UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB

(Mark One)

[X]  Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934

For the fiscal year ended June 30, 2003

or

[ ]  Transition  Report  Pursuant  to Section  13 or 15(d) of the  Securities
     Exchange Act of 1934

        For the transition period from _____________ to _______________

                         Commission File Number    0-28510

                             HOME FINANCIAL BANCORP
                 (Name of small business issuer in its charter)

          INDIANA                                         35-1975585

  (State or other jurisdiction                  (I.R.S. Employer Identification
of incorporation or organization)                            Number)

        279 East Morgan Street, Spencer, Indiana          47460
        (Address of Principal Executive Offices)        (Zip Code)

Issuer's telephone number:  (812) 829-2095

Securities registered under Section 12(b) of the Exchange Act:

        Title of each class     Name of each exchange on which registered
                NONE                             NONE

Securities registered under Section 12(g) of the Exchange Act:

                        Common Stock, without par value
                                (Title of Class)

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

The issuer's revenues for the fiscal year ended June 30, 2003 were $5,248,987.

The aggregate market value of the issuer's voting stock held by  non-affiliates,
as of August 26, 2003, was $4,149,146.

The number of shares  outstanding  of the  issuer's  common  stock,  without par
value, as of August 26, 2003, was 1,356,050 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2003 Annual Meeting of Shareholders  are
incorporated by reference in Part III.

Transitional Small Business Disclosure Format:     YES [ ]   NO [X]

                           Exhibit Index on Page E-1
                               Page 1 of 50 Pages
<PAGE>

                             HOME FINANCIAL BANCORP
                                  Form 10-KSB
                                     INDEX

                                                                            Page

Forward Looking Statements ...............................................     3

PART I

Item  1.    Description of Business ......................................     3

Item  2.    Description of Property ......................................    29

Item  3.    Legal Proceedings ............................................    29

Item  4.    Submission of Matters to a Vote of Security Holders ..........    30


PART II

Item  5.    Market for Common Equity and Related Stockholder Matters .....    30

Item  5.5.  Selected Financial Data ......................................    32

Item  6.    Management's Discussion and Analysis or Plan of Operation ....    33

Item  7.    Financial Statements .........................................    46

Item  7A.   Quantitative and Qualitative Disclosures About Market Risk ...    46

Item  8.    Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure ........................    47

Item 8A.    Controls and Procedures ......................................    47


PART III

Item 9.     Directors, Executive Officers, Promoters and Control Persons;
              Compliance with Section 16(a) of the Exchange Act ..........    48

Item 10.    Executive Compensation .......................................    48

Item 11.    Security Ownership of Certain Beneficial Owners and
              Management  and Related Stockholder Matters ................    48

Item 12.    Certain Relationships and Related Transactions ...............    49

Item 13.    Exhibits and Reports on Form 8-K .............................    49

Item 14.    Principal Accountant Fees and Services .......................    49

Signatures ...............................................................    50

Exhibit Index ............................................................   E-1
<PAGE>

                           FORWARD LOOKING STATEMENTS

     This Annual Report on Form 10-KSB ("Form 10-KSB") contains statements which
constitute  forward  looking  statements  within  the  meaning  of  the  Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-KSB and include statements regarding the intent,  belief,
outlook,  estimate  or  expectations  of the Company  (as  defined  below),  its
directors or its officers primarily with respect to future events and the future
financial performance of the Company.  Readers of this Form 10-KSB are cautioned
that any such forward looking  statements are not guarantees of future events or
performance  and involve risks and  uncertainties,  and that actual  results may
differ  materially from those in the forward  looking  statements as a result of
various  factors.  The  accompanying  information  contained in this Form 10-KSB
identifies  important factors that could cause such  differences.  These factors
include  changes in interest  rates;  loss of deposits  and loan demand to other
savings and financial  institutions;  substantial  changes in financial markets;
changes in real estate values and the real estate market; regulatory changes; or
unanticipated results in pending legal proceedings.

                                     PART I

Item 1. Description of Business.

                                    BUSINESS

General

     Home Financial  Bancorp (the "Holding  Company"  together with the Bank (as
defined below), 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. The principal  asset
of the Holding Company currently  consists of 100% of the issued and outstanding
shares of common stock 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. As of
May 1, 1999,  the Bank  converted  back to a federal  stock savings bank and the
Company became a unitary savings and loan holding company.  The Bank's principal
business consists of attracting deposits from the general public and originating
long-term  loans  secured  primarily  by first  mortgage  liens on one- to- four
family  residential real estate and by mobile homes or a combination of land and
mobile homes. 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) home equity  loans;  (xi) NOW  accounts;  (xii)  demand
deposit  accounts;  (xiii) passbook savings  accounts;  (xiv) statement  savings
accounts; (xv) money market deposit accounts; and (xvi) certificates of deposit.
The  Company  conducts  business  out of its main  office  located  in  Spencer,
Indiana, and its branch office in Cloverdale, Indiana.

     The Bank  historically  has  concentrated  its  lending  activities  on the
origination  of  loans  secured  by  first  mortgage  liens  for  the  purchase,
construction or refinancing of one- to- four family  residential  real property.
One-to- four family  residential  mortgage loans continue to be a major focus of
the Bank's loan origination activities,  representing 47.71% of the Bank's total
loan  portfolio  at June 30,  2003.  The Bank also  offers  mobile  home  loans,
multi-family  mortgage  loans,  nonresidential  real estate loans,  Combo Loans,
consumer loans and commercial and industrial loans.  Mobile home loans and Combo
Loans totaled approximately 13.61% and 17.76% of the Bank's total loan portfolio
at  June  30,  2003,  respectively.   Mortgage  loans  secured  by  multi-family
properties  and  nonresidential  real  estate  totaled  approximately  0.42% and
18.40%,  respectively,  of the Bank's  total loan  portfolio  at June 30,  2003.
Consumer loans  constituted  approximately  1.41%, and commercial and industrial
loans totaled approximately 0.69% of the Bank's total loan portfolio at June 30,
2003.

     The  Holding  Company  files  reports  with  the  Securities  and  Exchange
Commission,  including Annual Reports on Form 10-KSB,  Quarterly Reports on Form
10-QSB, Current Reports on Form 8-K, and Proxy Statements.

     The public may read and copy any materials  the Holding  Company files with
the  SEC  at  the  SEC's  Public  Reference  Room  at 450  Fifth  Street,  N.W.,
Washington,  D.C. 20549.  The public may obtain  information on the operation of
the  Public  Reference  Room  by  calling  the  SEC at  1-800-SEC-0330.  The SEC
maintains  an  Internet  site  that  contains  reports,  proxy  and  information
statements,  and other  information  regarding  issuers,  including  the Holding
Company,  that file  electronically  with the SEC.  The  address of that site is
http://www.sec.gov.

<TABLE>
<CAPTION>

Lending Activities

     Loan Portfolio  Data. The following table sets forth the composition of the
Bank's loan  portfolio by loan type and security type as of the dates  indicated,
including a reconciliation of gross loans receivable after  consideration of the
allowance for loan losses, deferred loan costs and loans in process.

                                                          At June 30,
                                  -------------------------------------------------------------
                                        2003                 2002                  2001
                                  ------------------   ------------------    ------------------
                                            Percent              Percent               Percent
                                   Amount   of Total    Amount   of Total     Amount   of Total
                                  --------  --------   --------  --------    --------  --------
                                                      (Dollars in thousands)
<S>                                <C>        <C>       <C>        <C>        <C>        <C>
TYPE OF LOAN
Mortgage loans:
  Residential .................    $23,492    47.71%    $26,929    50.27%     $27,082    49.26%
  Combo .......................      8,744    17.76       7,511    14.02        7,230    13.15
  Nonresidential ..............      9,060    18.40      10,430    19.47       13,758    25.02
  Multi-family ................        208     0.42         451     0.84          528     0.96
Mobile home loans .............      6,703    13.61       5,924    11.06        3,172     5.77
Commercial and industrial loans        340     0.69         629     1.17          485     0.88
Consumer loans ................        695     1.41       1,695     3.17        2,725     4.96
                                   -------   ------     -------   ------      -------   ------
    Gross loans receivable ....    $49,242   100.00%    $53,569   100.00%     $54,980   100.00%
                                   =======   ======     =======   ======      =======   ======

TYPE OF SECURITY
  Residential real estate .....    $23,492    47.71%    $26,929    50.27%     $27,082    49.26%
  Mobile home and land ........      8,744    17.76       7,511    14.02        7,230    13.15
  Nonresidential real estate ..      9,060    18.40      10,430    19.47       13,758    25.02
  Multi-family real estate ....        208     0.42         451     0.84          528     0.96
  Mobile home .................      6,703    13.61       5,924    11.06        3,172     5.77
  Deposits ....................         54     0.11          73     0.14          125     0.23
  Other security ..............        981     1.99       2,251     4.20        3,085     5.61
                                   -------   ------     -------   ------      -------   ------
    Gross loans receivable ....     49,242   100.00      53,564   100.00       54,980   100.00
                                   =======   ======     =======   ======      =======   ======
Deduct:
Allowance for loan losses .....        316     0.65         344     0.65          392     0.72
Loans in process and
  deferred loan costs .........        426     0.88         518     0.98          344     0.63
                                   -------   ------     -------   ------      -------   ------
  Net loans receivable ........    $48,500    98.47%    $52,707    98.37%     $54,244    98.65%
                                   =======   ======     =======   ======      =======   ======
</TABLE>

     The  following  table  sets forth  certain  information  at June 30,  2003,
regarding the dollar amount of agricultural  and commercial and industrial loans
maturing  in the  Bank's  loan  portfolio  based  on the  contractual  terms  to
maturity.  This schedule does not reflect the effects of possible prepayments or
enforcement of due-on-sale  clauses.  Management expects  prepayments will cause
actual maturities to be shorter.

<TABLE>
<CAPTION>

                                              Due during years ended June 30,
                      Balance       -------------------------------------------------------
                    Outstanding                             2007    2009    2014    2019
                     at June 30,                              to      to      to      and
                        2003        2004    2005    2006    2008    2013    2018  following
                    -----------     ----    ----    ----    ----    ----    ----  ---------
                                                        (In thousands)

<S>                    <C>          <C>     <C>      <C>    <C>    <C>     <C>      <C>
Agricultural........   $1,284       $ --    $ --     $51    $16    $118    $168     $931
Commercial and
  industrial loans..      340         65      --      --     --      --     275       --
                       ------       ----    ----     ---    ---    ----    ----     ----
    Total...........   $1,624       $ 65    $ --     $51    $16    $118    $443     $931
                       ======       ====    ====     ===    ===    ====    ====     ====
</TABLE>
<PAGE>

     The following  table sets forth,  as of June 30, 2003, the dollar amount of
agricultural  and commercial and industrial  loans due after one year which have
fixed interest rates and floating or adjustable rates.

                                    Due After June 30, 2004
                      --------------------------------------------------
                      Fixed Rates        Variable Rates         Total
                      -----------        --------------       ----------
                                         (In thousands)

Agricultural........     $1,020               $264              $1,284
Commercial and
  industrial loans..        275                 --                 275
                         ------               ----              ------
    Total...........     $1,295               $264              $1,559
                         ======               ====              ======

     One- to- Four Family Residential Loans. Residential loans consist primarily
of one- to- four family loans.  Approximately  $23.5  million,  or 47.71% of the
Bank's  portfolio of loans at June 30, 2003,  consisted  of  one-to-four  family
residential  mortgage loans.  Pursuant to federal  regulations,  such loans must
require  at least  semi-annual  payments  and be for a term of not more  than 40
years, and, if the interest rate is adjustable, the rate must be correlated with
changes in a readily verifiable index.

     The Bank currently offers three (3) types of adjustable-rate  one- to- four
family residential mortgage loans ("ARM Loans"). The Bank offers ARM Loans which
adjust annually and are indexed to the One-year U.S.  Treasury Constant Maturity
Rate as published  monthly by the Federal  Reserve  Board ("FRB") (the "One Year
T-Bill Constant Maturity  Index").  The maximum rate adjustment per year for the
Bank's  one-year ARM Loans is 1% to 1.5%, and the maximum rate  adjustment  over
the life of the loan is 4% to 5%. These ARM Loans are generally underwritten for
terms of up to 25 years. The Bank also offers three-year and five-year ARM Loans
which  are  indexed  to the  National  Average  Contract  Interest  Rate for the
Purchase of  Previously  Occupied  Homes as  published  by the  Federal  Housing
Finance  Board (the  "National  Average  Contract  Rate").  The  three-year  and
five-year ARM Loans have maximum rate  adjustments of 3% per  adjustment  period
and 5% over the life of the loan. The Bank's  three-year and five-year ARM Loans
are  generally  underwritten  for  terms of up to 25  years.  The Bank  will not
generally lend more than $100,000 for any residential  loan with a loan-to-value
ratio of 90% or higher.

     The initial interest rate for each of the Bank's ARM Loans is determined by
the  Executive  Committee  of the  Bank's  Board of  Directors  (the  "Executive
Committee")  based upon  prevailing  rates in the Bank's market area, the credit
history of the applicant and the loan-to-value  ratio. When the initial interest
rate is determined  for an ARM Loan, a margin is calculated by  subtracting  the
current index rate (i.e., the Constant Maturity One Year T-Bill for one-year ARM
Loans or the National  Average  Contract Rate for  three-year  and five-year ARM
Loans) from the initial interest rate.  Interest rate adjustments are thereafter
determined based on fluctuations of the index rate with a specific loan's margin
remaining constant.

     ARM Loans decrease the risk  associated  with changes in interest rates but
involve other risks,  primarily  because as interest  rates rise, the payment by
the borrowers may rise to the extent permitted by the terms of the loan, thereby
increasing  the  potential  for default.  Also,  ARM Loans have  features  which
restrict  changes in interest  rates on a short-term  basis and over the life of
the loan. At the same time, the market value of the  underlying  property may be
adversely affected by higher interest rates.

     The Bank also  currently  offers  fixed-rate  loans  which  provide for the
payment of principal and interest over a period not to exceed 20 years.

     The Bank does not generally  originate  residential  mortgage  loans if the
loan-to-value  ratio exceeds 90% and does not currently require private mortgage
insurance  on  its  residential   single-family   mortgage  loans.  The  maximum
loan-to-value  ratio for  non-owner  occupied  one- to- four family  residential
mortgage loans is 80%.

     Substantially  all  of  the  residential   mortgage  loans  that  the  Bank
originates  include  "due-on-sale"  clauses,  which  give the Bank the  right to
declare a loan  immediately  due and  payable  in the event  that,  among  other
things, the borrower sells or otherwise disposes of the real property subject to
the mortgage and the loan is not repaid.

     The  Bank's  residential   mortgage  loans  are  originated  on  terms  and
conditions  and using  documentation  that does not  conform  with the  standard
underwriting  criteria required to sell such loans in the secondary market.  The
Bank  generally  retains its loans in its portfolio and does not  anticipate the
need to sell its non-conforming loans. See "--Origination,  Purchase and Sale of
Loans.

     At June 30, 2003,  residential  loans  amounting  to $136,000,  or 0.28% of
total loans, were included in non-performing  assets. See  "--Non-Performing and
Problem Assets".

     The Bank offers  mortgage loans for the  construction  of residential  real
estate.  Such loans are made with  respect to  owner-occupied  residential  real
estate  and, in limited  cases,  to builders  or  developers  constructing  such
properties on a speculative investment basis (i.e., before the builder/developer
obtains a commitment from a buyer).  Substantially all of such loans are made to
owners who are to occupy the premises.

     These  loans  are  written  as  permanent  mortgage  loans  such  that only
disbursed  principal  and interest are payable  during the  construction  phase,
which is typically limited to six (6) months.  Inspections are made prior to any
disbursement under such a loan.

     Mortgage loans written for the  construction  of  residential  real estate,
like  construction  loans  generally,  involve a higher level of risk than loans
secured by existing  properties.  For example, if a project is not completed and
the borrower defaults,  the Bank may have to hire another contractor to complete
the project at a higher cost.  Also, a house may be completed,  but not salable,
resulting in the borrower defaulting and the Bank taking title to the house.

     The Bank originates  personal  revolving line of credit loans ("Home Equity
Loans").  Each Home Equity Loan is secured by a first or second  mortgage on the
borrower's primary  residence.  The combined total of first and second mortgages
on property  securing  Home Equity Loans is  generally  limited to 80%. The draw
period for the Home Equity Loan product is generally limited to 10 years, with a
maximum of 15 years.

     The Bank also offers ID Mortgage Loans. An ID Mortgage Loan is similar to a
Home  Equity  Loan in that it creates a line of credit  secured by a real estate
mortgage against which a borrower may draw, and is typically written as a second
mortgage  loan.  The Bank  generally  writes its ID  Mortgage  Loans so that all
future  indebtedness  of a borrower  is secured by the ID  mortgage  without the
necessity of recording an  additional  security  instrument.  ID Mortgage  Loans
carry fixed rates and are  generally  written for terms not  exceeding 20 years.
The maximum loan-to-value ratio for ID Mortgage Loans is 90% if the subject real
estate  is not  encumbered  by  another  mortgage  or the Bank  holds  the first
mortgage on the subject real estate,  and 80% if another  lender holds the first
mortgage on the subject real estate.  If an appraisal has been  completed on the
subject  property within five (5) years,  the Bank does not generally  require a
new appraisal.

     Combo Loans. At June 30, 2003, $8.7 million,  or 17.76% of the Bank's total
loan portfolio,  consisted of Combo Loans.  The Bank currently  offers three (3)
types of adjustable-rate Combo Loans. The Bank's one-year  adjustable-rate Combo
Loans are indexed to the Constant Maturity One Year T-Bill and have maximum rate
adjustments  of 1.5% per year and 3% over the life of the  loan.  The Bank  also
offers three-year and five-year adjustable-rate Combo Loans which are indexed to
the National  Average  Contract Rate and have maximum rate adjustments of 3% per
adjustment  period and 5% over the life of the loan.  The Bank's Combo Loans are
generally  underwritten for terms of up to 25 years.  The maximum  loan-to-value
ratio for a Combo Loan is 90%.

     The initial  interest rate for each of the Bank's Combo Loans is determined
by the  Executive  Committee  based upon  prevailing  rates in the Bank's market
area, the  applicant's  credit  history and the  loan-to-value  ratio.  The Bank
generally  establishes  its base  interest  rates for Combo Loans at a level 100
basis points higher than the  corresponding  rates for residential ARM Loans. An
interest  rate  margin is  determined  for each Combo Loan in the same manner as
described above for residential ARM Loans.

     The Bank also  offers  fixed-rate  Combo  Loans with terms of 10 years,  15
years and 20 years.  At June 30, 2003,  Combo Loans  amounting  to $281,000,  or
0.58%  of  total   loans,   were   included  on   non-performing   assets.   See
"--Non-Performing Assets."

     Mobile Home Loans.  The Bank  originates  loans for the purchase of new and
used mobile homes. At June 30, 2003,  approximately  $6.7 million,  or 13.61% of
the Bank's portfolio of loans, consisted of mobile home loans. The Bank's mobile
home loans are  fixed-rate  loans with maximum  terms of 15 years for new mobile
homes and 10 years for previously owned mobile homes. The maximum  loan-to-value
ratio for mobile home loans is typically 90%.

     The Bank has  emphasized  mobile home loans  because  they  generally  have
shorter terms to maturity and higher yields than the Bank's residential mortgage
loans.  In  addition,  the Bank is the primary  lender in its market area making
mobile home loans,  and mobile home  lending  significantly  enhances the Bank's
compliance  under the Community  Reinvestment  Act of 1977. The Bank anticipates
that it will continue to be an active originator of mobile home loans.

     Mobile home  lending  entails  greater  risk than  traditional  residential
mortgage  lending.  Loans  secured by mobile homes involve more credit risk than
residential mortgage loans because of the type and nature of the collateral, and
because such loans  generally are made to borrowers with low income levels,  and
mobile homes tend to rapidly depreciate in value. In many cases, any repossessed
collateral for a defaulting mobile home loan will not provide an adequate source
of repayment of the  outstanding  loan  balance  because of improper  repair and
maintenance  of the  underlying  security.  Two of the Bank's  mobile home loans
totaling  $53,000  were  included  in  non-performing  assets at June 30,  2003.
Repossessed collateral included 12 mobile homes at June 30, 2003.

     Nonresidential Real Estate Loans. At June 30, 2003, $9.1 million, or 18.40%
of the Bank's  total loan  portfolio,  consisted of  nonresidential  real estate
loans,  of which  $615,000  constituted  loans secured by unimproved  land.  The
nonresidential  real estate loans included in the Bank's portfolio are primarily
secured by real  estate  that  includes a  warehouse,  a funeral  home,  several
churches, a mobile home park and various commercial buildings. At June 30, 2003,
$1.3 million, or 14.2% of the Bank's nonresidential loan portfolio,  was secured
by several farm properties.  The Bank generally  originates  nonresidential real
estate loans as one-year adjustable-rate and monthly floating-rate loans indexed
to the prime rate with a margin of 1% to 3% above such index.  In addition,  the
maximum rate adjustments per adjustment period and over the life of the loan are
typically unrestricted. The Bank underwrites these loans on a case-by-case basis
and, in addition to its normal  underwriting  criteria,  the Bank  evaluates the
borrower's  ability to  service  the debt from the net  operating  income of the
property.  The largest  nonresidential  real estate loan on June 30,  2003,  was
$822,000.  None of the Bank's  nonresidential real estate loans were included in
non-performing assets at that date.

     Loans secured by nonresidential  real estate generally are larger than one-
to- four  family  residential  loans  and  involve  a  greater  degree  of risk.
Nonresidential  real estate loans often  involve  large loan  balances to single
borrowers  or groups of related  borrowers.  Payments on these loans depend to a
large degree on results of operations  and  management of the properties and may
be affected to a greater extent by adverse  conditions in the real estate market
or the economy in general.  Accordingly, the nature of the loans makes them more
difficult for management to monitor and evaluate.

     Multi-Family  Loans.   Approximately  $208,000,  or  0.42%  of  the  Bank's
portfolio of loans at June 30, 2003, consisted of multi-family loans. All of the
Bank's  multi-family loans were fully performing as of June 30, 2003. The Bank's
multi-family  loans are written for maximum terms of 20 years, and the Bank does
not originate multi-family loans if the loan-to-value ratio exceeds 80%.

     Other  Consumer  Loans.  The Bank's  consumer loans (other than mobile home
loans),  consisting primarily of installment,  auto and share loans,  aggregated
$695,000 as of June 30, 2003, or 1.41% of the Bank's total loan  portfolio.  The
Bank consistently  originates  consumer loans to meet the needs of its customers
and to assist in meeting its asset/liability management goals. All of the Bank's
consumer loans are fixed-rate loans, and substantially all are secured loans.

     The Bank's  installment  loans are fixed-rate  loans  generally  secured by
collateral,  including  vehicle titles,  and are made for maximum terms of up to
five years (depending on the collateral).

     The Bank's share loans are made up to 80% of the original  account  balance
and accrue at a rate of 2% over the  underlying  certificate  of  deposit  rate.
Interest on share loans is paid semi-annually.

     Consumer  loans may entail greater  credit risk than  residential  mortgage
loans do,  particularly in the case of consumer loans which are unsecured or are
secured  by  rapidly  depreciable  assets,  such as  automobiles.  Further,  any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the  outstanding  loan balance as a result of the greater
likelihood  of  damage,  loss  or  depreciation.   In  addition,  consumer  loan
collections are dependent on the borrower's continuing financial stability,  and
thus  are  more  likely  to  be  affected  by  adverse  personal  circumstances.
Furthermore,  the  application  of various  federal  and state  laws,  including
bankruptcy and  insolvency  laws, may limit the amount which can be recovered on
such loans.  At June 30, 2003,  no consumer  installment  loans were included in
non-performing  assets. See  "--Non-Performing and Problem Assets." There can be
no assurances,  however,  that  additional  delinquencies  will not occur in the
future.

     Origination,  Purchase and Sale of Loans. The Bank currently originates its
mortgage loans pursuant to its own underwriting standards,  which do not conform
with the  standard  criteria  of the  Federal  Home  Loan  Mortgage  Corporation
("FHLMC") or Federal National Mortgage Association ("FNMA"). If the Bank desired
to sell its mortgage  loans, it might  experience  some  difficulty  selling its
non-conforming  loans quickly in the secondary market. The Bank has no intention
of  attempting  to sell  such  loans.  However,  the Bank may  originate  future
mortgages with the intent to sell such loans on the secondary market. The Bank's
ARM Loans vary from secondary market criteria in that,  among other things,  the
Bank does not  require  escrow  accounts  for taxes and  insurance  and does not
permit the  conversion  of those  loans to  fixed-rate  loans in the first three
years of their terms.

     The  Bank  confines  its loan  origination  activities  primarily  to south
central Indiana.  The Bank's loan originations are generated from referrals from
real  estate  dealers and  existing  customers,  and  newspaper  and  periodical
advertising.  All loan applications are processed and underwritten at the Bank's
main office.

     The Bank's  loan  approval  process is  intended  to assess the  borrower's
ability to repay the loan,  the  viability  of the loan and the  adequacy of the
value of the  property  that will  secure  the loan.  To assess  the  borrower's
ability  to repay,  the Bank  studies  the  employment  and credit  history.  An
analysis is also performed on an applicant's historical and projected income and
expenses.  Mortgage  loans  up to  $250,000  may be  approved  by the  Executive
Committee. All mortgage loans for more than $250,000 must be approved in advance
by the Board of  Directors.  Consumer  loans up to $5,000 may be approved by the
Bank's Senior Installment Loan Officer. Consumer loans for more than $5,000 must
be approved by the Executive Committee.

     The Bank generally  requires  appraisals on all property securing its loans
and requires  title  insurance  and a valid lien on its  mortgaged  real estate.
Appraisals  for  residential  real  property  valued at less than  $250,000  are
performed by an in-house appraiser. Appraisals for residential properties valued
in excess of $250,000  and  appraisals  for all  nonresidential  real estate are
performed by a  state-licensed  appraiser.  The Bank  requires fire and extended
coverage insurance in amounts at least equal to the principal amount of the loan
and requires vandalism coverage on all mobile home loans. It also requires flood
insurance to protect the property  securing its interest if the property is in a
flood plane.  The Bank does not require escrow accounts to be established by its
borrowers  for the payment of  insurance  premiums or taxes and does not require
private mortgage insurance for its loans.

     The Bank's  underwriting  standards  for  consumer  loans are  intended  to
protect against some of the risks inherent in making  consumer  loans.  Borrower
character, paying habits and financial strengths are important considerations.

     The Bank  historically has sold  participations  in its mortgage loans on a
limited number of occasions to ensure compliance with the  loans-to-one-borrower
restrictions.   See  "--Regulation   Loans  to  One  Borrower."  The  Bank  also
occasionally   purchases   participations  in  nonresidential  real  estate  and
multi-family loans from other financial institutions. At June 30, 2003, the Bank
had sold  participations  in a  non-residential  mortgage  loan in the amount of
$593,000.

     The following table shows loan origination, purchase and repayment activity
for the Bank during the periods indicated.

                                                    For the Year Ended June 30,
                                                  ------------------------------
                                                   2003        2002       2001
                                                  -------    -------    --------
                                                          (In thousands)

Gross loans receivable at beginning of period ..  $53,569    $54,980    $46,281
                                                  -------    -------    -------
Originations:
  Mortgage loans:
    Residential ................................    7,021     11,823     11,822
    Other ......................................      927      1,795      3,399
                                                  -------    -------    -------
      Total mortgage loans  ....................    7,948     13,618     15,221
                                                  -------    -------    -------
  Mobile home loans ............................    2,004      3,505      1,448
  Consumer loans:
    Installment ................................      488        872      1,517
    Share ......................................       79         37        141
                                                  -------    -------    -------
      Total consumer loans .....................    2,571        909      1,658
                                                  -------    -------    -------
        Total originations .....................   10,519     18,032     18,327

Purchases (sales) of participation loans .......       --       (615)      (400)
Repayments and other deductions ................  (14,846)   (18,828)    (9,228)
                                                  -------    -------    -------
  Gross loans receivable at end of period ......  $49,242    $53,569    $54,980
                                                  =======    =======    =======


     Origination and Other Fees. The Bank realizes income from origination fees,
late charges, checking account service charges, and fees for other miscellaneous
services.  The Bank does not currently charge any points on its loans.  However,
the Bank currently  charges $300 plus closing costs on its residential  mortgage
loans. A late charge is generally  assessed if payment is not received  within a
specified  number of days  after it is due.  The  grace  period  depends  on the
individual loan documents.

     The Bank presently maintains two automated teller machines ("ATMs"). One is
located at its main office in Spencer,  Indiana.  A second ATM is located at the
Bank's branch office in Cloverdale, Indiana. The Bank's ATMs operate in the STAR
regional network and the CIRRUS nationwide network.  The Company does not derive
significant income from the ATM cards.

     Mortgage-Backed  Securities. At June 30, 2003, the Bank had $2.7 million of
mortgage-backed  securities  outstanding,   all  of  which  were  classified  as
available  for sale and had a market  value of $2.7  million.  These  fixed-rate
mortgage-backed  securities are used as collateral for borrowings  and,  through
repayments, as a source of liquidity. Mortgage-backed securities generally offer
yields above those  available for  investments of comparable  credit quality and
duration.
<PAGE>

     The  following  table sets forth the  amortized  cost and fair value of the
Bank's mortgage-backed securities at the dates indicated.

                                                At June 30,
                         ------------------------------------------------------
                                2003              2002               2001
                         -----------------  ----------------   ----------------
                         Amortized   Fair   Amortized  Fair    Amortized  Fair
                            Cost     Value     Cost    Value      Cost    Value
                         ---------   -----  ---------  -----   ---------  -----
                                              (In thousands)
Total mortgage-backed
   securities...........   $2,664   $2,736   $3,841   $3,913    $5,663   $5,582


     The  following  table sets forth the amount of  mortgage-backed  securities
which  mature  during each of the periods  indicated  and the  weighted  average
yields for each range of maturities at June 30, 2003.

<TABLE>
<CAPTION>

                                            Amount at June 30, 2003, which matures in
                             ---------------------------------------------------------------------
                              Less than 1 year        Two through five years     Over five years
                             --------------------     ----------------------   -------------------
                                        Weighted                 Weighted                 Weighted
                             Amortized   Average      Amortized   Average      Amortized   Average
                                Cost      Yield         Cost       Yield          Cost      Yield
                             ---------  ---------     ---------  ---------     ---------  ---------
                                                      (In thousands)
<S>                              <C>        <C>            <C>      <C>          <C>         <C>
Mortgage-backed securities
  available for sale             ---        ---            $61      7.5%         $2,603      6.8%
</TABLE>


     The  following  table sets forth the changes in the Bank's  mortgage-backed
securities portfolio for the years ended June 30, 2003, 2002 and 2001.

                                                  For the Year Ended June 30,
                                                 -----------------------------
                                                  2003      2002         2001
                                                 ------    ------       ------
                                                        (In thousands)

Beginning balance                                $3,913    $5,582       $7,247
Purchases                                         1,084       ---          ---
Sales                                               ---       ---         (826)
Monthly repayments                               (2,208)   (1,780)      (1,073)
Premium and discount amortization, net              (53)      (43)         (25)
Investment securities gains                         ---       ---           14
Unrealized gain (loss) on securities
   available for sale                               ---       154          245
                                                 ------    ------       ------
Ending balance                                   $2,736    $3,913       $5,582
                                                 ======    ======       ======


Non-Performing and Problem Assets

     Mortgage  loans  are  reviewed  by the  Bank  on a  regular  basis  and are
generally  placed on a  non-accrual  status when the loans become  contractually
past due 90 days or more. However, loans past due 90 days or more that have been
reviewed and deemed to be in the process of collection with a low probability of
loss may remain on accruing status. It is the policy of the Bank that all earned
but  uncollected  interest on all loans be reviewed  monthly to determine if any
portion thereof should be classified as uncollectible for any loan past due less
than 90 days.

     Delinquency  notices  are sent three  times per month  with  respect to all
mortgage loans for which payments have not been received. Contact by phone or in
person  is made,  if  feasible,  with  respect  to all such  loans.  In order to
minimize  the adverse  financial  impact of  non-performing  loans on the Bank's
operating  results,  more aggressive  collection  procedures were implemented in
January 2002.  These procedures  shorten the time frame under which  foreclosure
may be  initiated  and is  intended  to  minimize  the time period in which Bank
assets fail to generate income. The new procedures also try to recognize that it
is in the best  interest  of the  customer  as well as the  Bank to  concentrate
collection efforts early in the process, before the past due balance exceeds all
ability of the borrower to bring the account current.

     When  mortgage  loans are 30 to 40 days in  default  and the  customer  has
failed to arrange an acceptable  repayment schedule,  in addition to attempts to
contact  by  telephone,  a letter is sent  insisting  that the  account  is paid
current  within  seven days to avoid legal  action and an adverse  impact on the
borrower's  credit rating.  When mortgage loans are 40 to 60 days in default and
acceptable alterative arrangements have not been made, telephone contact efforts
continue and a 30-day  "cure  letter" is sent.  The cure letter  serves as legal
notice of a mortgage  obligation  default and demands that the borrower cure the
account within 30 days or action will be filed with the Court for foreclosure of
the  property.  When a  mortgage  loan is 60  days or  greater  in  default  and
acceptable  alternative  arrangements  have  not  been  made,  relevant  account
information is forwarded to legal counsel to initiate foreclosure action.

     The Bank provides free in-house credit counseling to all borrowers. Efforts
are always made to work with financially struggling borrowers with the means and
desire to meet their loan  obligation.  However,  management  is  authorized  to
commence  foreclosure  proceeding for any loan upon determining that such action
is necessary to safeguard  the Bank's  assets.  All loans for which  foreclosure
proceedings have commenced are placed on non-accrual status.

     Non-performing  assets.  At  June  30,  2003,  $469,000,  or  0.76%  of the
Company's total assets, were non-performing loans (loans delinquent more than 90
days and non-accruing loans) compared to $639,000,  or 0.96%, of total assets at
June 30, 2002.  At June 30, 2003,  residential  loans,  Combo Loans and consumer
mobile  home loans  accounted  for  28.8%,  59.9% and  11.3%,  respectively,  of
non-performing  loans. There were no non-accruing  investments at June 30, 2003.
As of June 30, 2003 and 2002, the Bank held $340,000 and $278,000, respectively,
of Real Estate Owned ("REO") properties.  Other repossessed property included 12
mobile  homes with a fair market  value  estimated at $265,000 at June 30, 2003.
Repossessed  property  other than REO included four mobile homes and two modular
homes with a fair market value estimated at $149,000 at June 30, 2002.

     The table  below  sets  forth the  amounts  and  categories  of the  Bank's
non-performing assets.

                                                         At June 30,
                                                 -----------------------------
                                                  2003      2002         2001
                                                 ------    ------       ------
                                                        (In thousands)

Accruing loans delinquent 90 days              $   51      $  ---       $  277
Non-accruing loans (1)                            469         639          789
Real estate owned                                 608         427           37
                                               ------      ------       ------
  Total non-performing assets                   1,128       1,066        1,103
Non-performing loans to total loans              1.07%       1.21%        1.97%
Non-performing assets to total assets            1.83%       1.60%        1.60%
-----------------
(1)  The Bank  generally  places loans on a  non-accruing  status when the loans
     become  contractually past due 90 days or more. At June 30, 2003,  $416,000
     of  non-accruing  loans were  residential  loans and $53,000 were  consumer
     mobile home loans. Additional interest income that would have been recorded
     had income on non-accruing loans been considered  collectible and accounted
     for in accordance  with their original terms was $31,000 for the year ended
     June 30, 2003. At June 30, 2003, there was one residential loan included in
     accruing loans delinquent 90 days or more.

     The following table reflects the amount of loans in a delinquent  status as
of the dates indicated:
<TABLE>
<CAPTION>
                                                                         June 30,
                                -------------------------------------------------------------------------------------------
                                          2003                             2002                            2001
                                ---------------------------       -------------------------       -------------------------
                                                    Percent                        Percent                          Percent
                                                   of total                        of total                        of total
                                Number   Amount      loans        Number  Amount     loans        Number  Amount     loans
                                ------   ------    --------       ------  ------   --------       ------  ------   --------
        (Dollars in thousands)

<S>                               <C>    <C>          <C>           <C>   <C>        <C>            <C>   <C>         <C>
Loans delinquent for (1):
  30-89 days                      33     $1,100       2.27%         30    $1,022     1.94%          51    $1,247      2.30%
  90 days and over                13        520       1.07          13       639     1.21           32     1,066      1.97
                                  --     ------       ----          --    ------     ----           --    ------      ----
    Total delinquent loans        46     $1,620(2)    3.34%         43    $1,661     3.15%          83    $2,313      4.27%
                                  ==     ======       ====          ==    ======     ====           ==    ======      ====
</TABLE>
---------------------
(1)  The  number  of days a loan is  delinquent  is  measured  from  the day the
     payment was due under the terms of the loan agreement.
(2)  Of such amount, $1.3 million consisted of residential real estate loans and
     $366,000 consisted of nonresidential real estate and consumer loans.

     Classified assets. The Bank's Asset Classification  Policy provides for the
classification  of loans and other  assets  such as debt and  equity  securities
considered  to be of  lesser  quality  as  "substandard",  "doubtful"  or "loss"
assets. An asset is considered  "substandard" if it is inadequately protected by
the  current net worth and paying  capacity of the obligor or of the  collateral
pledged,  if  any.  "Substandard"  assets  include  those  characterized  by the
"distinct  possibility"  that the  institution  will sustain  "some loss" if the
deficiencies are not corrected.  Assets classified as "doubtful" have all of the
weaknesses   inherent  in  those  classified   "substandard",   with  the  added
characteristic  that the weaknesses  present make  "collection or liquidation in
full", on the basis of currently existing facts, conditions,  and values "highly
questionable and improbable".  Assets  classified as "loss" are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without the  establishment  of a specific loss reserve is not warranted.  Assets
which do not currently  expose the insured  institution  to  sufficient  risk to
warrant  classification in one of the  aforementioned  categories but do possess
weaknesses are required to be designated "special mention" by management.

     An insured institution is required to establish general allowances for loan
losses  in  an  amount  deemed  prudent  by  management  for  loans   classified
substandard or doubtful,  as well as for other problem loans. General allowances
represent loss allowances  which have been established to recognize the inherent
risks associated with lending activities, but which, unlike specific allowances,
have  not  been  allocated  to  particular  problem  assets.   When  an  insured
institution  classifies  problem  assets as  "loss",  it is  required  either to
establish  a specific  allowance  for losses  equal to 100% of the amount of the
assets so classified or to charge off such amounts.

     At June 30, 2003, the aggregate amount of the Bank's  classified assets and
of the Bank's general and specific loss allowances were as follows:

                         At June 30, 2003
                         ----------------
                          (In thousands)

Substandard loans ........    $1,365
Doubtful loans............        --
Loss loans................        --
Special mention loans ....     1,493
                              ------
  Total classified loans..    $2,858
                              ======

General loss allowances..     $  316
Specific loss allowances..        --
                              ------
  Total allowances .......    $  316
                              ======

     The Bank  regularly  reviews its loan  portfolio to  determine  whether any
loans require classification in accordance with applicable regulations.  Not all
of the Bank's classified assets constitute non-performing assets.


Allowance for Loan Losses

     The allowance for loan losses is maintained  through the provision for loan
losses,  which  is  charged  to  earnings.  The  provision  for loan  losses  is
determined in  conjunction  with  management's  review and evaluation of current
economic conditions (including those of the Bank's lending area), changes in the
character and size of the loan portfolio,  loan delinquencies (current status as
well as past and  anticipated  trends) and adequacy of collateral  securing loan
delinquencies,  historical and estimated net  charge-offs,  and other  pertinent
information  derived  from a  review  of the  loan  portfolio.  In  management's
opinion,  the Bank's allowance for loan losses is adequate to absorb anticipated
future  losses from loans at June 30, 2003.  However,  there can be no assurance
that  regulators,  when reviewing the Bank's loan portfolio in the future,  will
not require  increases  in its  allowances  for loan  losses or that  changes in
economic conditions will not adversely affect the Bank's loan portfolio.

     Summary of Loan Loss  Experience.  The following table analyzes  changes in
the allowance  for loan losses  during the past five (5) one-year  periods ended
June 30, 2003.
<TABLE>
<CAPTION>
                                                       Year Ended June 30,
                                         ------------------------------------------------
                                         2003       2002        2001       2000      1999
                                         ----       ----        ----       ----      ----
                                                       (Dollars in thousands)
<S>                                      <C>        <C>        <C>        <C>        <C>
Balance of allowance at beginning
 of period ..........................    $ 344      $ 392      $ 372      $ 336      $ 320
                                                    -----      -----      -----      -----
Less charge offs:
Mortgage loans ......................      (80)      (105)       (17)        --        (26)
Consumer loans ......................     (178)      (110)       (23)       (18)        (2)
Add recoveries:
Consumer loans ......................       --         --         --         --         --
                                         -----      -----      -----      -----      -----
Net (charge-offs) recoveries ........     (258)      (215)       (40)       (18)       (28)
Provisions for losses on loans ......      230        167         60         54         44
                                         -----      -----      -----      -----      -----
Balance of allowance at end of period    $ 316      $ 344      $ 392      $ 372      $ 336
                                         =====      =====      =====      =====      =====
Net charge-offs to total average
  loans receivable for period .......     0.51%      0.40%      0.08%      0.04%      0.08%
Allowance at end of period to
  net loans receivable at end
  of period (1) .....................     0.65       0.65       0.72       0.81       0.88
Allowance to total non-performing
  loans at end of period ............    60.77      53.83      36.77      94.18     425.32
----------------
(1)  Total loans less net loans in process and deferred loan costs.
</TABLE>
<PAGE>

     Allocation of Allowance for Loan Losses.  The following  table  presents an
analysis of the allocation of the Bank's  allowance for loan losses at the dates
indicated.

                                              At June 30,
                        -----------------------------------------------------
                            2003                 2002               2001
                        ---------------   -----------------   ---------------
                               Percent             Percent            Percent
                               of loans            of loans           of loans
                               in each             in each            in each
                               category            category           category
                               of total            of total           of total
                        Amount   loans    Amount     loans    Amount    loans
                        ------ --------   ------   --------   ------  -------
                                          (Dollars in thousands)
Balance at end of period
  applicable to:
Residential              $ 36    47.71%    $ 66      50.27%    $130     49.26%
Combo                      61    17.76       22      14.02       15      13.15
Nonresidential             88    18.40      134      19.47      130      25.02
Multi-family                1     0.42        3       0.84        3       0.96
Mobile home loans          98    13.61       74      11.06       44       5.77
Commercial and industrial
  loans                     3     0.69        3       1.17        4       0.88
Consumer loans             24     1.41       42       3.17       60       4.96
Unallocated                 5       --       --         --        6         --
                         ----   ------     ----     ------     ----     ------
  Total                  $316   100.00%    $344     100.00%    $392     100.00%
                         ====   ======     ====     ======     ====     ======


Investments and FHLB Stock

     The Company's investment portfolio (excluding  mortgage-backed  securities)
consists of equity securities and Federal Home Loan Bank ("FHLB") stock. At June
30, 2003,  approximately  $1.5 million,  or 2.36% of the Company's total assets,
consisted of such investments. All of the Company's securities,  except for FHLB
stock, were classified as available for sale at June 30, 2003.

     The  following  table sets forth the  amortized  cost and fair value of the
Company's investments at the dates indicated.

<TABLE>
<CAPTION>
                                                            At June 30,
                                    ----------------------------------------------------------
                                           2003               2002                 2001
                                    ------------------   ---------------    ------------------
                                    Amortized     Fair   Amortized  Fair    Amortized    Fair
                                      Cost       Value     Cost     Value      Cost      Value
        (In thousands)

<S>                                   <C>       <C>       <C>       <C>       <C>       <C>
Securities available for sale (1):
  Federal agencies ...............    $   --    $   --    $  500    $  505    $   --    $   --
  Marketable equity securities ...       343       133       521       208       701       565
    Total securities
      available for sale .........       343       133     1,021       713       701       565
FHLB stock (2) ...................     1,115     1,115     1,100     1,100     1,100     1,100
                                      ------    ------    ------    ------    ------    ------
  Total investments ..............    $1,458    $1,248    $2,121    $1,813    $1,801    $1,665
                                      ======    ======    ======    ======    ======    ======
</TABLE>

-------------------------
(1)  In accordance with SFAS No. 115, securities available for sale are recorded
     at fair value in the financial statements.
(2)  Fair value approximates carrying value.


Sources of Funds

     Deposits have traditionally been the Bank's primary source of funds for use
in lending and investment activities.  In addition to deposits, the Bank derives
funds from scheduled  loan payments,  loan  prepayments,  retained  earnings and
income on earning  assets.  While  scheduled loan payments and income on earning
assets are relatively stable sources of funds,  deposit inflows and outflows can
vary widely and are influenced by prevailing  interest rates,  market conditions
and levels of competition.  Borrowings from the FHLB of Indianapolis are also an
important source of funding for the Bank.

     Deposits.  Deposits are attracted,  principally from within Owen and Putnam
Counties,  through the  offering  of a broad  selection  of deposit  instruments
including  fixed-rate   certificates  of  deposit,  NOW  and  other  transaction
accounts,  and savings accounts.  Substantially all of the Bank's depositors are
residents  of Owen County and the five  surrounding  counties  of Putnam,  Clay,
Greene,  Monroe and  Morgan.  Deposit  account  terms vary,  with the  principal
differences  being the minimum  balance  required,  the amount of time the funds
remain on deposit and the interest  rate. The Bank  occasionally  pays a fee for
jumbo deposits it receives.

     Interest rates paid, maturity terms,  service fees and withdrawal penalties
are  established  by the Bank on a periodic  basis.  Determination  of rates and
terms are predicated on funds acquisition and liquidity requirements, rates paid
by competitors,  growth goals, and applicable  regulations.  The Bank relies, in
part, on customer  service and  long-standing  relationships  with  customers to
attract  and retain its  deposits,  but also  closely  prices  its  deposits  in
relation to rates offered by its competitors.

     The flow of  deposits  is  influenced  significantly  by  general  economic
conditions,   changes  in  money  market  and  prevailing  interest  rates,  and
competition.  The variety of deposit accounts offered by the Bank has allowed it
to be competitive in obtaining funds and to respond with  flexibility to changes
in  consumer  demand.  The  Bank  has  become  more  susceptible  to  short-term
fluctuations  in deposit  flows as  customers  have  become more  interest  rate
conscious.  The Bank  manages  the pricing of its  deposits in keeping  with its
asset/liability   management  and   profitability   objectives.   Based  on  its
experience,  the Bank believes that its passbook,  NOW and  non-interest-bearing
checking  accounts  are  relatively  stable  sources of deposits.  However,  the
ability of the Bank to attract and  maintain  certificates  of deposit,  and the
rates paid on these  deposits,  have been and will continue to be  significantly
affected by market conditions.

<TABLE>
<CAPTION>

     An analysis of the Bank  deposit  accounts by type,  maturity,  and rate at
June 30, 2003, is as follows:

                                               Minimum   Balance at                      Weighted
                                               Opening    June 30,           % of         Average
Type of Account                                Balance      2003           Deposits         Rate
---------------                                -------   ----------        --------      --------
                                                        (In thousands)
<S>                                            <C>        <C>                <C>            <C>
Withdrawable:
        Savings accounts ..................    $    10    $ 4,989            12.94          0.50%
        Money market accounts .............      5,000      1,225             3.18          1.23
        NOW accounts and other
                transaction accounts ......         50      5,630            14.61          0.33
                                                          -------           ------          ----
                Total withdrawable ........                11,844            30.73          0.49
Certificates (original terms):
        3 months ..........................        500        243             0.63          1.14
        6 months ..........................        500      1,351             3.51          1.35
        12 months .........................        500      5,397            14.00          1.88
        18 months .........................        500      2,445             6.34          3.17
        24 months .........................        500      2,319             6.02          3.15
        30 months .........................        500      4,602            11.94          3.98
        36 months .........................        500      1,694             4.40          3.74
        48 months .........................        500      1,496             3.88          4.74
        60 months .........................        500      6,392            16.59          4.72
IRAs (original terms):
        12 months .........................        500        170             0.44          1.98
        36 months .........................        500        260             0.67          3.00
        60 months .........................        500        326             0.85          4.68
                                                          -------           ------          ----
                Total certificates and IRAs                26,695            69.27          3.44
                                                          -------           ------          ----
                Total deposits ............               $38,539           100.00%         2.53%
                                                          =======           ======          ====
</TABLE>

     The following table sets forth, by various  interest rate  categories,  the
composition of the Bank's time deposits at the dates indicated:

                               At June 30,
                      -----------------------------
                       2003       2002       2001
                      -------    -------    -------
                              (In thousands)

2.00% and under ..    $ 6,067    $ 1,628    $    --
2.01 - 4.00% .....     11,490     14,108        107
4.01 - 6.00 % ....      8,822     13,951     24,665
6.01 - 8.00% .....        316        867      7,279
                      -------    -------    -------
   Total .........    $26,695    $30,554    $32,051
                      =======    =======    =======
<PAGE>

     The following table represents the amounts of time deposits maturing during
each of the three years  following June 30, 2003, and the total amount  maturing
thereafter.  Matured  certificates  which  have not been  renewed as of June 30,
2003, have been allocated based upon certain rollover assumptions:

                                   Amounts At June 30, 2003, Maturing in
                             ------------------------------------------------
                             One Year        Two         Three   Greater Than
                             or Less        Years        Years    Three Years
                             --------      ------       ------   ------------
                                              (In thousands)

Time deposits .....          $12,983       $6,410       $2,628       $4,674


     The  following  table  indicates the amount of the Bank's  certificates  of
deposit of  $100,000  or more by time  remaining  until  maturity as of June 30,
2003.

                                               At June 30, 2003
Maturity                                        (In thousands)
---------
Three months or less ............................    $  512
Greater than three months through six months ....     1,117
Greater than six months through twelve months ...       700
Over twelve months ..............................     7,373
                                                     ------
   Total ........................................    $9,702
                                                     ======


     The following table sets forth the dollar amount of savings deposits in the
various types of deposits  programs  offered by the Bank at the dates indicated,
and the amount of  increase  or  decrease  in such  deposits  as compared to the
previous period.

<TABLE>
<CAPTION>


                                                         Deposit Activity
                                       ---------------------------------------------------------
                                                              Increase
                                                             (Decrease)
                                       Balance at               from      Balance at
                                        June 30,       % of    June 30,    June 30,       % of
                                          2003       Deposits    2002        2002       Deposits
                                       ----------    -------- ----------  ----------    --------
                                                            (Dollars in thousands)
<S>                                     <C>           <C>       <C>         <C>           <C>
Withdrawable:
  Savings accounts .................    $ 4,989       12.94%    $   209     $ 4,780       11.53%
  Money market accounts ............      1,225        3.18         (16)      1,241        2.99
  NOW accounts and other transaction
    accounts .......................      5,630       14.61         749       4,881       11.78
                                        -------      ------     -------     -------      ------
    Total withdrawable .............     11,844       30.73         942      10,902       26.30
Certificates (original terms):
  91 days ..........................        243        0.63          89         154        0.37
  6 months .........................      1,351        3.51        (670)      2,021        4.88
  12 months ........................      5,397       14.00      (2,992)      8,389       20.24
  18 months ........................      2,445        6.34      (1,540)      3,985        9.61
  24 months ........................      2,319        6.02      (1,011)      3,330        8.03
  30 months ........................      4,602       11.94        (316)      4,918       11.86
  36 months ........................      1,694        4.40         768         926        2.23
  48 months ........................      1,496        3.88         (62)      1,558        3.76
  60 months ........................      6,392       16.59       1,703       4,689       11.31
IRAs (original terms):
  12 months .......................         170        0.44          (1)        171        0.41
  36 months .......................         260        0.67          69         191        0.46
  60 months .......................         326        0.85         104         222        0.54
                                        -------      ------     -------     -------      ------
    Total certificates and IRAs ...      26,695       69.27      (3,859)     30,554       73.70
                                        -------      ------     -------     -------      ------
    Total deposits ................     $38,539      100.00%    $(2,917)    $41,456      100.00%
                                        =======      ======     =======     =======      ======
</TABLE>


     Borrowings.  The Bank focuses on generating  loans by using the best source
of funding from deposits,  investments or borrowings. At June 30, 2003, the Bank
had $16.0 million in borrowings from the FHLB of  Indianapolis,  which mature on
various dates during the years 2003 through 2009 and have interest rates ranging
from 2.49% to 5.58%.  The Bank does not  anticipate  any difficulty in obtaining
advances from the FHLB of Indianapolis  appropriate to meet its  requirements in
the  future.  The Bank  had  $26.9  million  in  eligible  assets  available  as
collateral for advances from the FHLB of Indianapolis as of June 30, 2003. Based
on  the  Bank's  blanket  collateral  agreements,  advances  from  the  FHLB  of
Indianapolis  must be collateralized by not less than 155% of eligible loans and
105% of eligible  securities.  Therefore,  the Bank's eligible  collateral would
have  supported  approximately  $20.0  million  in  advances  from  the  FHLB of
Indianapolis as of June 30, 2003.

     The following  table presents  certain  information  relating to the Bank's
FHLB borrowings for the years ended June 30, 2003, 2002 and 2001.

<TABLE>
<CAPTION>


                                                      At or for the Year Ended June 30,
                                                      ---------------------------------
                                                          2003       2002      2001
                                                          ----       ----      ----
                                                              (In thousands)
<S>                                                      <C>       <C>       <C>
FHLB Advances:
  Average balance outstanding .......................    $17,583   $19,038   $18,008
  Maximum amount outstanding at any
    month-end during the period .....................    $20,500   $22,000   $22,000
  Weighted average interest rate during the period ..       4.94%     5.14%     5.63%
  Weighted average interest rate at end of period ...       4.46%     5.07%     5.38%
</TABLE>


Service Corporation Subsidiary

     BSF, Inc., the Bank's service corporation subsidiary ("BSF"), was organized
in 1989 and has  historically  engaged in purchasing and developing large tracts
of real estate.  After land was acquired,  BSF  subdivided  the real estate into
lots, made  improvements such as streets,  and sold individual lots,  usually on
contract.  Each subdivision has separate restrictive covenants,  but most permit
mobile or modular  homes.  As of June 30,  2003,  outstanding  contracts  on BSF
subdivision lots were:

Name of Subdivision          Number of Contracts     Contract Balance
-------------------          -------------------     ----------------
10 O'Clock Line .............           1               $  7,889
Greene Woods ................           1                  6,998
Autumn Hills ................           6                 59,235
Coon Path ...................           2                 25,363
Quarry Woods ................           4                116,311
                                       --               --------
  Total outstanding contracts          14               $215,796
                                       ==               ========

     BSF has been  developing  Hancock  Corner as a subdivision  to  accommodate
modular  homes.  During the fiscal year ended June 30,  2003,  two lots sold for
$42,500.  Additionally,  this  development  had 15 tracts of ground in inventory
with a sale price of $291,000.

     BSF held title to four commercial lots in Cloverdale with a listed price of
$200,000.  While awaiting sale of this real estate,  it is rented for commercial
use.

     BSF from time to time keeps a number of its tracts of land for mobile  home
repossession.  BSF  purchases  repossessed  mobile  homes  from the Bank at book
value, which would approximate market value. The mobile homes are then placed on
the  vacant  tracts of land and sold by BSF,  thereby  protecting  the Bank from
related  losses.  As of June 30,  2003,  no mobile  homes  were  located on lots
waiting for sale.

     During  fiscal  2003,  BSF sold  the  remaining  two lots in Coon  Path for
$20,000 and sold four lots in Quarry  Woods for  $110,000.  As of June 30, 2003,
Quarry  Woods  had  five  residential  lots in  inventory  with a sale  price of
$175,000. Quarry Woods had one commercial lot of 75 acres priced at $275,000 and
two other  commercial  lots of five and  eighteen  acres  priced at $16,500  and
$54,000, respectively, at June 30, 2003.

     During fiscal year 2003,  BSF sold an 8-acre lot on land known as Sherfield
Farm for $22,500.

     BSF pays the Bank rent of $500 per month for the use of its  facilities and
management  and staff  support.  The operations of BSF are managed by the Bank's
and  the  Holding  Company's  Chairman,  Frank  R.  Stewart.  All of the  Bank's
directors  serve as  directors  of BSF,  and  BSF's  executive  officers  are as
follows:

           Frank R. Stewart        President
           Robert W. Raper         Vice President
           Gary M. Monnett         Secretary

     At June 30, 2003, the Bank's aggregate  investment in BSF was $452,000.  As
of that  date,  the  Bank  had an  inter-company  loan to BSF in the  amount  of
$350,000.  Excluding certain  administrative costs not specifically allocated to
its operations,  BSF net income for the years ended June 30, 2003, 2002 and 2001
was $40,000, $39,000 and $59,000,  respectively.  The consolidated statements of
income of the Bank and its  subsidiary  included  elsewhere  herein  include the
operations of BSF. All significant  intercompany  balances and transactions have
been eliminated in the consolidation.
<PAGE>

Income Tax Credits

     The Bank entered into a Partnership  Agreement  ("Agreement") with Area Ten
Development,  Inc. (the "General Partner"), a wholly-owned subsidiary of Area 10
Council on Aging of Monroe and Owen Counties,  Inc., to finance construction and
development  of a low income housing  project.  The project,  Cunot  Apartments,
L.P., is a 24-unit apartment complex for senior living. The Bank purchased a 99%
limited partnership  interest for $696,000.  Project  construction was completed
during July 1999.  The Bank's  investment  in the project is eligible for income
tax credits over the fifteen-year life of the Agreement.

     As of June 30,  2003,  land and  property  held by Cunot  Apartments,  L.P.
totaled  $1,294,000.  The Bank's share of net operating  losses from the project
during the year was $58,000, reducing its net investment to $519,000 at June 30,
2003.  Income tax  credits  related to this  investment  reduced  the  Company's
federal income tax expense by $107,000 in fiscal year 2003.


Employees

     As of June 30, 2003, the Company  employed 22 persons on a full-time  basis
and four  persons on a  part-time  basis.  None of the  Company's  employees  is
represented by a collective bargaining group.  Management considers its employee
relations to be excellent.

     The Company's  employee  benefits for full-time  employees  include,  among
other things,  a Pentegra  defined  benefit  pension plan  ("Pension  Plan"),  a
Pentegra  thrift plan, and major medical,  dental,  and short-term and long-term
disability  insurance.  As part of the  conversion  to stock  form,  the Company
established  the  Employee  Stock  Ownership  Plan and  Trust  ("ESOP")  and the
Management  Recognition and Retention Plan and Trust ("RRP"). In October,  1997,
the  shareholders  approved a stock option plan (the "Stock Option  Plan").  The
ESOP,  the RRP and the Stock Option Plan are employee  benefit plans designed to
provide  directors  and  employees  of the Bank  and the  Holding  Company  with
ownership interest in the Company.

     Employee benefits are considered by management to be competitive with those
offered by other financial institutions and major employers in the Bank's area.


                                  COMPETITION

     The Bank  originates  most of its loans to and accepts most of its deposits
from residents of Owen County and Putnam County, Indiana. The Bank is the oldest
continuously  operating  financial  institution  headquartered  in Owen  County,
Indiana.

     The Bank is subject to  competition  from various  financial  institutions,
including  state and national  banks,  state and federal  savings  institutions,
credit unions, and certain non-banking  consumer lenders, and other companies or
firms,  including  brokerage  houses and mortgage  brokers that provide  similar
services in Owen  County.  The Bank also  competes  with money market funds with
respect  to  deposit  accounts  and with  insurance  companies  with  respect to
individual retirement accounts.

     Under current law, bank holding companies may acquire savings associations.
Savings  associations  may also  acquire  banks under  federal  law.  Commercial
companies may not,  however,  acquire unitary savings and loan holding companies
such as the Holding Company. Affiliations between banks and savings associations
based in Indiana may also increase the competition faced by the Company.

     Under  current  federal  law,  interstate  acquisitions  of banks  are less
restricted  than they were under prior law.  Savings  associations  have certain
powers to acquire savings  associations  based in other states,  and Indiana law
expressly permits  reciprocal  acquisition of Indiana savings  associations.  In
addition,  Federal savings associations are permitted to branch on an interstate
basis. See "Regulation -- Acquisitions or Dispositions and Branching".

     The primary  factors in  competing  for  deposits  are  interest  rates and
convenience  of  office  locations.  The Bank  competes  for  loan  originations
primarily  through the efficiency and quality of services it provides  borrowers
and through interest rates and loan fees it charges. Competition is affected by,
among other things,  the general  availability  of lendable  funds,  general and
local economic conditions, current interest rate levels, and other factors which
are not readily predictable.


                                  REGULATION
General

     The Bank is a  federally-chartered  savings  bank  and is a  member  of the
Federal Home Loan Bank System ("FHLB  System").  Its deposits are insured by the
Savings  Association  Insurance Fund (the "SAIF"),  which is administered by the
Federal Deposit Insurance Corporation ("FDIC"). The Bank is subject to extensive
regulation  by the OTS and the  FDIC.  For  example,  the Bank must  obtain  OTS
approval before it engages in certain  activities and must file reports with the
OTS  regarding its  activities  and financial  condition.  The OTS  periodically
examines  the Bank's  books and  records  and, in  conjunction  with the FDIC in
certain situations, has examination and enforcement powers. This supervision and
regulation  are intended  primarily for the protection of depositors and federal
deposit   insurance   funds.  The  Bank  is  also  subject  to  certain  reserve
requirements  under regulations of the Board of Governors of the Federal Reserve
System ("FRB").

     A savings  association  must pay a semi-annual  assessment to the OTS based
upon a marginal  assessment rate that decreases as the asset size of the savings
association  increases,  and  which  includes  a  fixed-cost  component  that is
assessed on all savings  associations.  The  assessment  rate that  applies to a
savings  association  depends upon the institution's  size and condition and the
complexity  of its  operations.  The  Bank's  semiannual  assessment  under this
assessment scheme, based upon its total assets at March 31, 2003, was $18,428.

     The Bank is also subject to federal and state regulation as to such matters
as loans to officers,  directors, or principal shareholders,  required reserves,
limitations as to the nature and amount of its loans and investments, regulatory
approval  of any merger or  consolidation,  issuance or  retirements  of its own
securities,  and  limitations  upon  other  aspects of  banking  operations.  In
addition,  the  activities and operations of the Bank are subject to a number of
additional  detailed,  complex and sometimes  overlapping federal and state laws
and regulations.  These include state usury and consumer credit laws, state laws
relating to fiduciaries,  the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act,  anti-redlining  legislation and anti-trust
laws.


Holding Company Regulation

     The Holding Company is regulated as a "non-diversified  unitary savings and
loan  holding  company"  within the  meaning of the Home  Owners'  Loan Act,  as
amended  ("HOLA"),  and subject to  regulatory  oversight of the Director of the
OTS. As such, the Holding Company is registered with the OTS and thereby subject
to OTS regulations,  examinations,  supervision and reporting requirements. As a
subsidiary of a savings and loan holding company, the Bank is subject to certain
restrictions  in its dealings with the Holding  Company and with other companies
affiliated with the Holding Company.

     The HOLA generally  prohibits a savings and loan holding  company,  without
prior  approval of the Director of the OTS,  from (i)  acquiring  control of any
other savings association or savings and loan holding company or controlling the
assets  thereof or (ii)  acquiring  or  retaining  more than five percent of the
voting shares of a savings association or holding company thereof which is not a
subsidiary.  Except  with the prior  approval  of the  Director  of the OTS,  no
director or officer of a savings and loan  holding  company or person  owning or
controlling by proxy or otherwise more than 25% of such company's stock may also
acquire control of any savings institution, other than a subsidiary institution,
or any other savings and loan holding company.

     The  Holding  Company  currently  operates  as a unitary  savings  and loan
holding company.  Prior to the enactment of the Gramm-Leach-Bliley Act (the "GLB
Act") in November 1999,  there were no restrictions on the permissible  business
activities of a unitary savings and loan holding company. The GLB Act included a
provision  that  prohibits  any new unitary  savings and loan  holding  company,
defined as a company that acquires a thrift after May 4, 1999,  from engaging in
commercial  activities.  This  provision  also  includes a  grandfather  clause,
however,  that permits a company that was a savings and loan holding  company as
of May 4,  1999,  or had an  application  to become a savings  and loan  holding
company on file with the OTS as of that date, to acquire and continue to control
a thrift and to continue to engage in commercial activities. Because the Holding
Company qualifies under this grandfather  provision,  the GLB Act did not affect
the Holding Company's authority to engage in diversified business activities.

     Notwithstanding  the above rules as to permissible  business  activities of
unitary  savings  and  loan  holding  companies,   if  the  savings  association
subsidiary of such a holding  company fails to meet the Qualified  Thrift Lender
("QTL")  test,  then such unitary  holding  company would be deemed to be a bank
holding company subject to all of the provisions of the Bank Holding Company Act
of 1956 and other  statutes  applicable to bank holding  companies,  to the same
extent as if the Holding Company were a bank holding company and the Bank were a
bank.  See  "--Qualified  Thrift  Lender".  At June 30,  2003,  the Bank's asset
composition  exceeded  that  required to qualify the Bank as a Qualified  Thrift
Lender.

     If  the  Holding  Company  were  to  acquire  control  of  another  savings
institution  other than through a merger or other business  combination with the
Bank, the Holding  Company would  thereupon  become a multiple  savings and loan
holding company. Except where such acquisition is made pursuant to the authority
to approve  emergency  thrift  acquisitions  and where each  subsidiary  savings
association meets the QTL test, the activities of the Holding Company and any of
its subsidiaries (other than the Bank or other subsidiary savings  associations)
would  thereafter be subject to further  restrictions.  The HOLA provides  that,
among other things,  no multiple  savings and loan holding company or subsidiary
thereof  which is not a savings  association  shall  commence or continue  for a
limited  period of time  after  becoming  a multiple  savings  and loan  holding
company or subsidiary  thereof,  any business activity other than (i) furnishing
or performing  management  services for a subsidiary savings  association,  (ii)
conducting an insurance agency or escrow business,  (iii) holding,  managing, or
liquidating assets owned by or acquired from a subsidiary  savings  institution,
(iv) holding or managing  properties  used or occupied by a  subsidiary  savings
institution,  (v) acting as trustee under deeds of trust,  (vi) those activities
previously  directly  authorized by the FSLIC by regulation as of March 5, 1987,
to be  engaged  in by  multiple  holding  companies  or (vii)  those  activities
authorized  by the FRB as  permissible  for bank holding  companies,  unless the
Director  of the OTS by  regulation  prohibits  or limits  such  activities  for
savings and loan holding  companies.  Those activities  described in (vii) above
must also be approved by the Director of the OTS prior to being  engaged in by a
multiple holding company.

     The  Director of the OTS may also  approve  acquisitions  resulting  in the
formation of a multiple  savings and loan holding company which controls savings
associations  in more than one state,  if the multiple  savings and loan holding
company involved controls a savings  association which operated a home or branch
office in the state of the association to be acquired as of March 5,1987,  or if
the  laws of the  state in which  the  institution  to be  acquired  is  located
specifically permit institutions to be acquired by state-chartered  institutions
or savings and loan holding  companies  located in the state where the acquiring
entity is located (or by a holding  company that controls  such  state-chartered
savings institutions).  Also, the Director of the OTS may approve an acquisition
resulting in a multiple  savings and loan holding  company  controlling  savings
associations  in more than one  state in the case of  certain  emergency  thrift
acquisitions.

     No subsidiary savings association of a savings and loan holding company may
declare or pay a dividend on its  permanent or  nonwithdrawable  stock unless it
first  gives  the  Director  of the  OTS  thirty  days  advance  notice  of such
declaration and payment. Any dividend declared during such period or without the
giving of such notice shall be invalid.


Federal Home Loan Bank System

     The Bank is a member  of the FHLB of  Indianapolis,  which is one of twelve
regional  FHLBs.  Each FHLB  serves as a reserve or central  bank for its member
savings  associations  and other  financial  institutions  within  its  assigned
region.  It is funded  primarily  from  funds  deposited  by banks  and  savings
associations and proceeds  derived from the sale of consolidated  obligations of
the FHLB System.  It makes loans to members (i.e.,  advances) in accordance with
policies and  procedures  established by the Board of Directors of the FHLB. All
FHLB advances  must be fully  secured by sufficient  collateral as determined by
the FHLB. The Federal  Housing Finance Board  ("FHFB"),  an independent  agency,
controls the FHLB System, including the FHLB of Indianapolis.

     Prior to the enactment of the GLB Act, a federal  savings  association  was
required to become a member of the FHLB for the  district in which the thrift is
located. The GLB Act abolished this requirement,  effective six months following
the  enactment of the  statute.  At that time,  membership  with the FHLB became
voluntary.  Any savings  association that chooses to become (or remain) a member
of the FHLB following the  expiration of this six-month  period must qualify for
membership  under the criteria  that existed  prior to the  enactment of the GLB
Act. The Bank has elected,  and currently intends to remain a member of the FHLB
of Indianapolis. See "Forward Looking Statements".

     As a member of the FHLB,  the Bank is  required to  purchase  and  maintain
stock in the FHLB of Indianapolis in an amount based either upon a percentage of
the Bank's total assets or upon a percentage  of its  outstanding  advances from
the FHLB, as determined by the FHLB. At June 30, 2003, the Bank's  investment in
stock of the FHLB of Indianapolis was $1.1 million, which was in compliance with
the minimum  investment  standard  established by the FHLB of Indianapolis.  The
FHLB  imposes  various  limitations  on advances  such as limiting the amount of
certain types of real estate-related collateral to 30% of a member's capital and
limiting  total  advances to a member.  Interest rates charged for advances vary
depending upon maturity,  the cost of funds to the FHLB of Indianapolis  and the
purpose of the borrowing.

     All 12 FHLBs are  required by law to provide  funds for the  resolution  of
troubled  savings  associations  and to establish  affordable  housing  programs
through direct loans or interest subsidies on advances to members to be used for
lending   at   subsidized   interest   rates   for  low-  and   moderate-income,
owner-occupied  housing projects,  affordable rental housing,  and certain other
community projects.  These contributions and obligations have adversely affected
the level of FHLB dividends paid and could continue to do so in the future.  For
the fiscal year ended June 30, 2003,  dividends paid by FHLB to the Bank totaled
$64,000, for an annual rate of 5.8%.


Federal Reserve System

     Under FRB  regulations,  the Bank is required to maintain  reserves against
its transaction  accounts (primarily checking and NOW accounts) and non-personal
money market deposit  accounts.  The effect of these reserve  requirements is to
increase the Bank's cost of funds.  The Bank is in  compliance  with its reserve
requirements.

     A federal  savings bank,  like other  depository  institutions  maintaining
reservable accounts, may borrow from the Federal Reserve Bank "discount window",
but the FRB's  regulations  require the savings bank to exhaust other reasonable
alternative  sources,   including  borrowing  from  its  regional  FHLB,  before
borrowing from the Federal Reserve Bank. Certain  limitations are imposed on the
ability of  undercapitalized  depository  institutions  to borrow  from  Federal
Reserve Banks.
<PAGE>

Insurance of Deposits

     The  FDIC  administers  two  separate   insurance  funds,   which  are  not
commingled:  one primarily for federally insured banks ("BIF") and one primarily
for federally insured savings associations  ("SAIF").  As the federal insurer of
deposits of savings institutions, the FDIC determines whether to grant insurance
to  newly-chartered  savings  institutions,  has authority to prohibit unsafe or
unsound activities and has enforcement powers over savings institutions (usually
in  conjunction  with  the  OTS or on its  own if the  OTS  does  not  undertake
enforcement action).

     Deposit  accounts  in the Bank are  insured by the SAIF  within  prescribed
statutory limits which generally provide a maximum of $100,000 coverage for each
insured  account.  As a condition to such  insurance,  the FDIC is authorized to
issue  regulations and, in conjunction  with the OTS,  conduct  examinations and
generally supervise the operations of its insured members.

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

     In addition to the assessment for deposit insurance,  savings  institutions
are  required  to  pay on  bonds  issued  in the  late  1980s  by the  Financing
Corporation to  recapitalize  the  predecessor to the SAIF. By law,  payments on
Financing  Corporation  obligations have been shared equally between the members
of both  insurance  funds  since  January 1, 2000.  The  Bank's  annual  deposit
insurance  premium for the year ended June 30,  2003,  including  the  Financing
Corporation  payments,  was  approximately  $13,000  based upon its current risk
classification  and the new assessment  schedule for SAIF insured  institutions.
These premiums are subject to change in future periods.

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


Regulatory Capital

     Currently,  savings  associations  are  subject to three  separate  minimum
capital-to-assets  requirements:  (i) a leverage limit,  (ii) a tangible capital
requirement,  and (iii) a risk-based  capital  requirement.  The leverage  limit
requires that savings  associations  maintain  "core  capital" of at least 3% of
total assets. Core capital is generally defined as common  shareholders'  equity
(including retained income), noncumulative perpetual preferred stock and related
surplus,   certain  minority  equity   interests  in  subsidiaries,   qualifying
supervisory  goodwill,  purchased mortgage servicing rights and purchased credit
card relationships  (subject to certain limits) less nonqualifying  intangibles.
The OTS requires a core capital level of 3% of total adjusted assets for savings
associations that receive the highest rating for safety and soundness, and 4% to
5% for other savings  associations.  Under the tangible capital  requirement,  a
savings  association  must  maintain  tangible  capital  (core  capital less all
intangible  assets  except  purchased  mortgage  servicing  rights  which may be
included  after  making the  above-noted  adjustment  in an amount up to 100% of
tangible capital) of at least 1.5% of total assets. Under the risk-based capital
requirements,  a  minimum  amount of  capital  must be  maintained  by a savings
association to account for the relative risks inherent in the type and amount of
assets held by the  savings  association.  The  risk-based  capital  requirement
requires a savings  association to maintain capital (defined generally for these
purposes as core capital  plus general  valuation  allowances  and  permanent or
maturing capital instruments such as preferred stock and subordinated debt, less
assets required to be deducted) equal to 8.0% of  risk-weighted  assets.  Assets
are ranked as to risk in one of four  categories  (0-100%).  A credit  risk-free
asset,  such as cash,  requires  no  risk-based  capital,  while an asset with a
significant  credit risk, such as a non-accrual loan,  requires a risk factor of
100%.  Moreover, a savings association must deduct from capital, for purposes of
meeting the core capital,  tangible capital and risk-based capital requirements,
its entire  investment in and loans to a subsidiary  engaged in  activities  not
permissible for a national bank (other than exclusive agency  activities for its
customers or mortgage banking  subsidiaries).  At June 30, 2003, the Bank was in
compliance with all capital requirements imposed by law.

     If an association is not in compliance with the capital  requirements,  the
OTS is required to prohibit asset growth and to impose a capital  directive that
may  restrict,  among other  things,  the  payment of  dividends  and  officers'
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements.  These actions may include restricting the operating activities of
the association,  imposing a capital directive, cease and desist order, or civil
money  penalties,  or imposing harsher measures such as appointing a receiver or
conservator or forcing the association to merge into another institution.


Prompt Corrective Action

     The Federal  Deposit  Insurance  Corporation  Improvement  Act of 1991,  as
amended ("FedICIA")  requires,  among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to institutions that do
not meet minimum capital requirements.  For these purposes,  FedICIA establishes
five capital tiers: well capitalized, adequately capitalized,  undercapitalized,
significantly  undercapitalized,  and critically  undercapitalized.  At June 30,
2003,  the Bank was  categorized as "well  capitalized",  meaning that its total
risk-based  capital  ratio  exceeded  10%, its Tier I risk-based  capital  ratio
exceeded  6%,  its  leverage  ratio  exceeded  5%,  and it was not  subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.

     The FDIC may order savings  associations which have insufficient capital to
take corrective actions. For example, a savings association which is categorized
as  "undercapitalized"  would be  subject  to  growth  limitations  and would be
required  to submit a capital  restoration  plan,  and a  holding  company  that
controls  such a savings  association  would be required to  guarantee  that the
savings   association   complies  with  the  restoration  plan.   "Significantly
undercapitalized"   savings   associations   would  be  subject  to   additional
restrictions.  Savings  associations  deemed  by  the  FDIC  to  be  "critically
undercapitalized"  would  be  subject  to  the  appointment  of  a  receiver  or
conservator.


Capital Distributions Regulation

     An OTS regulation imposes  limitations upon all "capital  distributions" by
savings  institutions,  including cash dividends,  payments by an institution to
repurchase or otherwise acquire its shares,  payments to shareholders of another
institution  in a  cash-out  merger  and  other  distributions  charged  against
capital.  The OTS  regulations  permit a savings  institution  to make a capital
distribution  to its  shareholders  in a maximum amount that does not exceed the
institution's  undistributed  net income for the prior two years plus the amount
of its  undistributed  income for the current year.  The rule requires a savings
institution,  such as the  Bank,  that is a  subsidiary  of a  savings  and loan
holding  company  to file a notice  with the OTS  thirty  days  before  making a
capital distribution up to the maximum amount described above. The proposed rule
would also require all savings  institutions,  whether a holding company or not,
to file an  application  with the OTS prior to making any  capital  distribution
where the association is not eligible for "expedited  processing"  under the OTS
"Expedited Processing  Regulation",  where the proposed  distribution,  together
with any other  distributions  made in the same year,  would exceed the "maximum
amount"  described  above,  where  the  institution  would be under  capitalized
following the distribution or where the distribution would otherwise be contrary
to a statute, regulation or agreement with the OTS.

     On February 28, 2001,  the Bank received OTS approval to pay cash dividends
of $2,012,575 to its parent holding  company during  calendar year 2001. Of this
amount,  $1,862,575  was used by the Company to  repurchase  and retire  338,650
shares of its common  stock.  The  remaining  portion of the cash  dividend  was
allocated for payment of corporate  and  administrative  expenses.  Due to these
capital distributions,  the Bank's retained net income standard at June 30, 2003
was zero.

     In addition to these regulatory restrictions, the Bank's Plan of Conversion
imposes  additional  limitations on the amount of capital  distributions  it may
make to the  Holding  Company.  The  Plan of  Conversion  requires  the  Bank to
establish and maintain a liquidation account for the benefit of Eligible Account
Holders and  Supplemental  Eligible  Account Holders and prohibits the Bank from
making capital  distributions  to the Holding  Company if its net worth would be
reduced below the amount required for the liquidation account.


Limitations on Rates Paid for Deposits

     Regulations  promulgated  by the  FDIC  pursuant  to  FedICIA  limit on the
ability  of  insured  depository  institutions  to  accept,  renew or roll  over
deposits by offering rates of interest which are  significantly  higher than the
prevailing  rates of interest on deposits  offered by other  insured  depository
institutions having the same type of charter in the institution's  normal market
area. Under these regulations,  "well-capitalized"  depository  institutions may
accept,  renew or roll  such  deposits  over  without  restriction,  "adequately
capitalized"  depository  institutions  may accept,  renew or roll such deposits
over with a waiver from the FDIC (subject to certain restrictions on payments of
rates) and "undercapitalized"  depository  institutions may not accept, renew or
roll such deposits over. The  regulations  contemplate  that the  definitions of
"well capitalized",  "adequately capitalized" and "undercapitalized" will be the
same as the  definition  adopted by the  agencies to  implement  the  corrective
action  provisions of FedICIA.  The Bank does not believe that these regulations
will have a materially adverse effect on its current operations.
<PAGE>

Loans to One Borrower

     Under OTS  regulations,  the Bank may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired  capital
and surplus.  Additional amounts may be lent, not in excess of 10% of unimpaired
capital and surplus,  if such loans or extensions of credit are fully secured by
readily marketable collateral,  including certain debt and equity securities but
not including real estate.  In some cases, a savings  association may lend up to
30 percent of  unimpaired  capital and surplus to one  borrower  for purposes of
developing domestic residential housing, provided that the association meets its
regulatory  capital  requirements  and the OTS authorizes the association to use
this expanded lending authority.


Transactions with Affiliates

     The Bank and Holding Company are subject to Sections 22(h),  23A and 23B of
the Federal Reserve Act, which restrict financial transactions between banks and
their directors, executive officers and affiliated companies. The statute limits
credit  transactions   between  a  bank  and  its  executive  officers  and  its
affiliates,  prescribes  terms and conditions  for bank  affiliate  transactions
deemed to be consistent with safe and sound banking practices, and restricts the
types of collateral  security permitted in connection with a bank's extension of
credit to an affiliate.


Federal Securities Law

     The shares of Common Stock of the Holding  Company are registered  with the
SEC under the  Securities and Exchange Act of 1934, as amended (the "1934 Act").
As  a  result,  the  Holding  Company  is  subject  to  the  information,  proxy
solicitation,  insider trading  restrictions and other  requirements of the 1934
Act and the rules of the SEC  thereunder.  If the Holding Company has fewer than
300  shareholders,  it may deregister the shares under the 1934 Act and cease to
be subject to the foregoing requirements.

     Shares of Common  Stock held by persons who are  affiliates  of the Holding
Company may not be resold without registration or unless sold in accordance with
the resale  restrictions  of Rule 144 under the  Securities  and Exchange Act of
1933  (the  "1933  Act").  If the  Holding  Company  meets  the  current  public
information  requirements  under Rule 144, each affiliate of the Holding Company
who complies with the other  conditions of Rule 144 (including  conditions  that
require  the  affiliate's  sale to be  aggregated  with those of  certain  other
persons) would be able to sell in the public  market,  without  registration,  a
number of shares not to exceed, in any three-month period, the greater of (i) 1%
of the  outstanding  shares of the Holding  Company or (ii) the  average  weekly
volume of trading in such shares during the preceding four calendar weeks.


Qualified Thrift Lender

     Savings  associations  must meet a QTL test by  maintaining  an appropriate
level of qualified  thrift  investments  ("QTIs"),  which  primarily  consist of
residential    mortgages   and   related    investments,    including    certain
mortgage-related securities. The required percentage of QTIs is 65% of portfolio
assets, which includes all assets minus intangible assets,  property used by the
association  in conducting  its business and liquid assets equal to 10% of total
assets.  Certain  assets  are  subject  to a  percentage  limitation  of  20% of
portfolio assets. In addition,  savings associations may include shares of stock
of the  FHLBs,  FNMA,  and  FHLMC  as  QTIs.  Compliance  with  the QTL  test is
determined on a monthly basis in nine out of every twelve months.

     A savings  association which fails to meet the QTL test must either convert
to a bank (but its deposit insurance assessments and payments will be those of a
SAIF fund  member and shall be paid to the SAIF) or be subject to the  following
penalties:  (i) it may  not  enter  into  any  new  activity  except  for  those
permissible  for a  national  bank  and  for a  savings  association;  (ii)  its
branching  activities shall be limited to those of a national bank; and (iii) it
shall be bound by regulations applicable to national banks respecting payment of
dividends.  Three years after failing the QTL test the association  must dispose
of any investment or activity not  permissible for a national bank and a savings
association.  If such a savings  association is controlled by a savings and loan
holding  company,  then such holding  company  must,  within a  prescribed  time
period,  become  registered as a bank holding  company and become subject to all
rules  and  regulations   applicable  to  bank  holding   companies   (including
restrictions as to the scope of permissible business activities).

     A savings  association  failing to meet the QTL test may requalify as a QTL
if it  thereafter  meets the QTL test. In the event of such  requalification  it
shall not be subject to the penalties  described  above.  A savings  association
which  subsequently  again  fails to  qualify  under the QTL test  shall  become
subject to all of the described  penalties  without  application  of any waiting
period.

     At June 30,  2003,  the  Bank's  asset  composition  was in  excess of that
required  to  qualify  the Bank as a QTL.  Also,  the Bank  does not  expect  to
significantly  change its lending or  investment  activities in the near future.
The Bank expects to continue to qualify as a QTL,  although there can be no such
assurance.
<PAGE>

Acquisitions or Dispositions and Branching

     The  Bank  Holding  Company  Act  specifically  authorizes  a bank  holding
company, upon receipt of appropriate regulatory approvals, to acquire control of
any savings association or holding company thereof wherever located.  Similarly,
a savings and loan  holding  company may  acquire  control of a bank.  Moreover,
federal  savings  associations  may  acquire  or  be  acquired  by  any  insured
depository  institution.   Regulations  promulgated  by  the  FRB  restrict  the
branching authority of savings associations  acquired by bank holding companies.
Savings  associations  acquired by bank  holding  companies  may be converted to
banks if they continue to pay SAIF premiums,  but as such they become subject to
branching and activity restrictions applicable to banks.

     Subject  to  certain  exceptions,  commonly  controlled  banks and  savings
associations  must reimburse the FDIC for any losses suffered in connection with
a failed  bank or  savings  association  affiliate.  Institutions  are  commonly
controlled  if one is owned by another or if both are owned by the same  holding
company.  Such claims by the FDIC under this provision are subordinate to claims
of depositors,  secured creditors,  and holders of subordinated debt, other than
affiliates.

     The OTS has adopted  regulations which permit  nationwide  branching to the
extent  permitted by federal  statute.  Federal  statutes permit federal savings
associations to branch outside of their home state if the association  meets the
domestic  building  and  loan  test in  7701(a)(19)  of the  Code  or the  asset
composition  test of 7701(c)  of the Code.  Branching  that would  result in the
formation of a multiple  savings and loan holding  company  controlling  savings
associations  in more  than one  state is  permitted  if the law of the state in
which the savings association to be acquired is located specifically  authorizes
acquisitions   of  its   state-chartered   associations   by  state-   chartered
associations  or their  holding  companies  in the  state  where  the  acquiring
association or holding company is located.  Moreover,  Indiana banks and savings
associations   are   permitted  to  acquire  other  Indiana  banks  and  savings
associations and to establish branches throughout Indiana.

     Indiana law permits federal and state savings association holding companies
with  their  home  offices   located  outside  of  Indiana  to  acquire  savings
associations  whose home offices are located in Indiana and savings  association
holding  companies with their principal  place of business in Indiana  ("Indiana
Savings  Association Holding Companies") upon receipt of approval by the Indiana
Department of Financial  Institutions.  Moreover,  Indiana  Savings  Association
Holding  Companies  may acquire  savings  associations  with their home  offices
located outside of Indiana and savings associations holding companies with their
principal place of business  located outside of Indiana upon receipt of approval
by the Indiana Department of Financial Institutions.

     Finally, the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal  Act") permits bank holding companies to acquire banks in
other states and, with state consent and subject to certain limitations,  allows
banks  to  acquire  out-of-state  branches  either  through  merger  or de  novo
expansion.  The State of Indiana  enacted  legislation  establishing  interstate
branching  provisions for Indiana  state-chartered  banks  consistent with those
established by the Riegle-Neal Act (the "Indiana  Branching  Law").  The Indiana
Branching Law authorizes Indiana banks to branch interstate by merger or de novo
expansion,  provided that such  transactions  are not permitted to  out-of-state
banks  unless the laws of their home  states  permit  Indiana  banks to merge or
establish de novo banks on a reciprocal  basis. The Indiana Branching Law became
effective in March 1996.


Community Reinvestment Act Matters

     Federal law requires  that  ratings of  depository  institutions  under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating -- outstanding, satisfactory, unsatisfactory
and  needs  improvement  --  and a  written  evaluation  of  each  institution's
performance.   Each  FHLB  is  required  to  establish  standards  of  community
investment  or service that its members must  maintain for  continued  access to
long-term  advances from the FHLBs.  The standards  take into account a member's
performance  under the CRA and its record of lending to first-time  home buyers.
The OTS examiners have  determined  that the Bank has a  satisfactory  record of
meeting community credit needs.


Recent Legislative Developments

     On October 26, 2001, President Bush signed the USA Patriot Act of 2001 (the
"Patriot  Act").  The Patriot Act is intended to strengthen  the ability of U.S.
Law Enforcement to combat terrorism on a variety of fronts. The potential impact
of the Patriot Act on financial  institutions is significant  and  wide-ranging.
The  Patriot  Act  contains   sweeping   anti-money   laundering  and  financial
transparency laws and requires  financial  institutions to implement  additional
policies and  procedures  with respect to, or  additional  measures  designed to
address,  any or all the  following  matters,  among others:  money  laundering,
suspicious activities and currency transaction  reporting,  and currency crimes.
In addition,  financial  institutions  are required  under this statute to adopt
reasonable  procedures  to verify the identity of any person  seeking to open an
account and maintain records to verify such person's identity.

     On July 30, 2002,  President Bush signed into law the Sarbanes-Oxley Act of
2002  (the   "Sarbanes-Oxley   Act").  The   Sarbanes-Oxley   Act  represents  a
comprehensive  revision  of  laws  affecting  corporate  governance,  accounting
obligations and corporate  reportings.  The  Sarbanes-Oxley Act is applicable to
all companies  with equity or debt  securities  registered  under the Securities
Exchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) new
requirements  for  audit  committees,  including  independence,  expertise,  and
responsibilities;   (ii)   additional   responsibilities   regarding   financial
statements for the Chief Executive  Officer and Chief  Financial  Officer of the
reporting  company;  (iii) new standards for auditors and  regulation of audits;
(iv) increased  disclosure and reporting  obligations for the reporting  company
and their directors and executive officers;  and (v) new and increased civil and
criminal  penalties for violation of the securities laws. Many of the provisions
became  effective  immediately  while other  provisions  become effective over a
period of 30 to 270 days and are subject to  rulemaking  by the  Securities  and
Exchange  Commission.  Although  we  anticipate  that we will  incur  additional
expense in  complying  with the  provisions  of the  Sarbanes-Oxley  Act and the
resulting regulations, management does not expect that such compliance will have
a material impact on our results of operations or financial condition.


                                    TAXATION
Federal Taxation

     Historically,  savings  banks  have  been  permitted  to  compute  bad debt
deductions using either the bank experience  method or the percentage of taxable
income method. However, for years beginning after December 31, 1995, the Bank is
not able to use the  percentage  of  taxable  income  method  of  computing  its
allocable tax bad debt deduction.  The Bank is required to compute its allocable
deduction  using  the  experience  method.  As a  result  of the  repeal  of the
percentage  of  taxable  income  method,  reserves  taken  after  1987 using the
percentage of taxable income method generally must be included in future taxable
income over a six-year  period,  although a two-year  delay may be permitted for
institutions  meeting a residential mortgage loan origination test. In addition,
the pre-1988  reserve,  in which no deferred taxes have been recorded,  will not
have to be recaptured  into income unless (i) the Bank no longer  qualifies as a
bank under the Internal Revenue Code of 1986, as amended (the "Code");  (ii) the
Bank pays out excess dividends or  distributions;  or (iii) the Bank redeems its
own stock.

     Depending  on the  composition  of its items of  income  and  expense,  the
Company may be subject to the  alternative  minimum tax. The Company must pay an
alternative minimum tax equal to the amount (if any) by which 20% of alternative
minimum taxable income ("AMTI"),  as reduced by an exemption  varying with AMTI,
exceeds the regular tax due. AMTI equals  regular  taxable  income  increased or
decreased by certain tax preferences  and  adjustments,  including  depreciation
deductions  in excess of that  allowable for  alternative  minimum tax purposes,
tax-exempt  interest on most private  activity bonds issued after August 7, 1986
(reduced by any related interest  expense  disallowed for regular tax purposes),
the amount of the bad debt reserve  deduction claimed in excess of the deduction
based  on the  experience  method  and 75% of the  excess  of  adjusted  current
earnings over AMTI (before this  adjustment and before any  alternative  tax net
operating  loss).  AMTI  may be  reduced  only up to 90% by net  operating  loss
carryovers, but alternative minimum tax paid can be credited against regular tax
due in later  years.  In addition,  there is a small  business  exception  which
currently,  and in the  immediate  future,  applies to the Company.  Due to this
exception, the Company is not subject to the alternative minimum tax.

     For federal income tax purposes,  the Company has been reporting its income
and expenses on the accrual method of accounting.  The Company's  federal income
tax returns have not been audited in recent years.


State Taxation

     The Company is subject to  Indiana's  Financial  Institutions  Tax ("FIT"),
which is imposed at a flat rate of 8.5% on "adjusted  gross  income".  "Adjusted
gross  income",  for purposes of FIT,  begins with taxable  income as defined by
Section 63 of the Code and,  thus,  incorporates  federal  tax law to the extent
that it affects the  computation of taxable  income.  Federal  taxable income is
then adjusted by several Indiana modifications, the most notable of which is the
required  addback of interest that is tax-free for federal  income tax purposes.
Other  applicable state taxes include  generally  applicable sales and use taxes
plus real and personal property taxes.

     The  Company's  state  income tax returns  have not been  audited in recent
years.
<PAGE>

Item 2. Description of Property.
--------------------------------

     The  Company  conducts  business  from its main  office at 279 East  Morgan
Street, Spencer,  Indiana 47460, and its branch office at 102 South Main Street,
Cloverdale, Indiana 46120. The Company owns both of its offices.

     The  following  table  provides  certain  information  with  respect to the
Company's offices as of June 30, 2003:

<TABLE>
<CAPTION>
                                                          Net Book Value
                                                           of Property,
                          Owned or     Year      Total      Furniture &      Approximate
Description and Address    Leased     Opened    Deposits      Fixtures      Square Footage
-----------------------   --------    ------    --------  ---------------   --------------
                                                 (Dollars in thousands)

<C>                                    <C>       <C>          <C>              <C>
279 East Morgan Street     Owned       1987      $34,184      $1,223           11,300
Spencer, IN  47460
(including annex)
102 South Main Street      Owned       1998      $ 4,355      $  808            6,000
Cloverdale, IN  46120
</TABLE>


     The  Cloverdale,  Indiana  branch  office opened for business on October 1,
1998.

     As of June 30,  2003,  the Bank also owned a parcel of real estate  located
across the street from its Spencer office that is used for employee parking.

     The Company owns computer and data  processing  equipment  that is used for
transaction processing, loan origination, and accounting.

     The Bank has also contracted for the data processing and reporting services
of Aurum  Technology  Inc., of Plano,  Texas.  The cost of these data processing
services was  approximately  $11,000 per month for the twelve  months ended June
30, 2003.


Item 3. Legal Proceedings.
--------------------------

     Neither  the Holding  Company nor the Bank is a party to any pending  legal
proceedings, other than routine litigation incidental to the Bank's business.


Item 4. Submission of Matters to a Vote of Security Holders.
------------------------------------------------------------

     No matter was  submitted  to a vote of the Holding  Company's  shareholders
during the quarter ended June 30, 2003.


                                    PART II

Item 5. Market for Common Equity and Related Stockholder Matters.
-----------------------------------------------------------------
Market Information

     The Holding Company's common stock,  without par value ("Common Stock"), is
quoted on The Nasdaq Stock Market's SmallCap Market under the symbol "HWEN."

     The  following  table sets forth the high and low bid prices and  dividends
paid per share of Common Stock for the quarters indicated. Such over-the-counter
quotations reflect  inter-dealer  prices,  without retail mark-up,  mark-down or
commission, and may not necessarily represent actual transactions.

Quarter Ended             High Bid         Low Bid     Dividends Declared
-------------             --------         -------     ------------------
September 30, 2000        $3.625           $2.500$          $0.020
December 31, 2000          5.375            3.375            0.020
March 31, 2001 ...         7.000            3.250            0.020
June 30, 2001 ....         4.550            3.450            0.030

September 30, 2001         4.570            3.890            0.030
December 31, 2001          4.390            3.500            0.030
March 31, 2002 ...         4.000            3.800            0.030
June 30, 2002 ....         5.150            3.550            0.030

September 30, 2002         4.290            3.650            0.030
December 31, 2002          5.560            3.900            0.030
March 31, 2003 ...         5.100            4.270            0.030
June 30, 2003 ....         5.850            4.750            0.030
<PAGE>

Holders

     As of August 26, 2003, there were  approximately 243 registered  holders of
the Holding Company's Common Stock. Management estimates at least 267 additional
stockholders held shares in broker accounts on August 26, 2003.


Stockholder Matters

     The book value of the Holding  Company's Common Stock was $4.96 at June 30,
2003.  On this same date,  the price of the Holding  Company's  Common Stock was
$5.150 per share,  representing a 103.8% price-to-book value ratio. For the year
ended  June  30,  2003,   dividends  totaling  $0.12  per  share  were  paid  to
shareholders.

     Effective  January 10, 2001, the Company  effected a 2-for-1 stock split of
its Common Stock.

     The Company  repurchased  no shares of its Common Stock during  fiscal year
2003.  The  Company has 83,000  shares  which may be  repurchased  in the future
pursuant to a previously  authorized stock repurchase program. At June 30, 2003,
there were 1,356,050 shares of Common Stock outstanding.

     The Company  sold no equity  securities  during the period  covered by this
report that were not registered under the Securities Act of 1933.


Dividends

     The table  above sets  forth the  dividends  paid per share of the  Holding
Company's Common Stock for the quarters indicated.

     Since  the  Holding   Company  has  no  independent   operations  or  other
subsidiaries  to generate  income,  its ability to  accumulate  earnings for the
payment of cash  dividends to its  shareholders  is directly  dependent upon the
earnings  on its  investment  securities  and  the  ability  of the  Bank to pay
dividends to the Holding Company. The Bank's ability to pay dividends is subject
to certain regulatory  restrictions.  See "Regulations -- Capital  Distributions
Regulation".

     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 Bank (as  calculated  for federal
income tax  purposes),  will be taxable as ordinary  income to the recipient and
will not be  deductible  by the Bank.  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.

     Unlike  the  Bank,  generally  there is no  regulatory  restriction  on the
payment of  dividends  by the  Holding  Company.  Indiana  law,  however,  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.
<PAGE>

Item 5.5.   Selected Financial Data.
------------------------------------

     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>
                                                                                        At  June 30
                                                               -----------------------------------------------------------------
                                                                 2003          2002          2001          2000         1999
                                                                ------        ------        ------        ------       ------
                                                                                     (Dollars in thousands)

<S>                                                            <C>           <C>           <C>           <C>           <C>
Summary of Financial Condition:
Total assets .............................................     $61,671       $66,746       $68,792       $59,451       $53,136
Loans receivable, net ....................................      48,500        52,707        54,244        45,341        38,238
Cash and cash equivalents ................................       4,612         3,601         3,214         1,716         2,475
Securities available for sale ............................       2,869         4,626         6,147         7,712         8,288
Deposits .................................................      38,539        41,456        41,111        38,542        32,657
Federal Home Loan Bank advances
  and other borrowings ...................................      16,000        18,505        21,300        13,500        13,200
Stockholders' equity .....................................       6,721         6,381         5,946         7,182         7,123


                                                                                       Year Ended  June 30
                                                               -----------------------------------------------------------------
                                                                 2003          2002          2001          2000         1999
                                                                ------        ------        ------        ------       ------
                                                                                     (Dollars in thousands)
Summary of Operating Results:
Interest and dividend income .............................      $5,117        $5,662        $5,764        $4,773        $3,883
Interest expense .........................................       2,039         2,697         3,210         2,577         2,032
                                                                ------        ------        ------        ------        ------
  Net interest income ....................................       3,078         2,965         2,554         2,196         1,851
Provision for loan losses ................................         230           167            60            54            44
                                                                ------        ------        ------        ------        ------
  Net interest income after provision for
    loan losses ..........................................       2,848         2,798         2,494         2,142         1,807
                                                                ------        ------        ------        ------        ------
Other income:
  Service charges on deposit accounts ....................         218           219           177           151            84
  Gain on sale of real estate acquired
    for development ......................................          70            78            98            25             6
  Net realized gain (loss) on sales of
    available for sale securities ........................        (178)          (46)          107           (18)            3
  Loss on low-income housing investment ..................         (58)          (56)          (48)          (34)           --
  Other ..................................................          80            39            32            30            32
                                                                ------        ------        ------        ------        ------
    Total other income ...................................         132           234           366           154           125
Other expenses:
  Salaries and employee benefits .........................       1,282         1,216         1,116           924           819
  Net occupancy expense ..................................         155           171           177           145           110
  Equipment expense ......................................          95            97           109           139           115
  Deposit insurance expense ..............................          13             7             8            13            17
  Computer processing expense ............................         258           247           225           185           152
  Printing and office supplies ...........................          50            50            56            43            65
  Advertising ............................................          33            46            56            46            60
  Legal and professional fees ............................         108           189           185           137           105
  Directors and committee fees ...........................          51            61            58            57            56
  Other ..................................................         438           300           271           204           190
                                                                ------        ------        ------        ------        ------
    Total other expenses .................................       2,483         2,384         2,261         1,893         1,689
                                                                ------        ------        ------        ------        ------
Income before income tax .................................         497           648           599           403           243
Income tax expense .......................................         152           148           137            54            99
                                                                ------        ------        ------        ------        ------
  Net income .............................................      $  345        $  500        $  462        $  349        $  144
                                                                ======        ======        ======        ======        ======
<PAGE>
                                                                                       Year Ended  June 30
                                                               -----------------------------------------------------------------
                                                                 2003          2002          2001          2000         1999
                                                                ------        ------        ------        ------       ------
                                                                                     (Dollars in thousands)
Supplemental Data (1):
Basic earnings per share .................................      $  .27        $  .39        $  .31        $  .22       $  .09
Diluted earnings per share ...............................         .27           .39           .31           .22          .09
Book value per common share at end of year ...............        4.96          4.71          4.38          4.19         4.02
Dividends per share ......................................         .12           .12           .09           .06          .06
Dividend payout ratio ....................................       44.44%        30.77%        29.03%        27.27%       66.67%
Return on assets (2) .....................................        0.53          0.74          0.71          0.61         0.30
Return on equity (3) .....................................        5.26          8.12          6.69          4.92         1.99
Interest rate spread (4) .................................        4.87          4.43          3.72          3.62         3.61
Net yield on interest-earning assets (5) .................        5.09          4.67          4.10          4.06         4.17
Other expenses to average assets .........................        3.80          3.50          3.48          3.30         3.52
Net interest income to other expenses ....................        1.24x         1.24x         1.13x         1.16x        1.10x
Equity-to-assets (6) .....................................       10.90          9.56          8.64%        12.08%       13.41%
Average equity to average total assets ...................       10.04          9.05         10.63         12.37        15.08
Average interest-earning assets to average
  interest-bearing liabilities ...........................        1.06x         1.06x         1.07x         1.09x        1.13x
Non-performing assets to total assets ....................        1.83%         1.60%         1.60%          .72%         .16%
Non-performing loans to total loans ......................        1.07          1.21          1.97           .86          .20
Loan loss allowance to total loans, net ..................        0.65          0.65           .72           .81          .88
Loan loss allowance to non-performing loans ..............       60.77         53.83         36.77         94.18       425.32
Net charge-offs to average loans .........................        0.51          0.40           .08           .04          .08
</TABLE>
-----------------
(1)  All per share  amounts have been  restated to reflect a 2-for-1 stock split
     effective January 10, 2001.
(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.


Item 6. Management's Discussion and Analysis or Plan of Operation.
------------------------------------------------------------------
General

     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, as a holding  company owning all of the outstanding  common
stock of the Bank to be issued in the Conversion. 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 the 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.
<PAGE>
<TABLE>
<CAPTION>

                                                   Average Balance Sheet/Yield Analysis

                                                                                 Year Ended June 30,
                                             -------------------------------------------------------------------------------------
                                                       2003                            2002                        2001
                                             --------------------------     --------------------------  --------------------------
                                             Average             Yield/     Average             Yield/  Average             Yield/
                                             Balance  Interest    Cost      Balance   Interest   Cost   Balance  Interest    Cost
                                             -------  --------   -------    -------   --------  ------  -------  --------   ------
                                                                             (Dollars in thousands)
<S>                                          <C>        <C>       <C>       <C>        <C>       <C>   <C>         <C>       <C>
Assets:
Interest-earning assets:
  Interest-earning deposits .............    $ 4,452    $   66    1.48%     $ 3,528    $   77    2.17% $ 2,206     $  109    4.94
  Investment securities (1) .............      4,004       202    5.05        5,360       272    5.07    7,353        447    6.08
  Loans receivable (2) ..................     50,976     4,785    9.39       53,487     5,241    9.80   51,772      5,132    9.91
  Stock in FHLB of Indianapolis .........      1,104        64    5.78        1,100        72    6.57      949         76    8.01
                                             -------    ------              -------    ------          -------     ------
    Total interest-earning assets .......     60,536     5,117    8.45       63,475    $5,662    8.92   62,280     $5,764    9.25
                                                        ------                         ------                      ------
Non-interest earning assets, net of
  allowance for loan losses and including
  unrealized gain (loss) on securities
  available for sale ....................      4,815                          4,543                      2,710
                                             -------                        -------                    -------
    Total assets ........................    $65,351                        $68,018                    $64,990
                                             =======                        =======                    =======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
  Savings accounts ......................    $ 4,926        45    0.91%     $ 4,322        83    1.93%$  3,893        103    2.65%
  NOW and money market accounts .........      5,411        52    0.96        4,977        87    1.75    3,818         99    2.59
  Certificates of deposit ...............     29,049     1,074    3.70       31,562     1,520    4.82   30,959      1,848    5.97
  FHLB advances and other borrowings ....     17,583       868    4.94       19,251     1,007    5.23   19,351      1,160    5.99
                                             -------    ------              -------    ------          -------     ------
    Total interest-bearing liabilities ..     56,969     2,039    3.58       60,112     2,697    4.49   58,021      3,210    5.53
                                                        ------                         ------                      ------

Other liabilities .......................      1,817                          1,749                         61
                                             -------                        -------                    -------
    Total liabilities ...................     58,786                         61,861                     58,082
                                             -------                        -------                    -------
Stockholders' equity ....................      6,673                          6,306                      7,080
Net unrealized gain/(loss) on securities
  available for sale ....................       (110)                          (149)                      (172)
                                             -------                        -------                    -------
    Total stockholders' equity ...........      6,563                          6,157                      6,908
                                             -------                        -------                    -------
    Total liabilities and
      stockholders' equity ...............    $65,349                        $68,018                    $64,990
                                             =======                        =======                    =======
Net interest-earning assets .............    $ 3,565                        $ 3,363                    $ 4,259
                                             =======                        =======                    =======
Net interest income .....................               $3,078                         $2,965                      $2,554
                                                        =======                        ======                      ======
Interest rate spread ....................                         4.87                           4.43                        3.72
Net yield on weighted average
  interest-earning assets ...............                         5.09                           4.67                        4.10
Average interest-earning assets to
  average interest-bearing liabilities ..     106.26%                        105.59%                    107.34%

------------------
(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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                         Interest Rate Spread Analysis
                                                                    Year Ended June 30,
                                                     At June 30,   --------------------
                                                        2003       2003    2002    2001
                                                     -----------   ----    ----    ----
<S>                                                     <C>        <C>     <C>     <C>
Weighted average interest rate earned on:
        Interest-earning deposits ................      1.06%      1.48%   2.17%   4.94%
        Investment securities ....................      5.17       5.05    5.07    6.08
        Loans receivable .........................      9.21       9.39    9.80    9.91
        Stock in FHLB of Indianapolis ............      5.00       5.78    6.57    8.01
                Total interest-earning assets ....      8.32       8.45    8.92    9.25

Weighted average interest rate cost of:
        Savings accounts .........................      0.50       0.91    1.93    2.65
        NOW and money market accounts ............      0.70       0.96    1.75    2.59
        Certificates of deposit ..................      3.44       3.70    4.82    5.97
        FHLB advances and other borrowings .......      4.46       4.94    5.23    5.99
                Total interest-bearing liabilities      3.23       3.58    4.49    5.53

Interest rate spread (1) .........................      5.09       4.87    4.43    3.72
Net yield on weighted average
        interest-earning assets (2) ..............                 5.09    4.67    4.10
</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,
     2003, because the computation of net yield is applicable only over a period
     rather than at a specific date.
<PAGE>
<TABLE>
<CAPTION>

     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.

                              Rate/Volume Analysis

                                                      Increase (Decrease) in Net Interest Income
                                                      ------------------------------------------
                                                          Due to     Due to     Total Net
                                                          Volume      Rate       Change
Year ended June 30, 2003 compared to                      ------     ------      ------
  Year ended June 30, 2002                                    (Dollars in thousands)
Interest-earning assets:
<S>                                                      <C>       <C>         <C>
        Interest-earning deposits ....................   $    17   $    (28)   $   (11)
        Investment securities ........................       (68)        (2)       (70)
        Loans receivable .............................      (241)      (215)      (456)
        Stock in FHLB of Indianapolis ................        --         (8)        (8)
                                                         -------    -------    -------
                Total ................................      (292)      (253)      (545)

Interest-bearing liabilities:
        Savings accounts .............................        10        (48)       (38)
        NOW and money market accounts ................         7        (42)       (35)
        Certificates of deposit ......................      (114)      (332)      (446)
        FHLB advances and other borrowings ...........       (84)       (55)      (139)
                                                         -------    -------    -------
                Total ................................      (181)      (477)      (658)
                                                         -------    -------    -------
Change in net interest income ........................   $  (111)   $   224    $   113
                                                         =======    =======    =======


Year ended June 30, 2002 compared to
  Year ended June 30, 2001
------------------------------------------------------------------------------------------------
Interest-earning assets:
        Interest-earning deposits ....................   $    46    $   (79)   $   (33)
        Investment securities ........................      (116)       (59)      (175)
        Loans receivable .............................       169        (59)       110
        Stock in FHLB of Indianapolis ................        11        (15)        (4)
                                                         -------    -------    -------
                Total ................................       110       (212)      (102)
                                                         -------    -------    -------
Interest-bearing liabilities:
        Savings accounts .............................        10        (30)       (20)
        NOW and money market accounts ................        25        (37)       (12)
        Certificates of deposit ......................        35       (363)      (328)
        FHLB advances and other borrowings ...........        (6)      (147)      (153)
                                                         -------    -------    -------
                Total ................................        64       (577)      (513)
                                                         -------    -------    -------
Change in net interest income ........................   $    46    $   365    $   411
                                                         =======    =======    =======


Year ended June 30, 2001 compared to
  Year ended June 30, 2000
------------------------------------------------------------------------------------------------
Interest-earning assets:
        Interest-earning deposits ....................   $   (21)   $   (27)   $   (48)
        Investment securities ........................       (66)       (17)       (83)
        Loans receivable .............................       939        170      1,109
        Stock in FHLB of Indianapolis ................        13         --         13
                                                         -------    -------    -------
                Total ................................       865        126        991
                                                         -------    -------    -------
Interest-bearing liabilities:
        Savings accounts .............................         1          1          2
        NOW and money market accounts ................         5          9         14
        Certificates of deposit ......................       201        114        315
        FHLB advances and other borrowings ...........       287         15        302
                                                         -------    -------    -------
                Total ................................       494        139        633
                                                         -------    -------    -------
Change in net interest income ........................   $   371    $   (13)   $   358
                                                         =======    =======    =======
</TABLE>
<PAGE>

Critical Accounting Policies

     Below and in the notes to the consolidated  financial  statements presented
on pages F-6 through F-8 of the Annual Report to Shareholders for the year ended
June 30, 2003, is a summary of the Company's  significant  accounting  policies.
Certain of these  policies  are  important  to the  portrayal  of the  Company's
financial condition, since they require management to make difficult, complex or
subjective  judgments,  some of which may relate to matters that are  inherently
uncertain.  Management  believes that its critical  accounting  policies include
determining  the allowance for loan losses,  the valuation of foreclosed  assets
and real estate  acquired for  development  and the  accounting  for  investment
securities.

     Allowance  for loan losses.  The allowance for loan losses is a significant
estimate  that  can and does  change  based on  management's  assumptions  about
specific borrowers and current general economic and business  conditions,  among
other factors.  Management reviews the adequacy of the allowance for loan losses
on  at  least  a  quarterly  basis.   The  evaluation  by  management   includes
consideration  of past loss  experience,  changes in the composition of the loan
portfolio,  the current  condition and amount of loans  outstanding,  identified
problem loans and the probability of collecting all amounts due.

     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.  A worsening or protracted economic
decline would  increase the  likelihood  of additional  losses due to credit and
market risk and could create the need for additional loss reserves.

     Foreclosed  assets and real estate  acquired  for  development.  Foreclosed
assets and real estate acquired for development are carried at the lower of cost
or fair value less estimated selling costs.  Management estimates the fair value
of the properties based on current appraisal  information.  Fair value estimates
are particularly susceptible to significant changes in the economic environment,
market  conditions,  and real estate market. A worsening or protracted  economic
decline would increase the likelihood of a decline in property  values and could
create the need to write down the properties through current operations.

     Investment Securities.  Investment securities, such as debt instruments and
marketable equity  securities,  are generally  classified as available for sale.
The Company has not classified any  investments  as  held-to-maturity.  The fair
value of these  securities  is determined  by obtaining  quoted  market  prices.
Unrealized  gains and losses on  available-for-sale  securities  are included in
other  comprehensive  income and are excluded from earnings.  Realized gains and
losses and declines in fair value judged to be other than temporary are included
in earnings.  Investment securities are particularly sensitive to changes in the
economic environment and market conditions.


Changes in Financial Position and Results of Operations - Year Ended
June 30, 2003, Compared to Year Ended June 30, 2002:

     General.  The large volume of mortgage  refinancing  activity  continued to
produce  accelerated  prepayments  of  older,  higher-rate  mortgage  loans  and
higher-yielding   mortgage-backed   securities,   which  reduced  the  level  of
interest-earning assets and revenue. Fourth quarter net interest margin suggests
that the benefit  derived from low  short-term  rates has not yet run its course
and funding costs continued to fall. Net income for the year fell sharply due to
investment losses and higher problem asset costs.

     Net income  totaling  $345,000 was earned for the year ended June 30, 2003.
This 31.0% decrease compares to record net income of $500,000 for the year ended
June 30, 2002.  Net income  decreased as a result of the  write-down in value of
certain investment  securities and higher expenses associated with problem loans
and repossessed assets.

     The  return on average  assets  for the year ended June 30,  2003 was .53%,
compared to .74% the prior year.  The return on average equity was 5.26% for the
year ended June 30,  2003,  compared to 8.12% for the year ended June 30,  2002.
Earnings  per share were $.27 for the year ended June 30,  2003 and $.39 for the
year ended June 30, 2002.

     Excluding the second quarter charge for impaired assets totaling  $178,000,
or $.14 per share,  the Company  earned  $457,000  or $.35 per share,  return on
assets of .70%,  and return on equity of 6.96% for the twelve  months ended June
30, 2003.

     Assets. Total assets decreased  $5,075,000,  or 7.6% to $61,671,000 at June
30, 2003,  compared to $66,746,000 at June 30, 2002.  Cash and cash  equivalents
increased  $1,011,000  or 28.1%,  to  $4,612,000  at June 30, 2003,  compared to
$3,601,000 a year earlier.  Investment  securities  available for sale decreased
$1,757,000 or 38.0% to  $2,869,000  at June 30, 2003,  compared to $4,626,000 at
June 30, 2002.  Total loans decreased  $4,235,000 or 8.0% during fiscal 2003. At
June 30, 2003 total loans were  $48,816,000  compared  to  $53,051,000  at prior
year-end June 30, 2002.

     Interest rate risk  management  decisions led to a contraction  in the loan
portfolio.  Historically low short-term rates created a difficult  interest rate
risk  environment  in fiscal  2003.  Many banks  became  exposed to  potentially
adverse  interest  rate  scenarios.  If short-term  rates rise,  banks with high
concentrations   of  low-rate   long-term  assets  will  likely   experience  an
increasingly  narrow  spread  between  deposit  costs  and  loan  yields.  While
management  is  committed to  profitable  long-term  growth,  it is unwilling to
expose the Company to unacceptable interest rate risk for short-lived gain.

     The level of loans  receivable as of June 30, 2003 decreased from the level
one year  earlier due to lower  origination  volume and  increased  loan pay-off
activity  in fiscal  year 2003.  During a period of  particularly  low  interest
rates, the Bank is at a competitive  disadvantage due to its preference to hold,
rather than sell loans.

     The Bank has defined its market niche by servicing customers and collateral
that often does not qualify for the secondary  market.  Because the Bank retains
all loans (and interest rate risk) on its balance sheet,  management is cautious
about  originating  large amounts of lower earning assets that may remain on the
balance sheet long after market rates return to higher levels.  Although efforts
are underway to originate  mortgage loans that qualify for sale in the secondary
market, no such sales are anticipated in the near future.

     The year-end level of stock in the FHLB of Indianapolis stood at $1,115,000
for 2003 and $1,100,000 for 2002. Net premises and equipment  increased $199,000
or 10.9%,  to  $2,031,000  at June 30, 2003  compared to  $1,832,000 at June 30,
2002. This increase was the result of real estate purchased for future expansion
of Company  facilities,  as needed.  The purchase included land and an apartment
building  adjacent and directly north of Owen Community Bank offices in Spencer,
Indiana.  While  this real  estate  awaits  alternative  future  use in  Company
operations, units in the apartment building will be offered for lease.

     Foreclosed  real  estate  and  repossessed  assets  increased  $181,000  to
$608,000  compared  to  $427,000  at June 30,  2002.  The total at June 30, 2003
consisted of eight residences with real estate,  twelve mobile or modular homes,
and one vehicle.

     Average assets  decreased  $2,669,000 or 3.9%, to $65,349,000  for the year
ended June 30, 2003,  compared to $68,018,000 for the prior  year-ended June 30,
2002.  Average   interest-earning   assets  decreased  $2,941,000  or  4.6%,  to
$60,534,000  for the year ended June 30, 2003 and  represented  92.6% of average
assets.  The bulk of this  decrease  was due to average  loans  which  decreased
$2,512,000 or 4.7%, to $50,975,000 for the year ended June 30, 2003, compared to
$53,487,000  for the year ended June 30,  2002.  Average  Federal Home Loan Bank
stock  increased  slightly for the year ended June 30, 2003. The average balance
of investment  securities  decreased  $1,356,000 or 25.3%,  to  $4,004,000,  and
average  interest-earning  deposit  balances  increased  $924,000  or 26.2%,  to
$4,452,000 for the year ended June 30, 2003.

     Liabilities and  Stockholders'  Equity.  Deposits  decreased  $2,918,000 or
7.0%.  Total deposits were  $38,539,000 at June 30, 2003 and $41,456,000 at June
30, 2002. The change was reflected in several deposit  categories.  Certificates
of  deposit  decreased  $3,859,000  or 12.6% to  $26,695,000  at June 30,  2003,
compared  to  $30,554,000  at June  30,  2002.  Transaction  accounts  increased
$749,000 or 15.4%, to $5,630,000 at June 30, 2003 compared to $4,881,000 at June
30, 2002.  Passbook and statement savings deposits increased $209,000 or 4.4% to
$4,989,000  at June  30,  2003  compared  to  $4,780,000  at June 30,  2002.  In
addition,  money market deposits decreased $16,000 or 1.3% to $1,225,000 at June
30, 2003.

     In addition to deposits,  FHLB  advances  are an  important  source of both
short-term  and  long-term  funding  for the Bank.  The  level of FHLB  advances
decreased  $2,500,000 or 13.5% to $16,000,000 at June 30, 2003. Total borrowings
were $16,000,000 at June 30, 2003, compared to $18,505,000 at June 30, 2002.

     Average  liabilities  decreased  $3,075,000 or 5.0%, to $58,786,000 for the
year ended June 30, 2003,  compared to $61,861,000  for the year-ended  June 30,
2002.  Average  interest-bearing  liabilities  decreased  $3,143,000 or 5.2%, to
$58,969,000  for the year ended June 30, 2003. The decrease was primarily due to
a decrease in average  certificates of deposit.  Average certificates of deposit
decreased by $2,513,000 or 8.0% to $29,048,000 for the year ended June 30, 2003,
compared to $31,561,000 for the year ended June 30, 2002.

     Average NOW and money  management  accounts  increased  $434,000 or 8.7% to
$5,411,000  for the year ended June 30, 2003 compared to $4,977,000 for the year
ended June 30, 2002.  Average FHLB  advances and other  borrowings  decreased by
$1,668,000 or 8.7% to $17,583,000 for the year ended June 30, 2003,  compared to
$19,251,000 for the prior year ended June 30, 2002.

     Stockholders'  equity increased $340,000 or 5.3%, to $6,721,000 at June 30,
2003,  compared  to  $6,381,000  at  June  30,  2002.  Factors  impacting  total
stockholders'  equity during the year were cash  dividends,  net income,  and an
increase in the market value of investment securities. Net income added $345,000
to equity while cash  dividends  paid  amounted to $143,000 in fiscal year 2003.
Amortization  of  employee  stock  ownership  plans  contributed  $49,000 to the
increase in stockholders'  equity. A decrease in unrealized losses on securities
available for sale increased stockholders' equity by $59,000.

     The Company's book value per share  increased $.25 or 5.3% to $4.96 at June
30, 2003 based on 1,356,050 shares outstanding.  A year earlier,  book value per
share was $4.71 with the same 1,356,050 shares outstanding.

     Net Interest  Income.  Net interest income  increased  $113,000 or 3.8%, to
$3,078,000 for the year ended June 30, 2003, compared to $2,965,000 for the year
ended June 30, 2002. 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  decreased
$545,000  or 9.6% while  total  interest  expense  decreased  $658,000 or 24.4%,
compared to a year earlier.

     Interest  income on loans  totaled  $4,786,000  for the year ended June 30,
2003,  compared to  $5,242,000  for the year ended June 30,  2002; a decrease of
$456,000 or 8.7%.  The decrease can be attributed to a lower average  balance of
loans receivable outstanding for 2003, compared to the prior year.

     Interest and dividend income from investments and interest-earning deposits
decreased  $81,000  or  23.2% to  $268,000  for the year  ended  June 30,  2003,
compared to  $349,000  for the year ended June 30,  2002.  The  decrease  can be
traced to lower average balances of investment  securities and  interest-earning
deposits held during 2003 and a decrease in the average  yield earned,  compared
to 2002.

     At June 30, 2003,  investment  securities included a balance of $343,000 in
equity  securities,  some of which earn  dividends.  Equity  securities  totaled
$522,000 at June 30, 2002. Dividend income on FHLB stock totaled $64,000 for the
year ended June 30, 2003,  compared to $72,000 for the year ended June 30, 2002;
a decrease of $8,000 or 11.7%.  The decrease can be attributed to a reduction in
the dividend  yield in 2003  compared to a year earlier.  The combined  weighted
average yield on the balance of interest-earning assets outstanding for the year
ended June 30,  2003  decreased  to 8.45%,  compared to 8.92% for the prior year
ended June 30, 2002.

     Interest expense on deposits decreased $519,000 or 30.7%, to $1,171,000 for
the year ended June 30, 2003, compared to $1,690,000 for the year ended June 30,
2002. The change was the result of a decrease in the weighted  average rate paid
on all  deposit  categories  compared  to the same  period a year  earlier.  The
average  cost of deposits  decreased  to 3.13% for the year ended June 30, 2003,
compared  to 4.14% for the year  ended  2002.  Interest  expense  on  borrowings
decreased  by $139,000 or 13.8%,  to $868,000  for the year ended June 30, 2003,
compared to  $1,007,000  for the year ended June 30, 2002.  The decrease was the
result of both a decrease in the average balance of borrowings outstanding and a
decrease in the average cost of FHLB  advances.  The combined  weighted  average
rate paid on deposits and borrowings was 3.58% for the year ended June 30, 2003,
compared to 4.49% for the prior year.

     The Company's  interest rate spread  increased 44 basis points to 4.87% for
the year  ended  June 30,  2003,  compared  to 4.43% for the year ended June 30,
2002.  The net  interest  margin  increased to 5.09% for the year ended June 30,
2003,  compared  to 4.67% for the year ended June 30,  2002.  The  increases  in
interest  rate spread and net  interest  margin were the result of a decrease in
the average cost of deposits  and  borrowings  for the current year  compared to
2002.

     Provisions  for Loan  Losses.  For the year ended June 30,  2003,  the Bank
provided $230,000 for loan losses. During the prior year, provisions of $167,000
were made. The allowance for loan losses  totaled  $316,000 or .65% of net loans
at June 30,  2003,  compared to $344,000 or .65% of net loans at June 30,  2002.
The allowance for loan losses at June 30, 2003 was 60.8% of non-performing loans
compared to 53.8% as of June 30, 2002.

     Prevailing  economic  conditions  caused  fluctuations in loan  delinquency
rates as well as the Bank's level of non-performing loans and repossessed assets
in fiscal  2003.  As  collections  efforts on problem  loans  resulted  in legal
action,  the  volume  of  non-performing  loans  decreased  and  the  volume  of
repossessed  property  increased.  When the level of problem loans decreased the
amount required in the allowance for loan losses decreased as well. As loans are
transferred  to  repossessed  property  through legal action,  the loan carrying
amount in excess of the  collateral's  fair value must be  charged  against  the
allowance for loan losses. Compared to a year earlier, the appropriate loan loss
allowance at June 30, 2003 was lower due to a lower level of non-performing  and
problem loans, as well as a decrease in total loans. See "--  Non-Performing and
Problem Assets".

     Management  considers  the Bank's  allowance for loan losses to be adequate
partially based on the fact that the majority of its loan portfolio is comprised
of residential mortgage loans, which generally possess a lower risk profile than
most  other  types  of  loans.  At June 30,  2003,  residential  mortgage  loans
(including  Combo  Loans)  represented  65.47% of gross  loans  receivable.  See
"--Lending  Activities".  In  evaluating  the  appropriate  level of the  Bank's
allowance  for  loan  losses,   management  also  considers   general   economic
conditions,  historical  net  charge-offs  and other  factors  such as the size,
condition and characteristics of the loan portfolio. In this evaluation process,
consideration  is also  given to the volume and  composition  of loan  portfolio
growth as well as the level of allowances maintained by peers.

     Non-interest Income.  Non-interest income decreased by $102,000 or 43.6% to
$132,000  for the year ended June 30,  2003,  compared to $234,000 for the prior
year ended June 30, 2002. Much of this decrease came from loss on the write-down
of  investment  securities  available for sale,  which totaled  $178,000 for the
twelve months ended June 30, 2003.  Investment  securities  sold or written-down
during the  year-earlier  period  resulted in a loss of $46,000.  Net  operating
losses of $58,000  were  recognized  during the year ended June 30,  2003 on the
Bank's  investment in Cunot Apartments,  L.P.,  compared to recognized losses of
$56,000 during the year ended June 30, 2002.

     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 for residential  use.  Management has utilized the sale of
lots to provide  home  financing  opportunities  for the Bank and an  additional
source of  income  for the  Company  as a whole.  The  level of income  from BSF
fluctuates  widely since it is  primarily  dependent on the volume of lots sold,
and  profits on  residential  properties.  Gain on sale of real  estate held for
investment  decreased to $70,000 for the year ended June 30,  2003,  compared to
$78,000 for the year ended June 30, 2002.

     Non-interest Expense. Non-interest expense increased by $99,000 or 4.2%, to
$2,483,000 for the year ended June 30, 2003, compared to $2,384,000 for the year
ended June 30, 2002.  Salaries and employee benefits  increased $65,000 or 5.4%.
Legal and professional  fees decreased $81,000 or 42.9% to $108,000 for the year
ended June 30, 2003, compared to $189,000 for the year ended June 30, 2002.

     An increase in foreclosure  activity contributed to the overall increase in
non-interest expense. The net cost to acquire, repair and dispose of repossessed
loan  collateral  increased  73.0% to $109,000 for 2003,  compared to $63,000 in
2002. Several  non-recurring  expenses related to a computer conversion in early
fiscal  2003,  including  $43,000 in  one-time  software  licensing  fees,  also
contributed  to  higher  overhead  expense.  Decreases  in  advertising  and net
occupancy expense partially offset the overall increase in non-interest expense.

     Income Tax Expense. Income tax expense increased $4,000 to $152,000 for the
year ended June 30, 2003, compared to $148,000 for the year ended June 30, 2002.
The  effective tax rate for fiscal year 2003  increased to 30.6%  compared to an
effective  rate of 22.8% for fiscal 2002.  The increase in tax and the effective
tax rate  resulted  from an  adjustment to income tax expense to account for the
inability  of the Company to fully  recognize  the  benefits  of capital  losses
incurred in fiscal year 2003 from the write-down of certain  securities.  Income
tax credits  related to the Bank's  investment  in  low-income  housing  reduced
income tax expense by approximately $107,000 in both fiscal years 2003 and 2002.


Changes in Financial  Position  and Results of  Operations - Year Ended June 30,
2002, Compared to Year Ended June 30, 2001:

     General.  Record net income totaling $500,000 was earned for the year ended
June 30, 2002.  This 8.2% increase  compares to $462,000 net income for the year
ended June 30, 2001. Net income  increased  mainly due to a decrease in the cost
of deposits and borrowings.

     Results for the year reflect the favorable  impact of lower  interest rates
on the Bank's cost of funds and the adverse  impact of recent  economic  malaise
both locally and nationally. Similar to the State of Indiana generally, the Bank
was forced to deal with an unprecedented  volume of personal  bankruptcy filings
and property  repossession.  Consequently,  expenses related to repossessed loan
collateral and loan losses increased significantly during the year. In addition,
the stock market decline depleted value of equity  securities that had, in prior
periods,  provided the Company additional comprehensive income.  Offsetting much
of the prevailing  economic  adversity,  strong net interest income gains led to
higher core earnings and a record bottom-line for fiscal year 2002.

     The  return on average  assets  for the year ended June 30,  2002 was .74%,
compared to .71% the prior year.  The return on average equity was 8.12% for the
year ended June 30,  2002,  compared to 6.69% for the year ended June 30,  2001.
Earnings  per share were $.39 for the year ended June 30,  2002 and $.31 for the
year ended June 30, 2001.

     Assets. Total assets decreased  $2,046,000,  or 3.0% to $66,746,000 at June
30, 2002,  compared to $68,792,000 at June 30, 2001.  Cash and cash  equivalents
increased  $387,000  or 12.0%,  to  $3,601,000  at June 30,  2002,  compared  to
$3,214,000 a year earlier.  Investment  securities  available for sale decreased
$1,521,000 or 24.7% to  $4,626,000  at June 30, 2002,  compared to $6,147,000 at
June 30, 2001.  Total loans decreased  $1,585,000 or 2.9% during fiscal 2002. At
June 30, 2002 total loans were  $53,051,000  compared  to  $54,636,000  at prior
year-end June 30, 2001.

     The level of loans  receivable as of June 30, 2002 decreased from the level
one year  earlier due to lower  origination  volume in fiscal  2002  compared to
fiscal 2001, primarily because of the lower interest rate environment.  Low rate
loan competition also led to increased loan pay-off and refinancing  activity in
fiscal year 2002.  During a period of particularly  low interest rates, the Bank
is at a  competitive  disadvantage  due to our  decision  to remain a  portfolio
lender. Consequently,  we originate a wide range of credit quality loans, backed
by  various  types  of  collateral,  none of which we  intend  to sell  into the
secondary market.

     The Bank has defined its market niche by servicing customers and collateral
that often does not qualify for the secondary  market.  Because the Bank retains
all loans (and interest rate risk) on its balance sheet,  management is cautious
about  originating  large amounts of lower earning assets that may remain on the
balance  sheet long after  market rates return to higher  levels.  Therefore,  a
continued low interest rate environment during fiscal 2003 may hamper the Bank's
loan growth into the coming year.

     The year-end level of stock in the FHLB of Indianapolis stood at $1,100,000
for 2002 and 2001.  Net premises and  equipment  decreased  $28,000 or 1.5%,  to
$1,832,000 at June 30, 2002 compared to $1,860,000 at June 30, 2001.  Foreclosed
real estate and repossessed  assets increased  $390,000 to $427,000  compared to
$37,000 at June 30, 2001.  The total at June 30, 2002 consists of six residences
with real estate and six mobile or modular homes.

     Average assets  increased  $3,028,000 or 4.7%, to $68,018,000  for the year
ended June 30, 2002,  compared to $64,990,000 for the prior  year-ended June 30,
2001.  Average   interest-earning   assets  increased  $1,195,000  or  1.9%,  to
$63,475,000  for the year ended June 30, 2002 and  represented  93.3% of average
assets.  The bulk of this  increase  was due to average  loans  which  increased
$1,715,000 or 3.3%, to $53,487,000 for the year ended June 30, 2002, compared to
$51,772,000  for the year ended June 30,  2001.  Average  Federal Home Loan Bank
stock did not change for the year ended June 30,  2002.  The average  balance of
investment  securities  decreased by $1,993,000  or 27.1%,  to  $5,360,000,  and
average  interest-earning  deposit balances increased by $1,322,000 or 59.9%, to
$3,528,000 for the year ended June 30, 2002.

     Liabilities and Stockholders' Equity.  Deposits increased $345,000 or 0.8%.
Total  deposits were  $41,456,000  at June 30, 2002 and  $41,111,000 at June 30,
2001. The change was reflected in several  deposit  categories.  Certificates of
deposit decreased  $1,497,000 or 4.7% to $30,554,000 at June 30, 2002,  compared
to  $32,051,000 at June 30, 2001.  Transaction  accounts  increased  $583,000 or
13.6%,  to  $4,881,000 at June 30, 2002 compared to $4,298,000 at June 30, 2001.
Passbook  and  statement  savings  deposits   increased  $953,000  or  24.9%  to
$4,780,000  at June  30,  2002  compared  to  $3,827,000  at June 30,  2001.  In
addition,  money market  deposits  increased  $306,000 or 32.7% to $1,241,000 at
June 30, 2002.

     In addition to deposits,  FHLB  advances  are an  important  source of both
short-term  and  long-term  funding  for the Bank.  The  level of FHLB  advances
decreased  $1,500,000 or 7.5% to $18,500,000 at June 30, 2002. Other borrowings,
primarily  for the  purpose  of  funding  purchases  of  real  estate  held  for
development,  also decreased  during the year. Total borrowings were $18,505,000
at June 30, 2002, compared to $21,300,000 at June 30, 2001.

     Average  liabilities  increased  $3,779,000 or 6.5%, to $61,861,000 for the
year ended June 30, 2002,  compared to $58,082,000  for the year-ended  June 30,
2001.  Average  interest-bearing  liabilities  increased  $2,091,000 or 3.6%, to
$60,112,000  for the year ended June 30, 2002. The increase was primarily due to
an  increase  in average NOW and money  market  accounts.  Average NOW and money
management  accounts  increased  $1,159,000 or 30.4% to $4,977,000  for the year
ended June 30, 2002  compared to  $3,818,000  for the year ended June 30,  2001.
Average certificates of deposit increased by $603,000 or 1.9% to $31,562,000 for
the year ended June 30, 2002,  compared to  $30,959,000  for the year ended June
30, 2001.  Average FHLB advances and other  borrowings  decreased by $100,000 or
0.5% to  $19,251,000  for the year ended June 30, 2002,  compared to $19,351,000
for the prior year ended June 30, 2001.

     Stockholders'  equity increased $435,000 or 7.3%, to $6,381,000 at June 30,
2002,  compared  to  $5,946,000  at  June  30,  2001.  Factors  impacting  total
stockholders'  equity  during the year were cash  dividends,  net income,  stock
repurchases and a net decrease in the market value of investment securities. Net
income added  $500,000 to equity while cash  dividends paid amounted to $143,000
in fiscal  year 2002.  Dividends  paid  totaled  $122,000  in fiscal  year 2001.
Amortization of employee stock  ownership  plans  contributed to the increase in
stockholders' equity. An $11,000 increase in net unrealized losses on securities
available  for sale  partially  offset the  overall  increase  in  stockholders'
equity.

     The Company's book value per share  increased $.33 or 7.5% to $4.71 at June
30, 2002 based on 1,356,050 shares outstanding.  A year earlier,  book value per
share was $4.38 with 1,359,050 shares outstanding.

     Net Interest Income.  Net interest income  increased  $411,000 or 16.1%, to
$2,965,000 for the year ended June 30, 2002, compared to $2,554,000 for the year
ended June 30, 2001. 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  decreased
$102,000  or 1.8% while  total  interest  expense  decreased  $513,000 or 16.0%,
compared to a year earlier.

     Interest  income on loans  totaled  $5,242,000  for the year ended June 30,
2002,  compared to  $5,132,000  for the year ended June 30, 2001; an increase of
$110,000 or 2.1%. The increase can be attributed to a larger average  balance of
loans  receivable  outstanding  for the current year compared to the same period
one year ago.

     Interest and dividend income from investments and interest-earning deposits
decreased  $207,000  or 37.2% to  $349,000  for the year  ended  June 30,  2002,
compared to  $556,000  for the year ended June 30,  2001.  The  decrease  can be
traced to lower average balances of investment  securities and  interest-earning
deposits held during 2002 and a decrease in the average  yield earned,  compared
to 2001. At June 30, 2002,  investment securities included a balance of $521,000
in equity  securities,  some of which earn dividends.  Equity securities totaled
$701,000 at June 30, 2001. Dividend income on FHLB stock totaled $72,000 for the
year ended June 30, 2002,  compared to $76,000 for the year ended June 30, 2001;
a decrease of $4,000 or 5.3%.  The decrease can be  attributed to a reduction in
the  dividend  yield in 2002  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, 2002  decreased  to 8.92%,  compared to
9.25% for the prior year ended June 30, 2001.

     Interest expense on deposits decreased $360,000 or 17.5%, to $1,690,000 for
the year ended June 30, 2002, compared to $2,050,000 for the year ended June 30,
2001. The change was the result of a decrease in the weighted  average rate paid
on all  deposit  categories  compared  to the same  period a year  earlier.  The
average  cost of deposits  decreased  to 4.14% for the year ended June 30, 2002,
compared  to 5.30% for the year  ended  2001.  Interest  expense  on  borrowings
decreased by $153,000 or 13.2%,  to $1,007,000 for the year ended June 30, 2002,
compared  to  $1,160,000  for the year ended June 30,  2001.  The  decrease  was
predominately the result of a decrease in the average cost of FHLB advances. The
combined weighted average rate paid on deposits and borrowings was 4.49% for the
year ended June 30, 2002, compared to 5.53% for the prior year.

     The Company's  interest rate spread  increased 71 basis points to 4.43% for
the year  ended  June 30,  2002,  compared  to 3.72% for the year ended June 30,
2001.  The net  interest  margin  increased to 4.67% for the year ended June 30,
2002,  compared  to 4.10% for the year ended June 30,  2001.  The  increases  in
interest  rate spread and net  interest  margin were the result of a decrease in
the average cost of deposits and borrowings for the current year compared to the
same period in 2001.

     Provisions  for Loan  Losses.  For the year ended June 30,  2002,  the Bank
provided $167,000 for loan losses.  During the prior year, provisions of $60,000
were made. The allowance for loan losses  totaled  $344,000 or .65% of net loans
at June 30,  2002,  compared to $392,000 or .72% of net loans at June 30,  2001.
The allowance for loan losses at June 30, 2002 was 53.8% of non-performing loans
compared  to  36.8% as of June 30,  2001.  The  $427,000  or 40.1%  decrease  in
non-performing  loans  led to the  increased  ratio at June 30,  2002  despite a
decrease in the allowance for loan losses compared to a year earlier.

     Prevailing  economic  conditions  caused  fluctuations in loan  delinquency
rates as well as the Bank's level of non-performing loans and repossessed assets
in fiscal  2002.  As  collections  efforts on problem  loans  resulted  in legal
action,  the  volume  of  non-performing  loans  decreased  and  the  volume  of
repossessed property increased.  When the level of problem loans decreased,  the
amount required in the allowance for loan losses decreased as well. As loans are
transferred  to  repossessed  property  through legal action,  the loan carrying
amount in excess of the  collateral's  fair value must be  charged  against  the
allowance for loan losses. Compared to a year earlier, the appropriate loan loss
allowance at June 30, 2002 was lower due to a lower level of non-performing  and
problem loans, as well as a decrease in total loans. See "--  Non-Performing and
Problem Assets".

     Management  considers  the Bank's  allowance for loan losses to be adequate
partially based on the fact that the majority of its loan portfolio is comprised
of residential mortgage loans, which generally possess a lower risk profile than
most  other  types  of  loans.  At June 30,  2002,  residential  mortgage  loans
(including Combo Loans)  represented  64.30% of gross loans receivable.  See "--
Lending Activities". In evaluating the appropriate level of the Bank's allowance
for  loan  losses,   management  also  considers  general  economic  conditions,
historical  net  charge-offs  and other factors such as the size,  condition and
characteristics of the loan portfolio. In this evaluation process, consideration
is also given to the volume and composition of loan portfolio  growth as well as
the level of allowances maintained by peers.

     Non-interest Income.  Non-interest income decreased by $132,000 or 36.1% to
$234,000  for the year ended June 30,  2002,  compared to $366,000 for the prior
year  ended  June 30,  2001.  Much of this  decrease  came  from loss on sale of
investment  securities  available for sale, which totaled $46,000 for the twelve
months ended June 30, 2002.  Investment securities sold during the period a year
earlier  resulted  in a gain of  $107,000.  Gain on sale of real estate held for
investment  decreased to $78,000 for the year ended June 30,  2002,  compared to
$98,000 for the year ended June 30, 2001. Additionally,  net operating losses of
$56,000  were  recognized  during  the year  ended  June 30,  2002 on the Bank's
investment in Cunot Apartments,  L.P.,  compared to recognized losses of $48,000
during the year ended June 30, 2001.  Partially  offsetting the overall decrease
in non-interest income, service charges on deposit accounts increased $42,000 or
23.7% to $219,000 for the year ended June 30, 2002, compared to $177,000 for the
year ended June 30, 2001.

     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 for residential  use.  Management has utilized the sale of
lots to provide  home  financing  opportunities  for the Bank and an  additional
source of income for the Company as a whole.

     The  level of  income  from BSF  fluctuates  widely  since it is  primarily
dependent  on the volume of lots sold,  and profits on  residential  properties.
During  fiscal year 2000 BSF  purchased,  developed  and began selling lots in a
27-lot  subdivision.  During fiscal year 2001 BSF purchased  over 250 acres that
will be developed and sold for commercial  and  residential  use.  During fiscal
year 2002,  gain on the sale of real  estate for  development  totaled  $78,000,
compared to $98,000 the year ended June 30, 2001.

     Non-interest  Expense.  Non-interest expense increased by $123,000 or 5.4%,
to $2,384,000  for the year ended June 30, 2002,  compared to $2,261,000 for the
year ended June 30, 2001.  This  increase is the result of expense  increases in
several operating  categories.  Salaries and employee benefits increased $99,000
or 8.9% due to higher group insurance  premiums,  and wage increases  during the
year. Legal and  professional  fees increased $4,000 or 2.1% to $189,000 for the
year ended June 30, 2002, compared to $185,000 for the year ended June 30, 2001.
Computer  processing  fees  increased  $22,000 or 9.7% to $247,000  for the year
ended June 30, 2002,  compared to $225,000 for the year ended June 30, 2001. The
overall  increase in non-interest  expense was partially  offset by a $12,000 or
11.0% decrease in equipment expense to $97,000 for the year ended June 30, 2002,
compared to $109,000 for the prior year ended June 30, 2001.

     Income Tax Expense.  Income tax expense  increased  $11,000 to $148,000 for
the year ended June 30,  2002,  compared to $137,000 for the year ended June 30,
2001.  The increase was due to an increase in income  before taxes of $49,000 or
8.2% to $648,000 for the year ended June 30, 2002,  compared to $599,000 for the
prior  year  ended  June 30,  2001.  Income  tax  credits  related to the Bank's
investment in low-income  housing  reduced  income tax expense by  approximately
$107,000 in both fiscal years 2002 and 2001. The effective  combined federal and
state income tax rate was 22.8% for the years ended June 30, 2002 and 2001.


Off-Balance Sheet Arrangements

     As of the  date of this  Annual  Report,  the  Company  does  not  have any
off-balance  sheet  arrangements  that have or are  reasonably  likely to have a
current  or  future  effect  on the  Company's  financial  condition,  change in
financial  condition,  revenues or expenses,  results of operations,  liquidity,
capital  expenditures or capital  resources that are material to investors.  The
term "off-balance sheet arrangement" generally means any transaction, agreement,
or other  contractual  arrangement  to which an entity  unconsolidated  with the
Company is a party under which the Company has (i) any obligation  arising under
a guarantee  contract,  derivative  instrument or variable  interest;  or (ii) a
retained or contingent  interest in assets transferred to such entity or similar
arrangement  that serves as credit,  liquidity  or market risk  support for such
assets.


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 non-interest 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.


Impact of Accounting Changes

     In May 2003,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 150,  Accounting for
Certain  Financial  Instruments  with  Characteristics  of both  Liabilities and
Equity. SFAS 150 establishes standards for classification and measurement in the
statement  of  financial   position  of  certain   financial   instruments  with
characteristics  of both liabilities and equity. The Company has determined that
it has no such instruments.

     In April 2003, the FASB issued SFAS No. 149,  Amendment of Statement 133 on
Derivative   Instruments  and  Hedging  Activities.   This  statement  clarifies
reporting of contracts as either derivatives or hybrid instruments.  The Company
has determined that it has no such instruments.

     In December 2002, the FASB issued SFAS No. 148,  Accounting for Stock-based
Compensation - Transition and Disclosure, which provides guidance for transition
from the intrinsic value method of accounting for stock-based compensation under
Accounting  Principles Board ("APB") Opinion No. 25 to SFAS No. 123's fair value
method of accounting,  if a company so elects.  The Company  applies APB Opinion
No. 25 and related  Interpretations  in  accounting  for the stock  option plan.
Accordingly,  no compensation costs have been recognized, as all options granted
had an exercise price equal to the market value of the  underlying  common stock
on the date of grant. Had compensation  cost for the Company's stock option plan
been  recorded  based on the fair value at the grant dates for awards  under the
plan consistent  with the method  prescribed by SFAS No. 123, net income and net
income per share would have been adjusted to reflect the additional compensation
expense.

     In  November  2002,  FASB  Interpretation  No. 45 ("FIN  45"),  Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness of Others was issued. FIN 45 requires the disclosures
to be made by a guarantor  in its  financial  statements  about its  obligations
under certain  guarantees that it has issued. It also clarifies that a guarantor
is required to recognize,  at the inception of a guarantee,  a liability for the
fair value of the  obligation  undertaken  in issuing  the  guarantee.  The most
significant FIN45 instruments of the Company are standby letters of credit.  The
Company has determined that its standby letters of credit  obligations under FIN
45 are not material for disclosure.
<PAGE>

Item 7. Financial Statements.
-----------------------------

     The Holding Company's Consolidated Financial Statements and Notes as listed
under Item 13, appear in a separate section of this Annual Report on Form 10-KSB
beginning on page F-1.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------
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.

     Management  seeks to control the Bank's  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.  Management has adopted formal policies
and practices to monitor and manage interest rate risk exposure. As part of this
effort,  management  uses the net portfolio  value ("NPV")  methodology to gauge
interest rate risk  exposure.  Management  monitors  interest rate risk exposure
with  quarterly  Interest Rate Risk Exposure  Reports  produced by the Office of
Thrift  Supervision,  which are based on data submitted with Schedule CMR of the
Bank's quarterly Thrift Financial Report.

     Generally,  NPV 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 this methodology  attempts to quantify  interest rate risk as the
change in the NPV which would result from theoretical changes in market interest
rates.

     Due to the  abnormally low prevailing  interest rate  environment,  the NPV
estimates  are  currently  limited to those for interest  rate  increases of 300
basis points (1 basis point equals .01) or less and an interest rate decrease of
100 basis points.

     At June 30, 2003, it was estimated  that the Bank's NPV would decrease 1.9%
and 12.2% in the event of 100 and 300 basis point  increases in market  interest
rates  respectively.  It was  estimated  that the same 100 and 300  basis  point
increases in market  interest  rates would have caused NPV to decrease 10.2% and
36.5%  respectively  at June 30,  2002.  The Bank's  NPV at June 30,  2003 would
increase 2.3% in the event of a 100 basis point decrease in market rates. A year
earlier,  a 100 basis point  decrease in market rates would have  increased  NPV
7.7%.

     Presented below, as of June 30, 2003 and 2002, is an analysis of the Bank's
interest rate risk as measured by changes in NPV for instantaneous and sustained
shifts in market interest rates.

                                 June 30, 2003
                    Net Portfolio Value Summary Performance

                                                            NPV as % of
                                                         Present Value (PV)
                          Net Portfolio Value                 of Assets
         Change     ---------------------------------    --------------------
        In Rates    $ Amount    $ Change     % Change    NPV Ratio    Change
        --------    --------    --------     --------    ---------   --------
                   (Dollars in thousands)

        +300 bp*     $8,470     $(1,181)     (12.24)%      13.48%    (114) bp
        +100 bp       9,467        (184)      (1.91)       14.53       (9) bp
           0 bp       9,651           0        0.00        14.62       --
        -100 bp       9,872         221        2.29        14.75       13  bp

         Interest Rate Risk Measures: 200 Basis Point Rate Shock
        Pre-Shock NPV Ratio:  NPV as % of PV of Assets  ...  14.62%
        Exposure Measure:  Post-Shock NPV Ratio ...........  14.25%
        Sensitivity Measure:  Change in NPV Ratio .........   37 bp
<PAGE>
                                 June 30, 2002
                    Net Portfolio Value Summary Performance

                                                            NPV as % of
                                                         Present Value (PV)
                          Net Portfolio Value                 of Assets
         Change     ---------------------------------    --------------------
        In Rates    $ Amount    $ Change     % Change    NPV Ratio    Change
        --------    --------    --------     --------    ---------   --------
                   (Dollars in thousands)

        +300 bp*     $4,457     $(2,563)     (36.51)%       7.13%    (329) bp
        +100 bp       6,303        (717)     (10.21)        9.57      (85) bp
           0 bp       7,020           0        0.00        10.42       --
        -100 bp       7,560         540        7.69        11.01       59  bp

         Interest Rate Risk Measures:   200 Basis Point Rate Shock
        Pre-Shock NPV Ratio:  NPV as % of PV of Assets ....  10.42%
        Exposure Measure:  Post-Shock NPV Ratio ...........   8.45%
        Sensitivity Measure:  Change in NPV Ratio .........  197 bp
------------------------
* Basis points.


Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.
---------------------

     There were no such changes or disagreements during the applicable period.


Item 8A.  Controls and Procedures.
----------------------------------

     (a) Evaluation of disclosure  controls and procedures.  The Company's chief
executive   officer  and  chief   financial   officer,   after   evaluating  the
effectiveness of the Company's disclosure controls and procedures (as defined in
Sections  13a-15(e)  and  15d-15(e) of the  Securities  Exchange Act of 1934, as
amended), as of the end of the most recent fiscal quarter covered by this annual
report (the "Evaluation  Date"),  have concluded that as of the Evaluation Date,
the Company's  disclosure controls and procedures were adequate and are designed
to ensure that material  information relating to the Company would be made known
to such officers by others within the Company on a timely basis.

     (b) Changes in internal controls.  There were no significant changes in the
Company's  internal  control over financial  reporting  identified in connection
with the Company's  evaluation  of controls  that occurred  during the Company's
last fiscal quarter that has  materially  affected,  or is reasonably  likely to
materially affect, the Company's internal control over financial reporting.


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
---------------------------------------

     The  information  required  by this  item with  respect  to  directors  and
executive  officers is  incorporated  by  reference  to pages 3 through 5 of the
Holding  Company's Proxy Statement for its 2003 Shareholder  Annual Meeting (the
"2003 Proxy Statement"). Information concerning compliance with Section 16(a) of
the  Exchange  Act is  incorporated  by  reference  to page 9 of the 2003  Proxy
Statement.

     The Company has a separate Audit  Committee  established in accordance with
Section  3(a)(58)(A)  of the  Securities  Exchange Act of 1934.  Its members are
Stephen Parrish, Tad Wilson, and John T. Gillaspy.

     The Board of Directors of the Company has determined  that the Company does
not  have  an  "audit  committee   financial  expert",  as  defined  in  12  CFR
228.401(e)(2),  serving on its Audit  Committee.  The Board has  selected  Audit
Committee members based on the Board's  determination that they are qualified to
oversee the  accounting  and  financial  reporting  processes of the Company and
audits of the Company's financial statements.

     The Company has adopted a code of ethics that applies, among other persons,
to its principal  executive  officer,  principal  financial  officer,  principal
accounting officer or controller,  or persons  performing  similar functions.  A
copy of that Code of Ethics is filed as an exhibit to this Report.
<PAGE>

Item 10.  Executive Compensation.
---------------------------------

     The   information   required  by  this  item  with   respect  to  executive
compensation is incorporated by reference to pages 6 through 7 of the 2003 Proxy
Statement.


Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters.
----------------------------

     The information required by this item is incorporated by reference to pages
1 through 5 of the 2003 Proxy Statement.


Equity Compensation Plan Information

     The following  table provides the information  about the Holding  Company's
common  stock that may be issued upon the  exercise of options and rights  under
all existing equity compensation plans as of June 30, 2003.
<TABLE>
<CAPTION>

                                                                                         Number of securities
                                                                                        remaining available for
                                                                                         future issuance under
                                     Number of securities        Weighted-average         equity compensation
                                  to be issued upon exercise     exercise price of            plans as of
                                   of outstanding options,         outstanding               June 30, 2003
                                  warrants and rights as of      options, warrants       (excluding securities
                                        June 30, 2003               and rights          reflected in column (a))
Plan category                                (a)                        (b)                       (c)
--------------------------------  --------------------------    ------------------    ---------------------------
<S>                                         <C>                        <C>                      <C>
Equity compensation plans
  approved by security holders:
    Home Financial Bancorp
      Stock Option Plan ...........         85,800                     $4.24                    116,568

Equity compensation plans
  not approved by security
  holders .........................             --                        --                         --

Total .............................         85,800                     $4.24                    116,568
</TABLE>


Item 12. Certain Relationships and Related Transactions.
--------------------------------------------------------

     The information  required by this item is incorporated by reference to page
8 of the 2003 Proxy Statement.
<PAGE>

Item 13.  Exhibits and Reports on Form 8-K.
-------------------------------------------

     (a)  Exhibits:

     The Holding Company's financial  statements appear in a separate section of
this Annual Report on Form 10-KSB beginning on the pages referenced below:

          Financial Statements                                       Page No.
          --------------------                                       --------
          Independent Auditor's Report                                   F-1

          Consolidated Balance Sheets at June 30, 2003 and 2002          F-2

          Consolidated Statement of Income for the Years Ended
             June 30, 2003, 2002 and 2001                                F-3

          Consolidated Statement of Stockholder's Equity
             for the Years Ended June 30, 2003, 2002 and 2001            F-4

          Consolidated Statement of Cash Flows for the Years Ended
             June 30, 2003, 2002 and 2001                                F-5

          Notes to Consolidated Financial Statements                     F-6

     The exhibits filed  herewith or  incorporated  by reference  herein are set
forth on the Exhibit Index on page E-1.

     All  schedules  are  omitted  as the  required  information  either  is not
applicable or is included in the  Consolidated  Financial  Statements or related
notes.

     (b) Reports on Form 8-K.

          (1)  The Holding Company filed a Form 8-K dated May 8, 2003,  relating
               to its earnings release for the quarter ended March 31, 2003.

          (2)  The  Holding  Company  filed a Form 8-K dated  August  15,  2003,
               relating to its  earnings  release for the fiscal year ended June
               30, 2003.


Item. 14.  Principal Accountant Fees and Service.
-------------------------------------------------

     The information required by this item is incorporated by reference to pages
8 through 9 of the 2003 Proxy Statement.
<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirement  of  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, as amended, the registrant caused this report to be signed
on behalf of the undersigned, thereto duly authorized.


                                        HOME FINANCIAL BANCORP





Date: September 5, 2003                 By: /s/ Kurt D. Rosenberger
                                            ------------------------------------
                                            Kurt D. Rosenberger, President and
                                            Chief Executive Officer



     In accordance  with the Securities  Exchange Act of 1934, as amended,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

/s/ Kurt D. Rosenberger                                   September 5, 2003
------------------------------------------------
Kurt D. Rosenberger
President, Chief Executive Officer and
Director (Principal Executive Officer)



/s/ Gary M. Monnett                                       September 5, 2003
------------------------------------------------
Gary M. Monnett
Executive Vice President, Chief Financial
Officer and Director (Principal Financial Officer)



/s/ John T. Gillaspy                                      September 5, 2003
------------------------------------------------
John T. Gillaspy, Director



/s/ Stephen Parrish                                       September 5, 2003
------------------------------------------------
Stephen Parrish, Director



/s/ Robert W. Raper                                       September 5, 2003
------------------------------------------------
Robert W. Raper, Vice Chairman



/s/ Frank R. Stewart                                      September 5, 2003
------------------------------------------------
Frank R. Stewart, Chairman



/s/ Tad Wilson                                            September 5, 2003
------------------------------------------------
Tad Wilson, Director
<PAGE>
                             Home Financial Bancorp

            Accountants' Report and Consolidated Financial Statements

                          June 30, 2003, 2002 and 2001
<PAGE>
                         Independent Accountants' Report


Board of Directors
Home Financial Bancorp
Spencer, Indiana


We have audited the accompanying  consolidated  balance sheets of Home Financial
Bancorp as of June 30,  2003 and 2002,  and the  related  statements  of income,
stockholders'  equity and cash  flows for each of the three  years in the period
ended June 30, 2003. These financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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 referred to above present
fairly, in all material  respects,  the consolidated  financial position of Home
Financial  Bancorp  as of  June  30,  2003  and  2002,  and the  results  of its
operations  and its cash flows for each of the three  years in the period  ended
June 30, 2003, in conformity with accounting  principles  generally  accepted in
the United States of America.



BKD, LLP

Indianapolis, Indiana
August 1, 2003
<PAGE>
<TABLE>
<CAPTION>
                             Home Financial Bancorp
                           Consolidated Balance Sheets
                             June 30, 2003 and 2002


Assets

                                                                                 2003                  2002
                                                                         --------------------- ---------------------

<S>                                                                        <C>                   <C>
    Cash                                                                   $        372,753      $        344,170
    Short-term interest-bearing deposits                                          4,239,305             3,256,798
                                                                            ---------------       ---------------
               Total cash and cash equivalents                                    4,612,058             3,600,968
    Investment securities - available for sale                                    2,868,964             4,626,293
    Loans, net of allowance for loan losses of $316,418 and
       $344,110                                                                  48,499,586            52,706,921
    Real estate acquired for development                                            537,654               608,416
    Premises and equipment                                                        2,031,132             1,832,315
    Federal Home Loan Bank of Indianapolis stock                                  1,114,500             1,100,000
    Interest receivable                                                             380,163               423,738
    Other assets                                                                  1,626,551             1,847,725
                                                                            ---------------       ---------------

               Total assets                                                $     61,670,608      $     66,746,376
                                                                            ===============       ===============

Liabilities
    Deposits
        Noninterest-bearing                                                $      2,154,824      $      1,456,601
        Interest-bearing deposits                                                36,383,786            39,999,730
                                                                            ---------------       ---------------
               Total deposits                                                    38,538,610            41,456,331
        Borrowings                                                               16,000,000            18,504,900
        Other liabilities                                                           410,691               403,833
                                                                            ---------------       ---------------
               Total liabilities                                                 54,949,301            60,365,064
                                                                            ---------------       ---------------

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 shares
        Issued and outstanding - 1,356,050 shares                                 3,059,159             3,059,159
    Additional paid-in capital                                                      188,065               158,060
    Retained earnings                                                             3,700,469             3,498,891
    Unearned compensation                                                           (47,407)              (59,665)
    Unearned ESOP shares                                                            (95,784)             (132,795)
    Accumulated other comprehensive loss                                            (83,195)             (142,338)
                                                                            ---------------       ---------------
               Total stockholders' equity                                         6,721,307             6,381,312
                                                                            ---------------       ---------------

               Total liabilities and stockholders' equity                  $     61,670,608      $     66,746,376
                                                                            ===============       ===============
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             Home Financial Bancorp
                        Consolidated Statements of Income
                    Years Ended June 30, 2003, 2002 and 2001


                                                                    2003              2002               2001
                                                              ----------------- ------------------ ------------------
<S>                                                             <C>               <C>                <C>
    Interest Income
        Loans                                                   $   4,785,665     $   5,241,512      $   5,131,709
        Deposits with financial institutions                           66,028            76,525            109,122
        Investment securities                                         202,016           272,030            447,129
        Federal Home Loan Bank stock                                   63,786            72,231             76,150
                                                                 ------------      ------------       ------------
               Total interest and dividend income                   5,117,495         5,662,298          5,764,110
                                                                 ------------      ------------       ------------

    Interest Expense
        Deposits                                                    1,171,178         1,690,468          2,050,056
        Federal Home Loan Bank advances                               867,658           988,754          1,014,160
        Other interest expense                                            269            17,749            145,831
                                                                 ------------      ------------       ------------
               Total interest expense                               2,039,105         2,696,971          3,210,047
                                                                 ------------      ------------       ------------

    Net Interest Income                                             3,078,390         2,965,327          2,554,063
        Provision for loan losses                                     230,000           167,000             60,000
                                                                 ------------      ------------       ------------

    Net Interest Income After Provision for Loan Losses             2,848,390         2,798,327          2,494,063
                                                                 ------------      ------------       ------------

    Other Income
        Service charges on deposit accounts                           218,272           219,281            177,345
        Gain on sale of real estate acquired for
          development                                                  69,737            77,640             98,040
        Net gain (loss) on available-for-sale securities             (178,494)          (46,268)           107,310
        Equity in losses of limited partnership                       (58,239)          (56,000)           (48,000)
        Other income                                                   80,216            39,445             31,178
                                                                 ------------      ------------       ------------
               Total other income                                     131,492           234,098            365,873
                                                                 ------------      ------------       ------------

    Other Expenses
        Salaries and employee benefits                              1,280,515         1,215,728          1,116,354
        Net occupancy expenses                                        155,317           171,022            177,455
        Equipment expenses                                             95,171            96,854            109,304
        Computer processing fees                                      257,943           247,002            224,573
        Printing and office supplies                                   49,954            50,161             55,895
        Legal and professional fees                                   108,101           189,035            185,201
        Director and committee fees                                    51,000            60,650             58,000
        Advertising expense                                            33,361            45,804             56,226
        Other expenses                                                451,428           308,012            278,083
                                                                 ------------      ------------       ------------
               Total other expenses                                 2,482,790         2,384,268          2,261,091
                                                                 ------------      ------------       ------------

    Income Before Income Tax                                          497,092           648,157            598,845
        Income tax expense                                            152,217           147,670            136,549
                                                                 ------------      ------------       ------------

    Net Income                                                  $     344,875     $     500,487      $     462,296
                                                                 ============      ============       ============

    Net Income Per Share - basic and diluted                    $         .27     $         .39      $         .31

See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             Home Financial Bancorp
                 Consolidated Statements of Stockholders' Equity
                    Years Ended June 30, 2003, 2002 and 2001


                                                                                                          Accumulated
                                                                                                             Other
                                                       Additional                              Unearned  Comprehensive
                                   Common Stock         Paid-in      Retained     Unearned       ESOP        Income
                                Shares      Amount      Capital      Earnings   Compensation    Shares       (Loss)        Total
                              ------------------------------------------------------------------------------------------------------


<S>            <C>             <C>         <C>          <C>         <C>           <C>          <C>         <C>           <C>
Balances, July 1, 2000         1,714,800   $3,956,034   $  99,698   $3,828,322    $ (137,381)  $(213,854)  $  (350,345)  $7,182,474
  Comprehensive income
    Net income                                                         462,296                                              462,296
    Other comprehensive
      income, net of tax
      Unrealized gain on
        securities, net of
        reclassification
        adjustment                                                                                             219,069      219,069
                                                                                                                          ---------
  Comprehensive income                                                                                                      681,365
                                                                                                                          ---------
  Cash dividends
    ($.09 per share)                                                  (121,872)                                            (121,872)
  ESOP shares earned                                       17,343                                 41,703                     59,046
  RRP shares earned                                                                   46,670                                 46,670
  Purchase of stock             (355,750)    (889,375)              (1,022,652)                                          (1,912,027)
  Tax benefit on RRP shares                                10,582                                                            10,582
                              ----------    ---------    --------    ---------     ---------    --------    ----------    ---------


Balances, June 30, 2001        1,359,050    3,066,659     127,623    3,146,094       (90,711)   (172,151)     (131,276)   5,946,238
  Comprehensive income
    Net income                                                         500,487                                              500,487
    Other comprehensive
      loss, net of tax
      Unrealized loss on
        securities, net of
        reclassification
        adjustment                                                                                             (11,062)     (11,062)
                                                                                                                          ---------
  Comprehensive income                                                                                                      489,425
                                                                                                                          ---------
  Cash dividends
    ($.12 per share)                                                  (143,448)                                            (143,448)
  ESOP shares earned                                       25,894                                 39,356                     65,250
  RRP shares earned                                                                   31,046                                 31,046
  Purchase of stock               (3,000)      (7,500)                  (4,242)                                             (11,742)
  Tax benefit on RRP shares                                 4,543                                                             4,543
                              ----------    ---------    --------    ---------     ---------    --------    ----------    ---------


Balances, June 30, 2002        1,356,050    3,059,159     158,060    3,498,891       (59,665)   (132,795)     (142,338)   6,381,312
  Comprehensive income
    Net income                                                         344,875                                              344,875
    Other comprehensive
      income, net of tax
      Unrealized gain on
        securities, net of
        reclassification
        adjustment                                                                                              59,143       59,143
                                                                                                                          ---------
  Comprehensive income                                                                                                      404,018
                                                                                                                          ---------
  Cash dividends
    ($.12 per share)                                                  (143,297)                                            (143,297)
  ESOP shares earned                                       30,005                                 37,011                     67,016
  RRP shares earned                                                                   12,258                                 12,258
                              ----------    ---------    --------    ---------     ---------    --------    ----------    ---------


Balances, June 30, 2003        1,356,050   $3,059,159   $ 188,065   $3,700,469    $  (47,407)  $ (95,784)  $   (83,195)  $6,721,307
                              ==========    =========    ========    =========     =========    ========    ==========    =========

See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             Home Financial Bancorp
                      Consolidated Statements of Cash Flows
                    Years Ended June 30, 2003, 2002 and 2001


                                                                    2003              2002               2001
                                                               ---------------- ------------------ ------------------

<S>                                                              <C>              <C>                <C>
    Operating Activities
        Net income                                               $    344,875     $    500,487       $    462,296
        Items not requiring (providing) cash
           Provision for loan losses                                  230,000          167,000             60,000
           Investment securities amortization, net                     52,775           42,927             25,173
           ESOP shares earned                                          67,016           65,250             59,046
           RRP shares earned                                           12,258           31,046             46,670
           Depreciation                                               142,237          141,540            158,369
           Deferred income tax benefit                                     --           11,168                  8
           Gain on sale of real estate acquired for                                    (77,640)
              development                                             (69,737)                            (98,040)
           Gain on sale of foreclosed assets                          (76,382)         (32,142)           (12,979)
           Investment securities (gains) losses                       178,494           46,268           (107,310)
           Losses from limited partnership                             39,512           56,000             48,000
           Net change in interest receivable                           43,575          (46,104)           (40,367)
           Other adjustments                                          666,749         (453,414)            73,955
                                                                  -----------      -----------        -----------
               Net cash provided by operating activities            1,631,372          452,386            674,821
                                                                  -----------      -----------        -----------

    Investing Activities
        Purchases of securities available for sale                 (1,083,361)        (580,640)        (1,781,964)
        Proceeds from sales of securities available for sale               --          214,384          2,718,943
        Proceeds from maturities and paydowns of securities
          available for sale                                        2,707,392        1,779,944          1,072,495
        Net changes in loans                                        2,552,895          598,788         (9,137,989)
        Proceeds from sale of foreclosed assets                     1,006,215          534,506            377,602
        Purchase of premises and equipment                           (341,054)        (114,297)           (97,475)
        Purchase of real estate acquired for development and
          development cost                                            (71,137)        (113,509)          (631,074)
        Proceeds from sale of real estate acquired for                                 219,646
          development                                                 189,187                             218,164
        Purchase of FHLB of Indianapolis stock                        (14,500)              --           (265,000)
                                                                  -----------      -----------        -----------
               Net cash provided by (used in) investing
                  activities                                        4,945,637        2,538,822         (7,526,298)
                                                                  -----------      -----------        -----------

    Financing Activities
        Net change in
           NOW and savings deposits                                   698,223        1,842,373          1,605,006
           Certificates of deposit                                 (3,615,945)      (1,496,601)           964,043
           Short-term borrowings                                       (4,900)      (1,295,138)         1,000,038
        Proceeds from other borrowings                              6,500,000       10,500,000         29,500,000
        Repayment of other borrowings                              (9,000,000)     (12,000,000)       (22,700,000)
        Purchase of stock                                                  --          (11,742)        (1,912,027)
        Dividends paid                                               (143,297)        (143,538)          (106,987)
                                                                  -----------      -----------        -----------
               Net cash provided by (used in) financing
                  activities                                       (5,565,919)      (2,604,646)         8,350,073
                                                                  -----------      -----------        -----------

    Net Change in Cash and Cash Equivalents                         1,011,090          386,562          1,498,596

    Cash and Cash Equivalents, Beginning of Year                    3,600,968        3,214,406          1,715,810
                                                                  -----------      -----------        -----------


    Cash and Cash Equivalents, End of Year                       $  4,612,058     $  3,600,968       $  3,214,406
                                                                  ===========      ===========        ===========

    Additional Cash Flows and Supplementary Information
        Interest paid                                            $  2,069,870     $  2,732,723       $  3,148,243
        Income tax paid                                               143,465          196,120            103,809
        Transfers from loans to foreclosed assets                   1,307,972          892,931            367,305

See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2003, 2002 and 2001
             (Table Dollar Amounts in Thousands, Except Share Data)


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 accounting
     principles generally accepted in the United States of America 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  accounting
     principles  generally  accepted  in the United  States of America  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 savings and loan holding company whose principal  activity
     is the ownership  and  management  of the Bank.  The Bank operates  under a
     federal thrift charter, known as a federal stock savings bank, and provides
     full banking services. As a federally chartered thrift, the Bank is subject
     to regulation by the Office of Thrift  Supervision  and the Federal Deposit
     Insurance Corporation (FDIC).

     The Bank generates  mortgage and consumer loans and receives  deposits from
     customers located primarily in Owen, Putnam 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.

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

     Cash  Equivalents  - The  Company  considers  all liquid  investments  with
     original maturities of three months or less to be cash equivalents.

     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 in accumulated  other
     comprehensive income, net of tax.

     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.

     Loans are carried at the principal amount  outstanding.  A loan is impaired
     when,  based on current  information  or events,  it is  probable  that the
     Company will be unable to collect all amounts due  (principal and interest)
     according  to the  contractual  terms of the loan  agreement.  Loans  whose
     payments have  insignificant  delays not exceeding 90 days  outstanding are
     not  considered   impaired.   The  Company   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.  Loan losses are charged  against the allowance when  management
     believes the  uncollectibility  of a loan balance is confirmed.  Subsequent
     recoveries, if any, are credited to the allowance.

     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,  2003,  the  allowance  for loan  losses is  adequate  based on
     information currently available. A worsening or protracted economic decline
     in the area within which the Company operates would increase the likelihood
     of  additional  losses due to credit and market  risks and could create the
     need for additional loss reserves.

     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 and losses 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 FHLB 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 - The Company has a stock-based  employee  compensation plan,
     which is  described  more fully in Note 17. The Company  accounts  for this
     plan under the recognition  and  measurement  principles of APB Opinion No.
     25, Accounting for Stock Issued to Employees,  and related interpretations.
     No stock-based  employee  compensation  cost is reflected in net income, as
     all  options  granted  under the plan had an  exercise  price  equal to the
     market value of the  underlying  common stock on the grant date. No options
     were  granted  during the three years in the period ended June 30, 2003 and
     all previously granted shares were fully vested prior to July 1, 2000.

     Income  tax in the  consolidated  statements  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.
     Unearned  Employee  Stock  Ownership  Plan (ESOP) shares have been excluded
     from the  computation of average common shares and potential  common shares
     outstanding.


Note 2: Restriction on Cash and Due From Banks

     The Bank is required to  maintain  reserve  funds in cash and/or on deposit
     with the Federal Reserve Bank. The reserve at June 30, 2003 was $30,000.

<TABLE>
<CAPTION>

Note 3: Investment Securities

                                                                             2003
                                                                    Gross           Gross
                                                  Amortized       Unrealized      Unrealized         Fair
                                                     Cost           Gains           Losses          Value
                                                --------------- --------------- --------------- ---------------
<S>                                               <C>             <C>             <C>             <C>
      Available for sale
          Marketable equity securities            $       343     $       --      $     (210)     $      133
          Mortgage-backed securities                    2,664             72              --           2,736
                                                   ----------      ---------       ---------       ---------

             Total investment securities          $     3,007     $       72      $     (210)     $    2,869
                                                   ==========      =========       =========       =========


                                                                             2002
                                                                    Gross           Gross
                                                  Amortized       Unrealized      Unrealized         Fair
                                                     Cost           Gains           Losses          Value
                                                --------------- --------------- --------------- ---------------

      Available for sale
          Marketable equity securities            $       521     $       --      $     (313)     $      208
          Federal agencies                                500              5              --             505
          Mortgage-backed securities                    3,841             72              --           3,913
                                                   ----------      ---------       ---------       ---------

             Total investment securities          $     4,862     $       77      $     (313)     $    4,626
                                                   ==========      =========       =========       =========
</TABLE>

     Federal agencies outstanding at June 30, 2002 mature in November 2007.

     Securities  with a carrying value of $2,736,000 and $4,418,000 were pledged
     at June 30, 2003 and 2002 to secure FHLB advances.

     Proceeds from sales of  securities  available for sale during 2002 and 2001
     were  $214,000  and  $2,719,000.  Gross  gains of $10,000 in 2002 and gross
     losses of $31,000 and $164,000 in 2002 and 2001 were realized on the sales.
     In addition,  losses of $178,000 and $25,000 were recorded  during 2003 and
     2002 due to the  permanent  decline  in the  value of a  security.  The tax
     expense (benefit) for net gains (losses) on security transactions for 2003,
     2002 and 2001 was $(3,000), $(18,000) and $42,000.


Note 4: Loans and Allowance

                                             2003                2002
                                      ------------------- -------------------

       Real estate mortgage loans
           Residential                  $        23,492     $        26,929
           Mobile home and land                   8,744               7,511
           Nonresidential                         9,060              10,430
           Multi-family                             208                 451
       Mobile home loans                          6,703               5,924
       Commercial and industrial                    340                 629
       Consumer loans                               695               1,695
                                         --------------      --------------
                                                 49,242              53,569
                                         --------------      --------------
       Undisbursed portion of loans                (426)               (518)
       Allowance for loan losses                   (316)               (344)
                                         --------------      --------------
                                                   (742)               (862)
                                         --------------      --------------

              Total loans               $        48,500     $        52,707
                                         ==============      ==============



                                         2003           2002            2001
                                    -------------- -------------- --------------

   Allowance for loan losses
       Balances, July 1             $       344    $       392     $        372
       Provision for loan losses            230            167               60
       Recoveries                            --              4               --
       Loans charged off                   (258)          (219)             (40)
                                     ----------     ----------      -----------

       Balances, June 30            $       316    $       344     $        392
                                     ==========     ==========      ===========



     The following  table sets forth the amounts and categories of the Company's
     non-performing loans at June 30.

                                                       2003            2002
                                                 ---------------  --------------

     Accruing loans delinquent 90 days or more     $         51    $          --
     Non-accruing loans                                     469              639
                                                    -----------     ------------

            Net                                    $        520    $         639
                                                    ===========     ============


Note 5: Premises and Equipment

                                         2003                  2002
                                 --------------------- ---------------------

      Land                         $            348      $            348
      Buildings                               2,037                 2,028
      Construction in progress                  272                    --
      Equipment                                 925                   865
                                    ---------------       ---------------
             Total cost                       3,582                 3,241
      Accumulated depreciation               (1,551)               (1,409)
                                    ---------------       ---------------

             Net                   $          2,031      $          1,832
                                    ===============       ===============

<TABLE>
<CAPTION>
<PAGE>
Note 6: Investment in Limited Partnership

     An investment in a limited partnership of $519,000 and $558,000 at June 30,
     2003 and 2002  included in other assets  represents a 99 percent  equity in
     Cunot Apartments (Cunot) a limited partnership  organized to build, own and
     operate a 24-unit  apartment  complex  for senior  living.  In  addition to
     recording  its equity in the losses of Cunot,  the Company has recorded the
     benefit of low income  housing tax credits of $107,000  for the years ended
     June 30, 2003, 2002 and 2001.  Condensed unaudited financial statements for
     Cunot at June 30, 2003 and 2002 and for the three years in the period ended
     June 30, 2003 are as follows:

                                                                           2003                 2002
                                                                   -------------------------------------------
<S>                                                                  <C>                  <C>
     Condensed balance sheets
         Assets
            Cash                                                     $            120     $             89
            Land and property                                                   1,294                1,342
            Other assets                                                            4                    7
                                                                      ---------------      ---------------

               Total assets                                          $          1,418     $          1,438
                                                                      ===============      ===============

         Liabilities
            Notes payable                                            $            610     $            610
            Other liabilities                                                     289                  254
                                                                      ---------------      ---------------
               Total liabilities                                                  899                  864

         Partners' equity                                                         519                  574
                                                                      ---------------      ---------------

               Total liabilities and partners' equity                $          1,418     $          1,438
                                                                      ===============      ===============


                                                       2003                2002                2001
                                               --------------------------------------------------------------

     Condensed statements of operations
         Total revenue                           $            66     $            60     $            57
         Total expenses                                     (121)               (114)               (104)
                                                  --------------      --------------      --------------

            Net loss                             $           (55)    $           (54)    $           (47)
                                                  ==============      ==============      ==============
</TABLE>



Note 7: Deposits

                                                 2003              2002
                                         ------------------   ----------------

        Noninterest-bearing demand         $       2,155      $          1,457
        Interest-bearing demand                    3,475                 3,424
        Money market deposits                      1,225                 1,241
        Savings                                    4,989                 4,780
        Certificates of $100,000 or more           9,802                12,167
        Other certificates                        16,893                18,387
                                            ------------       ---------------

               Total deposits              $      38,539      $         41,456
                                            ============       ===============


     Certificates maturing in years
       ending June 30:

        2004                               $      12,983
        2005                                       6,410
        2006                                       2,628
        2007                                       1,813
        2008                                       2,861
                                            ------------

                                           $      26,695
<PAGE>

Note 8:  Borrowings

                                                2003                  2002
                                        --------------------- ------------------

     Federal Home Loan Bank advances      $         16,000      $         18,500
     Line of credit                                     --                     5
                                           ---------------       ---------------

            Total                         $         16,000      $         18,505
                                           ===============       ===============


     FHLB advances maturities in years ending June 30:

        2004                                                  $     6,500
        2005                                                        3,000
        2006                                                        2,000
        2007                                                        1,500
        2008                                                        1,500
        2009                                                        1,500
                                                               ----------

                                                              $    16,000


     The Federal  Home Loan Bank  advances  are  secured by  mortgage  loans and
     investment  securities totaling  $35,616,000.  Advances,  at interest rates
     from 2.49 to 5.58 percent,  are subject to restrictions or penalties in the
     event of prepayment.



Note 9: Income Tax

                                            2003          2002         2001
                                        ------------- ------------- -----------

     Income tax expense
         Currently payable
            Federal                     $       120   $        89   $        86
            State                                42            48            51
         Deferred
            Federal                              (8)            7            (3)
            State                                (2)            4             3
                                         ----------    ----------    ----------

             Total income tax expense   $       152   $       148   $       137
                                         ==========    ==========    ==========

<TABLE>
<CAPTION>
                                                                 2003             2002             2001
                                                            ---------------- --------------- -----------------

<S>                                      <C>                  <C>              <C>             <C>
     Reconciliation of federal statutory to actual tax
        expense
         Federal statutory income tax at 34%                  $       169      $       220     $       204
         Effect of state income taxes                                  26               34              36
         Business tax credits                                        (107)            (107)           (107)
         Valuation allowance                                           68               --              --
         Other                                                         (4)               1               4
                                                               ----------       ----------      ----------

            Actual tax expense                                $       152      $       148     $       137
                                                               ==========       ==========      ==========

     Effective tax rate                                             30.6%            22.8%           22.8%
</TABLE>
<TABLE>
<CAPTION>
<PAGE>

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

                                                                                       2003              2002
                                                                                 ------------------------------------
<S>                                                                                <C>              <C>
           Assets
               Allowance for loan losses                                           $         141    $         137
               Deferred compensation                                                          24               19
               Securities available for sale                                                  55               93
               Capital loss in equity securities                                              93               --
               Other                                                                          --               17
                                                                                    ------------     ------------
                  Total assets                                                               313              266
                                                                                    ------------     ------------

           Liabilities
               Depreciation                                                                  (26)             (27)
               State income tax                                                              (15)             (10)
               Loan fees                                                                      (4)              (1)
                                                                                    ------------     ------------
                  Total liabilities                                                          (45)             (38)
                                                                                    ------------     ------------
                  Net deferred tax asset before valuation allowance                          268              228
               Valuation allowance                                                           (68)              --
                                                                                    ------------     ------------

                  Net deferred tax asset                                           $         200    $         228
                                                                                    ============     ============
</TABLE>

     No valuation  allowance  was  necessary  for the three years ended June 30,
     2003.

     Retained  earnings at June 30,  2003,  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 $240,000 at June 30, 2003.


<TABLE>
<CAPTION>
<PAGE>

Note 10: Other Comprehensive Income

                                                                                   2003
                                                                                    Tax          Net-of-Tax
                                                             Before-Tax Amount    Benefit          Amount
                                                             --------------------------------------------------
<S>                                                            <C>              <C>             <C>
      Unrealized losses on securities
          Unrealized holding losses arising during the year    $         (80)   $         32    $        (48)
          Less: reclassification adjustment for losses
            realized in net income                                      (178)             71            (107)
                                                                ------------     -----------     -----------

             Other comprehensive loss                          $          98    $        (39)   $         59
                                                                ============     ===========     ===========


                                                                                   2002
                                                                                    Tax          Net-of-Tax
                                                             Before-Tax Amount    Benefit          Amount
                                                             --------------------------------------------------

      Unrealized losses on securities
          Unrealized holding losses arising during the year    $         (64)   $         25    $        (39)
          Less: reclassification adjustment for losses
            realized in net income                                       (46)             18             (28)
                                                                ------------     -----------     -----------

             Other comprehensive loss                          $         (18)   $          7    $        (11)
                                                                ============     ===========     ===========


                                                                                   2001
                                                                                    Tax          Net-of-Tax
                                                             Before-Tax Amount    Expense          Amount
                                                             --------------------------------------------------

      Unrealized gains on securities
          Unrealized holding gains arising during the year     $         470    $       (186)   $        284
          Less: reclassification adjustment for gains
            realized in net income                                       107             (42)             65
                                                                ------------     -----------     -----------

             Other comprehensive income                        $         363    $       (144)   $        219
                                                                ============     ===========     ===========
</TABLE>


Note 11: 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 Company'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 Company uses
     the  same  credit  policies  in  making  such  commitments  as it does  for
     instruments that are included in the consolidated balance sheets.

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

                                             2003              2002
                                      ------------------ -----------------

      Commitments to extend credit      $       3,763      $      2,268
      Unused lines of credit                      176               453


     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  Company
     evaluates each customer's  credit  worthiness on a case-by-case  basis. The
     amount of  collateral  obtained,  if deemed  necessary  by the Company 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.

     The Company has entered into agreements with two officers which provide for
     salary  continuation for a three-year  period under certain  circumstances,
     primarily  related to change of control of the Company or 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.

     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 or Bank.


Note 12: Stockholders' Equity

     The Company's  Board of Directors  has approved the  repurchase of up to 15
     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.  In  addition,  during  the year  ended  June 30,  2001,  the
     Company's Board of Directors  approved the acquisition of 338,650 shares of
     the  Company's  common  stock  in  an  unsolicited   privately   negotiated
     transaction.



Note 13: 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  retained net profits for the current calendar
     year to date plus those for the previous two  calendar  years.  At June 30,
     2003,  total  stockholder's  equity  of the  Bank was  $6,270,000  of which
     $5,322,000  was  restricted  from  dividend  distribution  to the  Company.
     Although well capitalized, under current regulations in effect, the Bank is
     required to apply to the Office of Thrift  Supervision  to pay dividends to
     the Company.


Note 14: Regulatory Capital

     The Bank is subject to various regulatory capital requirements administered
     by the federal banking agencies and is assigned to a capital category.  The
     assigned  capital  category is largely  determined by three ratios that are
     calculated according to the regulations:  total risk adjusted capital, Tier
     1 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, 2003 and 2002, the Bank was  categorized as well  capitalized  and
     met all subject capital adequacy  requirements.  There are no conditions or
     events since June 30, 2003 that management  believes has changed the Bank's
     classification.
<TABLE>
<CAPTION>
<PAGE>

     The Bank's actual and required capital amounts and ratios are as follows:

                                                                           2003
                                                                         Required              Required
                                                                       for Adequate           To Be Well
                                                   Actual                Capital              Capitalized
                                              Amount      Ratio      Amount     Ratio      Amount      Ratio
                                            ----------- ---------- ----------- --------- ----------- ----------
<S>                                           <C>           <C>      <C>                   <C>       <C>
      Total risk-based capital (to risk
         weighted assets)                     $  5,762      14.3%    $  3,226    8.0%      $ 4,032       10.0%
      Tier I capital (to risk weighted
         assets)                                 5,425      13.5        1,613    4.0         2,419        6.0
      Core capital (to adjusted total
         assets)                                 5,425       9.0        2,420    4.0         3,026        5.0
      Core capital (to adjusted tangible
         assets)                                 5,425       9.0        1,210    2.0           N/A        N/A
      Tangible capital (to adjusted total
         assets)                                 5,425       9.0          908    1.5           N/A        N/A


                                                                           2002
                                                                         Required              Required
                                                                       for Adequate           To Be Well
                                                   Actual                Capital              Capitalized
                                              Amount      Ratio      Amount     Ratio      Amount      Ratio
                                            ----------- ---------- ----------- --------- ----------- ----------

      Total risk-based capital (to risk
         weighted assets)                     $  5,243      12.4%    $  3,396      8.0%    $ 4,245       10.0%
      Tier I capital (to risk weighted
         assets)                                 4,899      11.5        1,698      4.0       2,547        6.0
      Core capital (to adjusted total
         assets)                                 4,899       7.5        2,610      4.0       3,263        5.0
      Core capital (to adjusted tangible
         assets)                                 4,899       7.5        1,305      2.0         N/A        N/A
      Tangible capital (to adjusted total
         assets)                                 4,899       7.5          979      1.5         N/A        N/A
</TABLE>


Note 15: 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.  The  plan  required
     contributions  in the amount of $59,000,  $50,000 and $32,000 for the years
     ended June 30, 2003, 2002 and 2001. The plan provides  pension benefits for
     substantially all of the Bank's employees.

     The  Company  has  a  retirement  savings  Section  401(k)  plan  in  which
     substantially all employees may participate. The Company matches employees'
     contributions  at the rate of 50  percent  of the first 6  percent  of base
     salary contributed by participants.  The Company's expense for the plan was
     $13,000,  $19,000 and $14,000 for the years ended June 30,  2003,  2002 and
     2001.

     The Company has an ESOP covering  substantially  all employees of the Bank.
     The ESOP acquired 161,896 shares of the Company's common stock at $2.50 per
     share with funds  provided  by a loan from the  Company.  Accordingly,  the
     unearned  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 may be distributed to participants or used to repay the loan,
     are treated as compensation expense. Compensation expense is recorded equal
     to the fair  market  value  of the  stock  when  contributions,  which  are
     determined  annually by the Board of Directors of the Bank, are made to the
     ESOP.  The expense under the ESOP was $58,000,  $65,000 and $59,000 for the
     years ended June 30, 2003,  2002 and 2001.  At June 30, 2003 and 2002,  the
     ESOP had 115,950 and 100,676 allocated  shares;  38,779 and 53,583 suspense
     shares; and 7,167 and 7,637 committed-to-be released shares. The fair value
     of the  unearned  ESOP  shares at June 30, 2003 and 2002 was  $200,000  and
     $208,000.

     The Company has a Recognition  and Retention Plan and Trust (RRP).  The RRP
     may acquire up to 80,948 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. As of June 30, 2003,  80,948 shares of common stock have
     been awarded to management. Nonvested shares have been recorded as unearned
     compensation  and shown as a reduction  to  stockholders'  equity.  Expense
     under the RRP was $12,000, $31,000 and $47,000 for the years ended June 30,
     2003, 2002 and 2001.
<PAGE>

Note 16: Related Party Transactions

     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, July 1, 2002                       $            266
               New loans, including renewals                           8
               Payments, etc. Including renewals                    (117)
                                                         ---------------

           Balances, June 30, 2003                      $            157
                                                         ===============


     Deposits  from  related  parties held by the Bank at June 30, 2003 and 2002
     totaled $681,000 and $748,000.


Note 17: Stock Option Plan

     The Company has reserved  202,368  shares of Company stock for the granting
     of options to certain  directors,  officers and other key  employees of the
     Company and its subsidiary.

     Incentive  stock  options  for  110,000  shares of common  stock  have been
     granted  with ten year terms that  expire  October  13, 2007 and a exercise
     price of $4.25 per share. In addition, non-qualified options for 30,000 and
     3,000 shares have been granted with ten year terms that expire  October 14,
     2007 and  August  25,  2008 with an  exercise  price of $4.25 and $4.13 per
     share, respectively.


<TABLE>
<CAPTION>

     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 years ended June 30:

                                                  2003                     2002                      2001
                                                     Weighted-                Weighted-                 Weighted-
                                                      Average                  Average                   Average
                Options                   Shares   Exercise Price  Shares   Exercise Price  Shares   Exercise Price
---------------------------------------------------------------------------------------------------------------------
<S>                                        <C>       <C>            <C>       <C>            <C>       <C>
           Outstanding, beginning of
              year                         115,800   $      4.24    115,800   $      4.24    115,800   $      4.24
           Granted                              --                       --                       --
           Exercised                            --                       --                       --
           Forfeited                       (30,000)                      --                       --
                                           -------                  -------                  -------


           Outstanding and
              exercisable,
              end of year                   85,800          4.24    115,800          4.24    115,800          4.24
                                           =======                  =======                  =======
</TABLE>


     As of June 30, 2003,  82,800 options  outstanding have an exercise price of
     $4.25 and a remaining  contractual  life of four years,  and 3,000  options
     outstanding  have an exercise  prices of $4.13 and a remaining  contractual
     life of five years.  There were 116,568  shares  available for the grant at
     June 30, 2003.

<TABLE>
<CAPTION>
<PAGE>

Note 18: Earnings Per Share

     Earnings per share were computed as follows:

                                                                                2003
                                                                                                  Per-
                                                              Net        Weighted- Average       Share
                                                             Income           Shares             Amount
                                                        ------------------------------------------------------
<S>                                                       <C>                  <C>           <C>
     Basic Earnings Per Share
         Income available to common stockholders          $        345         1,292,421     $        .27

     Effect of Dilutive Stock Options                               --             7,301
                                                           -----------     -------------

     Diluted Earnings Per Share
         Income available to common stockholders and
           assumed conversions                            $        345         1,299,722     $        .27
                                                           ===========     =============      ===========


                                                                                2002
                                                                                                  Per-
                                                              Net        Weighted- Average       Share
                                                             Income           Shares             Amount
                                                        ------------------------------------------------------

     Basic Earnings Per Share
         Income available to common stockholders          $        500         1,269,892     $        .39

     Effect of Dilutive Stock Options                               --             2,082
                                                           -----------     -------------

     Diluted Earnings Per Share
         Income available to common stockholders and
           assumed conversions                            $        500         1,271,974     $        .39
                                                           ===========     =============      ===========


                                                                                2001
                                                                                                  Per-
                                                              Net        Weighted- Average       Share
                                                             Income           Shares             Amount
                                                        ------------------------------------------------------

     Basic Earnings Per Share
         Income available to common stockholders          $        462         1,473,810     $        .31

     Effect of Dilutive Stock Options                               --             4,109
                                                           -----------     -------------

     Diluted Earnings Per Share
         Income available to common stockholders and
           assumed conversions                            $        462         1,477,919     $        .31
                                                           ===========     =============      ===========
</TABLE>


Note 19: Fair Values of Financial Instruments

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

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

     Securities  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 is 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.

     Other  Borrowings - The fair value of other borrowings is 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>

     The estimated  fair values of the Company's  financial  instruments  are as
     follows:

                                                                 2003                             2002
                                                      Carrying           Fair           Carrying          Fair
                                                       Amount            Value           Amount          Value
                                                   ---------------- ---------------- --------------- ---------------
<S>                                                  <C>              <C>              <C>             <C>
           Assets
               Cash and cash equivalents             $      4,612     $    4,612       $     3,601     $    3,601
               Securities available for sale                2,869          2,869             4,626          4,626
               Loans, net                                  48,500         52,766            52,707         53,542
               Stock in FHLB                                1,115          1,115             1,100          1,100
               Interest receivable                            380            380               424            424

           Liabilities
               Deposits                                    38,539         39,322            41,456         40,975
               Borrowings                                  16,000         16,716            18,505         18,945

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

<TABLE>
<CAPTION>

Note 20: Condensed Financial Information (Parent Company Only)

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

                            Condensed Balance Sheets

                                                                    2003               2002
                                                             ---------------------------------------
<S>                                                            <C>                <C>
           Assets
               Cash and cash equivalents                       $           94     $          188
               Securities available for sale                              133                208
               Premises and equipment                                      --                  4
               Investment in subsidiary                                 6,270              5,833
               Other assets                                               352                265
                                                                -------------      -------------

                  Total assets                                 $        6,849     $        6,498
                                                                =============      =============

           Liabilities                                         $          128     $          117

           Stockholders' Equity                                         6,721              6,381
                                                                -------------      -------------

                  Total liabilities and stockholders' equity   $        6,849     $        6,498
                                                                =============      =============
</TABLE>
<TABLE>
<CAPTION>
<PAGE>

                         Condensed Statements of Income

                                                                     2003             2002              2001
                                                              ------------------------------------------------------
<S>                                                             <C>               <C>              <C>
           Income
               Interest income                                  $          16     $          21    $          34
               Dividends from bank                                        146                75            2,013
               Net realized gains (losses) on available for
                 sale securities                                         (178)              (46)             115
                                                                 ------------      ------------     ------------
                  Total income                                            (16)               50            2,162
                                                                 ------------      ------------     ------------

           Expenses
               Salaries and employee benefits                              70                44               33
               Legal and professional fees                                  3                60               63
               Other expenses                                              37                27               91
                                                                 ------------      ------------     ------------
                  Total expenses                                          110               131              187
                                                                 ------------      ------------     ------------

           Income (loss) before income tax benefit and
              equity in undistributed income of subsidiary               (126)              (81)           1,975
           Income tax benefit                                              43                61               11
                                                                 ------------      ------------     ------------

           Income (loss) before equity in undistributed
              income of subsidiary                                        (83)              (20)           1,986
           Equity in undistributed (distribution in excess
              of) income of subsidiary                                    428               520           (1,524)
                                                                 ------------      ------------     ------------

           Net Income                                           $         345     $         500    $         462
                                                                 ============      ============     ============


                       Condensed Statements of Cash Flows

                                                                       2003             2002            2001
                                                                 ---------------------------------------------------

           Operating Activities
               Net income                                          $        345     $        500    $         462
               Items not requiring (providing) cash                        (296)            (383)           1,463
                                                                    -----------      -----------     ------------
                  Net cash provided by operating activities                  49              117            1,925
                                                                    -----------      -----------     ------------

           Investing Activities
               Purchases of securities available for sale                    --              (81)          (1,669)
               Proceeds from sales of securities available for
                 sale                                                        --              214            1,801
                                                                    -----------      -----------     ------------
                  Net cash provided by investing activities                  --              133              132
                                                                    -----------      -----------     ------------

           Financing Activities
               Dividends paid                                              (143)            (144)            (107)
               Purchase of stock                                             --              (12)          (1,912)
                                                                    -----------      -----------     ------------
                  Net cash used in financing activities                    (143)            (156)          (2,019)
                                                                    -----------      -----------     ------------

           Net Change in Cash and Cash Equivalents                          (94)              94               38

           Cash and Cash Equivalents at Beginning of Year                   188               94               56
                                                                    -----------      -----------     ------------

           Cash and Cash Equivalents at End of Year                $         94     $        188    $          94
                                                                    ===========      ===========     ============
</TABLE>
<PAGE>

                                 EXHIBIT INDEX


Exhibit Index*
--------------

     3(1)      The Articles of  Incorporation  of the issuer are incorporated by
               reference to Exhibit 3(1) to the  Registration  Statement on Form
               S-1 (Registration No. 333-1746).

     3(2)      The Code of By-Laws of the issuer are  incorporated  by reference
               to Exhibit  3(2) to the Report on Form 10-Q for the period  ended
               March 31, 1997.

    10(1)      Exempt Loan and Share Purchase  Agreement  between ESOP Trust and
               Home Financial  Bancorp is  incorporated  by reference to Exhibit
               10(1) to the  Report on Form 10-K for the  period  ended June 30,
               1996.

    10(2)      Share  Pledge  Agreement  between  ESOP Trust and Home  Financial
               Bancorp is  incorporated  by  reference  to Exhibit  10(2) to the
               Report on Form 10-K for the period ended June 30, 1996.

    10(3)      Employment  Agreement  between Owen Community Bank, s.b. and Kurt
               D.  Rosenberger  dated  July 1,  1999;  Amendment  thereto  dated
               December 17, 2002.

    10(4)      Employment  Agreement  between Owen Community Bank, s.b. and Gary
               M. Monnett dated December 17, 2002.

    10(5)      Employment  Contract  between Owen Community Bank, s.b. and Frank
               R. Stewart dated July 1, 1999.

    10(6)      Home  Financial  Bancorp  Stock  Option Plan is  incorporated  by
               reference  to  Exhibit  10(6) to the  Companys  Form 10-Q for the
               Period Ended September 30, 1997.

    10(7)      Owen  Community  Bank,  s.b.  Recognition  and Retention  Plan is
               incorporated by reference to Exhibit B to the Proxy Statement for
               the Annual Meeting of Shareholders held January 8, 1997.

    14         Code of Ethics

    21         Subsidiaries  of the  issuer are  incorporated  by  reference  to
               Exhibit   21  to  the   Registration   Statement   on  Form   S-1
               (Registration No. 333-1746).

    23         Consent of Independent Auditor

    31(1)      Certification required by 17 C.F.R. 240.13a-14(a).

    31(2)      Certification required by 17 C.F.R. 240.13a-14(a).

    32         Certification  pursuant to 18 U.S.C. 1350, as adopted pursuant to
               Section 906 of the Sarbanes-Oxley Act of 2002.

* Management  contracts and plans  required to be filed as exhibits are included
as Exhibits 10(1) - 10(7).