Description of Business....................................................Below
Message to Shareholders....................................................    1
Selected Consolidated Financial Data.......................................    2
Management's Discussion and Analysis.......................................    3
Independent Auditor's Report...............................................   17
Consolidated Statement of Financial Condition..............................   18
Consolidated Statement of Income...........................................   19
Consolidated Statement of Changes in
     Stockholders' Equity..................................................   20
Consolidated Statement of Cash Flows.......................................   21
Notes to Consolidated Financial Statements.................................   22
Directors and Officers.....................................................   36
Shareholder Information....................................................   38

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

         Home  Financial  Bancorp (the  "Holding  Company" and together with the
Bank (as  defined  below),  "HFB" or the  "Company")  is an Indiana  corporation
organized  in  February  1996,  to  become  a  bank  holding  company  upon  its
acquisition  of all the issued and  outstanding  capital stock of Owen Community
Bank, s.b. (the "Bank") in connection with the Bank's  conversion from mutual to
stock form. The Holding  Company  became the Bank's  holding  company on July 1,
1996;  therefore,  all historical financial and other data contained for periods
prior  to July 1,  1996  herein  relate  solely  to the  Bank  while  historical
financial  and other data  contained  herein  for the period  after July 1, 1996
relate to the Company.  The  principal  asset of the Holding  Company  currently
consists of 100% of the issued and outstanding  shares of common stock, $.01 par
value per share,  of the Bank. The Bank was organized under the name Owen County
Savings and Loan Association in 1911. In 1972, the Bank converted to a federally
chartered  savings and loan and changed its name to Owen County Federal  Savings
and Loan Association,  and in 1989, the Bank converted to a federally  chartered
savings bank known as Owen Federal  Savings  Bank.  In 1994,  the Bank became an
Indiana  savings bank known as Owen Community  Bank,  s.b. The Bank's  principal
business consists of attracting deposits from the general public and originating
long-term  adjustable-rate  loans secured  primarily by first  mortgage liens on
one- to four-family  real estate.  The Bank's deposit accounts are insured up to
applicable limits by the Savings Association  Insurance Fund (the "SAIF") of the
Federal Deposit Insurance Corporation (the "FDIC").

         The Bank is the oldest  continuously  operating  financial  institution
headquartered  in  Owen  County,  Indiana.  Management  believes  the  Bank  has
developed  a solid  reputation  among its loyal  customer  base  because  of its
commitment to personal  service and its strong  support of the local  community.
The Bank offers a number of consumer and commercial  financial  services.  These
services  include:  (i)  residential  real estate  loans;  (ii)  indemnification
mortgage loans ("ID Mortgage Loans");  (iii) mobile home loans; (iv) combination
land-mobile  home loans ("Combo  Loans");  (v)  construction  loans;  (vi) share
loans; (vii)  nonresidential  real estate loans; (viii) multi-family loans; (ix)
installment  loans;  (x) NOW  accounts;  (xi)  demand  deposit  accounts;  (xii)
passbook  savings  accounts;  and (xiii)  certificates  of deposit.  The Company
conducts business out of its main office located in Spencer,  Indiana.  The Bank
is and  historically  has been a significant real estate mortgage lender in Owen
County, Indiana.


<PAGE>

FELLOW SHAREHOLDERS AND FRIENDS:

         Another  fiscal  year has come to a close and we are pleased to present
to you the 1998 Annual Report of Home Financial Bancorp.

         Many  positive  events  occurred over the past year in the life of Home
Financial  Bancorp.  Please allow me to highlight a few. As reported to you last
year,  plans  were  under way for a new  branch in the  southern  Putnam  County
community of  Cloverdale.  By the time this report reaches you, our first branch
in  Cloverdale  is  expected  to be  completed  and open for  business.  This is
exciting and we look forward to the  opportunity.  For several  months,  we have
been  preparing   ourselves  by  hiring  and  training  new  staff,   overseeing
construction progress,  purchasing equipment, and tending to many more necessary
details.  Our mission in Cloverdale  will be the same as it has been in Spencer:
to offer our many banking services in a courteous and professional  manner.  Our
focus  will  continue  to be on  attracting  new lower cost  deposits  including
checking  and savings  accounts  in  addition to offering  our full line of loan
products at competitive terms. As a new community bank to Cloverdale, we will do
our best to support the  institutions  and  charities in the  community  through
outright financial support or through volunteer support by our staff.

         We  have  further  demonstrated  our  support  of the  Cloverdale  area
community  by  purchasing  tax  credits  this  past  year  to help  finance  the
construction   of  a  24  unit  senior   citizen   housing   project  in  Cunot.
Groundbreaking  ceremonies  were recently held to mark the official start of the
construction process. Upon completion,  the tax credits purchased will result in
considerable income tax savings for the Company and at the same time fulfill the
additional housing needs of the community.

         During the past year,  several new services were  introduced  including
business  checking,  Roth and  Educational  IRA  accounts,  home equity lines of
credit,  personal lines of credit and wire transfers. We installed our first ATM
machine this spring allowing  customers access to their accounts through the MAC
and Cirrus  network.  An ATM machine has also been  installed at the  Cloverdale
branch.

         This past fall, we  implemented  the use of a loan pricing  matrix into
our loan  administration  process.  This  tool has  allowed  the Bank to be more
competitive in offering  loans to lower credit risk customers  while at the same
time being more appropriately rewarded when offering loans to higher credit risk
customers.

         As many of you are aware by now,  the Year 2000  Computer  problem is a
serious issue that is being  addressed by the banking  industry as well as every
other industry. Management has made vigorous efforts since last fall to organize
and  adhere to  recommended  regulatory  guidelines  to deal with this issue and
allow us to  provide a high  degree of  assurance  to  customers  that  computer
operations will be uninterrupted when the new millennium arrives.  Our staff has
spent  countless  hours  on the  subject  and  considerable  dollars  have  been
allocated  towards  this  project.   At  this  point,  we  feel  confident  that
uninterrupted service will be achieved.

         Last December,  we announced a 2 for 1 stock split which  benefited all
shareholders of record when the  distribution  was completed on January 6, 1998.
This  decision  allowed us to comply  with new NASDAQ  Small Cap Market  listing
requirements and continue to provide liquidity for our stock.  Furthermore,  the
resulting  number of outstanding  shares from the stock split will also allow us
to buy back stock  from time to time  without  falling  below  NASDAQ's  minimum
market float requirements.

         As a fellow  shareholder  and on behalf of everyone  at Home  Financial
Bancorp and its  subsidiary  bank, I pledge to continue to strive for  increased
earnings,  equity, and shareholder value as well as to provide quality financial
services to our community and our customers.

Respectfully submitted,


/s/ Kurt J. Meier
Kurt J. Meier, President

<PAGE>



                     SELECTED CONSOLIDATED FINANCIAL DATA OF
                      HOME FINANCIAL BANCORP AND SUBSIDIARY

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


<TABLE>
<CAPTION>
                             SELECTED FINANCIAL DATA

At  June 30                                            1998         1997         1996         1995         1994
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Summary of Financial Condition:
<S>                                                   <C>           <C>          <C>          <C>           <C>    
Total assets.......................................   $42,560       $42,508      $39,426      $30,839       $26,008
Loans receivable, net..............................    33,959        34,117       27,125       25,547        21,479
Cash and cash equivalents..........................     3,802         4,184        5,721        1,386         1,237
Securities available for sale......................     1,918         2,102        4,901          934           ---
Securities held to maturity........................       ---           ---          ---        1,827         2,414
Deposits...........................................    26,649        26,157       28,726       22,500        21,451
Federal Home Loan Bank advances....................     8,200         9,000        7,200        5,000         1,500
Stockholders' equity - substantially restricted....     7,506         7,197        3,410        3,159         2,850


Year Ended June 30                                       1998          1997         1996         1995         1994
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Summary of Operating Results:
Interest and dividend income.....................      $3,690        $3,397       $2,955       $2,420        $2,023
Interest expense.................................       1,812         1,703        1,593        1,174           949
                                                       ------       -------      -------      -------       -------
   Net interest income...........................       1,878         1,694        1,362        1,246         1,074
Provision for losses on loans....................         102            85           94           36            14
                                                       ------       -------      -------      -------       -------
   Net interest income after provision for
        losses on loans..........................       1,776         1,609        1,268        1,210         1,060
                                                       ------       -------      -------      -------       -------
Other income:
   Service charges on deposit accounts...........          55            43           37           27            23
   Gain on sale of real estate acquired
        for development..........................           7            31           57           78           145
   Net realized gain on sales of a
     vailable for sale securities ...............         141           37           ---          ---           ---
   Other.........................................          64            53           47           43            33
                                                       ------       -------      -------      -------       -------
      Total other income.........................         267           164          141          148           201
                                                       ------       -------      -------      -------       -------
Other expense:
   Salaries and employee benefits................         766           563          415          404           344
   Net occupancy and equipment expense...........         143           132          123          109           109
   Deposit insurance expense.....................          16           165           54           49            48
   Other.........................................         519           508          333          304           306
                                                       ------       -------      -------      -------       -------
        Total other expense......................       1,444         1,368          925          866           807
                                                       ------       -------      -------      -------       -------
Income before income tax and cumulative
   effect of change in accounting principle......         599           405          484          492           454
Income tax expense...............................         206           153          196          203           169
                                                       ------       -------      -------      -------       -------
Cumulative effect of change in accounting principle                     ---          ---          ---           ---        (24)
   Net income....................................      $  393       $   252      $   288      $   289       $   261
                                                       ======       =======      =======      =======       =======


<PAGE>

Supplemental Data (1):
Basic earnings per share.........................     $   .47      $    .27          ---          ---           ---
Diluted earnings per share.......................         .47           .27          ---          ---           ---
Book value per common share at end of year.......        8.08          7.66          ---          ---           ---
Dividends per share..............................         .10           .08          ---          ---           ---
Dividend payout ratio............................       21.28%        29.63%         ---          ---           ---
Return on assets (2) ............................         .93%          .63%         .84%        1.00%         1.03%
Return on equity (3).............................        5.34          3.31         8.71         9.59          9.46
Interest rate spread (4) ........................        3.88          3.56         3.78         4.19          4.11
Net yield on interest-earning assets (5).........        4.65          4.41         4.13         4.54          4.42
Other expenses to average assets ................        3.42          3.40         2.70         2.99          3.17
Net interest income to other expenses............        1.30x         1.24x        1.47x        1.44x         1.33x
Equity-to-assets (6).............................       17.66         16.93         8.65        10.24         10.96
Average equity to average total assets...........       17.42         18.90         9.64        10.42         10.85
Average interest-earning assets to average
   interest-bearing liabilities..................        1.17x         1.19x        1.07x        1.08x         1.08x
Non-performing assets to total assets............        1.17          1.76         1.03          .32           .10
Non-performing loans to total loans..............         .81          1.65         1.32          .39           .13
Loan loss allowance to total loans, net..........         .94           .68          .55          .22           .12
Loan loss allowance to non-performing loans......      114.70         41.10        41.78        57.00        108.33
Net charge-offs to average loans ................         .04           .01            *          .02             *
-------------
</TABLE>

(1)      All per share  amounts  have been  restated to reflect a 2-for-1  stock
         split effective January 6, 1998.

(2)      Net income divided by average total assets.

(3)      Net income divided by average total equity.

(4)      Interest  rate spread is calculated by  subtracting  combined  weighted
         average interest rate cost from combined weighted average interest rate
         earned for the period indicated.

(5)      Net interest income divided by average interest-earning assets.

(6)      Total equity divided by total assets.

*        Less than .01%


<PAGE>

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

         The Holding  Company was formed as an Indiana  corporation  on February
21, 1996,  for the purpose of issuing its common  stock,  without par value (the
"Common Stock") and owning all of the outstanding common stock of the Bank to be
issued in the  Conversion as a unitary bank holding  company.  As a newly formed
corporation, the Holding Company has no operating history prior to July 1, 1996.

         The  principal  business  of savings  banks,  including  the Bank,  has
historically consisted of attracting deposits from the general public and making
loans secured by residential real estate.  The Company's  earnings are primarily
dependent upon its net interest income,  the difference  between interest income
and interest expense. Interest income is a function of the balances of loans and
investments outstanding during a given period and the yield earned on such loans
and  investments.  Interest  expense is a function of the amount of deposits and
borrowings  outstanding  during the same period and interest  rates paid on such
deposits and borrowings.  The Company's earnings are also affected by provisions
for loan  losses,  service  charges  and other  non-interest  income,  operating
expenses and income taxes.

         The  Company  is   significantly   affected  by   prevailing   economic
conditions,  as well as government  policies and regulations  concerning,  among
other things,  monetary and fiscal affairs,  housing and financial institutions.
Deposit flows are  influenced by a number of factors,  including  interest rates
paid on competing  investments,  account maturities and level of personal income
and savings within the Bank's market. In addition, deposit growth is affected by
how customers  perceive the stability of the  financial  services  industry amid
various current events such as regulatory  changes,  failures of other financial
institutions and financing of the deposit insurance fund. Lending activities are
influenced by the demand for and supply of housing lenders, the availability and
cost of funds and various other items.  Sources of funds for lending  activities
of the  Company  include  deposits,  payments  on loans,  borrowings  and income
provided from operations.

STOCKHOLDER MATTERS

         The book value of HFB common stock was $8.08 at June 30, 1998.  On this
same date,  the price of HFB Common  Stock was $9.00 per share,  representing  a
15.2%  increase  over the June 30,  1997 price of $7.81 per share.  For the year
ended June 30, 1998,  quarterly  dividends  totaling $.10 per share were paid to
shareholders.

         During the year ended June 30,  1998,  the  Company  declared a 2 for 1
stock  split,  under  which every share of HFB Common  Stock  outstanding  as of
December  23, 1997 was  converted  into two shares of Common  Stock.  HFB Common
Stock is traded on the NASDAQ  SmallCap Market under the symbol HWEN. As of June
30, 1998, there were  approximately 300 shareholders of record,  and 220 holders
who held stock in nominee or "street" name through various  brokerage  firms. At
June 30, 1998, there were 929,052 shares of Common Stock outstanding.


<PAGE>

THE YEAR 2000 ISSUE

         Management  and the Board of Directors  recognize and  understand  Year
2000 ("Y2K") risk, are active in overseeing corrective efforts, and are ensuring
that all  necessary  resources  are  available  to  address  this  problem.  The
awareness and assessment  phases of the Company's  year 2000 Project  Management
Plan have been completed, and the testing phase is currently under way.

         Management  believes the key to successfully  meeting the Y2K challenge
is prior  testing of all  affected  systems.  The  majority of  mission-critical
systems are provided by On-Line Financial Services,  Inc., Oak Brook,  Illinois.
Management  has  subscribed to a series of extensive Y2K tests that will use the
Bank's  specific  computer  applications  and customer  data.  In  addition,  an
information  technology  professional  has been  retained to assist with testing
in-house systems and third party vendor applications. Substantially, all testing
for mission-critical applications is scheduled to be completed prior to December
31, 1998.

         During  the  remainder  of 1998 and the first  half of  calendar  1999,
management  intends to modify or replace internal system components based on the
results of testing. At this time, management is aware of the need for some minor
equipment  or  software  changes.  Costs  related  to Y2K  issues did not have a
material impact on the Company's fiscal year 1998 financial statements.

         The largest  component of Y2K costs during fiscal year 1999 is expected
to be related to systems testing. Although the full cost of modifications is not
yet known,  management  does not  anticipate a need to invest  heavily in system
improvements to achieve Y2K compliance. At this time, it is estimated that costs
associated with Y2K issues will be less than $50,000 for fiscal year 1999.

ASSET/LIABILITY MANAGEMENT

         The Bank's  profitability  is  dependent to a large extent upon its net
interest  income,  which  is the  difference  between  its  interest  income  on
interest-earning assets, such as loans and securities,  and its interest expense
on interest-bearing liabilities, such as deposits and borrowings. The Bank, like
other  financial  institutions,  is subject to interest  rate risk to the degree
that its  interest-earning  assets reprice differently than its interest-bearing
liabilities.  The Bank manages its mix of assets and liabilities  with the goals
of limiting its exposure to interest rate risk, ensuring adequate liquidity, and
coordinating its sources and uses of funds.

         The Bank seeks to control its interest  rate risk  exposure in a manner
that will allow for  adequate  levels of earnings  and  capital  over a range of
possible  interest rate  environments.  The Bank has adopted formal policies and
practices to monitor and manage  interest  rate risk  exposure.  As part of this
effort, the Bank uses the market value ("MV") methodology to gauge interest rate
risk exposure.

         Generally, MV is the discounted present value of the difference between
incoming  cash flows on  interest-earning  assets and other  assets and outgoing
cash  flows  on   interest-bearing   liabilities  and  other  liabilities.   The
application of the  methodology  attempts to quantify  interest rate risk as the
change in the MV which would result from a  theoretical  200 and 400 basis point
(1 basis point equals .01%) change in market  interest  rates.  Both 200 and 400
basis  point  increases  in market  interest  rates and 200 and 400 basis  point
decreases in market interest rates are considered.


<PAGE>

         It is estimated that at June 30, 1998, MV would decrease 3.9% and 19.4%
in the event of 200 and 400 basis  point  increases  in  market  interest  rates
respectively,  compared  to 5.2% and  13.7% for the same  increases  at June 30,
1997.  The Bank's MV at June 30, 1998 would decrease 8.7% and 14.4% in the event
of 200 and 400 basis  point  decreases  in  market  rates  respectively.  A year
earlier,  200 and 400 basis point decreases in market rates would have increased
MV 2.3% and 5.4% respectively.

         Differences  in MV  performance  resulting from changes in market rates
reflect  increases  and  decreases  in cash flow for each  asset  and  liability
category.  Changes  in  asset  and  liability  mix,  pricing  assumptions,  loan
prepayment rates,  transaction account decay rates, and other influences account
for modified cash flows from one period to another.

Presented  below,  as of June 30,  1998 and 1997,  is an  analysis of the Bank's
interest rate risk as measured by changes in MV for  instantaneous and sustained
parallel shifts of 200 and 400 basis point increments in market interest rates.


                                  JUNE 30, 1998
                        MARKET VALUE SUMMARY PERFORMANCE

<TABLE>
<CAPTION>

                                                                                                     MV as % of
                                                                                                 Present Value (PV)
      Change                                   Market Value                                           of Assets
     In Rates              $ Amount              $ Change              % Change              MV Ratio               Change
--------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                          <C>               <C>                      <C>                   <C>              <C>      
    + 400 bp*                $5,058            $ (1,220)                (19.44)%              13.26%           (191)  bp
    + 200 bp                  6,035                (243)                 (3.87)               15.05             (12)  bp
        0 bp                  6,278                   0                   0.00                15.17             ---     
    - 200 bp                  5,734                (544)                 (8.67)               13.68            (149)  bp
    - 400 bp                  5,376                (902)                (14.37)               12.59            (258)  bp
</TABLE>

             Interest Rate Risk Measures: 200 Basis Point Rate Shock

       Pre-Shock MV Ratio: MV as % of PV of Assets............       15.17%
       Exposure Measure: Post-Shock MV Ratio..................       13.68%
       Sensitivity Measure: Change in MV Ratio................         149 bp
       Change in MV as % of PV of Assets......................        8.67%


<PAGE>

                                  JUNE 30, 1997
                        MARKET VALUE SUMMARY PERFORMANCE

<TABLE>
<CAPTION>


                                                                                                     MV as % of
                                                                                                 Present Value (PV)
      Change                                   Market Value                                           of Assets
     In Rates              $ Amount              $ Change              % Change              MV Ratio               Change
--------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                          <C>               <C>                      <C>                   <C>              <C>      
    + 400 bp*                $5,254              $ (831)                (13.66)%              13.48%           (121)  bp
    + 200 bp                  5,769                (317)                 (5.20)               14.32             (37)  bp
        0 bp                  6,085                   0                   0.00                14.69             ---     
    - 200 bp                  6,223                 138                   2.26                14.66               3   bp
    - 400 bp                  6,414                 329                   5.41                14.74               5   bp
</TABLE>

             Interest Rate Risk Measures: 200 Basis Point Rate Shock

   Pre-Shock MV Ratio: MV as % of PV of Assets..........       14.69%
   Exposure Measure: Post-Shock MV Ratio................       14.32%
   Sensitivity Measure: Change in MV Ratio..............          37 bp
   Change in MV as % of PV of Assets....................        5.19%
--------
* Basis points.

<PAGE>

 Average Balances, Interest Rates and Yields

         The following  table  presents for the years ended June 30, 1998,  1997
and 1996,  the  month-end  average  balances of each  category of the  Company's
interest-earning assets and interest-bearing liabilities, and the average yields
earned and  interest  rates  paid on such  balances.  Such  yields and costs are
determined  by dividing  income or expense by the  average  balance of assets or
liabilities, respectively, for the periods presented.


<PAGE>

                      AVERAGE BALANCE SHEET/YIELD ANALYSIS

<TABLE>
<CAPTION>


Year Ended June 30,                            1998                        1997                          1996
-------------------------------------------------------------------------------------------------------------------------
                                    Average             Yield/    Average           Yield/     Average            Yield/
                                    Balance  Interest    Cost     Balance Interest   Cost      Balance  Interest   Cost    
(Dollars in thousands)              -------------------------------------------------------------------------------------
Assets:
Interest-earning assets:
<S>                                <C>      <C>          <C>   <C>       <C>         <C>    <C>         <C>         <C>  
   Interest-earning deposits.......$  3,214 $    177     5.51% $  2,692  $   137     5.09%  $  2,782    $  136      4.89%
   Mortgage-backed
     securities (1)................  1,630       115     7.07%    2,523      185     7.33      1,628        90      5.53 
   Other investment securities (1).    688        52     7.53     2,376      130     5.47      1,291        89      6.89 
   Loans receivable (2)............ 34,366     3,306     9.62    30,418    2,912     9.57     26,970     2,619      9.71 
   Stock in FHLB of Indianapolis...    500        40     8.06       433       33     7.63        274        21      7.66 
     Total interest-earning assets. 40,398     3,690     9.14    38,442    3,397     8.84     32,945     2,955      8.97 
Non-interest earning assets, net of
   allowance for loan losses 
   and including unrealized gain 
   (loss) on securities
   available for sale..............  1,860                        1,804                        1,367
     Total assets..................$42,258                      $40,246                      $34,312
Liabilities and stockholders' equity:
Interest-bearing liabilities:
   Savings accounts................ $3,399       103     3.03  $  3,930      114     2.90   $  4,235       117      2.76 
   NOW accounts....................  3,998       124     3.09     2,162       70     3.24      2,320        58      2.50 
   Certificates of deposit......... 18,482     1,056     5.72    18,465    1,032     5.59     18,672     1,086      5.82 
   Other borrowings................    ---       ---       ---      ---      ---       ---        15         1      6.67 
   FHLB advances...................  8,592       529     6.16     7,725      487     6.30      5,475       331      6.05 
     Total interest-bearing 
          liabilities.............. 34,471     1,812     5.26    32,282    1,703     5.28     30,717     1,593      5.19 

Other liabilities..................    426                          358                          289
     Total liabilities............. 34,897                       32,640                       31,006
Stockholders' equity...............  7,316                        7,601                        3,305
Net unrealized gain on securities
   available for sale..............     45                            5                            1
     Total stockholders' equity....  7,361                        7,606                        3,306
     Total liabilities and
         stockholders' equity......$42,258                      $40,246                      $34,312
Net interest-earning assets........$ 5,927                     $  6,160                     $  2,228
Net interest income................          $ 1,878                     $ 1,694                        $1,362
Interest rate spread...............                       3.88%                      3.56%                          3.78%
Net yield on weighted average
   interest-earning assets.........                       4.65%                      4.41%                          4.13%
Average interest-earning assets to
   average interest-bearing 
   liabilities..................... 117.19%                      118.99%                      107.25%
</TABLE>

(1)      Yields for mortgage-backed  securities and other investments  available
         for sale are computed based upon amortized cost.

(2)      Non-accruing loans have been included in average balances.

         In the  foregoing  table,  no  adjustment  of  interest  on  tax-exempt
securities to a tax-equivalent basis was made since the adjustment was less than
$10,000 in each period presented.


<PAGE>

INTEREST RATE SPREAD

         The Company's results of operations have been impacted primarily by net
interest  income.  Net interest income is determined by the interest rate spread
between  the  yields  earned on  interest-earning  assets  and the rates paid on
interest-bearing  liabilities  and by the relative  amounts of  interest-earning
assets and interest-bearing liabilities.

         The following table sets forth the weighted average effective  interest
rate  earned  by the  Company  on its  loan,  investment  portfolios  and  total
interest-earning assets. The table also includes weighted average effective cost
of the  Company's  deposits  and  borrowings,  the  interest  rate spread of the
Company, and the net yield on weighted average  interest-earning  assets for the
periods  and as of the date  shown.  Average  balances  are  based on  month-end
average balances.

                          INTEREST RATE SPREAD ANALYSIS
<TABLE>
<CAPTION>


                                                    At June 30,                        Year Ended June 30,
                                                        1998                    1998           1997           1996
--------------------------------------------------------------------------------------------------------------------

Weighted average interest rate earned on:
<S>                                                     <C>                     <C>             <C>            <C>  
   Interest-earning deposits.........................   5.31%                   5.51%           5.09%          4.89%
   Mortgage-backed securities........................   7.50                    7.07            7.33           5.53
   Other investment securities.......................   7.84                    7.53            5.47           6.89
   Loans receivable..................................   9.51                    9.62            9.57           9.71
   Stock in FHLB of Indianapolis.....................   8.00                    8.06            7.63           7.66
     Total interest-earning assets...................   9.09                    9.14            8.84           8.97

Weighted average interest rate cost of:
   Savings accounts..................................   3.03                    3.03            2.90           2.76
   NOW and money market accounts.....................   2.78                    3.09            3.24           2.50
   Certificates of deposit...........................   5.78                    5.72            5.59           5.82
   Other borrowings..................................     ---                     ---             ---          6.67
   FHLB advances.....................................   6.01                    6.16            6.30           6.05
     Total interest-bearing liabilities..............   5.16                    5.26            5.28           5.19

Interest rate spread (1).............................   3.93%                   3.88%           3.56%          3.78%
Net yield on weighted average
   interest-earning assets (2).......................                           4.65%           4.41%          4.13%
</TABLE>

(1)  Interest rate spread is calculated by subtracting weighted average interest
     rate cost  from  weighted  average  interest  rate  earned  for the  period
     indicated.  Interest rate spread figures must be considered in light of the
     relationship   between   the   amounts  of   interest-earning   assets  and
     interest-bearing liabilities.

(2)  The net yield on weighted average  interest-earning assets is calculated by
     dividing net interest income by weighted  average  interest-earning  assets
     for the period indicated.  No net yield percentage is presented at June 30,
     1998, because the computation of net yield is applicable only over a period
     rather than at a specific date.


<PAGE>

         The following  table  describes the extent to which changes in interest
rates and  changes in volume of  interest-related  assets and  liabilities  have
affected the Company's interest income and expense during the periods indicated.
For each category of interest-earning  assets and interest-bearing  liabilities,
information  is provided on changes  attributable  to (1) changes in rate (i.e.,
changes in rate  multiplied  by old  volume)  and (2)  changes in volume  (i.e.,
changes in volume multiplied by old rate). Changes attributable to both rate and
volume have been  allocated  proportionally  to the change due to volume and the
change due to rate.


<PAGE>

                              RATE/VOLUME ANALYSIS

                                     Increase (Decrease) in Net Interest Income
                                         Total Net      Due to     Due to       
                                          Change         Rate      Volume       
YEAR ENDED JUNE 30, 1998                                                        
COMPARED  TO YEAR ENDED JUNE 30,  1997                                          
--------------------------------------------------------------------------------
(In  thousands)                                                                 
Interest-earning assets:                                                        
   Interest-earning deposits .......      $  40          $  12       $  28      
   Mortgage-backed securities ......       (133)             6        (139)     
   Other investment securities .....        (15)            32         (47)     
   Loans receivable ................        394             14         380      
   Stock in FHLB of Indianapolis ...          7              2           5      
                                          -----          -----       -----      
     Total .........................        293             66         227      
                                          -----          -----       -----      
Interest-bearing liabilities:                                                   
   Savings accounts ................        (11)             5         (16)     
   NOW and money market accounts ...         53             (4)         57      
   Certificates of deposit .........         25             24           1      
   Other borrowings ................         --             --          --      
   FHLB advances ...................         42            (12)         54      
                                          -----          -----       -----      
     Total .........................        109             13          96      
                                          -----          -----       -----      
Change in net interest income ......      $ 184          $  53       $ 131      
                                          =====          =====       =====      
                                                                       
YEAR ENDED JUNE 30, 1997                                               
COMPARED TO YEAR ENDED JUNE 30, 1996                                   
Interest-earning assets:                                               
   Interest-earning deposits .......      $   1          $   5          $  (4)
   Mortgage-backed securities ......         95             35             60
   Other investment securities .....         41            (21)            62
   Loans receivable ................        293            (43)           336
   Stock in FHLB of Indianapolis ...         12             --             12
                                          -----          -----          -----
     Total .........................        442            (24)           466
                                          -----          -----          -----
Interest-bearing liabilities:                                          
   Savings accounts ................         (3)             5             (8)
   NOW and money market accounts ...         12             16             (4)
   Certificates of deposit .........        (54)           (42)           (12)
   Other borrowings ................         (1)            --             (1)
   FHLB advances ...................        156             15            141
                                          -----          -----          -----
     Total .........................        110             (6)           116
                                          -----          -----          -----
Change in net interest income ......      $ 332          $ (18)         $ 350
                                          =====          =====          =====
YEAR ENDED JUNE 30, 1996                                               
COMPARED TO YEAR ENDED JUNE 30, 1995                                   
Interest-earning assets:                                               
   Interest-earning deposits .......      $  59          $ (16)         $  75
   Mortgage-backed securities ......         (3)            (7)             4
   Other investment securities .....         22              3             19
   Loans receivable ................        452            102            350
   Stock in FHLB of Indianapolis ...          5              1              4
                                          -----          -----          -----
     Total .........................        535             83            452
                                          -----          -----          -----
Interest-bearing liabilities:                                          
   Savings accounts ................        (21)           (14)            (7)
   NOW and money market accounts ...         (4)            (3)            (1)
   Certificates of deposit .........        323            129            194
   Other borrowings ................         (9)            (2)            (7)
   FHLB advances ...................        130             --            130
                                          -----          -----          -----
     Total .........................        419            110            309
                                          -----          -----          -----
Change in net interest income ......      $ 116          $ (27)         $ 143
                                          =====          =====          =====
                                                                   

<PAGE>

CHANGES IN FINANCIAL  POSITION  AND RESULTS OF  OPERATIONS - YEAR ENDED JUNE 30,
1998, COMPARED TO YEAR ENDED JUNE 30, 1997:

         General.  HFB earned record net income  totaling  $393,000 for the year
ended June 30, 1998,  representing  a $141,000 or 55.7%  increase  from the year
ended  June 30,  1997,  in which  net  income  of  $252,000  was  earned.  Major
contributions to improved  earnings for the year were higher net interest income
and lower deposit insurance expense.

         The return on average assets for the year ended June 30, 1998 was .93%,
compared to .63% the prior year June 30, 1997.  The return on average equity was
5.34% for the year ended  June 30,  1998,  compared  to 3.31% for the prior year
ended  June 30,  1997.  Earnings  per share was $.47 for the year ended June 30,
1998,  compared  to $.27 for the year ended June 30,  1997.  Without the special
assessment  imposed by federal  legislation to recapitalize the SAIF, net income
for the prior year ended June 30, 1997 would have been  $338,000  for returns on
average assets and average equity of .84% and 4.45% respectively.

         Assets.  Total  assets at June 30, 1998 were  $42,560,000,  compared to
total  assets  of  $42,508,000  at June 30,  1997.  Cash  and  cash  equivalents
decreased  $382,000  or 9.1%,  to  $3,802,000  at June  30,  1998,  compared  to
$4,184,000 a year earlier.  The decrease in cash and cash  equivalents  combined
with cash inflows from deposits and sales of investment  securities were used to
repay  borrowings  and acquire  additional  premises and  equipment.  Investment
securities  decreased $184,000 or 8.8% to $1,918,000 at June 30, 1998,  compared
to  $2,102,000 at June 30, 1997.  Total loans at June 30, 1998 were  $34,279,000
compared to total loans of $34,349,000 at prior year-end June 30, 1997.

         The year-end  level of stock in the Federal Home Loan Bank  ("FHLB") of
Indianapolis  stood at $500,000 for 1998 and 1997.  Net  premises and  equipment
increased $724,000 or 75.1%, to $1,687,000 at June 30, 1998 compared to $964,000
at June  30,  1997.  The  increase  is due to  costs  for the  nearly  completed
construction of the Bank's first branch office site in the Putnam County town of
Cloverdale,  as well as  costs  for  finishing  construction  on new  facilities
adjacent  to the Bank's  main  office in  Spencer.  Foreclosed  real  estate and
repossessed  assets increased  $33,000 or 17.6% to $220,000 compared to $187,000
at June 30,  1997.  The total at June 30,  1998  consists  of three  residential
single family properties and one mobile home.

         Average assets  increased  $2,012,000 or 5.0%, to  $42,258,000  for the
year ended June 30, 1998,  compared to $40,246,000 for the prior year-ended June
30, 1997.  Average  interest-earning  assets  increased  $1,956,000  or 5.1%, to
$40,398,000  for the year ended  June 30,  1998 and  represented  95.6% of total
average assets. The increase was due to average loans receivable which increased
$3,948,000 or 13.0%, to $34,366,000  for the year ended June 30, 1998,  compared
to  $30,418,000  for the year ended June 30,  1997.  The average  level of other
interest-earning  assets  decreased  $1,992,000 or 24.8%,  to $6,032,000 for the
year ended June 30, 1998, compared to $8,024,000 the same period a year ago.

         Liabilities and Stockholders'  Equity.  Total deposits were $26,649,000
at June 30, 1998, a $492,000 or 1.9% increase from $26,157,000 at June 30, 1997.
The change is traced to a $1,339,000 or 91.0% increase in  transaction  deposits
to  $2,810,000  at June 30,  1998,  compared  to  $1,471,000  at June 30,  1997.
Passbook and statement  savings  deposits  also  increased by $330,000 or 11.2%.
These  increases  were offset by declines of $705,000 or 31.8%,  and $473,000 or
2.4%, in money market  deposits and  certificates of deposit,  respectively.  In
addition to deposits,  FHLB advances are an important  source of both short-term
and long-term funding for the Bank. FHLB advances totaled $8,200,000 at June 30,
1998, compared to $9,000,000 at June 30, 1997.

         Average  liabilities  increased  $2,257,000 or 6.9%, to $34,897,000 for
the year ended June 30, 1998,  compared to $32,640,000 for the prior  year-ended
June 30, 1997.  Average  interest-bearing  liabilities  increased  $2,189,000 or
6.8%,  to  $34,471,000  for the  year-ended  June 30,  1998.  The  increase  was
primarily due to average  transaction  and money market  deposits which together
increased  $1,836,000  or  84.9%,  to  $3,998,000  for  the  1998,  compared  to
$2,162,000 for the prior year.


<PAGE>

         HFB's stockholders' equity increased $309,000 or 4.3%, to $7,506,000 at
June 30, 1998,  compared to  $7,197,000  at June 30, 1997.  Contributing  to the
increase was net income of $393,000.  The increase was partially  offset by cash
dividends  of  $85,000  paid for the year  ended  June 30,  1998.  The  ratio of
stockholders'  equity  to total  assets  increased  to  17.6% at June 30,  1998,
compared to 16.9% at June 30, 1997.

         During the year ended June 30, 1998, 10,000 shares of Common Stock were
purchased and retired by the Company pursuant to a 10% stock repurchase program.
These repurchases reduced total outstanding shares of Common Stock to 929,052 at
June 30,  1998.  The $78,000  cost of these  repurchased  shares  represented  a
reduction in total stockholders' equity.

         Net  Interest  Income.  Net  interest  income  increased by $185,000 or
10.9%,  to $1,878,000  for the year ended June 30, 1998,  compared to $1,693,000
for the year ended June 30, 1997.  Impacting  net interest  income were interest
rate changes on rate-sensitive  assets and liabilities during the current period
and average  balance  increases or decreases  applicable  to the  rate-sensitive
portion of the  balance  sheet.  As a result of these  factors,  total  interest
income increased by $294,000 or 8.6% while total interest  expense  increased by
$109,000 or 6.4%, compared to the same period a year earlier.

         Interest income on loans totaled $3,306,000 for the year ended June 30,
1998,  compared to  $2,912,000  for the year ended June 30, 1997; an increase of
$394,000 or 13.5%. The increase can be attributed to a larger average balance of
loans receivable outstanding for the current year and an increase in the average
yield  earned,  compared  to the same  period  one year ago.  At June 30,  1998,
investment   securities  included  $1,320,000  in  equity  stocks  which  earned
dividends rather than interest  income.  Interest and dividend income from total
investments  decreased $141,000 or 40.4% to $207,000 for the year ended June 30,
1998  compared to $348,000 for the year ended June 30, 1997.  The decline can be
attributed to a decrease in average  balance  outstanding  for the current year,
which was partially  offset by an increase in the average yield  compared to the
same period a year earlier.  Interest  income on FHLB stock totaled  $40,000 for
the year ended June 30,  1998,  compared  to $33,000 for the year ended June 30,
1997; an increase of $7,000 or 21.2%. The increase can be attributed to a larger
average  balance  outstanding  and an  increase  in the  average  yield  earned,
compared to the same period a year earlier.  The combined weighted average yield
on the balance of  interest-earning  assets  outstanding for the year ended June
30, 1998 increased to 9.14%, compared to 8.84% for the prior year ended June 30,
1997.

         Interest expense on deposits  increased  $73,000 or 6.0%, to $1,283,000
for the year ended June 30, 1998, compared to $1,210,000 for the year ended June
30,  1997.  The change  was the result of an  increase  in the  average  deposit
balance  outstanding  of the  current  year  compared  to the same period a year
earlier.  The average  cost of deposits  remained  unchanged  at 5.0%.  Interest
expense on  borrowings  increased  by $42,000 or 8.6%,  to $529,000 for the year
ended June 30, 1998,  compared to $487,000 for the year ended June 30, 1997. The
increase was the result of a larger average balance  outstanding for the current
year, which was partially offset by a decline in the average cost of borrowings.
The combined  weighted average rate paid on deposits and borrowings was 5.3% for
the year ended June 30, 1998 and the prior year.


<PAGE>

         The  Company's  interest  rate spread  increased  to 3.88% for the year
ended June 30, 1998, compared to 3.56% for the year ended June 30, 1997. The net
interest margin increased to 4.65% for the year ended June 30, 1998, compared to
4.41% for the year ended June 30, 1997.  Increases in both  interest rate spread
and  interest  rate margin were the result of larger  average  balances in loans
receivable,  which are the Company's highest yielding assets, and larger average
balances in lower costing liabilities, such as transaction accounts.

         Provisions for Loan Losses.  For the year ended June 30, 1998, the Bank
provided $102,000 for future loan losses.  During the prior year,  provisions of
$85,000 were made. The allowance for loan losses totaled $320,000 or .94% of net
loans at June 30,  1998,  compared  to $231,000 or .68% of net loans at June 30,
1997, an increase of $89,000 or 38.5%. Management considers the Bank's allowance
for loan losses to be adequate based on general economic conditions,  historical
net   charge-offs   and  other   factors  such  as  the  size,   condition   and
characteristics  of  the  loan  portfolio.  In  assessing  loan  loss  allowance
adequacy,  consideration  is also given to the volume  and  composition  of loan
portfolio growth as well as the level of allowances maintained by peers.

         Noninterest  Income.  Noninterest income increased by $103,000 or 62.9%
to $267,000 for the year ended June 30, 1998, compared to $164,000 for the prior
year ended June 30, 1997. A major  contributor to the increase was a $104,000 or
279.3%  increase in gains on the sale of  investments  to $141,000  for the year
ended  June 30,  1998,  compared  to $37,000  for the year ended June 30,  1997.
Partially  offsetting this increase and the increase in service fee income was a
decline of $24,000 in gains on the sale of real estate  acquired for development
to $7,000 for the current  year,  compared to $31,000 for the same period a year
ago.

         BSF Inc.,  the  Bank's  service  corporation  subsidiary  ("BSF"),  was
organized in 1989 and has historically  engaged in the purchasing and developing
of large  tracts of real  estate.  Management  has utilized the sale of lots and
residences to provide an additional source of income for the Company.  The level
of income from this source fluctuates widely since it is dependent on the volume
of  activity,  primarily  the number of lots sold,  and  profits on  residential
properties.  In  connection  with the Bank's  conversion  to an  Indiana  mutual
savings  bank  in  1996,  the  FDIC  required  the  Bank  to  cease  BSF's  land
acquisitions and divest of BSF's non-conforming real estate holdings within five
years,  among  other  conditions.  BSF has ceased to acquire  land and is in the
process of divesting of its real estate holdings. BSF currently anticipates that
all  non-conforming  real estate will be sold  within the  required  disposition
period.  The loss of the income from this source will have an adverse  effect on
net income subsequent to discontinuance of this business activity.

         Noninterest Expense.  Noninterest expense increased by $77,000 or 5.6%,
to $1,444,000  for the year ended June 30, 1998,  compared to $1,368,000 for the
year ended June 30, 1997. The increase can be primarily  attributed the $203,000
or 36.1%  increase in salaries  and  employee  benefits to $766,000 for the year
ended June 30,  1998,  compared  to  $563,000  for the prior year ended June 30,
1997.  The  increase  was the result of new staff  members  hired for the Bank's
Cloverdale  branch and costs  associated  with  employee  benefit  plans adopted
during  fiscal  year 1997.  Partially  offsetting  this  increase  was a drop in
deposit  insurance  expense of $149,000 or 90.3%,  to $16,000 for the year ended
June 30, 1998,  compared to $165,000  for the year ended June 30, 1997.  Deposit
insurance expense for last year included the one-time special assessment expense
of $142,000  imposed by federal  legislation  to  recapitalize  the SAIF.  Other
increases  related to  occupancy,  advertising,  foreclosed  property,  and data
processing expenses. These increases were partially offset by a decline in legal
and  professional  fees of $48,000 or 28.2%, to $123,000 for the year ended June
30, 1998, compared to $172,000 for the year ended June 30, 1997.


<PAGE>

         Income Tax Expense.  Income tax expense  increased $54,000 or 35.3%, to
$206,000  for the year ended June 30,  1998,  compared to $152,000 for the prior
year ended June 30, 1997.  The increase was due to an increase in income  before
taxes of  $194,000  or 48.0%,  which was  partially  offset by a decline  in the
effective combined federal and state income tax rate to 34.4% for the year ended
June 30, 1998, compared to 37.7% for the same period a year ago.

CHANGES IN FINANCIAL  POSITION  AND RESULTS OF  OPERATIONS - YEAR ENDED JUNE 30,
1997, COMPARED TO YEAR ENDED JUNE 30, 1996:

         General.  Total assets increased $3.1 million at June 30, 1997 compared
to June 30,  1996.  The  increase  was the net result of an  increase  in loans,
combined with decreases in investment  securities and cash and cash equivalents.
Loans increased by $7.0 million or 25.8%, while the sale of securities decreased
investment securities by $2.8 million and cash and cash equivalents decreased by
$1.5  million to fund the  increase  in loans.  The  increase  in loans was also
funded by additional advances of $1.8 million from the FHLB.

         Average assets increased from $34.3 million for the year ended June 30,
1996,  to $40.2  million for the year ended June 30, 1997, an increase of 17.2%.
Average interest-earning assets represented 96.0% of average assets for the year
ended June 30, 1996 compared to 95.5% for the year ended June 30, 1997.  Average
loans  experienced  the largest  increase  amounting to $3.4 million while other
interest-earning  assets increased to a lesser extent. Average  interest-bearing
liabilities  as a percentage of average  interest-earning  assets were 84.0% for
1997 compared to 93.2% for 1996.

         Investment    Securities.    Average    investment    securities    and
mortgage-backed  securities increased $1.1 million and $895,000 respectively for
the year ended June 30, 1997 compared to the year ended June 30, 1996  primarily
due to the initial investment of conversion  proceeds in securities.  During the
year  ended  June  30,  1997,  mortgage-backed  securities  and  selected  other
securities  were sold primarily to fund loan growth.  Consequently,  at June 30,
1997, the total of  mortgage-backed  securities and other investment  securities
decreased $2.8 million compared to June 30, 1996. All investments are classified
as available for sale to provide maximum  flexibility in managing the investment
portfolio.  At June  30,  1997  and  1996  the net  unrealized  gain  (loss)  on
securities available for sale was $42,000 and ($28,000), respectively.

         Loans  and   Allowance  for  Loan  Losses.   Average  loans   increased
approximately  $3.4  million from the year ended June 30, 1996 to June 30, 1997.
The  growth in loans  was  funded  by  decreases  in other  earning  assets  and
increased  average  borrowings.  Average loans were $30.4 million for the period
ended June 30,  1997  compared to $27.0  million  for the period  ended June 30,
1996.  The  average  rate on loans was 9.57% for the year  ended  June 30,  1997
compared  to 9.71% for the year ended  June 30,  1996,  a  decrease  of 14 basis
points.  The allowance for loan losses as a percentage of net loans increased to
 .68% from .55% as a result of a monthly  provision  for loan  losses and nominal
charge-offs.  The ratio of the allowance for loan losses to nonperforming  loans
was 30.9% at June 30, 1997 compared to 41.8% at June 30, 1996.

         Residential  mortgage  loans  increased by $1.7  million and  comprised
57.2%  of  total  loans  at June 30,  1997  compared  to  66.1% a year  earlier.
Nonresidential  mortgage  loans  increased by $4.4 million to $6.9  million,  or
19.8% of total loans at June 30, 1997,  compared to 9.22% of total loans at June
30, 1996.


<PAGE>

         Premises and Equipment.  Premises and equipment increased approximately
$451,000,  net of depreciation  from June 30, 1996 to June 30, 1997. The largest
increases  were  related to the  purchase  of a property  for a proposed  branch
office in Cloverdale,  Indiana and building construction for expanded facilities
on property adjacent to the Bank.

         Deposits.  Deposits  decreased  $2.5 million from $28.7 million at June
30, 1996 to $26.2 million at June 30, 1997.  Passbook savings accounts decreased
approximately $4.7 million, substantially all of which was attributable to funds
withdrawn for the purchase of common stock related to the conversion of the Bank
from a mutual to a stock institution.  All other deposits increased $2.2 million
during this period.  Average total deposits  decreased $670,000 to $24.5 million
for the year ended June 30, 1997  compared  to $25.2  million for the year ended
June 30, 1996.

         Interest-bearing demand deposits and money market deposits totaled $3.7
million or 14.1% of total  deposits at June 30,  1997,  compared to $2.4 million
and 8.3% of total  deposits  at June 30,  1996.  Savings  deposits,  which  were
unusually high at June 30, 1996,  comprised  11.3% of total deposits at June 30,
1997  compared to 26.8% a year  earlier.  Savings  deposits,  at June 30,  1996,
included  approximately $4.7 million of conversion  proceeds for the purchase of
stock.  Certificates  of deposits  increased to $19.5  million or 74.7% of total
deposits  at June 30, 1997  compared  to $16.0  million and 64.9% of deposits at
June 30, 1996.

         Borrowed  Funds.  Borrowed  funds  increased $1.8 million from June 30,
1996 to June 30, 1997. The increase in borrowed funds was used to fund a portion
of the Bank's loan growth.  The weighted  average interest rate on advances from
the FHLB of Indianapolis  increased from 6.05% at June 30, 1996 to 6.30% at June
30, 1997.  Average  borrowed funds  increased to $7.7 million for the year ended
June 1997 from $5.5 million for the year ended June 1996.

         Stockholders'  Equity.  Stockholders'  equity increased $3.8 million to
$7.2  million  at June 30,  1997  compared  to $3.4  million  at June  30,  1996
primarily due to conversion  proceeds and net income during the period.  On July
1, 1996,  the Bank  completed the conversion and the formation of Home Financial
Bancorp  as the  holding  companyof  the Bank.  As part of the  conversion,  the
Company  issued  505,926  shares  of  common  stock  at $10  per  share  (before
restatement  for the  2-for-1  stock  split),  of which  40,474  shares  (before
restatement  for the 2-for-1  stock  split)  were  issued to an  Employee  Stock
Ownership Plan. Net proceeds of the Company's stock issuance,  after costs, were
approximately  $4.7  million,  of which $2.5 million was used to acquire 100% of
the stock and ownership of the Bank.

         During the period  ended June 30, 1997,  36,400  shares of common stock
(before  restatement  for the 2-for-1 stock split) were purchased and retired by
the  Company  pursuant  to a 10% stock  repurchase  program.  These  repurchases
reduced total outstanding shares of common stock to 469,526 (before  restatement
for the 2-for-1 stock split) at June 30, 1997, and the $565,000 cost represented
a reduction in total stockholders' equity.

         Net Income.  Net income for the fiscal year ended June 30, 1997 totaled
$252,000  compared to $288,000 for the year ended June 30, 1996,  representing a
$36,000 or 12.5%  decrease.  The  decline in net income was due  primarily  to a
one-time special  assessment of $142,000  ($86,000 after tax) imposed by federal
legislation to recaptialize  the SAIF. The return on average assets for the year
ended June 30, 1997 was .63%, compared to .84% for the prior year ended June 30,
1996.  The return on average  equity was 3.31% for the year ended June 30, 1997,
as  compared to 8.71% for the year ended 1996.  Basic and diluted  earnings  per
share were $.27 for the year ended June 30, 1997.


<PAGE>

         For the Year ended June 30, 1997,  net income  without the special SAIF
assessment would have totaled $338,000 or $.37 per share. Further, the return on
average assets and the return on average equity, without the special assessment,
would have been .84% and 4.44%, respectively.

         Net Interest  Income.  Net Interest income  increased  $332,000 to $1.7
million for the year ended June 30,  1997,  compared  to the prior  year.  Total
interest  income was $3.4 million for the year ended June 30, 1997,  compared to
$3.0 million for 1996.  Average earning assets increased $5.5 million from $32.9
million to $38.4  million from the 1996 period to the 1997 period.  The increase
in average  earning assets was  accompanied by a decrease in average yields from
8.97% during 1996 to 8.84% during  1997.  The increase in average  loans was the
primary factor contributing to the increase in total interest income.

         Total interest expense increased  $110,000 during the fiscal year ended
June 30,  1997  compared to 1996.  This  increase  resulted  from an increase in
average  interest-bearing  liabilities  of $1.6  million,  from $30.7 million to
$32.3 million as well as an increase in the average cost of funds from 5.19% for
1996 to 5.28%  for  1997.  The  average  balances  of NOW and  savings  accounts
decreased  $463,000  while the  average  balance  of  certificates  of  deposits
decreased  $207,000  during 1997.  Borrowed  funds  averaged $2.3 million higher
during 1997 compared to 1996 as the Company continued to utilize borrowings from
the FHLB to fund loans and other asset growth.

         Other Income.  Service charges on deposit accounts  increased $5,000 in
1997  compared  to 1996  primarily  as a result of an  increase in the number of
accounts  subject to such charges.  Income from the sale of real estate acquired
for  development  decreased  by $26,000  to $31,000  for the year ended June 30,
1997,  compared to $57,000 for the year ended June 30, 1996. In connection  with
the  Bank's  conversion  to an Indiana  mutual  savings  bank in 1996,  the FDIC
required the  divestiture of  non-conforming  real estate  holdings  within five
years, among other conditions. Consequently, income from the sale of real estate
acquired for development will decrease in future periods.

         Other Expenses.  Salaries and benefits  increased 35.7% to $563,000 for
the fiscal year ended June 30, 1997, compared to 1996. The increase reflects new
employee benefit plans, two additional full-time employees, and normal increases
in  compensation  and payroll  taxes.  Expenses  related to the  Employee  Stock
Ownership Plan ("ESOP"), adopted in July 1996, and the Recognition and Retention
Plan and Trust ("RRP")  approved by  shareholders  in January 1997,  account for
much of the  salaries  and  benefits  increase.  The ESOP  expense  for 1997 was
$66,000 while the RRP cost was $25,000.

         Deposit  insurance  expense was $165,000  during  1997;  an increase of
$111,000,  or 205.6% from $54,000 for the year ended June 30, 1996. The increase
was  attributed  to a  recapitalization  plan  for the SAIF  signed  into law on
September 30, 1996, which provided for a special  assessment on all SAIF-insured
institutions  to enable the SAIF to achieve its required level of reserves.  The
Company's special  assessment totaled $142,000 before taxes, and was recorded as
deposit insurance expense for the year ended June 30, 1997.

         Expenses other than those discussed above increased $174,000,  or 52.1%
for the year ended June 30, 1997, compared to the prior year. Legal,  accounting
and other  professional  fees increased  $124,000 during the year ended June 30,
1997 ,  primarily  as a result of costs  related  to the  conversion  to a stock
company  and  the  implementation  of  various  employee  benefit  plans.  Other
increases  occurred  as a result of  general  increases  in a variety of expense
categories,  including  advertising,  which increased by $10,000 compared to the
prior year ended June 30, 1996.


<PAGE>

         Income Tax Expense.  Income tax expense was $152,000 for the year ended
June 30,  1997,  compared  to  $196,000  for 1996.  The level of tax expense was
consistent  with the amount of taxable  income each year. The effective tax rate
was 37.7% for the year  ended June 30,  1997,  and 40.5% for the year ended June
30, 1996.

LIQUIDITY
 
         The  Bank's  primary  sources  of funds  are  deposits,  proceeds  from
principal and interest payments on loans and proceeds from maturing  securities.
While maturities and scheduled  amortization of loans are predictable sources of
funds,  deposit flows and mortgage prepayments are greatly influenced by general
interest rates,  economic  conditions,  competition and the restructuring of the
thrift industry.

         Liquidity  management  is both a daily and  long-term  function  of the
bank's  management  strategy.  In the event that the Bank should  require  funds
beyond its ability to generate them  internally,  additional funds are available
through  the use of FHLB  advances  and  though  sales of  securities.  The Bank
regularly   monitors  its  interest  rate  spread   position  to  determine  the
appropriate  mix between retail and wholesale  funds  available to fund its loan
activities.  From  time-to-time  the Bank offers higher cost deposit products to
generate  funds for loans.  The Bank also  relies on  advances  from the FHLB of
Indianapolis to fund its lending activities when the cost of alternative sources
of funds  makes it  prudent  to do so. The Bank will  continue  to  monitor  its
interest rate spread position and its mix of deposits and alternative sources of
funds.

IMPACT OF INFLATION

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

         The primary assets and  liabilities of financial  institutions  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,  however,  do not  necessarily  move in the same
direction or with the same  magnitude as the price of goods and services,  since
such prices are affected by inflation.  In a period of rapidly  rising  interest
rates, the liquidity and maturity structure of the Bank's assets and liabilities
are critical to the maintenance of acceptable performance levels.

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


<PAGE>

CURRENT ACCOUNTING ISSUES

     Reporting  Comprehensive  Income. The Financial  Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, in
June 1997.  This  Statement  establishes  standards for reporting and display of
comprehensive income and its components (revenues,  expenses, gains, and losses)
in a full set of general-purpose financial statements.

     SFAS No. 130  requires  that all items that are  required to be  recognized
under accounting  standards as components of comprehensive income be reported in
a  financial  statement  that is  displayed  with the same  prominence  as other
financial  statements.  It does not require a specific format for that financial
statement but requires that an enterprise  display an amount  representing total
comprehensive income for the period in that financial statement.

     Upon implementing this new Statement,  an enterprise will classify items of
other comprehensive  income by their nature in a financial statement and display
the accumulated balance of other  comprehensive  income separately from retained
earnings and additional  paid-in capital in the equity section of a statement of
financial position.

     Statement 130 is effective for interim and annual periods  beginning  after
December 15,  1997.  The Company  will adopt  Statement  130 for the quarter end
September 30, 1998.

     Disclosures about Segments of an Enterprise and Related  Information.  SFAS
No. 131  establishes  standards  for the way that  public  business  enterprises
report information about operating  segments in annual financial  statements and
requires that those  enterprises  report  selected  information  about operating
segments  in  interim  financial   reports  issued  to  shareholders.   It  also
establishes  standards  for related  disclosures  about  products and  services,
geographic  areas, and major customers.  This Statement  supersedes SFAS No. 14,
Financial  Reporting  for  Segments  of a Business  Enterprise,  but retains the
requirement to report information about major customers.  It amends SFAS No. 94,
Consolidation  of  All  Majority-Owned  Subsidiaries,   to  remove  the  special
disclosure requirements for previously unconsolidated subsidiaries.

     Upon  implementing  this Statement,  a public  business  enterprise will be
     required to report the following:  o Financial and descriptive  information
     about its  reportable  operating  segments o A measure of segment profit or
     loss, certain specific revenue and expense items, and segment assets.

     o   Information  about the revenues derived from the enterprise's  products
         or services  (or groups of similar  products and  services),  about the
         countries in which the enterprise earns revenues and holds assets,  and
         about major customers regardless of whether that information is used in
         making operating decisions.

     o   Descriptive  information about the way that the operating segments were
         determined,  the  products  and  services  provided  by  the  operating
         segments,  differences  between  the  measurements  used  in  reporting
         segment information and those used in the enterprise's  general-purpose
         financial statements, and changes in the measurement of segment amounts
         from period to period.


<PAGE>

     SFAS No. 131 is effective for financial  statements  for periods  beginning
after  December 15, 1997 which is June 30, 1999 for the Company.  This Statement
is not anticipated to have any significant applicability to the Company based on
current operations. In the initial year of application,  comparative information
for  earlier  years is to be  restated.  This  Statement  need not be applied to
interim  financial  statements  in the  initial  year  of its  application,  but
comparative  information  for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application.

     Employers'  Disclosures about Pensions and Other  Postretirement  Benefits.
SFAS No. 132,  which amends FASB  Statements  No. 87, 88, and 106, was issued in
February, 1998.

     While this  Statement  does not change the  measurement  or  recognition of
pension or other postretirement benefit plans, it revises employers' disclosures
about pension and other postretirement  benefit plans. Some of the provisions of
the Statement include:

     o The standardization of the disclosure requirements for pensions and other
postretirement benefits to the extent practicable.

     o    A requirement  for  additional  information  on changes in the benefit
          obligations  and fair  values  of plan  assets  that  will  facilitate
          financial analysis.

     o    The elimination of certain disclosures that are no longer as useful as
          they were when FASB  Statements  No.  87,  Employers'  Accounting  for
          Pensions,   No.  88,   Employers'   Accounting  for   Settlements  and
          Curtailments  of Defined  Benefit  Pension  Plans and for  Termination
          Benefits,  and  No.  106,  Employers'  Accounting  for  Postretirement
          Benefits Other Than Pensions, were issued.

     o    Suggested  combined  formats  for  presentation  of pension  and other
          postretirement benefit disclosures.

     This Statement is effective for fiscal years  beginning  after December 15,
1997, which is June 30, 1999 for the Company. Earlier application is encouraged.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is not readily  available,  in which case the
notes to the financial statements should include all available information and a
description of the information not available.

     Accounting for Derivative Instruments and Hedging Activities.  SFAS No. 133
requires  companies  to record  derivatives  on the balance  sheet at their fair
value.  SFAS No. 133 also  acknowledges  that the method of  recording a gain or
loss  depends on the use of the  derivative.  If certain  conditions  are met, a
derivative  may be  specifically  designated  as (a) a hedge of the  exposure to
changes in the fair value of a recognized  asset or liability or an unrecognized
firm  commitment,  (b) a hedge  of the  exposure  to  variable  cash  flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment  in  a  foreign  operation,  an  unrecognized  firm  commitment,   an
available-for-sale  security,  or  a   foreign-currency-denominated   forecasted
transaction.


<PAGE>

     o    For a derivative  designated as hedging the exposure to changes in the
          fair value of a recognized  asset or  liability  or a firm  commitment
          (referred to as a fair value hedge), the gain or loss is recognized in
          earnings in the period of change  together with the offsetting loss or
          gain on the hedged item  attributable  to the risk being  hedged.  The
          effect of that  accounting  is to  reflect in  earnings  the extent to
          which the hedge is not  effective in achieving  offsetting  changes in
          fair value.

     o    For a derivative  designated  as hedging the exposure to variable cash
          flows of a forecasted  transaction (referred to as a cash flow hedge),
          the effective  portion of the  derivative's  gain or loss is initially
          reported  as  a  component  of  other  comprehensive  income  (outside
          earnings)  and  subsequently   reclassified  into  earnings  when  the
          forecasted  transaction  affects earnings.  The ineffective portion of
          the gain or loss is reported in earnings immediately.

     o    For a derivative  designated as hedging the foreign currency  exposure
          of a net  investment  in a  foreign  operation,  the  gain  or loss is
          reported in other  comprehensive  income (outside earnings) as part of
          the cumulative translation adjustment. The accounting for a fair value
          hedge described above applies to a derivative designated as a hedge of
          the foreign currency exposure of an unrecognized firm commitment or an
          available-for-sale security. Similarly, the accounting for a cash flow
          hedge described above applies to a derivative designated as a hedge of
          the  foreign  currency  exposure  of  a   foreign-currency-denominated
          forecasted transaction.

     o    For a derivative not designated as a hedging  instrument,  the gain or
          loss is recognized in earnings in the period of change.

     The new Statement  applies to all entities.  If hedge accounting is elected
by the  entity,  the  method  of  assessing  the  effectiveness  of the  hedging
derivative   and  the   measurement   approach   of   determining   the  hedge's
ineffectiveness must be established at the inception of the hedge.

     SFAS No. 133 amends SFAS No. 52 and supercedes  SFAS Nos. 80, 105, and 119.
SFAS  No.  107 is  amended  to  include  the  disclosure  provisions  about  the
concentrations  of credit risk from SFAS No. 105.  Several  Emerging Issues Task
Force  consensuses  are also changed or nullified by the  provisions of SFAS No.
133.

     SFAS No. 133 will be effective  for all fiscal years  beginning  after June
15,  1999,  which  is June  30,  2000  for the  Company.  Early  application  is
encouraged;  however,  this  Statement  may  not  be  applied  retroactively  to
financial statements of prior periods.


<PAGE>

                           

                 
                                                                              

INDEPENDENT AUDITOR'S REPORT



Board of Directors
Home Financial Bancorp
Spencer, Indiana

We have  audited the  consolidated  statement  of  financial  condition  of Home
Financial  Bancorp and  subsidiary as of June 30, 1998 and 1997, and the related
consolidated  statements  of income,  changes in  stockholders'  equity and cash
flows for each of the three  years in the  period  ended  June 30,  1998.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion,  the consolidated  financial  statements described above present
fairly, in all material  respects,  the consolidated  financial position of Home
Financial  Bancorp and  subsidiary as of June 30, 1998 and 1997, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended June 30, 1998, in conformity  with  generally  accepted  accounting
principles.




/s/ Olive LLP

Indianapolis, Indiana
July 24, 1998

<PAGE>

                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                  CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

<TABLE>
<CAPTION>


June 30,                                                             1998            1997
---------------------------------------------------------------------------------------------
Assets
<S>                                                              <C>             <C>         
   Cash                                                          $    318,043    $    296,805
   Short-term interest-bearing deposits                             3,484,060       3,887,498
                                                                 ------------    ------------
       Total cash and cash equivalents                              3,802,103       4,184,303
   Investment securities--available for sale                        1,917,734       2,101,734
   Loans                                                           34,278,725      34,348,648
   Allowance for loan losses                                         (319,595)       (231,397)
                                                                 ------------    ------------
      Net loans                                                   33,959,130      34,117,251
   Real estate acquired for development                                20,758          20,758
   Premises and equipment                                           1,687,355         963,657
   Federal Home Loan Bank stock                                       500,000         500,000
   Interest receivable                                                263,859         268,648
   Other assets                                                       408,804         351,876
                                                                 ------------    ------------
       Total assets                                              $ 42,559,743    $ 42,508,227
                                                                 ============    ============

Liabilities
   Deposits
     Noninterest bearing                                         $    510,423    $    104,357
     Interest-bearing deposits                                     26,138,187      26,052,159
                                                                 ------------    ------------
       Total deposits                                              26,648,610      26,156,516
   Federal Home Loan Bank advances                                  8,200,000       9,000,000
   Other liabilities                                                  205,227         154,577
                                                                 ------------    ------------
       Total liabilities                                           35,053,837      35,311,093
                                                                 ------------    ------------

Commitments and Contingencies

Stockholders' Equity Preferred stock, without par value:
     Authorized and unissued--2,000,000 shares
   Common stock, without par value
     Authorized--5,000,000
     Issued--929,052 and 939,052                                    4,372,621       4,389,698
   Retained earnings--substantially restricted                      3,689,484       3,409,288
   Unearned compensation                                             (228,169)       (264,781)
   Unearned ESOP shares                                              (304,310)       (364,264)
   Net unrealized gain (loss) on securities available for sale        (23,720)         27,193
       Total stockholders' equity                                   7,505,906       7,197,134
                                                                 ------------    ------------
       Total liabilities and stockholders' equity                $ 42,559,743    $ 42,508,227
                                                                 ============    ============

</TABLE>
See notes to consolidated financial statements.

<PAGE>

                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>



Year Ended June 30                                                    1998         1997         1996
-------------------------------------------------------------------------------------------------------
Interest Income
<S>                                                                <C>          <C>          <C>       
     Loans                                                         $3,305,864   $2,912,085   $2,618,394
     Deposits with financial institutions                             177,192      136,538      135,553
     Investment securities
       Taxable                                                         67,509      279,869      161,258
       Tax exempt                                                      30,073       18,206
     Other interest and dividend income                               139,771       38,105       21,210
                                                                   ----------   ----------   ----------
          Total interest and dividend income                        3,690,336    3,396,670    2,954,621
                                                                   ----------   ----------   ----------

Interest Expense
     Deposits                                                       1,282,778    1,210,207    1,261,043   
     Federal Home Loan Bank advances                                  529,325      487,217      330,458
     Other interest expense                                             5,758        1,282
          Total interest expense                                    1,812,103    1,703,182    1,592,783
                                                                   ----------   ----------   ----------

Net Interest Income                                                 1,878,233    1,693,488    1,361,838
     Provision for losses on loans                                    102,000       85,000       94,000
                                                                   ----------   ----------   ----------

Net Interest Income After Provision for Losses on Loans             1,776,233    1,608,488    1,267,838
                                                                   ----------   ----------   ----------

Other Income
     Service charges on deposit accounts                               55,182       42,494       37,478
     Gain on sale of real estate acquired for development               7,108       31,437       56,944
     Net realized gain on sales of available-for-sale securities      140,925       37,155
     Other income                                                      63,736       52,750       47,535
                                                                   ----------   ----------   ----------
          Total other income                                          266,951      163,836      141,957
                                                                   ----------   ----------   ----------

Other Expenses
     Salaries and employee benefits                                   766,336      563,142      414,986
     Net occupancy expenses                                            84,653       70,825       67,213
     Equipment expenses                                                57,932       61,044       55,436
     Deposit insurance expense                                         15,881      164,550       53,686
     Computer processing fees                                          79,766       59,152       55,410
     Printing and office supplies                                      40,839       38,274       33,479
     Legal and professional fees                                      123,218      171,674       47,324
     Advertising expense                                               46,931       34,004       24,346
     Other expenses                                                   228,584      204,901      173,561
                                                                   ----------   ----------   ----------
          Total other expenses                                      1,444,140    1,367,566      925,441
                                                                   ----------   ----------   ----------
Income Before Income Tax                                              599,044      404,758      484,354
     Income tax expense                                               206,266      152,441      195,964
                                                                   ----------   ----------   ----------
Net Income                                                         $  392,778   $  252,317   $  288,390
                                                                   ==========   ==========   ==========
Net Income Per Share
     Basic                                                         $      .47   $      .27
     Diluted                                                              .47          .27

</TABLE>


See notes to consolidated financial statements.

<PAGE>

                      HOME FINANCIAL BANCORP AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                              Net Unrealized
                                                                                              Gain (Loss) on
                                                                                    Unearned    Securities
                                    Common Stock          Retained     Unearned       ESOP       Available
                                 Shares       Amount      Earnings   Compensation    Shares      For Sale         Total
---------------------------------------------------------------------------------------------------------------------------
<S>                            <C>        <C>             <C>            <C>         <C>             <C>        <C>       
Balances, July 1, 1995                                   $3,138,811                                $20,351      $3,159,162
Net income for 1996                                         288,390                                                288,390
Net change in unrealized gain
     (loss) on securities available
     for sale                                                                                      (37,480)        (37,480)
                               -------------------------------------------------------------------------------------------

Balances, June 30, 1996                                   3,427,201                                (17,129)      3,410,072
   Net income for 1997                                      252,317                                                252,317
Common stock issued in
     conversion, net of costs   1,011,852   $4,728,294                                                           4,728,294
   Cash dividends
     ($.075 per share)                                      (68,818)                                               (68,818)
   Net change in unrealized gain
      (loss) on securities available
     for sale                                                                                       44,322          44,322
Contributions for unearned
   ESOP shares                                                                    $(404,740)                      (404,740)
ESOP shares earned                           25,404                                  40,476                         65,880
Contribution for unearned
     RRP shares                                                         $(290,172)                                (290,172)
RRP shares earned                                                          25,391                                   25,391
Purchase of stock               (72,800)    (364,000)       (201,412)                                             (565,412)
                               -------------------------------------------------------------------------------------------

Balances, June 30, 1997         939,052    4,389,698       3,409,288      (264,781) (364,264)        27,193      7,197,134
Net income for 1998                                         392,778                                                392,778
Cash dividends ($.10 per share)                             (85,082)                                               (85,082)
Net change in unrealized gain
     (loss) on securities available
     for sale                                                                                      (50,913)        (50,913)
ESOP shares earned                            32,923                                  59,954                        92,877
RRP shares earned                                                          36,612                                   36,612
Purchase of stock              (10,000)      (50,000)        (27,500)                                              (77,500)
                               -------------------------------------------------------------------------------------------
Balances, June 30, 1998        929,052    $4,372,621      $3,689,484     $(228,169)  $(304,310)      $(23,720)  $7,505,906
                               ===========================================================================================
</TABLE>

See notes to consolidated financial statements.

<PAGE>

                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended June 30,                                                  1998             1997             1996
--------------------------------------------------------------------------------------------------------------
Operating Activities
<S>                                                             <C>              <C>                <C>       
   Net income                                                   $   392,778      $    252,317       $  288,390
   Adjustments to reconcile net income to net cash
     provided by operating activities:
     Provision for loan losses                                      102,000            85,000           94,000
     Investment securities amortization, net                            981             2,630              464
     ESOP shares earned                                              92,877            65,880
     RRP shares earned                                               36,612            25,391
     Depreciation and amortization                                   87,912            83,193           74,367
     Deferred income tax benefit                                    (50,485)          (35,294)         (41,460)
     Gain on sale of real estate acquired for development            (7,108)          (31,437)         (56,944)
     Gain on sale of other real estate                              (35,016)          (21,964)          (3,250)
     Gain on sale of securities available for sale                 (140,925)          (37,155)
     Change in
       Interest receivable                                            4,789           (32,970)         (49,069)
       Other assets                                                  62,331           (74,794)         (10,361)
     Other adjustments                                               50,372            64,038          (34,852)
                                                                 ----------        ----------       ----------
         Net cash provided by operating activities                  597,118           344,835          261,285
                                                                 ----------        ----------       ----------

Investing Activities
   Purchases of securities available for sale                    (1,905,142)       (3,261,591)      (3,316,533)
   Proceeds from sales of securities available for sale           1,895,041         4,824,600
   Proceeds from maturities and paydowns of securities
     available for sale                                             250,523    1,342,922        1,002,691
   Proceeds from maturities and paydowns of
     securities held to maturity                                    111,071
   Net changes in loans                                            (258,317)       (7,371,895)      (1,761,684)
   Improvements to real estate owned                                (31,552)          (12,621)
   Proceeds from real estate owned sales                            345,119           204,501           44,202
   Purchase of premises and equipment                              (811,610)         (569,082)        (164,998)
   Proceeds from disposal of premises and equipment                                    35,000           58,000
   Purchase of real estate acquired for development                                    (2,911)         (38,421)
   Proceeds from sale of real estate acquired for development         7,108           185,170          112,170
   Purchase of FHLB of Indianapolis stock                                            (140,000)        (110,000)
                                                                 ----------        ----------       ----------
       Net cash used by investing activities                       (508,830)       (4,765,907)      (4,063,502)
                                                                 ----------        ----------       ----------

Financing Activities
   Net change in
     NOW and savings deposits                                      (467,983)       (3,456,237)       4,309,021
     Certificates of deposit                                        960,077           887,053        1,916,677
   Advances from Federal Home Loan Bank of Indianapolis           5,000,000         4,300,000        2,200,000
   Payments on advances from Federal Home 
     Loan Bank of Indianapolis                                   (5,800,000)       (2,500,000)
   Payments on other borrowings                                                                        (28,773)
   Sale of stock                                                                    4,578,341
   Prepaid stock conversion costs                                                                     (260,067)
   Purchase of stock                                                (77,500)         (565,412)
   Dividends paid                                                   (85,082)          (68,818)
   Contribution of RRP shares                                                        (290,172)
                                                                 ----------        ----------       ----------
       Net cash provided (used) by financing activities            (470,488)        2,884,755        8,136,858
                                                                 ----------        ----------       ----------

Net Change in Cash and Cash Equivalents                            (382,200)       (1,536,317)       4,334,641


Cash and Cash Equivalents, Beginning of Year                      4,184,303         5,720,620        1,385,979
                                                                 ----------        ----------       ----------

Cash and Cash Equivalents, End of Year                           $3,802,103        $4,184,303       $5,720,620
                                                                 ==========        ==========       ==========


Additional Cash Flows and Supplementary Information
   Interest paid                                                 $1,805,250        $1,703,182       $1,592,783
   Income tax paid                                                  174,710           178,988          179,305
   Transfers from loans to other real estate                        314,438           294,368
   Stock issuance costs transferred from other
       assets to stockholders' equity                                                 254,787
   Common stock issued to ESOP leveraged
       with an employer loan                                                          404,740

</TABLE>
See notes to consolidated financial statements.


<PAGE>

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

The accounting and reporting policies of Home Financial Bancorp  ("Company") and
its wholly owned  subsidiary,  Owen Community Bank, s.b. ("Bank") and the Bank's
wholly owned  subsidiary,  BSF,  Inc.  ("BSF"),  conform to  generally  accepted
accounting  principles and reporting  practices followed by the thrift industry.
The more significant of the policies are described below.

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

The Company is a bank holding company whose principal  activity is the ownership
and management of the Bank.  Commencing  July 1, 1996, the Bank operates under a
state thrift  charter,  known as a stock savings bank, and provides full banking
services.  Prior to July 1, 1996, the Bank operated as an Indiana mutual savings
bank.  As a  state-chartered  thrift,  the Bank is subject to  regulation by the
Department of Financial  Institutions,  State of Indiana and the Federal Deposit
Insurance Corporation ("FDIC").

The Bank  generates  mortgage and  consumer  loans and  receives  deposits  from
customers located primarily in Owen and surrounding  counties.  The Bank's loans
are generally  secured by specific  items of collateral  including real property
and consumer assets.

BSF engages in purchasing and developing large tracts of real estate. After land
is purchased,  BSF subdivides the real estate into lots, makes improvements such
as  streets,  and sells  individual  lots,  usually  on  contract  for deed.  In
connection with the Bank's conversion to an Indiana mutual savings bank in 1995,
the FDIC  required  the Bank to cease BSF's land  acquisitions,  divest of BSF's
nonconforming  real estate holdings by November 16, 2000 and maintain the Bank's
capital  at  levels  sufficient  to  classify  the  Bank  as a  well-capitalized
institution.  BSF has ceased land acquisitions and is in process of divesting of
its real estate  holdings.  BSF's net income for the years ended June 30,  1998,
1997 and 1996,  included  in the  Company's  consolidated  net  income,  totaled
$21,000, $35,000 and $59,000.

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

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

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


<PAGE>

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

Allowance  for  loan  losses  is  maintained  to  absorb  loan  losses  based on
management's  continuing  review and  evaluation  of the loan  portfolio and its
judgment  as to  the  impact  of  economic  conditions  on  the  portfolio.  The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio,  the current  condition and amount of loans
outstanding,  and the probability of collecting all amounts due.  Impaired loans
are  measured by the present  value of expected  future cash flows,  or the fair
value of the collateral of the loan, if collateral dependent.

The  determination  of the adequacy of the allowance for loan losses is based on
estimates  that are  particularly  susceptible  to  significant  changes  in the
economic environment and market conditions.  Management believes that as of June
30,  1998,  the  allowance  for loan  losses is  adequate  based on  information
currently  available.  A worsening or  protracted  economic  decline in the area
within which the Bank  operates  would  increase the  likelihood  of  additional
losses due to credit and market risks and could  create the need for  additional
loss reserves.

Real estate  acquired  for  development  is carried at the lower of cost or fair
value.  Costs relating to development and improvements of property are allocated
to  individual  lots and  capitalized,  whereas  costs  relating  to holding the
property  are  expensed.   Gains  on  sales  of  lots  are   determined  on  the
specific-identification method.

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

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

Pension  plan costs are based on actuarial  computations  and charged to current
operations.  The funding policy is to pay at least the minimum amounts  required
by ERISA.

Stock  options are granted for a fixed  number of shares with an exercise  price
equal to the fair value of the shares at the date of grant. The Company accounts
for and will continue to account for stock option grants in accordance  with APB
Opinion No. 25,  Accounting  for Stock Issued to  Employees,  and,  accordingly,
recognizes no compensation expense for the stock option grants.
<PAGE>

Income tax in the consolidated  statement of income includes deferred income tax
provisions or benefits for all significant  temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
and Bank file consolidated tax returns.

Earnings per share have been  computed  based upon the weighted  average  common
shares and potential common shares  outstanding  during the period subsequent to
the Bank's conversion to a stock savings bank on July 1, 1996. Unearned Employee
Stock  Ownership Plan ("ESOP") shares have been excluded from the computation of
average common shares and potential common shares outstanding.

Note 2 --       Conversion to State Stock Savings Bank

On July 1, 1996, the Bank completed the conversion from a state chartered mutual
savings bank to a state  chartered  stock  savings bank and the formation of the
Company as the  holding  company  of the Bank.  As part of the  conversion,  the
Company issued 505,926 (before restatement for the 2 for 1 stock split discussed
in Note 10)  shares  of  common  stock at $10 per  share.  Net  proceeds  of the
Company's  stock  issuance,  after costs and excluding the shares issued for the
ESOP, were approximately $4,320,000 of which $2,472,548 was used to acquire 100%
of the stock and ownership of the Bank.  Costs  associated  with the  conversion
were  deducted from the proceeds of stock sold by the Company.  The  transaction
was accounted for in a manner similar to a pooling of interests.

Note 3 --       Investment Securities

                                                     1998
                                 -----------------------------------------------
                                                Gross         Gross
                                 Amortized   Unrealized    Unrealized     Fair
June 30,                            Cost        Gains        Losses       Value
--------------------------------------------------------------------------------
Available for sale
Federal agencies                   $  100       $    3       $  103
Marketable equity
   securities                       1,320                    $   48        1,272
 Mortgage-backed
   securities                         537            6                       543
                                 -----------------------------------------------
   Total investment
     securities                    $1,957       $    9       $   48       $1,918
                                 ===============================================


                                                     1997
                                 -----------------------------------------------
                                                Gross         Gross
                                 Amortized   Unrealized    Unrealized     Fair
June 30,                            Cost        Gains        Losses       Value
--------------------------------------------------------------------------------
Available for sale
  U.S. Treasury                   $  825      $    2                     $  827
  Federal agencies                   100           4                        104
Marketable                                                              
   equity securities                 344          34                        378
Mortgage-backed                                                         
   securities                        788           5                        793
                                 -----------------------------------------------
   Total investment                                                     
     securities                   $2,057      $   45                     $2,102
                                 ===============================================



<PAGE>

         The amortized  cost and fair value of securities  available for sale at
June 30, 1998, by contractual  maturity,  are shown below.  Expected  maturities
will differ from  contractual  maturities  because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.

                                     1998
                           Amortized           Fair
                             Cost              Value
                           --------------------------
Maturity Distribution
at June 30
-----------------------------------------------------
One to five years           $   100          $   103
Marketable equity
  securities                  1,320            1,272
Mortgage-backed
  securities                    537              543
                             ------           ------
     Totals                  $1,957           $1,918
                             ======           ======

Securities  with a carrying  value of $528,000 and $788,000 were pledged at June
30, 1998 and 1997 to secure FHLB advances.

Proceeds from sales of  securities  available for sale during 1998 and 1997 were
$1,895,000 and $4,825,000.  Gross gains of $141,000 and $71,000 in 1998 and 1997
and gross losses of $34,000 in 1997 were realized on the sales.  The tax expense
for net gains on  security  transactions  for June 30, 1998 and 1997 was $56,000
and $14,000, respectively.

On December 26,  1995,  the Bank  transferred  certain  securities  from held to
maturity to available for sale in accordance with a transition  reclassification
allowed by the Financial  Accounting  Standards  Board.  Such  securities  had a
carrying  value of  $1,716,000  and a fair value of  $1,707,000.  Other than the
initial  adoption of SFAS No. 115 and the preceding,  there were no transfers or
sales of investment securities during the periods presented.

Note 4 --       Loans and Allowance

June 30                                                 1998              1997
--------------------------------------------------------------------------------
Real estate mortgage loans
  Residential                                        $ 19,563          $ 20,625
  Mobile home and land                                  4,666             4,397
  Nonresidential                                        7,614             6,912
  Multi-family                                            904               980
  Mobile home loans 831                                 1,004
Commercial and industrial                                 242               247
Consumer loans                                            655               612
                                                     --------          --------
                                                       34,475            34,777
                                                     --------          --------
Undisbursed portion of loans                             (198)             (430)
Deferred loan costs                                         2                 2
                                                     --------          --------
                                                         (196)             (428)
                                                     --------          --------
      Total loans                                    $ 34,279          $ 34,349
                                                     ========          ========



<PAGE>

Year Ended June 30,                            1998          1997          1996
--------------------------------------------------------------------------------
Allowance for loan losses
   Balances, July 1                           $ 231         $ 150         $  57
   Provision for
     loan losses                                102            85            94

   Loans charged off                            (13)           (4)           (1)
                                              -----         -----         -----
        Balances, June 30                     $ 320         $ 231         $ 150
                                              =====         =====         =====

The  Bank  adopted  SFAS  No.  114 and No.  118,  Accounting  by  Creditors  For
Impairment  of  a  Loan  and   Accounting  by  Creditors  for  Impairment  of  a
Loan--Income Recognition and Disclosures,  on July 1, 1995. The Bank has not had
any impaired loans since the adoption of Nos. 114 and 118.

At June 30, 1998, 1997 and 1996, the Bank had nonaccrual  loans of approximately
$279,000, $562,000 and $359,000, for which impairment
had not been recognized.

The  Bank has no  commitments  to loan  additional  funds  to the  borrowers  of
nonaccrual loans.

         The Bank has entered  into  transactions  with  certain  directors  and
officers.  Such  transactions  were made in the  ordinary  course of business on
substantially  the same  terms  and  conditions,  including  interest  rates and
collateral,  as those  prevailing at the same time for  comparable  transactions
with other  customers,  and did not, in the opinion of management,  involve more
than normal credit risk or present  other  unfavorable  features.  The aggregate
amount of loans, as defined, to such related parties were as follows:

Balances, June 30, 1997                         $435
  New loans, including renewals                  341
  Payments, etc. including renewals             (376)
  Change in composition of related parties         9
                                                ----
Balances, June 30, 1998                         $409
                                                ====


Note 5 -- Premises and Equipment

June 30                              1998        1997
-------------------------------------------------------
Land                               $    302    $    277
Buildings                             1,697         991
Equipment                               450         381
Total cost                            2,449       1,649
Accumulated depreciation               (762)       (685)
                                   --------    --------
     Net                           $  1,687    $    964
                                   ========    ========


<PAGE>

Note 6 -- Deposits
June 30                               1998        1997
-------------------------------------------------------
Noninterest bearing demand         $    510    $    104
Interest-bearing demand               2,298       1,362
Money market deposits                 1,512       2,217
Savings                               3,271       2,941
Certificates of $100,000 or more      3,319       3,479
Other certificates                   15,739      16,054
                                   --------    --------
   Total deposits                  $ 26,649    $ 26,157
                                   ========    ========

Certificates maturing in years ending June 30:

1999                             $11,614
2000                               4,827
2001                                 844
2002                                 885
2003                                 888
                                 -------
                                 $19,058
                                 =======


Note 7 --      Federal Home Loan Bank
              Advances
                                     1998
                                             Weighted
                                              Average
June 30                       Amount           Rate
-------------------------------------------------------
Maturities in years ending
   2000                        $5,000         6.03%
   2001                         2,000         5.90%
   2003                         1,000         5.97%
   2005                           200         6.86%
                               ------         ----
                               $8,200         6.01%
                               ======         ==== 

         The terms of the security  agreement  with the FHLB require the Bank to
pledge as collateral for advances  qualifying  first mortgage loans in an amount
equal to at least  170  percent  of these  advances  and all  stock in the FHLB.
Advances are subject to restrictions or penalties in the event of prepayment.

Note 8 -- Income Tax

Year Ended June 30            1998     1997     1996
-------------------------------------------------------
Income tax expense
   Currently payable
Federal                      $ 199    $ 141    $ 185
   State                        57       46       52
Deferred
   Federal                     (39)     (25)     (32)
   State                       (11)     (10)      (9)
                             -----    -----    -----
       Total income
         tax expense         $ 206    $ 152    $ 196
                             =====    =====    =====


Year Ended June 30            1998     1997     1996
-------------------------------------------------------
Reconciliation of
   federal statutory to
   actual tax expense
   Federal statutory
     income tax at 34%       $ 204    $ 138    $ 165
   Effect of state
     income taxes               31       24       28
   Tax exempt dividends
     and interest              (24)      (9)      (5)
                 Other          (5)      (1)       8
                             -----    -----    -----
     Actual tax expense      $ 206    $ 152    $ 196
                             =====    =====    =====


<PAGE>

A cumulative net deferred tax asset is included in other assets.  The components
of the asset are as follows:

June 30                             1998         1997
------------------------------------------------------
Assets
   Allowance for loan losses       $  98          $61
   Deferred compensation              26            9
   Securities available for sale      16
   Other                               1
                                   -----        -----
       Total assets                  141           70
                                   -----        -----

Liabilities
   Depreciation                        6            3
   State income tax                   10            7
   Securities available for sale                   18
   Loan fees                           3            4
                                   -----        -----
       Total liabilities              19           32
                                   -----        -----
                                    $122          $38
                                   =====        ===== 

No valuation allowance was necessary for the years ended June 30, 1998 and 1997.

Retained earnings at June 30, 1998, include approximately  $700,000 for which no
deferred  federal  income  tax  liability  has  been  recognized.   This  amount
represents an  allocation  of income to bad debt  deductions as of June 30, 1988
for tax purposes only. Reduction of amounts so allocated for purposes other than
tax bad debt losses including  redemption of bank stock or excess dividends,  or
loss of "bank status" would create  income for tax purposes  only,  which income
would be subject to the  then-current  corporate income tax rate. The unrecorded
deferred  federal  income tax liability on the above  amounts was  approximately
$280,000 at June 30, 1998.

Note 9 --       Commitments and Contingent Liabilities

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

         Financial  instruments  whose contract amount represents credit risk as
of June 30 were as follows:

                                    1998         1997
------------------------------------------------------
Mortgage loan commitments
   At variable rates                 $827        $563
                 At fixed rates       553         515
      Unused lines of credit          510           9

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


<PAGE>

         The Bank has entered into  agreements with three officers which provide
for salary  continuation  for a three-year  period under certain  circumstances,
primarily related to change of control of the Bank, as defined.  Under the terms
of the agreements, these payments could occur if, following a change of control,
such officers are terminated  other than for cause or  unreasonable  changes are
made in their employment  relationships.  These agreements extend  automatically
for one year on each anniversary date unless certain  conditions are met. One of
the agreements was effective  January 1, 1996 and the other two agreements  were
effective July 1, 1996.

         The  Company  and Bank are also  subject to claims and  lawsuits  which
arise  primarily  in the  ordinary  course of  business.  It is the  opinion  of
management  that the  disposition  or ultimate  determination  of such  possible
claims or lawsuits will not have a material  adverse effect on the  consolidated
financial position of the Company.


Note 10 --      Stockholders' Equity

         On December 9, 1997, the Company approved a 2 for 1 stock split,  under
which every share of its common  stock  outstanding  at the close of business on
December 23, 1997 was converted into two shares of common stock.  The additional
certificates were distributed to stockholders on January 6, 1998. As a result of
the stock  split,  the number of shares  outstanding  increased  from 464,526 to
929,052 shares.  Unless  otherwise noted, all share and per share data have been
restated for the 2 for 1 stock split.

         The Company's  board of directors has approved the  repurchase of up to
10 percent of the Company's  outstanding  shares of common stock. Such purchases
will be made subject to market conditions in open market or block  transactions.
During the years  ended June 30,  1998 and 1997,  the  Company  had  repurchased
10,000 and 72,800 of its outstanding shares.

Note 11 --      Dividends and Capital Restrictions

         The Company is not subject to any regulatory restriction on the payment
of dividends to its stockholders.

         Without  prior  approval,  current  regulations  allow  the Bank to pay
dividends to the Company not  exceeding net profits (as defined) for the current
year  plus  those  for the  previous  two  years.  The Bank  normally  restricts
dividends to a lesser amount because of the need to maintain an adequate capital
structure.

         At the time of conversion,  a liquidation account was established in an
amount  equal to the Bank's net worth as  reflected  in the latest  statement of
condition  used in its  final  conversion  offering  circular.  The  liquidation
account is maintained for the benefit of eligible  deposit  account  holders who
maintain their deposit account in the Bank after  conversion.  In the event of a
complete  liquidation  (and only in such event),  each eligible  deposit account
holder  will  be  entitled  to  receive  a  liquidation  distribution  from  the
liquidation  account  in the  amount  of the then  current  adjusted  subaccount
balance for deposit accounts then held, before any liquidation  distribution may
be made to  stockholders.  Except  for the  repurchase  of stock and  payment of
dividends, the existence of the liquidation account will not restrict the use or
application of net worth.  The initial  balance of the  liquidation  account was
$3,295,000.


<PAGE>

         At  June  30,  1998,  total  stockholder's   equity  of  the  Bank  was
$6,230,000,  of which  approximately  $780,000 was  available for the payment of
dividends.

Note 12 --      Regulatory Capital

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

         There are five capital categories  defined in the regulations,  ranging
from well capitalized to critically  undercapitalized.  Classification of a bank
in any of the  undercapitalized  categories  can result in actions by regulators
that could have a material effect on a bank's  operations.  At June 30, 1998 and
1997, the Bank is categorized as well  capitalized  and met all subject  capital
adequacy  requirements.  There are no  conditions  or events since June 30, 1998
that management believes has changed the Bank's classification.

         In connection with the Bank's conversion to a  state-chartered  savings
bank, the FDIC imposed  heightened  capital  requirements on the Bank because of
the impermissible real estate development  activities of BSF. The FDIC currently
requires that the Bank maintain  capital  (after  deduction of its investment in
BSF) at levels  sufficient  for the Bank to be classified as a  well-capitalized
institution.

<TABLE>
<CAPTION>
                                                                                1998
                                             ------------------------------------------------------------------------
                                                                              Required                  Required
                                                                            for Adequate               To Be Well
                                                    Actual                    Capital 1               Capitalized 1
                                             ------------------------------------------------------------------------
June 30                                      Amount        Ratio        Amount         Ratio      Amount        Ratio
---------------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>           <C>           <C>       <C>           <C>        
Total capital 1 (to risk weighted assets)      $6,543       26.2%         $1,994        8.0%      $2,493        10.0%      
Tier I capital 1 (to risk weighted assets)      6,223       25.0             997        4.0        1,496         6.0       
Tier I capital 1 (to average assets)            6,223       15.1           1,648        4.0        2,060         5.0
</TABLE>

<TABLE>
<CAPTION>

                                                                                1997
                                             ------------------------------------------------------------------------
                                                                              Required                  Required
                                                                            for Adequate               To Be Well
                                                    Actual                    Capital 1               Capitalized 1
                                             ------------------------------------------------------------------------
June 30                                      Amount        Ratio        Amount         Ratio      Amount        Ratio
---------------------------------------------------------------------------------------------------------------------
<S>                                             <C>          <C>           <C>           <C>       <C>           <C>        
Total capital 1 (to risk weighted assets)      $6,109       25.0%         $1,952        8.0%      $2,440        10.0%      
Tier I capital 1 (to risk weighted assets)      5,879       24.1             976        4.0        1,464         6.0      
Tier I capital 1 (to average assets)            5,879       14.2           1,662        4.0        2,077         5.0
</TABLE>
1 As defined by the regulatory agencies




<PAGE>

Note 13 --      Employee Benefit Plans

         The Bank is a  participant  in a  pension  fund  known as the  Pentegra
Group. This plan is a multi-employer plan; separate actuarial valuations are not
made  with  respect  to  each  participating  employer.  According  to the  plan
administrators,  the market  value of the fund's  assets  exceeded  the value of
vested  benefits in the  aggregate as of June 30,  1998,  the date of the latest
actuarial  valuation.  The plan required  contributions in the amount of $2,700,
$13,000 and $15,700 for the years ended June 30, 1998,  1997 and 1996.  The plan
provides pension benefits for substantially all of the Bank's employees.

         The  Bank  has a  retirement  savings  Section  401(k)  plan  in  which
substantially  all  employees  may  participate.  The  Bank  matches  employees'
contributions  at the rate of 50 percent  of the first 6 percent of base  salary
contributed  by  participants.  The  Bank's  expense  for the plan was  $12,000,
$10,100 and $9,200 for the years ended June 30, 1998, 1997 and 1996.

         As part of the  conversion,  the Company  established  an ESOP covering
substantially  all  employees  of the Bank.  The ESOP  acquired  40,474  (before
restatement  for the 2 for 1 stock  split  discussed  in Note 10)  shares of the
Company common stock at $10 per share in the conversion with funds provided by a
loan from the Company. Accordingly, the $404,740 of common stock acquired by the
ESOP is shown as a reduction  of  stockholders'  equity.  Shares are released to
participants  proportionately  as the loan is  repaid.  Dividends  on  allocated
shares are recorded as dividends and charged to retained earnings.  Dividends on
unallocated  shares,  which will be distributed to participants,  are treated as
compensation expense.  Compensation expense is recorded equal to the fair market
value of the stock when  contributions,  which are  determined  annually  by the
Board of Directors of the Bank, are made to the ESOP. The expense under the ESOP
was $93,000 and $66,000 for the years ended June 30, 1998 and 1997.  At June 30,
1998 and 1997, the ESOP had 15,094 and 5,110 allocated shares, 61,096 and 70,314
suspense shares and 4,758 and 5,524  committed-to-be  released shares.  The fair
value of the unearned ESOP shares at June 30, 1998 was $547,758.

         In January 1997, the Company's  stockholders  approved the  Recognition
and Retention Plan and Trust ("RRP"). The RRP may acquire up to 40,474 shares of
the  Company's  common  stock  for  awards  to  management.  Shares  awarded  to
management under the RRP vest at a rate of 20 percent at the end of each full 12
months of service  with the Bank after the date of grant.  During the year ended
June 30,  1997,  the Bank  contributed  $290,172 to the RRP for the  purchase of
40,474 shares of the Company's  common stock of which 30,356 shares were awarded
to management and recorded as unearned  compensation.  Expense under the RRP was
$37,000 and $25,000 for the years ended June 30, 1998 and 1997.


Note 14 --     Stock Option Plan

         On October 14,  1997,  the  stockholders  approved a stock option plan,
reserving 101,184 shares of Company stock for the granting of options to certain
directors,  officers and other key employees of the Company and its  subsidiary.
The plan is accounted for in accordance with Accounting Principles Board Opinion
(APB)  No.  25,   Accounting   for  Stock  Issued  to  Employees,   and  related
interpretations.


<PAGE>

         Since the plan's adoption, incentive stock options for 55,000 shares of
common stock have been granted with ten year terms that expire  October 13, 2007
and a exercise  price of $8.50 per share.  These options  became  exercisable in
full on April 14, 1998.  In addition,  non-qualified  options for 15,000  shares
have been  granted  with ten year  terms  that  expire  October  14,  2007 and a
exercise  price of $8.50 per share.  These options were  exercisable  in full on
April 14, 1998.  The exercise price of each option was equal to the market price
of the Company's stock on the date of grant;  therefore, no compensation expense
was recognized.

         Although  the  Company  has  elected to follow APB No. 25, SFAS No. 123
requires  pro forma  disclosures  of net income and earnings per share as if the
Company had accounted for its employee stock options under that  Statement.  The
fair  value of each  option  grant  was  estimated  on the grant  date  using an
option-pricing model with the following assumptions:

                                              1998
                                              ----
Risk-free interest rates                      6.12%
  Dividend yields   1.17%
  Volatility factors of
   expected market price
   of common stock                           16.67%
  Weighted-average expected
    life of the options                     6 years

         Under SFAS No. 123,  compensation  cost is  recognized in the amount of
the  estimated  fair value of the  options  and  amortized  to expense  over the
options'  vesting  period.  The pro forma  effect on net income and earnings per
share of this statement are as follows:
                                                 1998
                                                 ----
Net income                 As reported           $393
                           Pro forma              238
Basic earnings
   per share               As reported            .47
                           Pro forma              .28

Diluted earnings
   per share               As reported            .47
                           Pro forma              .28

The following is a summary of the status of the Company's  stock option plan and
changes in that plan as of and for the year ended June 30, 1998:

Year Ended June 30                  1998
                                           Weighted-
                                            Average
Options                     Shares      Exercise Price
-------------------------------------------------------
Outstanding,
   beginning of year
Granted                       70,400          $8.50
Forfeited                       (400)          8.50
                              ------
Outstanding and
   exercisable,
   end of year                70,000           8.50
                              ======
Weighted-average fair
   value of options
   granted during the year                    $2.41

         As of June 30, 1998, the options  outstanding  have exercise  prices of
$8.50 and a  weighted-average  remaining  contractual  life of  approximately 10
years. There were 31,184 shares available for grant at June 30, 1998.


<PAGE>

Note 15 --      Earnings Per Share

Earnings per share were computed as follows:

<TABLE>
<CAPTION>


                                                                            Year Ended June 30, 1998
                                                               --------------------------------------------------
                                                                                    Weighted                Per-
                                                                 Net                 Average                Share
                                                               Income                Shares                Amount
                                                               --------------------------------------------------

Basic Earnings Per Share
<S>                                                              <C>                   <C>                   <C> 
     Income available to common stockholders                     $393                  837,087               $.47
Effect of Dilutive
Securities
Stock options and awards                                                                 4,737
                                                                 ----                  -------               ----
Diluted Earnings Per Share
     Income available to common stockholders
         and assumed conversions                                 $393                  841,824               $.47
                                                                 ====                  =======               ====

                                                                            Year Ended June 30, 1997
                                                               --------------------------------------------------
                                                                                    Weighted                Per-
                                                                 Net                 Average                Share
                                                               Income                Shares                Amount
                                                               --------------------------------------------------
Basic Earnings Per Share
     Income available to common stockholders                     $252                  923,972               $.27
Effect of Dilutive
Securities
     Stock options and awards                                                            1,864
                                                                 ----                  -------               ----
Diluted Earnings Per Share
     Income available to common stockholders
         and assumed conversions                                 $252                  925,836               $.27
                                                                 ====                  =======               ====
</TABLE>


<PAGE>

Note 16 --      Fair Values of Financial Instruments

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

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

Securities Available for Sale--Fair values are based on quoted market prices.

Loans--For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair value for other loans, are estimated using discounted cash flow
analyses,  using interest rates  currently  being offered for loans with similar
terms to borrowers of similar credit quality.

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

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

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

FHLB  Advances--The  fair  value  of  these  borrowings  are  estimated  using a
discounted cash flow calculation,  based on current rates for similar debt. Fair
value approximates carrying value.

Off-Balance  Sheet  Commitments--Commitments  include  commitments  to originate
mortgage  loans,  and extend  lines of credit and are  generally of a short-term
nature.  The fair value of such commitments are based on fees currently  charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.

<TABLE>
<CAPTION>

                                                             1998                               1997
                                                 --------------------------------------------------------------
                                                 Carrying            Fair           Carrying            Fair
June 30                                           Amount             Value           Amount             Value
---------------------------------------------------------------------------------------------------------------
Assets
<S>                                                <C>                <C>            <C>                 <C>   
   Cash and cash equivalents                       $3,802             $3,802         $ 4,184             $4,184
   Securities available for sale                    1,918              1,918           2,102              2,102
   Loans, net                                      33,959             34,496          34,117             33,703
   Stock in FHLB                                      500                500             500                500
   Interest receivable                                264                264             269                269

Liabilities
   Deposits                                        26,649             26,662          26,157             26,281
   FHLB advances                                    8,200              8,215           9,000              9,018

Off-Balance Sheet Assets
   Commitments to extend credit
</TABLE>



<PAGE>

Note 17 -- Condensed Financial Information (Parent Company Only)

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

                             Condensed Balance Sheet

June 30                                             1998     1997
------------------------------------------------------------------
Assets
   Cash                                            $   12   $   25
   Securities available for sale                    1,213    1,205
   Premises and equipment                              15       15
   Investment in subsidiary                         6,230    5,890
   Other assets                                        39      103
                                                   ------   ------
     Total assets                                  $7,509   $7,238
                                                   ======   ======

Liabilities
   Other liabilities                               $    3   $   41

Stockholders' Equity                                7,506    7,197
                                                   ------   ------
     Total liabilities and  stockholders' equity   $7,509   $7,238
                                                   ======   ======

                          Condensed Statement of Income

June 30                             1998    1997
-------------------------------------------------
Income
   Interest income                 $ 137   $ 118
   Other income                      141      36
                                   -----   -----
Total income                         278     154
                                   -----   -----
Expenses
Salaries and
     employee benefits                60      31
Legal and professional fees           64      97
Other expenses                        56      34    
                                   -----   -----
     Total expenses                  180     162
                                   -----   -----
   Income (loss) before
     income tax benefit
     and equity in undistributed
     income of subsidiary             98      (8)
Income tax benefit (expense)           7     (11)
                                   -----   -----
Income before equity in
     undistributed income
     of subsidiary                    91       3
Equity in undistributed
     income of subsidiary            302     249
                                   -----   -----
Net Income                         $ 393   $ 252
                                   =====   =====


<PAGE>

                        Condensed Statement of Cash Flows

June 30                               1998        1997
-------------------------------------------------------
Operating Activities
   Net income                        $   393    $   252
   Adjustments to reconcile net
     income to net cash provided
     by operating activities            (289)      (258)
       Net cash provided (used)
         by operating activities         104         (6)
Investing Activities
   Purchases of securities
     available for sale               (1,848)    (2,216)
   Proceeds from sales of
     securities available for sale     1,895      1,080
   Purchases of premises
     and equipment                        (1)       (16)
       Net cash provided
         (used) by investing
         activities                       46     (1,152)
Financing Activities
   Sale of stock                       4,578
   Dividends                             (85)       (69)
   Purchase of stock                     (78)      (565)
   Capital contribution to Bank                  (2,471)
   Contribution of RRP shares                      (290)
       Net cash provided (used)
         by financing activities        (163)     1,183
Net Change in Cash                       (13)        25
Cash at Beginning of Year                 25
Cash at End of Year                  $    12    $    25
Additional Cash Flows and
Supplementary Information
   Common stock issued to
     ESOP leveraged with an
     employer loan                              $   404

<PAGE>
Directors and Officers

<TABLE>
<CAPTION>

                               Board of Directors

<S>                                      <C>                                <C>   
Frank R. Stewart                         Charles W. Chambers                John T. Gillaspy
Chairman of the Board                    Secretary                          President and
President, BSF, Inc.                                                        Chief Executive Officer,
                                                                            Spencer Evening World, Inc.
                                                                          
Kurt J. Meier                            Robert W. Raper                    Tad Wilson
President                                Vice Chairman of the Board         Co-owner, Metropolitan
Owen Community Bank, s.b.                                                   Printing Services, Inc.
                                                                          
Stephen Parrish                          Kurt D. Rosenberger                Gary Michael Monnett
Funeral Director,                        Vice President                     Mike Monnett, CPA
West-Parrish-Pedigo Funeral Home         Owen Community Bank, s.b.        
</TABLE>

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

                       Officers of Home Financial Bancorp

Frank R. Stewart                           Kurt J. Meier
Chairman                                   President, Chief Executive Officer
                                           and Treasurer

Kurt D. Rosenberger                        Charles W. Chambers
Vice President and                         Secretary
Chief Financial Officer

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

                      Officers of Owen Community Bank, s.b.

Frank R. Stewart           Kurt J. Meier              Charles W. Chambers
Chairman                   President and              Secretary
                           Chief Executive Officer

Kurt D. Rosenberger        Judith A. Terrell          Christie Leach
Vice President and         Branch Manager and         Assistant Branch Manager
Chief Financial Officer    Mortgage Loan Officer      and Mortgage Loan Officer

Nancy Logan                Carole Eder                Lisa K. Sherfield
Accounting Manager         Teller Supervisor          Mortgage Loan Officer

Julie A. Hedden            Lisa Wilson
Mortgage Loan Officer      Compliance and
                           Special Projects

 
<PAGE>

Directors and Officers

         Charles W.  Chambers,  (age 82) has served as a director of the Holding
Company since its formation  and of the Bank since 1978.  Mr.  Chambers has also
served as a staff appraiser for the Bank since 1991 and as Secretary of the Bank
since 1990. Mr. Chambers is Secretary of the Holding Company and the Bank.


         John T.  Gillaspy,  (age 70) has  served as a director  of the  Holding
Company since its formation  and of the Bank since 1986.  Mr.  Gillaspy has also
served as President and Chief  Executive  Officer of the Spencer  Evening World,
Inc., a newspaper based in Spencer, Indiana for more than the past five years.


         Kurt J. Meier,  (age 48) has served as President  and a director of the
Holding  Company  since its  formation and as a director of the Bank since 1991.
Mr.  Meier has also served as  President  of the Bank since  1994.  From 1990 to
1994, Mr. Meier served as Managing Officer of the Bank.


         Steven  Parrish,  (age 58) has  served  as a  director  of the  Holding
Company  since its formation  and of the Bank since 1982.  Mr.  Parrish has also
served  as a  funeral  director  for  the  West-Parrish-Pedigo  Funeral  Home in
Spencer, Indiana, for more than five years.


         Gary  Michael  Monnett,  (age 38) was named a director in 1998.  He has
been a self-employed  certified public accountant since 1993,  providing tax and
accounting services to individuals and small business


         Robert W.  Raper,  (age 81) has  served as a  director  of the  Holding
Company since its formation and of the Bank since 1970, with which he has served
as Vice Chairman  since 1994.  Prior to 1994, Mr. Raper served as Vice President
of the Bank.


         Kurt D.  Rosenberger,  (age 40) is a director  and Vice  President  and
Chief Financial Officer of the Holding Company.  Mr. Rosenberger has also served
as Vice  President  of the Bank  since  1994.  Theretofore,  he served as Senior
Financial Analyst for the Office of Thrift Supervision in Indianapolis, Indiana,
from 1990 to 1994.


         Frank R.  Stewart,  (age 73) has  served as a director  of the  Holding
Company since its formation and of the Bank since 1963.  Mr.  Stewart  served as
President  of the Bank from 1982 until  1994.  Mr.  Stewart  has also  served as
President of BSF, Inc.  since its formation in 1989.  Mr.  Stewart has extensive
experience in real estate development and sales.


         Tad  Wilson,(age  63) has served as a director of the  Holding  Company
since its formation and of the Bank since 1978.  Mr. Wilson is also the co-owner
of  Metropolitan   Printing   Services,   Inc.,  a  printing  company  based  in
Bloomington, Indiana, and is the owner of a retail book store and various rental
properties located in Bloomington, Indiana.


 
<PAGE>


                             Shareholder Information

Market Information

         The Bank  converted  from an Indiana  mutual savings bank to an Indiana
stock savings bank  effective  July 1, 1996,  and  simultaneously  formed a bank
holding  company,  the Holding Company.  The Holding  Company's Common Stock, is
quoted on the National  Association of Securities  Dealers  Automated  Quotation
System ("NASDAQ"),  Small Cap Market,  under the symbol "HWEN." As of August 24,
1998, there were approximately 540 holders of the Holding Company's Common Stock
including shares held in broker accounts.

         Since the Holding  Company has limited  independent  operations  and no
other  subsidiaries to generate income,  its ability to accumulate  earnings for
the payment of cash dividends to its shareholders is directly dependant upon the
earnings  on its  investment  securities  and  the  ability  of the  Bank to pay
dividends to the Holding Company.

         Under  current  federal  income tax law,  dividend  distributions  with
respect to the Common Stock, to the extent that such dividends paid are from the
current or  accumulated  earnings and profits of the Company (as  calculated for
federal  income  tax  purposes),  will be  taxable  as  ordinary  income  to the
recipient and will not be deductible by the Company. Any dividend  distributions
in excess of current or  accumulated  earnings  and profits  will be treated for
federal income tax purposes as a distribution  from the Bank's  accumulated  bad
debt reserves,  which could result in increased federal income tax liability for
the Company.  Moreover, the Bank may not pay dividends to the Holding Company if
such  dividends  would  result  in the  impairment  of the  liquidation  account
established in connection with the Conversion.

         The Holding  Company's  ability to pay dividends on the Common Stock is
subject to certain  regulatory  restrictions.  In  addition,  Indiana  law would
prohibit the Holding  Company from paying a dividend,  if after giving effect to
the payment of that dividend,  the Holding  Company would not be able to pay its
debts as they  become due in the  ordinary  course of business or if the Holding
Company's total assets would be less than the sum of its total  liabilities plus
preferential  rights of holders of preferred  stock, if any, of which there were
none.

         The stock  information  provided below has been adjusted to reflect the
2-for-1 stock split effective January 6 ,1998.

                            Stock Price            Dividends
Quarter Ended                  High             Low     Per Share
-----------------------------------------------------------------
September 30, 1996            $ 6 7/8        $ 4 7/8        .---
December 31, 1996               6 5/8          5 7/8       $.025
March 31, 1997                  7 3/4          6 3/8        .025
June 30, 1997                   7 7/8          7 1/4        .025
                                                           
September 30, 1997              8 5/8          7 7/16       .025
December 31, 1997               9 1/4          8 1/8        .025
March 31, 1998                  9 3/4          8 3/4        .025
June 30, 1998                   9 1/2          8 7/16       .025
                                                      

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


<PAGE>

Transfer Agent and Registrar

Fifth Third Bank
Corporate Trust Operations                                                   
38 Fountain Square Plaza, MD - 1090F5
Cincinnati, Ohio 45202
(513) 579-5320 or (800) 837-2755

General Counsel

Barnes & Thornburg
11 South Meridian Street
Indianapolis, Indiana  46204

Independent Auditor

Olive LLP
201 N. Illinois
Indianapolis, Indiana  46204

Shareholder and General Inquiries

         The Company is  required to file an Annual  Report on Form 10-K for its
fiscal year ended June 30, 1998 with the  Securities  and  Exchange  Commission.
Copies of this annual report may be obtained without charge upon written request
to:

     Kurt D. Rosenberger
     Vice President and Chief Financial Officer
     Home Financial Bancorp
     279 East Morgan Street
     Spencer, Indiana 47460

Home Page and E-mail

     www.hfbancorp.com
     homebanc@bluemarble.net