate Swap - The fair value of the interest  rate swap  agreement is the
estimated  amount the  Company  would  have to pay to enter  into an  equivalent
agreement  at June  30,  1996  and  1995,  with  the  counterparty  to the  swap
agreement.

Commitments - The  commitments  to originate and purchase  loans have terms that
are  consistent  with  current  market  conditions.   Accordingly,  the  Company
estimated  that  the face  amounts  of these  commitments  approximate  carrying
values.

The fair value estimates presented herein are based on information  available to
management  at June 30, 1996 and 1995.  Although  management is not aware of any
factors that would significantly  affect the estimated fair value amounts,  such
amounts have not been  comprehensively  revalued for purposes of these financial
statements since that date and,  therefore,  current estimates of fair value may
differ significantly from the amounts presented herein.




<PAGE>


17.  PARENT COMPANY FINANCIAL STATEMENTS

The condensed  financial  statements of Home Federal  Bancorp are as follows (in
thousands):

18.  PARENT COMPANY FINANCIAL STATEMENTS
The condensed  financial  statements of Home Federal  Bancorp are as follows (in
thousands):


Condensed Balance Sheets                                        June 30,
                                                   -----------------------------
(Parent Company only)                                    1996           1995
                                                   -----------------------------
Assets:                                                               
Cash$                                                  $  4,694        $ 3,367
Investment in subsidiary                                 55,817         51,258
Other                                                       577          1,142
--------------------------------------------------------------------------------
  Total assets$                                          61,088         55,767
                                                                      
================================================================================
Liabilities:                                                          
Senior debt$                                              9,100         10,400
Other                                                       471             88
--------------------------------------------------------------------------------
  Total liabilities                                       9,571         10,488
--------------------------------------------------------------------------------
Shareholders' equity                                     51,517         45,279
--------------------------------------------------------------------------------
  Total liabilities and shareholders' equity            $61,088         55,767
================================================================================
                                                                      
<TABLE>                                                        
<CAPTION>

Condensed Statements of Income                       For the Years Ended June 30:
                                                   -----------------------------
(Parent Company only)                                1996       1995       1994
                                                   -----------------------------
<S>                                                <C>        <C>        <C>    
Dividends from subsidiary                          $ 3,247    $ 3,152    $ 3,016
Other                                                  514        463        221
--------------------------------------------------------------------------------
  Total income                                       3,761       3615      3,237
--------------------------------------------------------------------------------
Interest on senior debt                                900      1,010      1,162
Other expenses                                         674        717        420
--------------------------------------------------------------------------------
  Total expenses                                     1,574      1,727      1,582
--------------------------------------------------------------------------------
Income before taxes and change in
 undistributed earnings of subsidiary                2,187      1,888      1,655
Applicable income tax credit                          (420)      (505)      (484)
--------------------------------------------------------------------------------
Income before change in undistributed
 earnings of subsidiary                              2,607      2,393      2,139
Increase in undistributed earnings of subsidiary      4745      4,143      4,851
--------------------------------------------------------------------------------
Net income                                         $ 7,352    $ 6,536    $ 6,990
================================================================================
</TABLE>


<TABLE>
<CAPTION>


Condensed Statements of Cash Flows                  For the Years Ended June 30:
                                                   -----------------------------
(Parent Company only)                                1996       1995       1994
                                                   -----------------------------
<S>                                                <C>        <C>        <C>    
Operating activities:
Net income                                         $ 7,352    $ 6,536    $ 6,990
Adjustments to reconcile net income to net
 cash provided by operating activities:
  Decrease (increase) in other assets                  565       (354)       172
  Increase (decrease) in accrued expenses and
   other liabilities                                   383        (28)       (10)
  Increase in undistributed earnings
   of subsidiary                                    (4,745)    (4,143)    (4,851)
Net cash provided by operating activities            3,555      2,011      2,301

Financing activities:
Proceeds from senior debt                               --         --         --
Repayment of senior debt                            (1,300)    (1,300)    (1,300)
Payment of dividends                                  (999)      (826)      (648)
Exercise of stock options                               71        436        337
--------------------------------------------------------------------------------
Net cash used in financing activities               (2,228)    (1,690)    (1,611)
--------------------------------------------------------------------------------
Net increase in cash                                 1,327        321        690
Cash at beginning of year                            3,367      3,046      2,356
--------------------------------------------------------------------------------
Cash at end of year                                $ 4,694    $ 3,367    $ 3,046
================================================================================
</TABLE>
<PAGE>



INDEPENDENT AUDITORS' REPORT



To the Shareholders and the Board of Directors of Home Federal Bancorp:

We have audited the  accompanying  consolidated  balance  sheets of Home Federal
Bancorp and its subsidiary (the "Company") as of June 30, 1996 and 1995, and the
related consolidated  statements of income,  shareholders' equity and cash flows
for each of the three years in the period ended June 30, 1996.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these 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,  such consolidated  financial  statements present fairly, in all
material  respects,  the  financial  position  of Home  Federal  Bancorp and its
subsidiary at June 30, 1996 and 1995,  and the results of their  operations  and
their cash flows for each of the three  years in the period  ended June 30, 1996
in conformity with generally accepted accounting principles.

As discussed in Note 1 to the  consolidated  financial  statements,  the Company
changed its method of accounting for debt and equity  securities  effective July
1, 1993.



Deloitte & Touche LLP
Indianapolis, Indiana
July 25, 1996
(August 20, 1996 as to Note 11)






<PAGE>

Board of Directors
 & Officers
of Home Federal Bancorp

Board of Directors

John K. Keach, Sr.
Chairman of the Board,
Home Federal Bancorp

John K. Keach, Jr.
President and
Chief Executive Officer,
Home Federal Bancorp

John T. Beatty
President,
Beatty Insurance, Inc.

Lewis W. Essex
Chairman of the Board,
Essex Castings, Inc.

Harold Force
President,
Force Construction
Company, Inc.

David W. Laitinen, MD
Orthopedic Surgeon

Harvard W. Nolting, Jr.
Retired
from Nolting Foods, Inc.

Eugene E. Burke
Director Emeritus
Retired

Robert Weber
Director Emeritus
Retired


Officers

John K. Keach Jr.
President and
Chief Executive Officer

Gerald L. Armstrong
Executive Vice President
Chief Operating Officer

Lawrence E. Welker
Executive Vice President
Chief Financial Officer
Treasurer and Secretary

The  Directors of Home  Federal  Bancorp also serve as Directors of Home Federal
Savings Bank.

<PAGE>




Executive Officers
of Home Federal
Savings Bank

John K. Keach Jr.
President and
Chief Executive Officer

Gerald L. Armstrong
Executive Vice President
Chief Operating Officer

Lawrence E. Welker
Executive Vice President
Chief Financial Officer
Treasurer and Secretary

S. Elaine Pollert
Senior Vice President
Retail Banking

John F. Schilling
Senior Vice President
Commercial Lending

Keith E. Luken
Senior Vice President
Mortgage Lending

Mark A. Dennis
Vice President
Controller


<PAGE>

Shareholder Information

Stock Listing
The common stock of Home Federal  Bancorp is traded on the National  Association
of Securities Dealers Automated Quotation System,  National Market System, under
the symbol HOME,  Home Federal  Bancorp stock appears in the Wall Street Journal
under  the  abbreviation  HomeFedBcpIN,  and in  other  publications  under  the
abbreviation HFdBcp.

Transfer Agent & Registrar

To change name, address or ownership of stock, to report lost  certificates,  or
to consolidate accounts, contract:

LaSalle National Trust, N.A.
135 South LaSalle Street,
Room 360
Chicago, Illinois 60690
(312) 904-2450

General Counsel
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, IN 46204

Shareholder & General Inquiries

Home Federal  Bancorp is required to file an Annual  Report on Form 10-K for its
fiscal year ended June 30, 1996,  with the Securities  and Exchange  Commission.
For copies of the Annual Report and Home Federal  Bancorp's  Quarterly  Reports,
contact:

Donna Maxie
Home Federal Bancorp
222 West Second Street
Seymour, IN 47274
(812) 522-1592
(800) 952-6646

For financial information and security analyst inquires please contact:

Lawrence E. Welker
222 West Second Street
Seymour, IN 47274
(812) 522-1592
(800) 952-6646